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Document of The World Bank FOR OFFICIAL USE ONLY Report No\. 15726 IMPLEMENTATION COMPLETION REPORT UGANDA PROGRAM FOR ALLEVIATION OF POVERTY AND SOCIAL COSTS OF ADJUSTMENT PROJECT (C-2088) June 7, 1996 Population and Human Resources Division Eastern Africa Department Africa Region This document has a restricted distribution and may be used by recipients only in the performance of their official duties\. Its contents may not otherwise be disclosed without World Bank authori- tion\. UGANDA PAPSCA Project CURRENCY EQUIVALENTS At the time of appraisal USh 150 = US$ 1\.00 USh 1= US$ 0\.0066 At the time of project completion mission USh 930 = US$ 1\.00 USh 1 = US$ 0\.0010 WEIGHTS AND MEASURES Metric System FISCAL YEAR OF BORROWER July 1 - June 30 ABBREVIATIONS AND ACRONYMS CTB - Central Tender Board DCA - Development Credit Agreement DEO - District Education Officer ICB - International Competitive Bidding ICR - Implementation Completion Report MoES - Ministry of Education and Sports MoFEP - Ministry of Finance and Economic Planning NGO - Non-Governmental Organization ODA - Overseas Development Association PlU - Project Implementation Unit SDA - Social Dimensions of Adjustment SIDA - Swedish International Development Agency SAR - Staff Appraisal Report PAPSCA- Program for alleviation of Poverty and Social Costs Adjustment USAID - United States Agency for International Development VAP - Veterans' Assistance Program FOR OFFICIAL USE ONLY Table of Contents Page Preface \.i PART I: Evaluation Summary Project Description and Objectives\. i Achievement of Objectives\. i Implementation Experience and Results\. i F u tu re O p eration s \. ii K ey L e sso n s\. ii Part [: Project Implementation Assessment\. B ack g rou nd\. P roject O bjectiv es\. Achievement of Objectives\. 3 M ajor Factors Affecting the Project\.4 B ank P erform an ce \. 6 Su stain ab ility\. 8 Assessment of Outcome \. 8 F u tu re O p eration \. 9 Key Lessons Learned \. 9 Part III: Tables Table 1: Summary of Assessments Table 2: Related Bank Credit Table 3: Project Timetable Table 4: Credit Disbursements, Estimate and Actual Table\. 5: Detailed Sar Estimates and actual Costs Table 6: Key Implementation Indicators Table 7: Studies Conducted Under the SDA Component Table 8: Status of Legal Covenants Table 9: Bank Resources: Staff Input Table 10: Compliance with Operational Manual Statements Appendices Appendix A: Project Completion Mission Aide-Memoire Appendix B: Borrower's Comments on ICR Appendix C: Borrower's Evaluation This documen9 has a restricted distribution and may be used by recipients only in the performance of their oflicial duties\. its contents may not otherwise be disclosed wiLhout World Bank authorization\. PREFACE This is the Implementation Completion Report (ICR) for the Program for Alleviation of Poverty and Social Costs of Adjustment Project in Uganda\. The credit for an amount of SDR 22\.0 million (US $ 28 million at the prevailing exchange rate), was approved on February 2, 1990, and made effective on June 29, 1990\. It closed on September 30, 1995; the original closing date being September 30, 1994\. The credit is 99\.7% disbursed, with a remaining balance of about US $ 95,000 which will be canceled\. The actual amount of disbursement increased by US $ 3 million to US $ 31 million because of the favorable exchange rate fluctuation between SDR and US Dollars\. The ICR was prepared by Gita Gopal from the Population and Human Resources Division (Eastern Africa Department) of the Africa region and reviewed by Messrs\. Jacob van Lutsenburg Maas (Division Chief) and Surendra Agarwal (Projects Advisor)\. The borrower contributed to the preparation of this ICR by rendering professional assistance to the ICR Mission\. The main text of the aide-memoire of the Project Completion Mission is included in Appendix A\. The Borrower's comments of May 31, 1996 has been incorporated as Appendix B\. The Borrower has prepared its own ICR, the Executive Summary of which is included as Appendix C\. Preparation of this ICR began in November 1994, during the Bank's final supervision mission and the ICR mission which took place in October 1995, comprising of Gita Gopal (Task Manger), Mr\. Pat Walker, (Implementation Specialist and former Task Manager), Colin Lyle (Accounting and Auditing Specialist), Harriet Nannyonjo (Operations Officer), and Paul Ter Weijde (Development Economist)\. A beneficiary assessment, supported by Africa Region's Systematic Client Consultation Fund was also undertaken, results from which have been fed into the preparation of the ICR\. The report is based on the mission's observations from the field trips, discussions with staff of the Project Monitoring and Coordination Unit, the Project Implementing Agencies, Non- governmental Organizations, other donors and, also with beneficiaries and local government officials\. Evaluation Summary Page i of ii PART I: EVALUATION SUMMARY 1\. Project Description and Objectives\. The Program for Alleviation of Poverty and Social Costs of Adjustment was a US $ 106 million program developed to respond to the concerns expressed at the 1988 Consultative Group meeting about the need to address the social costs of economic adjustment\. The Bank-financed project (the Project) by the same name was a small part (US $ 37 million) of this large Program\. The Project initially consisted of seven of the Program components selected in line with planned and ongoing Bank assistance to tganda\. Five more components were added when SIDA financing of US $ 3\.1 million was obtained in 1991\. No other part of the Program was financed and, after the initial years the Program and the Project became synonymous\. The Project had objectives identical to that of the Program: to address some of the urgent social concerns of Uganda's most vulnerable groups through collaborative and integrated development interventions between communities, NGOs and the Government\. In the medium term, the Project aimed to strengthen the institutional capacity of the Government to identify and implement interventions for assisting vulnerable groups\. To this end, the Project's components ranged from infrastructure rehabilitation to development of social policies\. 2\. Achievement of Objectives\. Given that the Project consists of fairly different and independent tasks, it is difficult to evaluate the Project achievements as a whole\. When the Project is disaggregated and evaluated on a component basis, based on indicators developed from the SAR, four components constituting US $ 13\.35 million or 37\.5 percent of the Project costs have substantially achieved their objectives\. One Bank-financed component, comprising US $ 12\.65 million or almost 35 percent of the total Project costs, has only partially achieved component objectives\. Two Bank-financed components constituting US $ 6\.56 million (17\.6% of the total Project costs) have only negligibly achieved Project objectives\. The five SIDA-financed components (US $ 3\.1 million) have together only partially achieved their objectives\. It is therefore concluded that the overall outcome of the Project is marginally satisfactory\. 3\. Implementation Experience and Results\. A small PAPSCA Coordination and Monitoring Unit (PCMU) was established by the Project to carry out overall planning, intersectoral coordination and monitoring and evaluation of all Program components\. The PCMU was not operational until almost six months after credit effectiveness, and initial implementation problems were exarcebated and delays accumulated\. The Program managers who were appointed were unfamiliar with Project-related Bank policies and procedures\. The Steering Committee, which was to guide Program implementation met twice during the Project term\. During first two years, task management at the Bank changed six times and supervision assistance was, therefore, not stable or continuous during this period\. The lack of a consolidated financial system effectively obscured accountability, and the lack of a monitoring system resulted in failure to identify and correct problems in a timely fashion\. Together, the Project remains incomplete (despite credit extension by a year) and it encountered cost over-runs, even though the credit is almost fully disbursed\. Evaluation Summary Page ii of ii 4\. Despite the above limitations in Project management, since the Project was implemented by 7 different NGOs and 3 Project Implementation Units (PIUs), implementation at the grassroots level was by and large satisfactory\. Significant community participation and contribution was generated, increasing ownership and commitment to activities at the community level\. In addition, there has been considerable institutional strengthening of government agencies, NGOs, and community level groups to plan, implement, and operate development interventions\. However, cumbersome procurement and disbursement procedures leading to untimely delivery of goods and replenishment of funds, and lack of support and assistance during implementation especially in the initial years, made implementation difficult\. 5\. Future Operations\. All implementing agencies have agreed with the Government about the future operation of their components\. In some cases, implementing agencies have obtained resources to continue some of the more successful development interventions\. In order to facilitate continued operations, the Government has permitted the implementing agencies to retain vehicles and equipment purchased under the credit\. 6\. Key Lessons\. The Project experience supports the view that involving beneficiaries and NGOs in project implementation can result in greater sustainability\. The Project demonstrates that even economically and socially vulnerable beneficiaries can participate in developmental activities and, at least in the short term, this increases their commitment to and ownership of project activities\. It also leads to a strengthening of the capacity at the grassroots to organize and initiate activities beneficial to the community as a whole\. The involvement of NGOs has also been salutary, and in some cases, NGOs are continuing to support communities to sustain and follow-up activities\. 7\. The Project, however, clearly indicates the importance of rigorous upfront project preparation\. It supports the early preparation of a project implementation plan and schedule with detailed implementation guidelines establishing transparent administrative and financial responsibilities\. The development of performance and physical monitoring indicators is necessary for effective monitoring and evaluation\. The Project also highlights the need for an effective project implementation workshop that brings together all implementing partners and stakeholders, familiarizes key staff to Bank procedures, and assists in the finalization of the implementation plan\. Project staff should also be familiarized will key provisions in the DCA and particularly with the schedules to the DCA\. This Project also supports the need for using flexible procurement arrangements in community-based projects, particularly when end-users contribute to the Project costs and have a stake in the successful outcome of the proposed activity\. If centralized procurement is necessary, then procurement should be undertaken well in advance to assure supply of goods when communities are ready to participate\. Costs of transport and storage must also be estimated and budgeted for, and accountability mechanisms must be incorporated\. Implementation Completion Report Page 1 of 10 PART II: PROJECT IMPLEMENTATION ASSESSMENT 1\. Background\. In 1988, the Consultative Group (CG) highlighted the need to address the social costs of adjustment resulting from the stringent Economic Recovery Program that was then being undertaken in Uganda\. A Task Force, headed by the Ministry of Planning and Economic Development with representatives from various Ministries, the World Bank, UNICEF, USAID, NGOs and Makerere University, was assigned the task of formulating the initiative and defining target groups\. The Program for Alleviation of Poverty and Social Costs of Adjustment Project (the Program) was the product of the Task Force's work and deliberations\. The Program consisted of nineteen components and was designed to benefit the most vulnerable groups in Uganda including women, orphans, disabled people, and victims of AIDS at a total estimated cost of US $ 106 million\. In order to ensure ease of implementation, the components were to be administered by either "existing and proven project implementation units, or by NGOs who have a demonstrated capability for reaching the poor\." 2\. The Bank-financed Project assisted implementation of about 30% of the total Program\. The Project initially financed six of the nineteen Program components in line with ongoing and planned IDA assistance, and sought to assist vulnerable groups\. The Project was to be completed at a cost of US $ 37 million\. IDA contribution amounted to US $ 28 million\. Community contribution was estimated at 10% of the total Project costs at US $ 3\.7 million\.' In October 1991, the Swedish International Development Agency (SIDA) provided about US $ 3 million to finance five more components\. 3\. The Project also funded a PAPSCA Coordination and Monitoring Unit (PCMU) to carry out overall planning, intersectoral coordination and monitoring and evaluation of Program components\. The PCMU was to have two key staff\. A Program Coordinator would monitor the Program, produce periodic reports on the Project for submission to IDA, and manage the Special Account\. A Program Officer would "focus on the financial aspects of the Program and collect data from the different implementing agencies\." 4\. Project Objectives\. The Project's main objectives was to address some of the urgent social concerns of Uganda's most vulnerable groups through collaborative and integrated development interventions between communities, NGOs and the Government\. In the medium term, the Project aimed at strengthening the institutional capacity of the Government to identify, formulate and maintain interventions for assisting vulnerable groups\. Within these objectives, each Project component had different objectives and these are provided below: The figures cited in this report are based on Bank disbursement summaries and the 1994 audited Project accounts\. Implementation Completion Report Page 2 of 10 * Primary Education Rehabilitation: to improve the quality of primary education in 12 of the poorer districts by rehabilitating primary school classroom facilities (US $ 12\.65 million - 35% of the total Project costs); * Social Dimensions of Adjustment (SDA): to create the basis for the refined targeting of vulnerable groups, and for the development of a comprehensive social policy consistent with efficient growth-oriented strategies (US $ 5\.06 million - 13\.6%)\. * Orphans in Rakai, Masaka and Gulu: to finance scholarships and limited rehabilitation of six vocational/rural training centers which would train 4,500 orphans in appropriate skills; and to establish a community-based health care program (US $ 4\.95 - 13%); * Small Scale Infrastructure Rehabilitation: to improve the living standards and working conditions of some of the poorest communities by providing additional resources for the rehabilitation of the necessary infrastructure; (US $ 4\.19 million - 13%); * Low Cost Sanitation Improvement: to improve the access of the urban residents living in hazardous environmental conditions to adequate water supply and sanitation facilities (US $ 2\.88 million - 8%); * War Widows Rehabilitation Project: to establish a community-based health care program to enable provision of basic health care, and to teach widows trade skills (US $ 1\.5 million - 4%); and * Masindi Primary Health Care: to test a community based health care scheme as a means of providing basic health care services to poor areas (US $ 1\.33 million - 3\.5 %)2 5\. The objectives of the SIDA-financed components included increasing the income potential of women in agricultural development, improving the functioning of small-scale productive enterprises in four districts through provision of technical assistance and credit; improving the health status of orphans; creating increased job opportunities and to improve water and sanitary facilities in peri-urban areas of Kampala; and improving the status of war widows and orphans in Lira\. In 1992, the Veteran's Assistance Program (VAP) was included as another Project component\. 6\. Project objectives were timely and relevant, but numerous and unprioritized\. Some aimed at quick disbursements and others focused on sustainable development\. Even though the components were relevant to achieving the stated Program objectives, so many different components covering such a wide spectrum of subjects under the same umbrella created excessive complexity\. Some objectives were ambitious given that the components were testing a new integrated and participatory approach to grassroots development involving \. Program administration and contingencies accounted for the rest\. \. Though the Project has closed, VAP is continuing to be administered under agreements signed with DANIDA, SIDA, USAID, ODA, and the Netherlands Government, and hence this component is not evaluated in this ICR\. Implementation Completion Report Page 3 of 10 significant resource mobilization from poor communities\. Also, failure to implement several other key components in the Program diminished the achievement of Project objectives\.4 7\. Achievement of Project Objectives\. Given that the Project consisted of separate and different components, performance indicators have been developed for each component from Project documents (see Table 6)\. Each component was then separately weighted (based on costs) and evaluated to determine the overall achievement of the Project as a whole\. This has resulted in an evaluation that the Project has partially achieved its development objectives and has resulted in a marginally satisfactory outcome\. 8\. The Small Scale Infrastructure Rehabilitation component and the Low-cost Sanitation Component (together constituting another 21% of the total Project costs) have substantially achieved their objectives\. In the former component, a monitoring and evaluation system has also been established within the District Government\. The Orphan's Program constituting 13% of the total Project costs has also satisfactorily achieved its objectives of training poor students and providing health care and counseling orphans\. The Community-based Health Care component (3\.5% of the total Project costs) has substantially achieved its objectives\. 9\. The largest component constituting 35% of the total Project costs - Education Rehabilitation Component has only partially achieved its objectives since 76% of the classrooms are partially incomplete (with the structure and the roofs in place)f\. The Program for Widows, constituting 4% of the total Project costs, was expected to train 25,000 widows and their dependents\. The objectives have been only negligibly achieved with only 3000 widows having been trained, and with almost 53% of the credit having been spent on field and operational expenses and vehicles\. The SDA component, constituting another 13% of the credit, also did not meet its stated objectives\. A household survey has been conducted, and data collected has been used in conjunction with other data to develop and refine some targeting processes\. A number of other studies on different aspects of poverty reduction have also been conducted (Table 7)\. However, there is no evidence of the use of these studies by the Government in determining its policy or in the preparation of other programs, and as the Project closes, there is no evident progress towards the articulation of a social policy\. 10\. The SIDA-financed components, constituting US $ 3\.1 million, have partially achieved their objectives\. While the outcome of the Orphans Program in Rukungiri has 4 For example, the Program saw the Education Rehabilitation Component as consisting of two main sub-components - rehabilitation of classrooms and provision of educational supplies\. While the Project picked up the former, it was expected that other donors would pick up the latter\. This did not materialize, leaving the overall objective of improving educational quality only partially achieved\. \. However, it must be noted that this was designed as a rehabilitation component\. During implementation, it was recognized that there were few or no classrooms to rehabilitate, and that classrooms would need to be constructed\. So the component financed the construction of classrooms, without formally modifying objectives or restructuring the component, ultimately posing a greater administrative challenge and placing a larger financial burden on communities in particular\. Implementation Completion Report Page 4 of 10 been highly satisfactory, the others constituting almost US $ 2\.9 million have only partially achieved their objectives\. Most of the SIDA funds financed credit components, and while the funds were disbursed quickly, as credit activities they were not sustainable\. 11\. Major Factors Affecting the Project\. The Project was implemented during a period when Uganda was recovering from the civil war, and during the aftermath of the collapse of coffee prices in 1987-88\. The continuing insecurity in the northern and eastern districts also affected effective implementation of the Education rehabilitation component in these districts\. Consequently, Government revenues were adversely affected and this in turn, affected the timely provision of Government counterpart funds\. The Government provided no counterpart funds during the first year of Project implementation, and only 5% during the second\. The 1994 audited statements indicate that the counterpart funds provided up to June, 30, 1994 (original closing date), amounted to 46% (US $ 1\.3 million) of the total commitment of US $ 2\.81 million\.6 When Government counterpart funding did not come through as expected, implementing agencies without alternate sources of funds were entirely dependent on IDA credit\. Moreover local costs were higher than estimated during preparation\. 12\. Lack of beneficiary participation in Project design delayed start of implementation\. Failure to conduct promotional activity and lack of information created tensions within the community due to misconceptions and fears\. In one component, 23% of the parishes reported that some community members had migrated due to fear of "being put in cells for failure to contribute\." Some men perceived the focus on women as an interference with their social norms\. Artisans not selected for training felt that they had been disadvantaged by the training of few selected people\. Increased school fees were attributed to training of teachers and better classrooms and, introduction of user charges for water and health services were seen as a further tax on poor communities\. Community contribution, established without any consultation with communities, was burdensome and one of the reasons for the low rate of completion in the Education Rehabilitation component\. In some cases, like in the construction of latrines, the availability of resources to meet the requirement of community contribution was a dominant criterion in the selection of beneficiaries\. Therefore, the poorest were effectively excluded from participation\. Access to common land was difficult, particularly in urban areas\. When communal facilities were constructed on private land, landowners were found to have greater control and powers over the activity, reducing significantly the meaningful participation of others\. 13\. While the Project was to be implemented in a decentralized fashion by NGOs and other PIUs, Project management was in fact highly centralized\. Control and decision making, especially those pertaining to the use of funds, were vested in the PCMU\. Disbursement was centralized, with implementing agencies having no independent access to 6\. However, in 1995, it is estimated that the Government has fully met the deficit and provided US S 1\.8 million\. Implementation Completion Report Page 5 of 10 funds, since the PCMU controlled the Special Account\.7 Construction materials were packaged into larger contracts and procured through International Competitive Bidding, after contracts were approved by the Central Tender Board (CTB) and clearances were obtained from IDA\. In some cases, it took eighteen months after credit effectiveness for communities to receive materials\. When goods and materials did arrive, communities who had been prepared for action, had lost interest and needed to be re-motivated\. This was also another major factor that delayed the implementation of the Education Rehabilitation component\. 14\. In 1991, when SIDA funds became available, five more components were added to the existing seven\. In 1992, since Bank and SIDA-financed components were not disbursing, funds were re-allocated from existing components to finance a new component - Veterans Assistance Program (VAP)\. This complicated Project design even further\. Some implementing agencies were also affected adversely by this reallocation of funds\. However, because of the favorable fluctuation of the SDR, by Project closing all but one of the Bank- financed components obtained funds equal or greater than that initially agreed\. But due to lack of financial information, the final evaluation reports by some implementing agencies attribute the incomplete status of their components to the transfer of funds to VAP\. 15\. The financial accounting system was clearly inadequate\. The PCMU did not maintain consolidated accounts for the Project\. Each implementing agency was expected to maintain its own accounts\. Fourteen separate audit reports and financial statements for the Project were prepared by the auditors\.' This was incompatible with a single special account controlled by the PCMU\. Together, the system effectively obscured accountability, making financial monitoring very difficult, and at present, the Project does not have a consolidated statement of the total Project costs\. 16\. Disregard of disbursement procedures also complicated implementation\. SOEs were submitted for reimbursement based on anticipated rather than real expenditures\.9 Upon replenishment to the Special Account, the PCMU authorized payment to implementing agencies on a first-come first-served basis without adequate reference to the basis on which the funds were replenished\. Thus IDA disbursement summaries do not tally with funds disbursed by the PCMU to different components, and this procedure also introduced subjectivity with some implementing agencies having quicker access to funds\. 17\. The SDA component, consisting of a household survey and a study fund, was ineffectively managed from the start\. A Social Policy Advisor was appointed only a year after credit effectiveness, in May 1991\. He remained in office until September 1991\. It was \. The PIU in the Education Rehabilitation Component had independent access, but such access was not coordinated with the PCMU, with neither knowing always what the other had claimed for under the same component\. 8 Auditors consolidated Project accounts after fiscal year ending June 30, 1993\. \. Initially the Project had 33 disbursement categories, that increased to 38, with the incorporation of VAP\. Implementation Completion Report Page 6 of 10 not until another year later in October 1992, that the next Social Policy Advisor was appointed\. The precise work program for the Study Fund was to be set by the Steering Committee which was also expected to review the results of the studies and the analysis, but such guidance did not materialize after the first two years of Project implementation\. A Policy Study Task Force was appointed which also quickly lost interest given the confusion in the management of the component\. In retrospect, it was perhaps difficult for an independent entity situated outside the line ministries to have any meaningful impact on policy making\. 18\. Bank Performance\. The strategy to involve communities and NGOs seems to have been a least-cost solution for the Government to jump-start the process of community- based development\. Significant support and guidance founded in good analytical work was provided by the Bank in the development of the Program\. However, in designing Project implementation mechanisms, Bank performance was not satisfactory in a key area\. Project designers did not establish the basis for a sound or appropriate Project financial management system\. Even with hindsight, features of the Project design remain unclear\. What was the role of the PCMU? Was it primarily responsible for the Program as a whole of which the Project was expected to be a small part, or was the PCMU primarily responsible for in-depth coordination and management of the Project as a separate part? This lack of clarity complicated Project implementation and evaluation\. Project monitoring and performance indicators were not defined in Project documents until after mid-term review, though this was both an advantage and a disadvantage\. It made Project monitoring and evaluation difficult, but it permitted flexibility to implementing agencies to change course within the general objectives of the component once it was discovered that a particular feature/activity was not working\. 19\. Bank supervision of the Project was deficient during the initial years\. The Bank did not conduct a Project Launch Workshop and procedures and systems were not established up-front\. Task Management changed six times during the first two years after credit effectiveness\. Agreements were signed with implementing agencies during this period, and the framework for implementation was established without any rigorous screening on the part of the Bank or the PCMU\. The Bank also failed to insist on compliance with key legal covenants requiring the Steering Committee and the Health Committee to provide active guidance in Project implementation\. 20\. Bank task management stabilized after the first two years in May 1992\. The need to modify Project design was reviewed but the supervision mission did not recommend modifications because it was feared that any change may retard the improved progress\. During the mid-term review the Bank identified a number of weakness at the management and coordination level\. The Bank highlighted the need to enhance the capacity of the PCMU\. It stressed the need to establish a data base for collection of information necessary for effective targeting and evaluation\. The mid-term aide-memoire threatened to recommend suspension of disbursements if the financial concerns were not addressed\. The Bank indicated that withdrawal applications were not submitted properly (Para 16)\. The Bank also raised concerns about the implementation of the SDA component\. However, the Bank made a judgment not to insist on full correction because any further disruption at the Implementation Completion Report Page 7 of 10 management level would have had an adverse impact on components which were slowly achieving results in the field and in particular, on poor communities who were finally starting to see the benefits of participation\. 22\. Borrower Performance\. PlUs and NGOs demonstrated considerable skills in performing under rather trying socio-economic conditions as well as difficult and taxing Project arrangements\. Except that a rather large percentage of the costs have been spent on NGO's own operational costs, they were successful in mobilizing and counseling deeply disheartened communities\. Poor communities have also demonstrated willingness to participate and share costs, also under very difficult economic conditions, in order to improve their conditions\. 23\. Government commitment to the Project, however, is not clearly evident\. The PCMU should have been fully operational by credit effectiveness, but it was not until four months after credit effectiveness that the Program Coordinator was in place and six months after that the Program Manager was appointed\. A functioning Social Policy Advisor for the SDA component was appointed only in May 1992\. 24\. The PCMU was expected to carry out its coordinating responsibilities through a Steering Committee chaired by the Chief Government Planning Economist\. The PCMU was "accountable" to the Steering Committee which was to meet regularly (initially once a month) to review the progress of the Program and determine the direction of the Social Dimensions of Adjustment component (SDA)\. In addition, a Health Committee was also to be constituted to provide regular guidance to the PCMU and the agencies implementing the Health component\. The Steering Committee met only twice during the life of the Project and the Health Committee was not established\. Project managers and implementers were consequently not provided the guidance or the supervision envisaged in Project documents\. 25\. Supervision aide-memoires after task management stabilized at the Bank have repeatedly highlighted issues including those of financial accountability, the progress of the SDA component, and the weakness in the disbursement procedures\. But there concerns were not addressed by the Borrower with rigor or urgency\. 26\. The PCMU did not track costs incurred by implementing agencies\. Operational costs incurred under the Project were much higher than estimated in the SAR and amounted to almost 45% of the total Project costs, increasing significantly the unit cost of delivery (Table 5C)\. Salaries and incentives paid under the Project were high with some of local staff appointed as international consultants\. The Borrower's evaluation also indicates that local artisans hired in some of the components were paid "allowances" higher than the market rates\. While implementing agencies argue that the operational costs were higher given the nature of the Project and the remote regions in which they had to operate, the lack of a monitoring system has left little or no means of ascertaining the justification for the high operational costs\. In a limited number of cases, it appears that the credit has financed expenditures outside the scope of the component as described in Project documents\. For example, in one component, the credit financed the construction by an implementing agency of its field offices and a health clinic on its private land although this was not within the Implementation Completion Report Page 8 of 10 scope of this component\. o These expenditures were, however, within the scope of the understanding reached between the PCMU and the implementing agency\. 27\. Sustainability\. As the Project was designed, sustainability does not appear to have been a concern, even though it was expected that the significant beneficiary participation and contribution in itself would increase commitment and ownership of activities\. Following mid-term review, sustainabilty was introduced as a specific criterion and the Mission recommended that implementing agencies be given the flexibility to reallocate resources to more sustainable interventions\. This led to the introduction of user-fees in health units and water supply facilities increasing the likelihood of sustainability\. Free provision of goods, equipment, and school fees was replaced or supplemented with financial and technical assistance to establish income-generating activities\. An initial evaluation indicates that some of these activities are likely to be sustainable\. Also, in general, the likelihood of sustainability has increased due to the involvement of NGOs who will continue to support some activities\. Increased capacity building at the grassroots level and the strengthened linkages between beneficiaries, NGOs, and districts has also enhanced sustainability, even in the incomplete Education Rehabilitation component\. 28\. Assessment of Outcome\. Overall, the Project outcome is marginally satisfactory\. Four components, constituting 37\.5% of the total Project costs, have been evaluated to be highly satisfactory or satisfactory\. The Education Rehabilitation Component, constituting another 35% of the total Project costs, has had an unsatisfactory outcome because of the low physical completion rate\. But, even though this component is individually evaluated as having had an unsatisfactory outcome, the fact that it has nevertheless partially achieved its other social and financial objectives, has resulted in the overall assessment of Project outcome as marginally satisfactory\. 29\. In many areas, the general outcome has been satisfactory\. Even in the incomplete component, the Project has succeeded in motivating dispirited communities to participate in grassroots development\. Project activities have generated significant resources from communities, and demonstrated the potential of the Government, NGOs and communities working together towards common development objectives\. The Project has increased the in-country capacity in designing and implementing community-based development interventions\. A skilled pool of staff has been developed within the Government at different levels\. NGOs and other implementing agencies have gained greater understanding of designing and implementing community-based development interventions\. Communities themselves now understand the advantages of organized participation in development interventions, and the potential and benefits of using cost recovery mechanisms, at least to cover operation and maintenance of different facilities\. 30 If it is assumed that the classrooms initiated under the Education Rehabilitation will be completed in the near future (see para 31), then together, the Project would have provided better physical facilities to 171,200 poor students\. Separately, the Project has 10\. The expenditures are reflected under the general category of "Equipment, Vehicles and Tools" (see Audit Reports)\. Implementation Completion Report Page 9 of 10 provided bursaries for 21,218 poor children to attend primary schools, and trained 1,190 orphans, 3,000 widows, and significant numbers of grassroots development workers resulting in increased sensitization and capacity building\. A large number of trainees have been women ensuring the increased capacity building of women\. The construction of 23,266 ventilated improved pits, each for a individual household in Rubaga with additional 202 in schools, and 25 in local markets will provide about 700,000 individuals with access to improved sanitary facilities\. The improved health units along with the enhanced focus on maternal health through training activities has increased awareness on matters related to primary health \. The protection of 94 natural springs, the installation of 106 standpipes and 12 borewells have ensured safer water and healthier conditions to a number of poor households and demonstrably relieved the workload for women\. 31\. Future Operation\. Implementing agencies have reached understanding with the PCMU on the operation of individual components\. In the Small-Scale Rehabilitation Infrastructure Component, the NGO has trained and handed over the management for the activity to the PIU\. A monitoring system has also been developed and will now be used by the District Administration\. In Rubaga, the Kampala City Council has already budgeted funds for expansion of component activities\. In components related to orphans and widows, NGOs have agreed to continue the more successful operations and ensure that through continued support to the families, students who started schooling will complete at least their primary education\. In the case of the community-based health care system, the rehabilitated clinics are under the management of broad community based committees\. In all cases, vehicles and equipment purchased under the credit have been retained by the implementing agencies in order to facilitate their continuation of the activities\. The Education Rehabilitation component is incomplete, but the Government, with assistance from the Bank, is seeking additional resources to finance the completion of all activities initiated under the component\. The Government and the Bank will attempt to finance classroom completion in the northern districts through the Northern Uganda Reconstruction Project, while in other districts the possibility of financing under the Primary Education and Teacher Development Project will be examined\. 32\. Key Lessons Learned\. The Project reinforces the benefits of community-based development interventions for poverty reduction\. It is clear that community participation not only increases ownership of and commitment to the development activity but also increases the chances of sustainability\. Implementing agencies state that there is row increased appreciation of the potential for community participation within Government and political institutions\. The Project experience demonstrates the utility of NGOs as effective facilitators in community-based development\. However, it is also clear that projects which need to be prepared quickly to address emergency-type situations are perhaps not the best avenues for testing or piloting new approaches to sustainable and community-based development\. Effective implementation of projects with community participation requires involvement of relevant stakeholders in project design, and this requires considerable groundwork, preparation and consensus building\. To be transparent and equitable, implementation and institutional arrangements must be determined in consultation with beneficiaries\. Mechanisms for community participation and beneficiary contribution must be designed in consultation with communities\. Implementation must be preceded by an Implementation Completion Report Page 10 of 10 intensive phase of promotion and dissemination of information\. Also, projects with significant community participation must have in-built monitoring systems to assess the views of these stakeholders on the efficiency of implementation, and flexible processes to make timely modifications to project design if necessary\. 33\. Projects with decentralized implementation arrangements need suitable project management structures and arrangements\. Bank policies invariably require legal agreements signed and the Special Account established with an entity at the central level\. The nature and responsibility of this entity must be reviewed carefully to ensure that it does not constrain decentralized implementation\. The flow of funds from such entity to the implementing agencies, and the relative powers of the central and implementing agencies to determine the use of funds must be addressed up-front during project preparation\. 34\. The Project experience supports the preparation of an implementation plan/manual focusing on project management, financial and monitoring systems must be a condition of credit effectiveness, if not negotiations/Board Presentation\. This manual should establish a clear and flexible framework within which the Project will be implemented\. The establishment of an effective monitoring system providing the Borrower and the Bank critical feedback on project implementation, permitting timely identification and correction of problems\. Also, often NGOs are not selected competitively on the grounds that the skills and experience are the key criteria\. Selection of NGOs must be undertaken on a competitive basis\. In order to ensure appropriate choices, it is important to define selection criteria and processes during preparation\. 35\. Effective and appropriate procurement arrangements are key to effective implementation of projects with community participation and NGOs\. The Government must consider raising the threshold for procurement contracts that must be approved by the Central Tender Board (CTB), at least for projects involving community participation\. The CTB reportedly has the authority to exempt activities from its own procedural requirements\. To enhance effective implementation, it is also important to bring in all key participants involved in processing procurement - for example, in this case, the CTB and the Revenue/Tax Authorities - during project preparation to familiarize them with project objectives and seek their assistance and support for effective implementation\. Part III Table 1 UGANDA PAPSCA Table 1A: Summary of Assessments Substantial Partial Negligible Not applicable A\. Achievement of objectives macro-economic policies X sectoral policies X financial objectives X institutional development physical objectives X poverty reduction X other social objectives X environmental objectives X public sector management X private sector development X B\. Project sustainability X (fgii atisfactory \. C\. Bank performance ________ identification X preparation assistance X________ appraisal ________X________ supervision X D\. Borrower performance preparation X________ implementation ________X________ covenant compliance X operation X Highty Highly ara toSatisfactory Unsatisfactory Satisfactory Unaifatr E\. Assessment of outcome Page 1 of 10 Part 1I1 Table 1 UGANDA PAPSCA (Kamuli Smallscale Infrastructure Component) Table 1 B: Summary of Assessments (Continued) SubtantMa Partial Negiibe Not appticabIe A\. Achievement of objectives ________ ________ macro-economic policies ________ ________ _________X sectoral policies_________ _________ __ ________ financial objectives X institutional development X physical objectives X __________________ poverty reduction X_________ other social objectives X X environmental objectives X X public sector management X __________________ private sector development _________ _________X B\. Project sustainability X __________________ Highiv Satisfactory Unsatisfactory Hgl C\. Assessment of outcome nalsatr Page 2 of 10 Part III Table 1 UGANDA PAPSCA (Education Rehabilitation Component) Table 1 C: Summary of Assessments (Continued) Substantal Partial Neglgible Not applicable A\. Achievement of objectives macro-economic policies X sectoral policies X financial objectives X institutional development X physical objectives X poverty reduction X other social objectives X X environmental objectives X public sector management X private sector development X B\. Project sustainability X Highly Saisfactory Unsatisfactory yUnsatisfactory C\.Assessment'of outcome X Page 3 of 10 Part III Table 1 UGANDA PAPSCA (Rubaga Low-Cost Sanitation Component) Table ID: Summary of Assessments (Continued) \. \. \. \. \. \. \. A\. Achievement of objectives macro-economic policies X sectoral policies X financial objectives X institutional development X physical objectives X poverty reduction X other social objectives X environmental objectives X public sector management X private sector development X B\. Prjc sustainability XT C\. Assessmen of\.outcom\. \. \. Page 4 of 10 Part Ill Table 1 UGANDA PAPSCA (Orphans Program In Rakal, Masaka and Gulu) Table 1 E: Summary of Assessments \. \. A\. Achievement of objectives macro-economic policies X sectoral policies X financial objectives X institutional development X physical objectives X poverty reduction X other social objectives X environmental objectives X public sector management private sector development X :U\.1key\.Unikely Uncertain B\. Project sustainabllity X Saifatr \.Unsatisfactory \. Hghly Pa:\.g\.e 5 \. tatisfactory Pege 5 of 10 Part 111 Table 1 UGANDA PAPSCA (War Widows Sub-Component) Table 1F: Summary of Assessments (Continued) A\. Achievement of objectives________ macro-economic policies _________X sectoral policies _________X financial objectives X institutional development X physical objectives X poverty reduction X other social objectives X environmental objectives X public sector management ________ ________ _________ privuat setrdveomn C,e ofesmn 1 fou0cm v \. \. \. \. \. \. \.X PAgeve n of etie Part Ill Table 1 UGANDA PAPSCA (SDA Component) Table 1G: Summary of Assessments (Continued) A\. Achievement of objectves macro-economic policies ______ __ _________X sectoral policies ________ _ ________X financial objectives ________ ________ _________X institutional development _ _______X physical objectives _________ _________X poverty reduction X other social objectives X environmental objectives _________________ _________ public sector management X_______ __________________ \. Prjc susainbilty\. C, Acsevment of oetomes X Page 7 of 10 Part III Table 1 UGANDA PAPSCA (SIDA Financed Credit Activities) Table 1 H: Summary of Assessments (Continued) A\. Achievement of objectives macro-economic policies X sectoral policies X financial objectives X institutional development X physical objectives X poverty reduction X other social objectives X environmental objectives public sector management x private sector development X B\. Project sustainability X \.Wilghly Highly :Safactory Unsatisfactor U\.Sat ty Unsatlsfactory x Page 8 of 10 Part I11 Table 1 UGANDA PAPSCA (Orphans Program in Rukungirl) Table 11: Summary of Assessments (Continued) A\. Achievement of objectives macro-economic policies X sectoral policies X financial objectives X institutional development X physical objectives X poverty reduction X other social objectives X environmental objectives X public sector management x private sector developmentX B, Project sustainability x C Assesment ofotcm X Page 9 of 10 Part II Table 1 UGANDA PAPSCA (Keep Kampala City Clean) Table 1J: Summary of Assessments (Continued) A\. Achievement of objectives _______ ________ macro-economic policies ________ _________X sectoral policies ________ __________ __ ________X financial objectives _ _______X _________ institutional development _ ________X __________ physical objectives _ _______X _________ poverty reduction _ _______X _________ other social objectives _ _______X _________ environmental objectives _ _______X public sector management ________ _________X private sector development ___________________X B\. Project sustainability _ _______X _________ Highly Highly C\. Asasamen of oncams atiufotory Satisfaotory Unatisfacty Uat\.st Page 10 of 10 Part HI Table 2 Uganda PAPSCA Project Table 2: Related Bank Credits * ~ 4~edItAchievement/Purpoie Past Operations Education III (Cr\. The project assisted in rehabilitating primary, secondary 1983 1988 1329) technical schools and to a lesser extent, the University\. The Completed US $ 32 million project provided educational materials such as textbooks, instructional materials and equipment for about 5,200 primary schools, about 177 secondary schools, and 33 teacher training and vocational institutions\. The project also provided library books and professional journals to the university, in addition to the rehabilitation of a number of residence halls\. The ICR for the project undertaken by the UNESCO Cooperative Program, noted that in spite of political instability and persistent security problems during the period of project implementation, much of the materials procured under the project reached the schools and provided an important, though temporary, uplift tot he education system\. Education IV The momentum of the Government's educational rehabilitation 1988 1994 C1965 efforts was boosted\. The project put the sector on a path to Completed US$ 22 million recovery\. Textbooks and instructional materials were delivered to schools speedily and cost effectively, thus raising teacher morale and parental interest in children's education\. The institutional capacity of the Ministry has been strengthened\. Most important has been the redefining of the role of the National Curriculum Development Center, and the liberalization of the textbook sector\. Page 1 of 2 Part III Table 2 Table 2: Related Bank Credits (continued) CreditA On-going Operations' Uganda First Health The proposed project had three main objectives: (a) to 1988 Closing C1934 rehabilitate a selected number located hospitals and health on US$ 65\.5 million centers; (b) to promote health status by strengthening preventive 3-31-96 health programs; and (c) to ensure the long-term sustainability and viability of the health care delivery systems\. Primary Education and This project will assist in (a) improving primary school teaching 1993 Closing Training C-2493 and management, and (b) strengthening strategic functions of on US $ 52 million MoES, e\.g\., analysis, management and implementation 6/30/03 Northern This project has a component which will help (a) integrate Reconstruction Project teacher education of 3000 primary school teachers, (b) improve 1992 Closing Cr\. 2362 technical training, and (c) rehabilitate 1860 primary school on US$ 98\.2 million classrooms\. 9/30/98 Sexually Transmitted The objectives of the proposed project are: (a) To 1994 Closing Infections prevent sexual transmission of HIV by: Promotion of safer sexual on C2603 behavior; provision of condoms; promotion of STD care seeking 12/30/00 US $ 50 million behavior; and provision of effective STD care\. (b) To mitigate the personal impact of AIDS by: Provision of support for community and home based health care and social support for people with AIDS; briefing of staff and provision of drugs for opportunistic infections and protective supplies for district health facilities (government and non government); and, provision of TB diagnosis and case management\. (c) To support institutional development to manage HIV prevention and AIDS care by: Strengthening the Districts capacity to plan, coordinate, implement, monitor and evaluate integrated AIDS related activities; and, strengthening the national capacity to provide adequate technical support on health issues related to AIDS\. District Health The objective of this project is to pilot-test and demonstrate the 1995 Closing C2679 feasibility of delivering an essential health services package to on US $ 45 million district populations, within a prudent financial policy framework 12/31/02 for the sector\. These objectives will be pursued through an integrated program of policy, institutional and financial improvements, with close monitoring\. Accordingly, the proposed project would (a) pilot and test new sector policies and strategies which will facilitate the implementation of essential health services; (b) strengthen management and planning capacity at district levels so that they are prepared to provide essential health services; and (c) restructure the MOH so as to build its capacity to provide health policy leadership and to support the Government's decentralization policy\. Page 2 of 2 Part III Table 3 Uganda PAPSCA PROJECT Table 3 Project Timetable Identification June 4, 1988 Appraisal May 1989 Negotiations 1989 Board Presentation February 1, 1990 Signing February 8, 1990 Effectiveness June 29, 1990 Establishment of a Special Account July 5, 1990 Changes to the Development Credit Agreement: - opening of a separate special account for VAP October 1991 - reallocation of funds in some categories May 1991 - reallocation of funds to some categories and increase in percentage of local costs financed January, 1993 - reallocation of funds to some categories April 27, 1993 - reallocation of US $ 1 million to Category March 1994 - reallocation of funds to some categories May 1994 - inclusion of categories 32-37(g) July 1994 - reallocation of categories March 1995 - amendment Part DI of Schedule 2 to add Rukungiri - reallocation of funds to some categories April 1995 Project Completion June 30, 1994 June 30, 1995 Closing September 30, 1994 September 30, 1995 Paft mI Talfle 4 Uganda PAPSCA Project Table 4: Credit Disbursements, Estimnated and Actual \.~L ~ \. \. \. \. \. \. \. s e <ua**C\.uhtv a *\.t \.Y9\.Q\.0/9\.0\.0 \.0 0\.0\.2 \.0 0 Q2 12/9 0\.00\. 0\.00\. \.%\.0\.15\.0\.17\.1% Q3~~~~~ 039\.0 \.0 0 \. 0\.27\. \.4 069 3\.5 3\.50 13%\. \.7 0\.9 \. \. % \. FY9l QS 09/91\.0\.5040\.4\.00 \.83 Q6 1291 0\.0 4\.5 16% \.71 1X9X6 FY0 Q81 0/9 2\.00 8\.00 29% 1\.02 4\.67 17% FY2 Q2 0/92 1\.50 9\.50 04% 2\.89 7\.56 27% Q3O 12/92 1\.50 11\.00 39% 2\.11 9\.27 15% Q41 03/93 1\.50 12\.50 15% 2\.35 12\.02 43% FY1 Q5 06/93 1\.50 14\.00 50% 1\.5 13\.53 48% FY9 Q120/93 2\.00 16\.00 16% 2\.1 15\.72 56% Q7 012 1\.50 17\.50 63% 2\.6 18\.35 66% Q85 03/94 2\.00 19\.50 70% 10 18\.69 67% FY2 Q9 0/9 \.00 21\.50 77% 1\.89 20\.78 74% FY4 Q1O 12929 1\.50 23\.00 82% 2\.04 22\.62 35% Qli 0194 1\.50 12\.50 88% 2\.75 12\.57 41% Q12 03/95 1\.50 26\.00 93% 1\.53 27\.09 47% Q14069 1\.027\.50 9\.15 27\.30 63976% 1 \.56 FY94 Q17 09/95 0\.50 28\.00 182% 04 27\.64 99% Q22 12/95 0\.10 27\.74 99% Q23 03/96 1\.89 29\.63 106% Q24 06/96 FY96 Q25 09/96 Q26_12/95 ___________________ Part Ill Table 5A Detailed SAR Estimates and Actual Costs Mthdrawal of IDA Credits Surplus SAR Estimates Actual Allocated A Kamuli Infrastructure Project US $ US $ 1 Civil works 2\.40 1\.29 2 Equipment, tools, vehicles 0\.55 0\.87 3 Consultant Services 0\.02 0\.20 Sub-total 2\.96 2\.37 -0\.59 B Primary Education Rehabilitation 4 Civil works 5\.98 5\.16 5 Equipment/ToolsNehicles/Fumiture 1\.31 0\.84 6 ConsultantServices 0\.59 1\.05 7 Operating 0\.10 1\.00 Sub-total 7\.98 8\.04 0\.06 C Low-cost in Rubaga 8 Civil Works 1\.47 2\.51 9 Construction materials 0\.37 0\.57 10 Equipment, Tools, vehicles 0\.61 0\.24 11 Consultant Services 0\.02 0\.01 12 Operating 0\.08 0\.30 Sub-total 2\.54 3\.63 1\.09 D1 Orphans in Rakai/Masaka/Gulu 13 Construction materials 0\.58 0\.21 14 Equipment/tools/Agricultural & Med\. Supplies/Vehic 2\.13 1\.22 15 Training 0\.31 1\.09 16 Operating 0\.25 0\.96 Sub-total 3\.27 3\.48 0\.21 D2 War Widows Project 17 Equipment/Tools and Vehicles 0\.78 0\.85 18 Consultant Services 0\.25 0\.21 19 Training 0\.23 0\.28 20 Operating 0\.12 0\.32 Sub-total 1\.38 1\.67 0\.29 D3 Masindi Community Health Based Project 21 Civil Works 0\.05 0\.32 22 Equipment/tools/SuppliesNehicles 0\.39 0\.35 23 Consultant Services 0\.31 0\.13 24 Training 0\.14 0\.27 Sub-total 0\.89 1\.07 0\.18 E SDA Component 25 Equipment, Fumiture & Vehicles 0\.65 0\.27 26 Consultant Services 1\.76 4\.23 27 Seminars & Training 0\.35 0\.18 28 Operating 1\.79 0\.35 Sub-total 4\.55 5\.03 0\.48 F PAPSCA Adminsitration 29 Equipment and Vehicles 0\.05 0\.10 30 Consultant Services 0\.60 0\.64 31 Operating 0\.04 0\.58 0\.69 1\.32 0\.63 32 Refund of PPF* 0\.52 0\.07 33 Unallocated 3\.23 Sub-total 28\.01 26\.68 2\.34 G VAP (as in OCA) 32 Construction Materials 1\.91 - b Equipment/ToolsNehicles and Furniture 0\.23 0\.21 c Consulting Services 0\.42 0\.29 d Training and Counselling 0\.17 - e Operating Expenses 0\.26 3\.21 Sub-total 2\.99 3\.71 0\.72 Total 31\.00 30\.38 3\.06 * partly cancelled Data from 1994 Audited Reports and Disbursement Summaries Page 1 of 3 Part I1 Table 5B US $ (milIlions) 1 Small-scale lnfr\. Rehab 0\.59 0\.64 2\.96 4\.19 0\.62 0\.20 0\.71 2\.37 3\.90 2 Primary Education - 4\.37 8\.28 12\.65 - 0\.16 2\.98 8\.28 11\.41 3 Low Cost Sanitation - 0\.23 2\.65 2\.88 - 0\.18 3\.63 3\.81 4 Health-- 4A Orphans 1\.29 0\.40 3\.26 4\.95 1\.90 0\.06 3\.48 5\.44 4B Widows - 0\.12 1\.38 1\.50 - 0\.11 1\.67 1\.78 40 Health Development 0\.33 0\.11 0\.89 1\.33 0\.35 0\.43 1\.07 1\.86 5 SDA - 0\.40 4\.66 5\.06 5\.03 5\.03 6 PAPSCA Administration - 0\.06 0\.69 0\.75 - 0\.05 1\.32 1\.37 7 VAP (Added on) 3\.71 Contingencies - 0\.46 3\.32 3\.78 2\.62 2\. 62 Total 2 \.2 1 6\.79 28\.09 37\.09 2\.87 3\.81 3\.69 30\.56 37\.22 * incdudes community contribution **Rough calculation Page 2 of 3 Part III Table 5C (US $) Estimated Actual Costs for Vehicles Actual Disbursements DCA Reference Component Description Operational Costs ( & Equipment (Audit (from IDA Disb DCA) reports 94) Summaries, Part A Small-scale Rural Infrastructure - 215,651\.00 599,970\.00 Part B (Category 7) Education Rehabilitation 101,818\.18 329,261\.20 1,046,293\.00 Salaries and allowances paid under Civil works Category 679,903\.69 PartC (Category 12) Low-Cost Sanitation 89,090\.91 78,286\.00 292,800\.00 Part D1 (Category 16) Orphans Program 241,818\.18 867,634\.50 970,299\.00 Part D2 (Category 20) War Widows 127,272\.73 94,264\.00 335,734\.00 War Widows (field expenses paid under "Equip, Vehicles, and Tools" and consultants costs) 303,757\.20 Part D3 Community-Based Health 85,872\.00 355,532\.40 Part E (Category 28) Social Costs of Adjustment 1,794,545\.45 1,031,680\.00 345,311\.25 Consultants (Category used for salaries and Category 26 op\. copsts of hhid surveys) 3,634,919\.00 Part F (Category 31) PCMU Operation 50,909\.09 98,243\.00 576,337\.00 (Category 30) Consultants (but used to pay salaries) 500,000\.00 Total Expenses 2,405,454\.55 2,800,891\.70 9,640,856\.54 Operational Costs as % of total Credit % of credit approved by Board for operational costs 8\.6 Recurrent operating costs 34\.4 Recurrent and capital operating costs 44\.4 Due to SDR changes Page 3 of 3 PART III TABLE 6 KEY IMPLEMENTATION INDICATORS (From the SAR) Kes impleaentalion Indicator in the SAR lnil Estimated Afrer Mid-ierm Actual _____________________________ I in SAR j Reviews Kamuli Smallseale Infrastructure Rehablitation Springs protection # - Construction of wells # - Rehabilitation of Primary Schools & Health Centers - 811 454 classrooms completed, 213 classrooms rehabilitated, 10 health units completed, 2 on-going; 7 secondary schools received construction materials Rehabilitation and maintenance ofminor commumity -10 kilometers of roads improved with culverts access roads Establish a coordination and monitoring system in -Installed DDC Education Rehabilitation Rehabilitation of classrooms # 4200 466 completed, 1378 roofed, 333 ready for roofing, 2,071 under construction Rubaga Low Cost Component Protection of springs # 50 55 Installation of standpipes # 100 100 Construction of new ventilated improved pits # 2500 2642 + (222 at schools) latrines (VIPs) + 76 latrines + 412 washing slabs Upgrading of VIPs # 1000 - Sullage disposal and surface water drainage 13,000 meters of drains desilted and stone pitched improvement Health education programs -- Radio health programs conducted every Friday (total of 176) 32 plays on health related issues; 36 workshops for communities and community trainers Page 1 of 2 PART Ill TABLE 6 KEY IMPLEMENTATION INDICATORS (From the SAR) Continued Health ORPHANS COMPONENT Training of orphans orphans 4500 - assist 2000-2500 foster families with 6000-8000 guardians have been assisted to increase agricultural inputs and improve income levels by provision of training -assist 10000-12,500 orphans with tuition and agricultural inputs; credit scheme has also been support started; -to establish and equip six rural vocational 1,190 orphans received training training centers and provide 1200 older 109,371 received school fees youths with skills 6 rural vocational training institutions have been built Training of local development workers person 180 -to train and equip 50-60 community-based 57 received counseling training Parish and Development workers to provide 349 community health workers and traditional birth counseling services attendants trained, equipped and deployed in the -to support and augment MOH programs by community; facilitating the training of 80-100 Community 6 health units are undergoing construction health workers and renovate five health clinics Shelter for community health workers persons 450 over 60 houses under shelter program are undergoing reconstruction Five schools are undergoing reconstruction WAR WIDOWS COMPONENT No of beneficiaries widows 25,000 and 3,054 widows and their families their families MAsINDI COMMUNITY-BASED HEALTH DEVELOPMENT PROJECT 50% of the non-hospital health - 2 health centers/dispensaries/aid posts will 5 health centers rehabilitated institutions in the district would be become fully functional rehabilitated and made functional All rehabilitated institutions would have 366 Traditional birth Attendants, 250 Community at least one person trained and equipped Health workers, 90 Health workers, and 103 to do general maintenance and simple committee members trained\. repairs Pre-natal and under-five's clinics would -Established in four health units (average if 2255 be established at all dispensaries ante-natal clinics held and 12,750 mothers seen\. 16,611 children growth monitored; 945 women attended ante-natal clinics\. AIDs sensitization seminars held for 1,150 attendees) 70% of district health personnel would attend continuing education sessions 2-4 times Page 2 of 2 Part III Table 7 STUDIES CONDUCTED UNDER THE SDA COMPONENT Study/purpose of study Status Impact of study 1\.Conversion factors and regional price report presented late no direct impact; indices may be updated 2\.Establishment of a nutritiuon based report presented late no direct impact; absolute poverty line in Uganda may be updated 3\.Poverty analysis/ report delayed by no direct impact; profile late availability of may be updated input data 4\.Factors influencing access to primary report available follow-up given by Min\.of education in Uganda (demand side) Education 5\.Factors influencing access to primary study was not done n\.a\. education in Uganda (supply side 6\.Factors affecting access to education for report available follow-up by UNICEF the marginalized groups in Uganda 7\.An inquiry into disparities in the cost of final (improved) no direct impact; primary education in rural and urban areas report presented late may be updated 8\.Effects of adult literacy on poverty report available No follow-up given by Min\.of Education 9\.Factors affecting access to income report available Follow-up by National Union of generating activities for disabled persons in Disabled Uganda 1 o\.Contribution of children to family income report available Follow-up by UNICEF, National (problem to value Council for Children and relevant child labour) ministries 11 \.Employment and income opportunities report available Follow-up by Min\. of Gender & for low income women in rural/urban Community Development squatter settlements 12\.Construction of a food balance sheet for report available follow-up by Min\.of Fin\.& Uganda Econ\.Planning + Bank of Uganda (Agricultural Secretariat) Page 1 of 2 Part III Table 7 STUDIES CONDUCTED UNDER THE SDA COMPONENT(Continued) Study/purpose of study Status Impact of study 13\.Effects of acces to land of the rural poor report available No follow-up expected on food production in Masindi District 14\.The effects of price and market liberali poor quality report No follow-up expected sation on household food production and consumption 15\.Impact of irrigated rice production on report to be finalized rural food security in Eastern Uganda 16\.Profile of civil servants report presented late confidential report; follow-up by relevant ministries 17\.Support strategy for laid-off civil servants report presented late confidential report; follow-up by relevant ministries 18\.Absorptive capacity of the markets for report presented late confidential report; labour products and services follow-up by relevant ministries 19\.Rehabilitation of Luwero Triangle report finalized follow-up by Ministry of State Page 2 of 2 Part III Table 8 UGANDA PAPSCA PROJECT Table 8: Status of Legal Covenants DCA Description of Covenant Covenant Present Original Actual Comments Reference cass(es) status date date Section 3\.01 Credit effectiveness: The PAPSCA Monitoring unit would Management Complied June 19R9 December 1he condiion was waicd, and iI was about six months after credit be operational aspects of the 1989 effectiveness that the PCMU became fully operational project or of its executing agency Section 3\.10 Condition of Disbursement: Government to enter into an Management Complied N/A 30/5/91 Condition of disbursement met\. (a) agreement with Action Aid for SSIC aspects of the with projector of its executing agency Section The Government to have signed a contract for TA and Management Complied N/A 3\.10(b) services for the education component Aspects of with the project or of its executing agency SECTION The Government to have signed a contract for TA and Accounts Complied N/A The PIU maintains copies of all SOEs as well as opinions of the auditors 3\.10 (C) services for the Low cost sanitation component and audit with on the SOEs\. Page 1 of 3 Part Ill Table 8 Table 8: Status of Legal Covenants (continued) DCA Description of Covenant Covenant Present Original Actual Comments -Theerence class(es) status date date Section 3\.10 For each of the Health components\. (i) entered into an Management Partially N/A N/A (i) complied with\. (d) agreement with selected NGOs; and (ii) established and aspects of the complied (ii) committee was never established\. staffed the Coordinating Committee\. project or of with its executing agency Section 3\.10 Employed the specialist services for the SDA Management Partially N/A N/A A functioning officer was appointed only by October 1992 (e) aspects of the Complied project or of with its executing agency Schedule 4 - The Borrower to establish the PCMU within the MPED to Management Complied N/A N/A Pars 1 (a) carry out overall planning of the various components aspects of the with project or of its executing agency Schedule 4 - PCMU to be accountable to the PAPSCA Steering Management Partially N/A N/A The Steering Committee met only twice during the first two years\. Para 1 (b) Committee aspects of the Complied project or of with its executing agency Schedule 4 - PCMU to be staffed with a coordinator and assisted by a Management Delayed N/A N/A The coordinator and the program officer were to be appointed before Pars 2 program officer aspects of the credit effectiveness but this condition was waived and the PCMU was project or of staffed only after credit effectiveness\. its executing agency Schedule 4, Kamuli District Development Committee to establish a sub- Management Complied N/A para\. 3 committee to administer Part A of the project aspects of the with project or of its executing agency Page 2 of 3 Part M Table 8 Table 8: Status of Legal Covenants (continued) \.a Schedule 4 - Action Aid to assist resistance councils and develop their Management Complied N/A N/A Compliance Fulfilled Para 4 capacity aspects of the with project or of its executing agency Schedule 4, The PIU within MOE to be responsible for the Management Complied N/A N/A Compliance fulfilled\. para\. 5 implementation of Part B of the project aspects of the with project or of its executing agency Schedule 4, Management Complied N/A 10/1990 Compliance fulfilled para\.6 The Kampala City Council PIU to be responsible for the aspects of the with implementation of Part C of the project project or of its executing agency Schedule 4, Parts DI and D3 of the project to be carried out by World Management Complied N/A 9/1990 Compliance fulfilled\. para\. 9 Vision and Part D2 by Uganda War Widows aspects of the with project or of its executing agency Schedule 4, MPED shall be responsible for the implementation of Part E Management Complied N/A N/A Compliance fulfilled\. para\. 10 (SDA Component) with assistance from the Department of aspects of the with Statistics project or of its executing agency Schedule 4, The PAPSCA Steering Committee to be responsible for Management Partially N/A N/A Compliance partially fulfilled\. The Steering Committee met only twice parn\. 11 reviewing semi-annual work program for Part E and the aspects of the Complied during the first two years\. results of surveys, studies, and analyses, and determine project or of with appropriate studies for formulation of policies\. its executing agency Page 3 of 3 Part III Table 9 Uganda PAPSCA Project Bank Resources: Staff Input Preparation to Appraisal - - - - 26\.7 82\.77 ppraisal - - - - 29\.2 90\.52 Negotations through Board - - - - 15\.5 48\.05 Approval Supervision 126\.8 393\.08 - - 73\.2 226\.92 Completion 7\.3 22\.63 - - 6\.8 21\.08 Memo: Assumes average cost of US $ 3,100 per staff week Part III Table 10 UGANDA PAPSCA PROJECT Table 10: Compliance with Operational Manual Statements OD 10\.60 Paras\. 26-27 of OD 10\.60 state that as a minimum, financial reports should normally Accounting, comprise a statement of receipts and payments, as well as total project costs and sources of Financial financing, and that the supporting schedules of statements should disclose annual and Reporting, and supplemental budget allotments, actual expenditures under each budget category for which Auditing Bank financing is furnished, and the actual expenditures and amounts of Bank disbursements claimed\. In short, financial reporting should cover all accounts pertaining to project expenditures, irrespective of sources of financing\. OD 13\.10 Audit Reports received have not complied with the financial covenants\. Reports have not Borrower been received within schedules and have not been systematically included Special Account Compliance with and SOE audits\. The poor accountability of the financial management structure has been Audit Covenants significantly undermined the value of the audits\. Compliance with OD 10\.60 and OD 13\.10 has been only partiaL APPENDIX A UGANDA: PAPSCA PROJECT (CREDIT 2088-UG) October 30, 1995 Implementation Completion Mission Aide-Memoire Introduction I\. An IDA project completion mission visited Uganda from October 15 - I\. 1995\. in order to prepare the Implementation Completion Report for the above-referenced Project\. The mission consisted of Pat Walker (Consultant Implementation Specialist/Architect), Colin L'\.le (Accounting and Auditing Specialist), Paul Ter Weijde (Consultant Development Economist), Harriet Nannyonjo (Operations Officer\. Resident Mission), and Gita Gopal (Task Manager)\. Joe Muv\.enge from World Vision Intemational also participated in the Completion Mission\. SIDA\. as a co-financier to the PAPSCA program was invited, but did not participate\. \. The mission met and discussed the project with various institutions including the PAPSCA Coordination and Monitoring Unit (PCU), Project Implementation Units (PlUs), Non-Govemmental Organizations (NGOs) local Government officials, beneficiaries, and officials from the Ministries of Finance and Economic Planning (MOFEP) and Education and Sports (MOES) and Local Government (MOLG) (Attachment 1)\. The Mission also visited sites of ten out of the thirteen components of the project (Attachment [l)\. The Mission also relied on the draft evaluation reports prepared by the PCMU\. 3\. The Mission has also provided advice and support to the Government in preparing its own contribution to the [CR\. The Mission explained that under Bank Operational Policies, the Govemment is expected to prepare and make available its own evaluation report on the project's execution and initial operation, costs and benefits, the Bank's and Government's performance of their respective obligations under the Credit and the extent to which the purposes of the Credit had been achieved\. The Government would need to provide a summary of this report, if more that ten pages\. which will be annexed, unedited, to the final ICR\. The Mission explained that the Bank encourages the Government to adopt a plan for the operational phase of the project\. The Mission also pointed out to the Government that additional information on project costs and achievements would be necessary to complete the Bank's final evaluation of the project in the Implementation Completion Report (ICR)\. 4\. The mission wishes to thank Government, PCMU and PIU staff, and the Implementing Agencies for the excellent cooperation and assistance throughout this period in Uganda\. The draft Aide-Memoire records the views of the Bank, Government, implementing agencies, co- financiers and beneficiaries on project implementation and operation, summarizes the mission's findings and recommendations, the agreements reached with the Ministry of Finance and Economic Planning, and also includes a plan developed by PCMU with Implementing Agencies for the on-going operation phase of the project (Attachment 1l)\. The Aide-Memoire is subject to endorsement by IDA management on the mission's return to Washington\. I Projeci Background The project vas identified and prepared to complement the economic recovery program which included among other measures, the devaluation of currency by almost 77%\. The credit agreement was signed on February 8\. 1990\. and became effective on June 29\. 1990\. The original closing date of the project was September 30\. 1994 but was extended to September 30\. 1995\. Initial project funding was provided as follows: IDA :8\.00 Go%ernment of 1U\.anda 2\.81 NGOs 2\.1 Communities TOTAL 6\. SIDA subsequently provided S 3\.0 m and NORAID SO\.2 m\. bringing the total funding to S40\.2 M\. 7\. The project's short-term objectives were to address some of the urgent social concerns of Uganda's most vulnerable groups through collaborative and integrated development interventions between communities\. NGOs and the Government\. In the medium term, the project aimed at strengthening the institutional capacity of the Government to identify, formulate and maintain interventions for assisting these vulnerable groups\. The project objectives were to be pursued through implementation of a number of components\. These included: (i) the provision of financing and technical resources to local communities of a selected district for the undertaking of small-scale infrastructure projects (US S 4\.19 million) (Part A of Schedule 2 of the DCA); (ii) rehabilitation of primary school classrooms in 12 of the poorest districts (US S 12\.65 million) (Part B); (iii) urban infrastructure improvements in water supply and sanitation (US S 2\.88 million) (Part C); (iv) health and tiaining programs for orphans and widows and a pilot community-based health care system in a selected district (US S 7\.88 million) (Part D); (v) strengthening the Governments capacity for improved social planning including the formulation and implementation of policies to alleviate the social costs of adjustment (US S 5\.06 million) (Part E); and (vi) program administration (US S \.75 million) (Part F)\. S\. In October 1991, SIDA financing was obtained and additional components were included: (i) income-generating activities through provision of credit to women\. in agricultural development (US S 0,4 million); (ii) development of small scale productive enterprises in four districts through provision of technical assistance and credit(US S 1\.3 million) (iii) the Orphans Program in Rukungiri (US S 0\.4 million); (iv) Keep Kampala City Clean (US S 0\.7 million); and (v) assistance to war widows and orphans in Lir (US S 0\.4 million)\. 9\. In 1992 the Veteran's Assistance Program (VAP), was brought into the project and 2 US S 2\.5 million was re-allocated from IDA and US S 0\.5 million from SIDA to initiate this program, resulting in a down-sizing of some of the project components\. 1o\. The Project was to be implemented under the overall coordination and monitoring of a PCMU within the MOFEP and accountable to the PAPSCA Steering Committee\. The PAPSCA Steering Committee was to be chaired by th\., Permanent Secretary, MOFEP and comprising representatives of the Borrower's ministries, external donors and NGOs\. The small-scale infrastructure component was to be administered by the Development Committee of Kamuli District under the Department of Community Development of vfLG\. The PIU within the MOES was responsible for implementation of Primary School Classrooms Rehabilitation Component\. The PIU in the Kampala City Council Was responsible for carrying out the urban structure improvements in water supply and sanitation\. and the component for widows/orphans and the community-based health care system was to be coordinated by a committee to be established by MLG which were to include representatives of MOH, MOD, MOLG\. World Vision\. War Widows Association and district resistance committees\. MOFEP was responsible for the implementation of Part E of the Project with the assistance of a socio-economist, who was to report to the Permanent Secretary\. MOFEP\. All other components which w6re incorporated after SIDA financing became available were implemented through agreements signed with the respective implementing agencies\. Achievement of Objectives I\. It is difficult to evaluate the achievement of project objectives as a whole, since project objectives were not specific and project performance and physical indicators were not established at appraisal\. When the project is evaluated on a component by component basis, the Mission feels that achievement of component objectives was in general satisfactory\. For most components, achievement of objectives has been partial\. In the case of the low cost sanitation component in Rubaga Division of Kampala, achievement of project objectives has been over and above what was planned\. Objectives have also been substantially achieved in the Small-Scale Infrastructure component in Kamuli and in the Community-based Health Care component in Masindi\. In some components, the objectives stated in the DCA were not strictly followed\. The objectives of the SIDA-financed credit activities were only partially achieved\. Attachment 1l provides a tentative summary evaluation of achievements for all components as of June 1994, other than the Social Dimensions of Adjustment (SDA) component, which is in Attachment III\. Implementation Record 12\. The Development Credit Agreement (DCA) was amended and/or the credit re-allocated six times during implementation: (i) to revise the percentages of local and foreign expenditures in the various budget categories to incorporate community services and training to be provided by Action Aid as essential aspects of part A of schedule 2; (ii) to adjust budgetary allocations for part 3; (iii) to provide more fnds for training and civil works; (iv) to shift funds from slow to fast moving components; (v) to remove SDR 2\.78 million from PAPSCA to VAP; and (vi) to expand the IDA-funded orphans care component to Rukungiri District\. VAP is continuing to be administered under agreements signed with DANIDA, SIDA, USAID, and the Dutch Government, and hence will not be evaluated during this mission\. 3 13\. Implementation Arrangements: The project was implemented through three Project Implementation Units and eight NGOs (together referred to as the Implementing Agencies) implementing it components in 24 districts\. The implementation record of most components has been satisfactory given the constraints discussed below and the trying conditions under which communities had to be mobilized\. Implementation has been a learning process\. Some components were not initiated until almost one year intu project implementation\. Lack of construction materials and equipment during project start-up delayed the commencement of activities\. Lack of timely disbursement and inability to advance funds from the Special Account to the implementing agencies for initiating activities further slowed down implementation\. Other reasons for delays in implementation\. include: Role of Implementing Agencies: The project design did not provide [As with autonomy or flexibility required for speedy implementation\. * The agreements with Implementing Agencies were signed after commencement of project implementation and in some cases were signed almost a year into project implementation\. SIDA-financed components were signed even later\. * Implementing Agencies were dependent on the PCMU for procurement of essential materials and access to funds\. Implementing Agencies corhplain that delay in timely receipt of materials and funds affected not only the pace of implementation but also their credibility with their beneficiaries\. * Implementing Agencies were unfamiliar with Bank disbursement procedures and this led to further delays in replenishment of IDA funds\. Training was provided only in 1992\. * Implementing Agencies also felt that funds could not easily be allocated to other categories of expenditures without amendments to the DCA which took considerable effort and time\. Centralized Procurement: The need to procure most construction materials through International Competitive Bidding resulted in delayed implementation which was not always consistent with the quick disbursement requirements of an emergency project\. Also, a number of procurement contracts needed the approval of the Central Tender Board (CTB) and no-objec-\.ons from IDA\. Obtaining clearances from the CTB has sometimes taken almost a year, by which time the contract needed to be re-negotiated or re-tendered\. Sometimes delayed procurement resulted in uneconomic procurement\. In addition, PCMU had to obtain tax-exemptions for imported goods and materials which took considerable time\. Another problem with centralized procurement was that Implementing Agencies received construction materials in bulk leading to logistical problems of delivery, storage and safe-guarding which were not addressed in project design or costs\. Lack of Cosuterpar Fundr The lack of timely counterpart funds significantly affected project implementation\. The Government provided no counterpart funds during the first year of project implementation and only 5% during the second year, leading to suspension of IDA disbursements during most of 1993\. While Implementing Agencies with alternative sources of financing struggled through this period of project implementation, those entirely dependent on project funds were strapped for funds, and activities came to a complete halt\. However, in 1994/95 provision of counterpart funds were satisfactory and outstanding commitments were fully met\. 4 Transfer of US S 3 Million to Veteran's Assistance Program: The transfer of LS S3\.0 million to the VAP program\. in September 1992\. had an impact on PCMU's obligations to its implementing agencies\. SIDA-financed components were particularly affected\. Reallocations among categories had to be made and the DCA amended to reflect the new reduced allocations\. Additional Operational Costs: The extension of the closing date by one year increased operational costs of the project\. Though the incremental costs of such extension Aere not estimated, the Government \. guaranteed funds for such expenses\. The Mission understands that the Government has allocated funds for the project and such funds will be made available to PCMU before March 31\. 1996\. Lack of Guidance for Implementing Agencies: The committee to be established by MLG (see para 10) and which was to be responsible, inter alia, for preparing and submitting annual implementation plans to IDA through the, PCMU was never established\. The PAPSCA Steering Committee, responsible for the review of semi- annual work programs for the implementation of Part E of the project, did not operate after the first two years\. 14\. Project Management and Coordination\. The PCMU was established to carry out overall planning\. inter-sectoral coordination, and monitoring and evaluation of PAPSCA and the various components of the Project\. However, the administrative and management requirements of the PCMU were under-estimated, resulting in lack of adequate staffing and inadequate skills in the PCMU\. The PCMU was not operational until six months after credit effectiveness, when both the PAPSCA Coordinator and Program Officer were in place, even though the DCA required it to be "fully operational" before credit effectiveness\. Most Implementing Agencies have generally expressed satisfaction at the general role played by the PCVU in supervision and monitoring after mid-term review when the PCMU was able to appoint additional staff and thus improve its performance\. 15\. During the second half of project implementation, as the PCMU gained experience and increased capacity\. and as task management stabilized at the Bank\. Implementing Agencies note that the PCMU conducted a number of workshops to encourage dialogue on working with communities, to harmonize monitoring and evaluation activities, and to strengthen the capacity of the Implementing Agencies in financial management\. The following points are noted: * The Development Credit Agreement (DCA) made the PCMU accountable to a 'PAPSCA Steering Committee" to be set up before credit effectiveness\. This Committee functioned only during the first two years of implementation\. * The lack of consolidated financial management for the whole of the project prevented efficient and timely monitoring of the use of funds\. * Projct monitoring indicators were not established as envisaged in the Staff Appraisal Report, and were established for each component, in 1993, with the support of additional staff\.' 16\. Community Partidcpation\. Community (not just beneficiary) contribution and participation has been a key element in the implementation of all components and the implementation record indicates not only the potential, but also the actual advantages of such a strategy for poverty reduction activities\. Government PIUs have provided positive feedback on their community-based programs, and are enthusiastic about the merits of such a strategy for poverty-reduction activities\. However, they caution that capacity building is an important pre- requisite to effective and sustainable community involvement, and this is not consistent with an emergency project designed for speedy disbursements\. or for a project with a three year time frame\. Community contribution has also been higher than expected\. particularly in the components involving infrastructure rehabilitation or construction\. The exact cost to the communities is under calculation\. 17\. *The Mission members have individually or jointly visited all but three of the components under the project\. While acknowledging that the visits to the districts were brief, and that the arrivities evaluated were few and selected by the respective Implementing Agencies the Mission would like to record that beneficiaries were positive in response to the achievements of PAPSCA\. In general\. beneficiaries expressed satisfaction at the overall outcome and seemed enthusiastic about their continued participation and contribution to the development activity\. Cost recovery seems to have been accepted in health clinics and other infrastructure facilities where services are being provided\. 18\. NGO Participation\. Collaboration between the Government, NGOs\. and communities has also proved to be successful (Attachment IV and V)\. Involving NGOs in project implementation realized a number of benefits including: * greater likelihood of sustainability since the NGOs continue to operate and support communities; * strengthening the institutional capacity of NGOs; * encouraging dialogue between Government entities and NGOs; and * replication of the more successful mechanisms and activities by NGOs through other donor financing during the post-project period\. 19\. It is, however\. noted that in some cases, the operational and administrative costs of the components have been fairly high (see Attachment VI)\. Implementing Agencies, however, state that the remote and scattered locations of activities as well as the time-consuming nature of mobilizing dispirited communities has increased the cost of implementation\. Implementing \. Agencies also point out that the costs are not high in relation to the unquantifiable benefits of community participation and increased sustainability of development intervention and also that the percentage of operational costs in relation to the total costs of the component would have been smaller had the project term been longer\. 20\. NGOs, in particular, have noted that lack of timely and promised funds has had an adverse impact on their activities\. One, their credibility with the beneficiaries was affected when they did not perform as agreed due to lack of timely receipt of funds\. Two, the failure to receive funds as agreed, adversely impacted the receipt of matching funds from other sources\. 21\. Bank Perfornmm Bank assistance during identification was satisfactory\. However, given the complex institutional arrangements for project imolementation, the Government and \. Implementing Agencies have expressed the opinion that Bank assistance during preparation and * supervision was not adequate, because: * the deficiencies in implementation arrangemonts were not identified and corrected in the initial years, perhaps due to the frequent changes in task managers; 6 * the Bank did not conduct a proper PAPSCA implementation launch to familiarize project staff to Bank procedural requirements\. in particular as regards procurement and disbursement; * monitoring indicators for the project\. as disclussed at appraisal\. should have been established before credit effectiveness and supervised regularly; * some components in the more remote areas were never visited or supervised\. Project Sustainability 22\. Sustainability %as not a main concern in this three year emergency project\. [ssues of sustainability were introduced during the mid-term review\. Sustainability is\. however\. likely in a number of components because: * there has been considerable community participation in planning and implementing some of the components\. in particular construction activities; * user fees have been instituted for health clinics, sanitation and water supply facilities; * NGOs are continuing to support communities with alternative financing; * increased capacity building has been undertaken at the grassroots level; and * additional linkages have been created between the beneficiaries and district administrations\. 23\. The micro-credit component was introduced in 1991 when SIDA funds became available\. Sustainability as a credit activity is questionable since repayment rates have been generally low mainly due to disbursement pressure and, reportedly, a tendency to perceive PAPSCA funds as government subsidies\. Financial Management Project Costs and Auditing\. 24\. The total project costs as of September 1995\. are being finalized\. The lack of a consolidated financial management for the whole of the project also impeded efficient and timely monitoring of the use of funds, and has resulted in a possible over-commitment of US S 1\.3 million (Attachment VII)\.The Mission reiterated that except for the small amount remaining in the credit, the only sources of funding for the remaining commitments and outstanding obligations, could be the Government\. the community or the local authorities\. The Mission has requested the Government to examine whether this additional funding could be found from other donors or comparable IDA-funded projects to meet outstanding obligations\. 25\. The lack of funds is of particular importance in the Education Rehabilitation component where it is estimated that about 76% of the classrooms have been roofed but are without plastering, floors or thraiture (Attachment VIII)\. The Government has indicated that it is in the process of dialogue with the MOE and the district administrations in order to develop a plan and budget for completion of these activities\. A similar problem exists in the financing of orphans fees in Rukungiri and Lirs districts\. The Mission recommends that the Government explore mechanisms of support for an interim period until the components are able to achieve sustainability through programs that have been initiated since 1993\. Almost 50% of the pupils in the Rukungiri district are reported to be orphans financed by the program, and the termination of the support program for orphans could have an adverse impact on the district educational system\. 26\. At mid-term review, the Bank recognized the systemic weakness in the financial management system and recommended that the PCMU be equipped with a proper accounting 7 e system and that a Financial Controller/ Adviser be appointed\. An Assistant Program Manager (Accounts) was appointed after the mid-term review\. which undoubtedly helped the situation: however, in retrospect it is felt that the responsibilities and the authority required for this post would have justified the recruitment of a qualified accountant\. A study was undertaken to determine deficiencies in the accounting system\. and although its recommendations were implemented, the deficiencies in the accounting system were not fully addressed\. The inherent weakness also lay in the lack of accountability for IDA and other extemal funding, with the PlU in the MOE having the power to submit withdrawal applications for their own components\. without referring to the PCMU\. 27\. Transfer of Arets The financing agreements signed between the PCMU and the Implementing Agencies includes provisions for dealing with assets generated under each component\. The Government and the lmplementing Agencies are in the process of discussing the nature of the assets and the steps necessary to formalize the transfer\. In the case of credit activities, PCMU will act according to the action plan stated in Attachment Two, including informing credit institutions of the need to assess the real value of outstanding loans\. Lessons Learnt 28\. A number of lessors have been learnt from the project which would be useful in designing future operations related to poverty alleviation: These include: (a) Government commitment to and ownership of the project and all its components is a key factor to effective implementation; (b) Complex projects like this must be prepared, appraised, and supervised by a multi-disciplinary team of experts and if this is not cost-effective, project design should be kept as simple as possible; (c) Invoiving NGOs and communities in the design and implementation of development interventions increases the sustainability of activities\. PAPSCA- type initiatives must be part of poverty reduction interventions, provided: (i) all relevant stakeholders are involved in designing and implementing the project; (ii) implementation and institutional arrangements can be kept simple but efficient; and (iii) clear operational guidelines, including rules for procurement, disbursement, accounting and auditing, are prepared and finalized before credit effectiveiess\. (d) Capacity building of communities and NGOs is essential, and often, may need to precede actual implementation; (e) In collaborative activities between Government, communities and NGOs, the share of administrative operational costs in relation to total project costs and the services to be rendered must be discussed and agreed; () " ex': possible\. the continuous involvement of key staff throughout the _Al r :7 rNe pre4t cycle is very important for effective implementation; and 8 the Central Tender Board (CTB), at least for projects involving community participanon\. (h) The Mission also understar\.ds that CTB has the authority to exempt activities from its own procedural requirements\. In preparing future projects with community participanon, the Mission reco mends that the Government bring in the CTB at an itial stage of project preparation to ensure adequate protection for use of public funds and then avail of this exemption\. To enhance effective implementation, it is also important to bring in other peripheral participants - in this case, the Central Tender Board and the Excise Authorities - during project preparation to familianze them with project objectives and seek their assistance and support for effective unrplementation\. Agreements 29 During the Mission it was agreed that: * the Government will take necessary steps for immediate payment of outstanding audit fees to ensure the timely production'of audited financial statements at September 30, 1995; * the Government will ensure all budgetary estimates for 19995/96 (UGSh 396 million) to cover obligations incurred by PAPSCA; * by November 30, 1995, the Government will provide the Bank with an action plan and budget by source for completiort of all schools initiated under the Primary Education Rehabilitation Component; * by November 30, 1995, the Government will provide a list of all outstanding payments and incurred obligations and identify priority payments to be made out of the balance remaining in the credit; * after receipt of the 1994-95 audited statements, the Government will advise the Bank whether a sum amounting to US S 302,000, paid by the Bank on or about May 10, 1994, pursuant to a withdrawal application submitted by the Government, under the Primary Education Rehabilitation Component, was for ineligible expenditures; * by December 31, 1995, the Government will provide the Bank with summarized financial statement of the project, pro formas of which have been provided to the PCMU; * by January 31, 1996, the PCMU will provide the Bank with the unit costs of constructing primary school classrooms under the different components in PAPSCA including the community input of local materials and labor, and * by January 31, 1996, the Government will account for all outstanding balances under the credit\. 30\. Upon return to Washington D\.C\., the mission will prepare a draft ICR for submission to the Government for comments by January 1\., 1996, and for later submission to IDA by end of March, 1996\. By January 31, 1996, the Government will provide the Bank with its own independent evaluation report\. If the report is more than ten pages, the Government will include an executive summary, no longer than ten pages, which will be included, unedited, in the final ICR\. 9 APPEIlX B ea miniStOF 34230AMinistry of Finance And TIO*e*hones" Miniaster Kampai 243054 & 232370 Economic Planning, Kampala 23470019 (10 Unes) P\.O\.Box 8147, Telax: e0 Kampala, Towgoram\.: sFINSE Uganda\. In any corapondence on ZD/C/IBRD/1/OmE,Rfimi IC OFUCANDA this subject please quote NO\. 31st May 1996 Mr\. Jack van Lutsenburg Maas Division chief Population and Human Resources Department Eastern Africa Department The World Bank 1818 H Street N\.W\. Washington D\.C\. 20433 Fax No\. 202-473-8299 Dear Mr\. van Lutsenburg Maas IMPLEMENTATION COMPLETION REPORT (ICR) FOR PAPSCA (CREDIT 2088-UG) With reference to your letter dated 26th February 1996 on the above subject, I regret the long delay in responding caused by the delays we have unfortunately experienced in the finalisation of the audit reports (July 3994-September 1995) and the consolidated accounts for the Project as a whole, which would provide answers to most of the issues raised in your letter\. I am in receipt of the final ICR and I have noted with great interest the important lessons provided for Government and IDA by the experience under PAPSCA\. I fully agree that thcee lessons should guide our future activities in preparing, designing and implementing projects of this nature\. I am enclosing the PCU's lu page Cinal Project Evaluation Report for annexing to the \.:CR\. The staiiement of project costs will have to be inserted when we submit the audit reports and consolidated accounts and I expect that this will be possible within the next month\. As regards financing the completion of PAPSCA initiated primary school classrooms in NURP project areas, I reiterate Government' s gratitude for IDA's offer and the priority put on this work under the new Sub-Project Component\. A proposal for about US$1 mill\. has already been submitted and Government is awaiting receipt of the amended DCA on NURP project, reflecting tho reallocation from the UPTC Component and the allocations to the different activities under the Sub-Project Component\. I look forward to yoi\.ur office's advice on this matter, as activities to firm up the i996/;7 iudget are quite advanced\. 2 The issue of eligibility of an expenditure related to the payment in May 1994 to M/s Billion Corporation, for delivery of cement under the Education Rehabilitation Component, was put to the Solicitor General fcr his opinion and I am informed that this will be issued as soon as possible\. In addition, the Education component's own audit yet to be completed will throw more light on the matter\. I will follow up the issue of the audits and the case of eligibility of the 1994 payment to M/s Billion Corporation and inform you on progress as soon as possible\. I take this opportunity to thank you and Ms\. Gita Gopal for your interest and cooperation in ensuring smooth closure of this project\. Yours sincerely \. KABSAM2 DIRECTOR(BUDGET c\.c\. The Resident Representative The World Bank KAMPALA The Permanent Secretary/Secretary to the Treasury Ministry of Finance & Economic Planning APPENDIX C IMPLEMENTATION COMPLETION REPORT UGANDA GOVERNMENT Programme to Alleviate Poverty and Social CosL% of Adjwent (PAPSC4) IDA Credit 2088-UG Executive Summary: Borrower's Proiect mplcmentation Assessment Introduction: I This 10-page cxecutivc summary presents the main conclusions of the Implementation Completion Report for PAPSCA produced by PAPSCA Coordination and Monitoring Unit (PCMU) and the PAPSCA Implementing Agencies\. The full Implementation Completion Report consists of the final evalualion report prepared in September 1995, and covers activities up to the PAPSCA closing date of 30th September 1995; and a supplementary rcport which covered activities between Ist October 1995 and 31st March 1996, the PAPSCA completion date\. The supplementary report benefitted from, and is based on, the findings and recommendations of the PAPSCA completion mission fielded by IDA from 15th - 31 st October 1995\. The Project: 2\. PAPSCA is a Uganda Governmnt project which was initiated in the aftermath of the 1987 Economic Recovery Programne\. The project's overall objective was to mitigate the adverse impacts of the economic stabilization and structural adjustment measures on the vulnerabic groups\. The medium term objective of the project was to strengthen Government's institutional capacity to identify, formulate and maintain interventions for promoting social development, and for assisting the country's most vulnerable groups during the process of adjustment and development\. 3\. The PAPSCA programme had two main components: (i) a social action type of intervention, consisting of projects designed to benofit targeted social groups such as children/orphans, women/widows, the urban and rural poor; and (ii) the Social Dimensions of Adjustment (SDA) component which in turn consisted of three sub-programmes: statistical surveys, policy studies, and institutional capacity building\. PAPSCA Iolementation: 4\. The implementation of PAPSCA was coordinated by the PAPSCA Coordination and Monitoring Unit (PCMU), an autonomous unit sct-up in the Ministry of Finance and Economic Planning\. PCMU's main functions were; disbursement of funds, procurement of goods and services, assisting the Implementing Agencies with budgeting and project planning, accounting for the use of funds, and monitoring and evaluating the impact of PAPSCA\. The activities of PCMU were to be overseen and guided by an Inter-Ministerial Policy Steering Corniuee chaired by a senior official of the Ministry of Finance & Economic Planning\. 5\. Actual project implementation was entrusted to the Implementing Agencies which comprised of NGOs (both foreign and indigenous), Project Implementation Units (P11 Is) in line Ministries, LC system and the beneficiary communities\. Several of the PAPSCA Projects benefitted from the services of external Consultants (see top page of the attached set of tables)\. Funding: 6\. PAPSCA was funded from an IDA credit, Government counterpart funds, SIDA grant, contributions frai international NOOs, as well as in-kind contributions by the beneficiary communities\. The following is the detail of the funding: IDA Credit USS 28\.00 million SIDA grant US$ 3\.00 million Government counterpart fund US$ 2\.80 million Contribution by World Vision International USS 1\.62 million Contribution by ActionAid Uganda USS 0\.72 million Contribution by World Learning Inc\. ISS 0\.44 million Total USS 36\.58 million 2 Fund Disbursement: 7\. IDA Credit: The IDA agreement was signcd on 8th February 1990, and the credit became effectivc on 29th June 1990\. The initial closing date for PAPSCA was 30th September 1994; but this was extended by one year to 30th September 1995, with a completion date of 31st March 1996\. By completion date, a total of US$\. had been disbursed to PAPSCA, leaving an undisbursed balance of US$ \. 8\. SIA-Grant: The SIDA grant of Swedish Kronor 20 million, equivalent to USS3m\. became effective in July 1991\. However, disbursement did not commence until February 1992 because of the difficulty of identifying suitable NGOs to implement the SIDA funded projects, as well as delays in finalizing legal agreements governing the use of SIDA funds between Government and the NGOs\. Once conmenced, disbursement progressed well until mid 1993 when SIDA diverted US$500,000 of the grant from PAPSCA to Uganda Veterans Assistance Programme\. Had the exchange rate between the US dollar and the Swedish Kroner remained constant, the diversion would have left PAPSCA with USS2\.5m\. But the exchangc loss sustained by the Kroner left PAPSCA with only US$2,367,109\. 9\. Government Counterpart Fund: According to credit agreement, Government was to contribute an equivalent of 10% or USS2\.8m\. of the IDA credit of USS28m\. By PAPSCA completion date, Government had contributed a total of USS3,806,653 in countcrpart fund for PAPSCA, i\.e\. slightly over US$1m\. more than had been planned\. 10\. Community Contribution: The beneliciary communities were expected to, and actually did, contribute to the cost of implementing PAPSCA Projects\. Their contributions consiste-d mainly of in-kind inputs such as locally available building materials, labour and transport\. PAPSCA Implementing Agencies did not, howevcr, keep record of, or monetize, community contributions\. During the PAPSCA completion mission of 15-31 October 1995, IDA and PCMU agreed to estimate the community contribution at 10% of the total project, which comes to about USS3\.7m\. 3 Achievement of Objectives: 11\. The objectives of PAPSCA were by and large achieved to the extent that the designated target groups were reached and enabled to derive the intended benefit within the resource constraints\. In several cases, such as Part A, Part C, Parts DI, D2 and D3 as wcli as the orphans care project in Rukungiri District, achievement was above satisfactory\. The SDA component also performed well, judging by the number and quality of statistical surveys carried out, the number and range of policy studies done\. and institutional support given\. However, it is so far not evident that Government has taken serious note of the findings and recommendations of the various policy studies conducted by the Consultants\. Perhaps Government would have associated itself better with these reports, and puid more attention to their recommendations if the unit responsible for the policy studies had been placed within the core Ministry of Finance and Economic Planning, like the Survey component of the SDA was placed in the Statistics Department of the Ministry of Finane and Economic Planning\. Part F, the PCMU, also performed reasonably well judging by the level of find disbursement and procurement of goods and services accomplished, the audited accounts and progress reports produced\. Several other components, especially the SIDA-funded components had less than Satisactory performance due mainly to disruption of donor lund and failure to successfully establish revolving credit funds\. A summary of performance of the various PAPSCA Projects, showing achievement in quantitative terms, is attached to this 10-page ICR summary\. Major Factors Affecting the Proict 12\. PAPSCA was a very complex programme in the sense that it involved operation in several diverse sectors such as school construction, water supply and sanitation, orphans care, hcalth, rural infrastructure and rural credit management It relied on the services of diverse Implementing Agencies such as foreign N0Ks, indigenous NGOs, Project Implementation Units in line Ministries, the LC system, and the beneficiary coMnunitics - all of which have different work method and management capacities\. Another aspect of the programme complexity is in the source of funds and different methods of disbursement\. In addition to donor linds (TDA credit and SIDA grant), PAPSCA also received funds from Government, international NGOs (World Vision International, ActionAid and World Learning Inc\.), as well as in-kind contributions from the beneficiary communities\. 4 13\. Individual PAPSCA projects were not designed to the details necessary for quick and logical implementation\. It was left to PCMil and individual Implementing Agencies to do detailed project planning and activity scheduling\. The PCMII, did not have the necessary manpower; and some Implementing Agencies were not up to the requirements of these technical activities\. 14\. PAPSCA was not properly launched in the technical sense of an induction workshop in which all key role players arc initiated and primed in their respective roles\. Because key staff in PCMIJ, Implementing Agencies and Government were not inducted in the fundamental tasks of fund disbursement, procurement of goods and services, and accounting for use of funds, they had to acquaint themselves with these complex issues through a prolonged process of learning by doing - a process which necessarily entailed loss of valuable implcmentation time\. 15\. PCMU was far too inadequately staffed for the complex range of activities expected of it\. It was only two years after PAPSCA implementation started that PCMU was given additional technical staffto handle financial record keeping, procurement, and monitoring and evaluation\. 16\. The system of disbursing IDA credit to PAPSCA on an imprest basis, i\.e\. as a reimbursemcni (or expenditures previously incurred, was a major source of constraint for two reasons: one, because PCMIJ and most Implementing Agencies did not have own funds to spend initially on the basis of which IDA was to reimburse them; and two, many Implementing Agencies did not account for the funds used quickly and adequately - a fact which delayed reimbursement by IDA\. For the first year ofPAPSCA operation, Government did not provide counterpart funds to initiate the imprest system- Although IDA went ahead and disbursed its credit to PAPSCA in the absence of matching Government counterpart funds\. this laxity on the part of IDA plunged PAPSCA into a funding crisis in subsequent years since IDA was forced to suspend disbursement of funds to PAPSCA in mid-1993 until (iovernment's arrears were cleared\. Another effect of the accumulated Government arrears was the enhanced fund recovery by IDA - which meant a reduced imprcst to PAPSCA, and therefore a greatly reduced level of project implementation activity\. 5 17\. The procurement procedures prescribed by IDA and I Jganda Government's Central Tender Board (CTB) were a major factor which adversely affected PAPSCA implementation\. Several key inputs for PAPSCA implementation such as vehicles, cement and roofing iron sheets were subjected to the prolonged ICB procurement procedure\. CTB on its part set a very low threshold figure for procurement without prior authority from the Board, thus making most procurement subject to CTB vetting\. All these had the effect of holding up procurement and, therefore, PAPSCA implementation\. The problem was eased by the introduction in 1992 of a PAPSCA Procurement Committee whose function was to carry out a preliminary evaluation of tenders before forwarding to Central Tcnder Board with recommendations\. Membership of the Committee included officials from PCMU, CTB, Mimstry of Finance and Economic Planning and Office of the Solicitor General 18\. Frequent changes of PAPSCA Task Management, and consequent inadequate supervision of the programme by IDA also affected PAPSCA's implementation\. Assessment of the Performance of Key Role Plavers 19\. Government: Government seems not to have had adequate time or resources to study the practical impacts of its 1987 Economic Recovery Programme and to credibly identify the social groups adversely affected by the programme for targeting by PAPSCA\. A PAPSCA- type intervention should ideally be preceded by a careful survey and study of how structural adjustment measures affect various income groups and households\. It is only from such a study that targeting beneficiaries becomes credible\. 20\. Government introduced PAPSCA at a time when it had a very tight budgetary constraint, and as a result, it failed to provide its counterpart funds for PAPSCA in the first fiscal year 1990/91\. However\. later on\. Governrment's budgetary situation improved and this, together with a reprioritization of the Government projects into core and non-core projects (in which PAPSCA was designated a core project) enabled Government to fund PAPSCA adequately and according to the budget\. 21\. Initially, IDA credit was disbursed to PAPSCA through a special account held in, and managed jointly by\. the Treasury and Bank of Uganda\. Since this arrangement applied to 6 many other IDA-funded projects in Uganda, it was marked by a prolonged delay\. In the middle of 1992, Government and IDA agreed to transfer project special accounts to commercial banks, and this, together with an easing of Government ftnd release to projects, considerably speeded up project activities\. Further improvement was occasioned when Government and IDA introduced the practice of Uganda country programme implementation review whereby implementation bottlcnecks were reviewed annually and solutions to them found\. 22\. Government had created an inter-Ministerial Steering Counittee to guide PAPSCA implementation and to resolve inter-sectoral issues\. However, Government did not enforce the role of this Committee, thereby leaving PCMU to operate with a high degree of autonomy\. As was the case with IDA's Task Management of PAPSCA, supervision of PAPSCA by the Ministry of Finance and Economic Planning was deficient because of frequent changes in the Ministry Departments and officials responsible for PAPSCA\. Because of this frequent changes, officials in the Ministry of Finance & Economic Planning did not develop a full understanding of the complex issues and problems which PCMU and the Implementing Agencies confronted in the management of PAPSCA\. 23\. In order to speed up implementation pace, Government agreed to strengthen the PCMU through additional staffling in the critical activities of procurement, financial record keeping, and monitoring and evaluation\. 24\. The initial PAPSCA Programme as planned by Government envisaged a budget of US$108m\., and a larger group of beneficiaries, including retrenched civil servants, the disabled, rural water supply, etc\. In the end, however, only one third of the planned budget was realized, and several earmarked social groups including the retrenched and the disabled, were dropped\. 25\. LD By advancing PPF and also disbursing funds to PAPSCA in the first year even when Government failed to provide its counterpart fund, IDA greatly facilitated PAPSCA's start-up activities\. 7 26\. IDA also readily agreed to Government's request for amending PAPSCA credit in order to improve implementation\. Six such requests were granted\. IDA also collaborated with Government in order to transfer PAPSCA special account from Bank of Uganda to Conuiercial Banks, and in introducing Uganda Country Programme Implementation Review meetings which made it possible for implementation bottlenecks to be reviewed and cased\. 27\. Mid-way during PAPSCA implementation, IDA decided to use US$2\.9m\. of PAPSCA credit in order to fund the Veterans Assistance Programme, a project not initially part of PAPSCA\. Had it not been for the exchange gain which made it possible for PAPSCA to draw rnore dollars against the fixed credit of SDR\.22 million, this fund diversion would have had a crippling effect on IDA funded PAPSCA Projects\. 28\. IDA Disbursement Office appears not to have kept good record of disbursement to PAPSCA\., a fact which caused IDA to advise PCMU in October 1995 that there were no more funds on Credit 2088-UG, when in fact shortly afterwards, a balance of SDR\.328,000 was discovered to be still on the Credit\. This finding caused a last minute scramble at PCMU to prepare withdrawal applications at a time when most Implementing Agencies had closed PAPSCA operations\. Sustainability: 29\. Sustainability of PAPSCA initiatives was introduced as an objective only at the PAPSCA mid-term review in September, 1993\. In pursuit of this objective, the practice of user charge was introduced for health and sanitation facilities in Part C (Rubaga), Part D2 (Luwero), and part D3 (Masindi)\. Other actions to promote sustainability of initiatives included purchase of a cesspool emptier for Part C to be hired by City authorities and private people; and an unsuccessFul attempt to introduce a solid waste recycling project as an income generating component of the Keep Kampala City Clean project\. 30\. Apart from these deliberate attempts at sustainability, it should be noted that several PAPSCA initiatives have in-built potentials fbr sustainability\. These include primary school classrooms which arc built ol' permanent materials; revolving credit funds which, if managed successfully, can expand and revolve among beneficiaries; urban water supply and sanitation 8 facilities which are built of permanent materials and are charging user fees; training of mature orphans in practical skills which enables them to sustain themselves; technical capacities created in line Ministries through SDA training and equipment; and skills and training imparted to craftsmen trained to build schools and rural infrastructure facilities in Part A (Kamuli) and Part B (Primary School Reconstruction in 12 Districts)\. Two international NGOs (World Vision International and World Learning Inc\.) have agreed to continue implementing the PAPSCA initiated projects using their own funds, Similarly, local NGOs and the PiU in Kampala City Council have agreed to continue with the PAPSCA initiatives\. Key Lessons Learned: 31\. The following are the key lessons learned from the implementation of PAPSCA\. 32\. A programme to mitigate social costs of an economic policy should be preceded by a careful survey and analysis of the impacts of the policy on different elements of society\. 33\. Collaboration among Government, the donors and NGOs to implement anti-poverty programmes and projects in Uganda is not only possible, but is actually desirable because such collaboration promotes NGO fund mobilisation and creates implementation capacity in the rural areas where such capacity is usually lacking\. Such a collaboration makes use of NGOs acclaimed capacity to mobilise the communities and to deliver services to them\. 34\. A community based programme such as PAPSCA, which is supposed to be quick implementing and to involve community participation, should not be subjected to the complicated and long-drawn disbursement and procurement procedures prcseribed by IDA and the Central Tender Board\. 35\. A unit like PCMU which is created to coordinate and monitor programme implementation should be adequately staffed\. All key personnel in such a unit, and in collaborating NGOs, as well as in Government and IDA should he fully familiari7ed with Ibe ohjectives and work methods of the programme\. It is indeed, very desirable that key personnel in the coordinating office be recruited early so that they are involved in the programme design at the planning, staff appraisal and credit negotiation stages\. 9 36\. The beneficiary coimunitics and the cooperating NGOs should be involved in conceiving and planning a PAPSCA-type of intervention in the implementation of which the beneficiary communities are expected to play a rok 37\. Beneficiary communities are not averse to paying user fees provided the services they are paying for are readily available and of good quality\. The user fee should not be so high as to be prohibitive for the poor\. In view of this, it must be borne in mind that the user flee proceeds are normally not enough to nect the cost of running and maintaining a 13cality\. Therefore, the state or donors must supplement the user lee if the facility is to be sustained\. 38\. In order 10r Government to associate itself with the findings and recommendations of policy studies undertaken by hired Consultants, and to use those recommendations as inputs into policy formulation, it is desirable that the unit managing the policy study and the study fund be placed within the control Ministry of Finance and Economic Planning, instead of placing it in outside organisations like PCMU which operated more or less autonomously of the Ministry of Finance and Economic planning\. J W Okune PAPSCA Coordinator Economic Policy Research Centre Makerere Campus P 0 Box 40178 Kampala, Uganda March, 1996 10 IBRD 21 751 ê¸ IMAGING Report No: 15726 Type: ICR

REVIEW

P049200

 ICRR 11273 Report Number : ICRR11273 ICR Review Operations Evaluation Department 1\. Project Data: Date Posted : 08/20/2002 PROJ ID : P049200 Appraisal Actual Project Name : Social Development Fund Project Costs 27\.0 17\.6 (APL #1) US$M ) (US$M) Country : Romania Loan /Credit (US$M) Loan/ US$M ) 10 9\.7 Sector (s): Board: SP - Other social Cofinancing 12\.1 5\.2 services (89%), US$M ) (US$M) Sub-national government administration (11%) L/C Number : L4434 Board Approval 98 FY) (FY) Partners involved : CEB (Council of Europe Closing Date 12/31/2001 12/31/2001 Development Bank) Prepared by : Reviewed by : Group Manager : Group : Robert C\. Varley Soniya Carvalho Alain A\. Barbu OEDST 2\. Project Objectives and Components a\. Objectives The objectives of the Romania Social Development Fund (RSDF) Program are to alleviate poverty and contribute to community-driven development (CDD) through: 1\. Improving the livelihood of project beneficiaries / recipients in poor rural communities and disadvantaged groups; and 2\. Increasing the local organizational and self -help capacity of NGOs, community based organizations (CBO) and Local Authorities (LA\.) Phase I (APL I) was to strengthen the capacity to implement, monitor and evaluate the program, and to initiate selection, financing and implementation of subprojects to achieve program objectives \. b\. Components The appraisal (actual/latest) costs for the project total $ 27 ($17\.6 ) million comprise: - RSDF Sub-projects $25\.4 ( 17\.1) million; and RSDF Institutional Support $1\.6 (\.5) million\. c\. Comments on Project Cost, Financing and Dates This SDF Adjustable Program Loan (APL) was for Program Initiation\. The follow-on Program Development (Phase II) has been negotiated with an increased Bank loan of $ 20 million, twice that envisaged at appraisal of Phase 1\. Phase II should be completed by 2006\. The difference between appraisal and actual costs is largely a result of a delay of 1\.5 years in the disbursement from CEB\. 3\. Achievement of Relevant Objectives: An evaluation mission, comprising Bank staff, Ministry of Public Finance representatives and two independent evaluators, was fielded in December 2000\. Five triggers had been established at appraisal as the basis for moving to SDF II and progress was as follows : - 1\. A well functioning RSDForganizatio, including trained staff, adequate administrative, monitoring and M&E) systems - Overall RSDF has become a well-functioning organization but there is insufficient evaluations (M&E) evidence presented in the ICR to indicate that M&E systems were strong with respect to poverty targeting and local capacity/social capital measurement\. 2\. 1,000 subproject applications registered and 300 poor rural communities assisted - the target for applications was met but there is no measure of the poverty level of the communities assisted \. 3\. Grants awarded to at least 200 Bank financed sub projects of which 60 should be completed -This target was exceeded\. 4\. Beneficiary assessment (BA) BA) inititated, supported by a monitoring system -the BA was completed but the ICR states that the monitoring system requires strengthening \. The beneficiary assessment reported that 90% of the project beneficiaries were satisfied \. 5\. At least 60% 60 % of the APL I must be disbursed - all funds have been allocated and disbursed \. The unit costs per beneficiary, per job created, and per direct beneficiary by income generating activities are all well below available benchmarks for small infrastructure sub -projects\. RSDF costs are 62% of the cost of comparable non-RSDF financed projects\. The corresponding relative cost for project design and site supervision are 52% and 57%\. Beneficiary financial participation has exceeded minimum requirements that set contributions at 10% for small infrastructure (11\.7% actual), 5% for social services and 15% for income generating projects \. 4\. Significant Outcomes/Impacts: 1\. The program has proven the potential of local organizational and self help capacity for providing sustainable rural infrastructure, establishing a new tool for government to apply to restoring levels of social capital after the systematic destruction of civil society and private property in recent times \. 2\. The program became an example in the region for its direct contracting approach and has been visited by implementing agencies from Kosovo, Macedonia, Ukraine, Moldova and Malawi \. 3\. The project established new benchmarks of cost -effective standards and appropriate technologies for small-scale village infrastructure\. 4\. The operational manuals, which have been developed and refined under RSDF, will be an invaluable resource and a sound basis for both national and international dissemination \. 5\. The project helped RSDF develop, in a relatively short time, into an efficient, effective institution \. 5\. Significant Shortcomings (including non-compliance with safeguard policies): 1\. RSDF was not well-linked with the decentralization program and local agencies \. 2\. The roles and responsibilities of the RSDF executive and steering committee (SC) were not always clear, and there has sometimes been a tendency for the SC to become involved in routing management issues \. 3\. The poverty targeting mechanism did not address the needs of the very poor \. 4\. Insufficent evidence of in the form of indicators for quality of works, sustainability and social capital \. The adequacy of the M&E system with respect to poverty -targeting, local capacity and social capital measurement is not demonstrated\. 6\. Ratings : ICR OED Review Reason for Disagreement /Comments Outcome : Highly Satisfactory Satisfactory Although the project aimed at poverty alleviation, convincing evidence of impact is lacking\. The Phase I trigger, requiring an organization with adequate M&E systems, is not addressed explicitly in the ICR\. Institutional Dev \.: Substantial Substantial Sustainability : Likely Likely Since roads are a major output, the extent to which local authorities meet their operation and maintenance obligations will influence sustainability\. Bank Performance : Highly Satisfactory Highly Satisfactory Borrower Perf \.: Highly Satisfactory Highly Satisfactory Quality of ICR : Satisfactory NOTE: NOTE ICR rating values flagged with ' * ' don't comply with OP/BP 13\.55, but are listed for completeness\. 7\. Lessons of Broad Applicability: 1\. The best facilitators and promoters are people from graduating villages \. 2\. Decentralization measures are needed to shorten the period between sub -project submission and grants approval\. 3\. Information, education and communications activities, directed at both beneficiaries and LAs, enhance effectiveness of the RSDF procedures and raise awareness and public support for partnership building, participatory approaches and community development \. 4\. Beneficiaries can take responsibility for implementation, including contracting and procurement, provided sufficiently close monitoring and support is provided by SDF supervisors \. 8\. Assessment Recommended? Yes No 9\. Comments on Quality of ICR: Satisfactory apart from one missing paragraph (5\.4) on costs and financing\.

REVIEW

P156963

FOR OFFICIAL USE ONLY Report No: ICR00005237 IMPLEMENTATION COMPLETION AND RESULTS REPORT (IDA-62740) ON A CREDIT IN THE AMOUNT OF EUR 24\.9 MILLION (US$ 30 MILLION EQUIVALENT) TO THE Republic of Moldova FOR THE Moldova Economic Governance DPO1 (P156963) July 31, 2020 Macroeconomics, Trade And Investment Global Practice Europe And Central Asia Region The World Bank Moldova Economic Governance DPO1 (P156963) CURRENCY EQUIVALENTS (Exchange Rate Effective {Jun 29, 2020}) Currency Unit = Moldovan Lei (MDL) 17\.2 MDL = US$1 US$ = SDR 0\.06 FISCAL YEAR July 1 - June 30 Regional Vice President: Anna M\. Bjerde Country Director: Arup Banerji Regional Director: Lalita M\. Moorty Practice Manager: Enrique Blanco Armas Task Team Leader(s): Natasha Rovo ICR Main Contributor: Natasha Rovo, Maryna Sidarenka The World Bank Moldova Economic Governance DPO1 (P156963) ABBREVIATIONS AND ACRONYMS AS Ajutor Social (Social Assistance program) BEEPS Business Environment Enterprise Performance Survey CAD Current Account Deficit CPF Country Partnership Strategy CPI Consumer Price Inflation DPO Development Policy Operation ECA Europe and Central Asia eGA e-Government Agency EGDPO Economic Governance Development Policy Operation ES Enterprise Survey EU European Union Economic Governance Development Policy Operation GDP Gross domestic product ICR Implementation Completion and Results Report IFC Economic Governance International Development Policy Operation Finance Corporation IFRS International Financial Reporting Standards IMF International Monetary Economic Governance Fund Development Policy Operation LDP Letter of Development Policy MARDE Ministry of Agriculture, Regional Development and Environment MEs Municipal enterprises MFA Macro-financial assistance MHLSP Ministry of Health, Labor and Social Protection MOEI Ministry of Economy and Infrastructure MOF Ministry of Finance Ministry NBM of Finance National Bank of Moldova NCFM National Commission of Financial Markets NDS National Development Strategy NIA National Integrity Authority OSS One-stop shop PA Prior action PAYG Pay-as-you-go PD Program Document PDO Program Development Objective PforR Program-for-Results PIU Project Implementation Unit PPA Public Property Agency PSIA Poverty and Social Impact Assessment RI Results indicator RR Replacement rate The World Bank Moldova Economic Governance DPO1 (P156963) SCD Systematic Country Diagnostic SMEs Small and medium enterprises SOEs State-owned enterprises TA Technical assistance WHO World Health Organization UNDP United Nations Development Programme The World Bank Moldova Economic Governance DPO1 (P156963) TABLE OF CONTENTS DATA SHEET \. 1 I\. PROGRAM CONTEXT AND DEVELOPMENT OBJECTIVES \. 5 II\. ASSESSMENT OF KEY PROGRAM DESIGN AND OUTCOMES \. 9 III\. OTHER OUTCOMES AND IMPACTS \. 24 IV\. BANK PERFORMANCE \. 25 V\. RISK TO SUSTAINABILITY OF DEVELOPMENT OUTCOMES \. 29 VI\. LESSONS AND NEXT PHASE \. 30 ANNEX 1\. RESULTS FRAMEWORK \. 32 ANNEX 2\. BANK LENDING AND IMPLEMENTATION SUPPORT/SUPERVISION PROCESSES \. 36 ANNEX 3\. BORROWER, CO-FINANCIERS, AND OTHER DEVELOPMENT PARTNERS’/STAKEHOLDERS’ COMMENTS \. 39 ANNEX 4\. SUPPORTING DOCUMENTS \. 40  The World Bank Moldova Economic Governance DPO1 (P156963) \. \. DATA SHEET BASIC INFORMATION Product Information Project ID Program Name P156963 Moldova Economic Governance DPO1 Country Financing Instrument Moldova Development Policy Lending DPF Options Programmatic Regular Deferred Drawdown Option Catastrophic Deferred Drawdown Option No No Crisis or Post Conflict Sub-National Lending Special Development Policy Lending No No No Organizations Borrower Implementing Agency Republic of Moldova Ministry of Finance Program Development Objective (PDO) Program Development Objective (PDO) The objective of First Moldova Economic Governance Development Policy Operation is to contribute to better economic governance in the areas of financial sector, public finance and business environment\. PROGRAM FINANCING DATA (USD) FINANCE_TBL Approved Amount Actual Disbursed World Bank Administered Financing 30,000,000 29,160,390 IDA-62740 Page 1 of 40  The World Bank Moldova Economic Governance DPO1 (P156963) Total 30,000,000 29,160,390 KEY DATES Concept Review Decision Review Approval Effectiveness Original Closing Actual Closing 20-Jul-2017 20-Jul-2017 05-Jul-2018 20-Jul-2018 31-Jul-2019 31-Jul-2019 RATINGS SUMMARY Program Performance Overall Outcome Relevance of Prior Actions Achievement of Objectives (Efficacy) Moderately Satisfactory Highly Satisfactory Moderately Satisfactory Bank Performance Satisfactory RATINGS OF PROJECT PERFORMANCE IN ISRs Actual No\. Date ISR Archived DO Rating IP Rating Disbursements (US$M) SECTORS AND THEMES Sectors Mitigation Co- Adaptation Co- Major Sector/Sector (%) benefits (%) benefits (%) SECTOR0_TBL Agriculture, Fishing and Forestry 12 0\.00 12\.00 Agricultural Extension, Research, and Other Support 12 0 100 Activities SECTOR0_TBL Public Administration 50 0\.00 0\.00 Other Public Administration 50 0 0 SECTOR0_TBL Financial Sector 13 0\.00 0\.00 Banking Institutions 13 0 0 SECTOR0_TBL Energy and Extractives 12 0\.00 0\.00 Other Energy and Extractives 12 0 0 Page 2 of 40  The World Bank Moldova Economic Governance DPO1 (P156963) SECTOR0_TBL Industry, Trade and Services 13 0\.00 0\.00 Other Industry, Trade and Services 13 0 0 Themes Major Theme/ Theme (Level 2)/ Theme (Level 3) (%) Economic Policy 25 Fiscal Policy 25 Public Expenditure Policy 25 Tax policy 25 Private Sector Development 13 Business Enabling Environment 13 Investment and Business Climate 13 Finance 13 Financial Stability 13 Financial Sector oversight and policy/banking 13 regulation & restructuring Public Sector Management 25 Public Administration 25 Transparency, Accountability and Good 25 Governance Urban and Rural Development 13 Rural Development 13 Rural Markets 13 Environment and Natural Resource Management 13 Climate change 13 Adaptation 13 Energy 13 Energy Policies & Reform 13 ACCOUNTABILITY AND DECISION MAKING Role At Approval At ICR Regional Vice President: Cyril E Muller Anna M\. Bjerde Page 3 of 40  The World Bank Moldova Economic Governance DPO1 (P156963) Country Director: Satu Kristiina Jyrintytar Kahkonen Arup Banerji Director: Carlos Felipe Jaramillo Lalita M\. Moorty Practice Manager: Gallina Andronova Vincelette Enrique Blanco Armas Task Team Leader(s): Elisa Gamberoni Natasha Rovo \. Page 4 of 40  The World Bank Moldova Economic Governance DPO1 (P156963) I\. PROGRAM CONTEXT AND DEVELOPMENT OBJECTIVES A\. Context at Appraisal Context 1\. The stand-alone Economic Governance Development Policy Operation (EGDPO) approved in July 2018 provided EUR 24,9 million, the equivalent of US$30 million, in budget support to the Government of the Republic of Moldova\. The goal was to reduce fiscal risks (Pillar A) and level the playing field for private sector development (Pillar B)\. With growth slowing over the medium term, addressing structural impediments to efficient public and private sector governance continues to be paramount for supporting new sources of economic growth while ensuring macroeconomic stability\. The authorities committed to restoring the trust of investors and citizens in the integrity of the public sector by making economic institutions more transparent and stable and improving equity in access to and use of resources\. Pillar A reforms focused on reducing fiscal risks by reforming the pension system, mobilizing more revenue by raising tax rates on tobacco, pre-empting the potential conflicts of interest of high-level public officials, and making financial information of state-owned enterprises (SOEs) and municipal enterprises (MEs) more reliable\. Pillar B reforms were directed to removing impediments to obtaining licenses, authorizations, and certificates; accessing vital agriculture inputs (seeds, seedlings, fertilizers, and pesticides); and improving governance in the banking and energy sectors\. Agriculture-related reforms supported by the operation heightened farmers’ ability to adapt to climate change\. 2\. This operation aimed at advancing difficult reforms during the non-electoral year 2017 and in early 2018\. In this context, the EGDPO supported a set of critical policy reforms across several areas, which in parallel were benefitting from dedicated technical assistance (TA) or supporting projects, part of a complex country-engagement, of which the EGDPO represented a component\. In addition, other development partners supported or complemented the reforms through their own programs, in particular the International Monetary Fund (IMF) and the European Union (EU)\. The stand-alone nature of this operation was deemed appropriate also in light of the nature of the prior actions, which represented a set of discrete policy reforms and laws changes, with the exception of the reform on agricultural inputs which needed secondary legislation to be fully effective, but for which the team had offered TA and had also received the commitment of the Government in the Letter of Development Policy (LDP)\. 3\. The EGDPO built on the previous engagements in critical areas and sectors, in coherence and continuity with the previous programmatic DPO1 (DPO1, approved in 2014, and DPO2, approved in 2016), and on the extensive and continuous policy dialogue, analytical work, and lessons learned in previous operations\. For instance, DPO1 included actions related to agricultural inputs, which foresaw a reduction of testing and registration period to facilitate access for farmers\. Further reforms in this sector were also supported by DPO2, with the adoption of regulation on the agricultural support fund for agricultural producers\. With the EGDPO, the goal was to further tackle the bottlenecks in access to agricultural inputs, hence further leveling the playing field\. Similarly, DPO2 contained actions to reduce regulatory compliance costs to improve predictability of the business environment and facilitate competition, regulating inspections\. The EGDPO aimed at further streamlining the regulatory compliance procedures by reducing the number of permits, hence reducing the cost and time for doing business\. Reforms supported by DPO2 contributed to increased transparency in the public sector, by supporting a requirement for the Ministry of Finance (MOF) and the majority of SOEs to conduct price-based public tenders for banking services\. The EGDPO further supported reforms for both SOEs and MEs to enhance transparency and reduce fiscal risks through strengthening auditing requirements\. 1 The main development objectives were: (i) strengthen the regulatory framework to improve predictability of the business environment, facilitate competition, and reduce regulatory compliance costs; (ii) strengthen financial sector stability, promote transparency of shareholding, and ease conditions for access to finance; (iii) improve the public investment management framework, make investment subsidies in agriculture more efficient and equitable, and improve the coverage of well‐targeted social assistance programs\. Page 5 of 40  The World Bank Moldova Economic Governance DPO1 (P156963) Finally, both DPO1 and DPO2 contained actions to strengthen the capacity of the National Bank of Moldova (NBM) and to address the pressing issues in the financial markets, after the country was hit by the bank fraud and more details were released\. Dedicated TA and the EGDPO worked well with NBM efforts and supported the adoption of a new bank governance framework\. 4\. The EGDPO was prepared in a complex environment as Moldova was in the process of rebuilding its macroeconomic buffers and the economy recovery was still fragile due to the 2014 banking fraud and subsequent 2015 contraction\. While growth reached 4\.3 percent in 2018, the year of appraisal, it was below the 4\.6 percent average since 2000 and was mostly driven by consumption, fueled by remittances, social transfers, and wage increases\. A major revision of national accounts contributed to maintaining the fiscal deficit at 0\.8 percent2 in 2018 compared to the expected 3 percent of GDP\. Inflation, though rising, was within the target range; with excess liquidity in the system, monetary policy stayed accommodative: the central bank base rate held at 6\.5 percent, set in 2017 and in 2019 the reserve requirement was increased from 40 to 42\.5 percent\. Table 1: Selected Macroeconomic Indicators 2015 2016 2017 2018a 2019 Prelimina Revise Prelimina Revise Prelimina Revise Prelimina Revise Estimate Actua ry d ry d ry d ry d d l Real Economy Nominal GDPa (MDL, billion) 121\.8 145\.7 134\.5 160\.8 150\.4 178\.9 190\.0 192\.5 170\.9 210\.4 Real GDP growth (percent) -0\.5 -0\.3 4\.1 4\.4 4\.5 4\.7 4\.0 4\.3 3\.7 3\.6 Per capita GDP (US$, Atlas Method) 2,230 2,540 2,110 2,470 2,180 2,560 - 2,920 - 3,340 Contributions Consumption (percentage points of GDP): -2\.1 -2\.4 3\.2 2\.6 4\.3 4\.7 3\.2 3\.3 3\.7 2\.6 Investment (percentage points of GDP): -2\.7 -2\.3 1\.5 0\.3 2\.9 2\.6 4\.2 4\.1 1\.0 2\.5 Net Exports (percentage points of GDP): 4\.3 4\.4 -0\.5 1\.5 -2\.7 -2\.6 -3\.4 -3\.1 -1\.0 -1\.5 Imports (percent volume change) -4\.3 -5\.8 5\.9 2\.8 11\.4 11\.0 8\.9 9\.7 4\.4 6\.7 Exports (percent volume change) 2\.3 2\.6 8\.8 9\.8 12\.7 10\.9 4\.8 7\.2 4\.3 7\.3 Unemployment rate (ILO definition, percent) 4\.9 4\.9 4\.2 4\.2 3\.5 4\.1 - 2\.9 - 3\.7 GDP deflator (percent change) 9\.9 9\.6 5\.7 5\.7 6\.6 6\.3 4\.2 3\.2 5\.2 5\.5 Consumer price inflation (percent change) 13\.6 9\.6 2\.4 6\.5 7\.3 6\.6 3\.8 3\.1 4\.9 4\.7 Fiscal Accounts Expenditures (percent of GDP) 37\.9 31\.9 35\.8 30\.1 36\.3 30\.5 37\.3 31\.0 36\.3 30\.5 Revenues (percent of GDP) 35\.6 30\.0 33\.9 28\.6 35\.5 29\.8 34\.3 30\.1 33\.8 30\.5 General government balance (percent of GDP) -2\.2 -2\.0 -1\.7 -1\.6 -0\.8 -0\.6 -3\.0 -0\.8 -2\.5 -1\.5 Public and publicly guaranteed debtb (percent of GDP) 35\.2 29\.6 43\.8 37\.0 38\.9 32\.7 39\.2 30\.2 38\.7 29\.2 Selected Monetary Accounts Credit to nongovernment (percentage change) 3\.5 3\.2 -7\.6 -7\.8 -3\.4 -2\.6 - 4\.6 - 12\.7 Interest (key policy interest rate, percent) 19\.5 19\.5 9\.5 9\.0 6\.5 6\.5 - 6\.5 - 5\.5 Balance of Payments Current account balance (percent of GDP) -7\.2 -6\.0 -4\.2 -3\.5 -7\.6 -5\.7 -4\.9 -10\.6 -9\.7 - Imports (percent of GDP) 66\.1 57\.8 65\.9 55\.5 66\.8 55\.5 - 55\.7 - 55\.2 Exports (percent of GDP) 36\.6 32\.1 38\.3 32\.5 39\.1 32\.3 - 30\.1 - 30\.5 FDI (percent of GDP) 3\.3 2\.9 1\.3 1\.1 2\.6 1\.6 2\.7 2\.7 3\.3 5\.0 2 In 2018, a major historical revision of national accounts of about 15 percentage points upward for the year affected all ratios\. Despite of the impact on the ratio of the upward revision of the GDP in 2018, the current account deficit (CAD), at 10\.4 percent of GDP, was more than double the forecasted 4\.9 percent\. driven by stronger than predicted imports\. Page 6 of 40  The World Bank Moldova Economic Governance DPO1 (P156963) Remittances (percent of GDP) 22\.3 18\.7 20\.3 17\.2 19\.3 16\.1 18\.7 15\.2 18\.5 15\.1 Gross reserves (US$, millions) end-of-periodc 1,757 1,757 2,206 2,206 2,803 2,803 - 2,995 - 3,060 External debt (percent of GDP) 93\.7 78\.4 91\.8 76\.8 85\.8 72\.1 - 65\.2 - 63\.0 Exchange rate (MDL/US$, average) 18\.8 18\.8 19\.9 19\.9 18\.5 18\.5 - 16\.8 - 17\.6 11,96 Nominal GDP (US$, millions) 6,514 7,746 6,796 8,071 8,121 9,674 - 11,457 - 9 Source: National authorities, World Bank staff calculations\. Note: ILO = International Labour Organization a\. In 2018, a new methodology was introduced with a revision for GDP of about 20 percentage points higher than previously estimated\. b\. Includes debt of the state, the national bank, administrative-territorial units, public sector entities, and majority state-owned companies; does not include short-term domestic arrears (0\.4 percent of estimated GDP, September 2016)\. c\. According to the IMF Balance of Payments Manual, 6th edition, the definition of current account is based on standard representation of current account\. Standard representation, compared with analytical, includes current official transfers to and from the Government\. Gross reserves in months of next year’s imports is the ratio of total gross reserves to next year’s estimated average monthly imports\. 5\. The risks to program implementation were considered moderate, with the highest risks related to macroeconomic and sector strategies and technical design; they were to some extent mitigated by Moldova’s prudent fiscal policy, the IMF program agreed in 2016,3 the operational focus on critical reforms in 2017 (a non-electoral year) and early 2018, and the capacity-building TA for selected agencies\. Original Program Development Objective(s) (PDO) (as approved) 6\. The operation had two main program development objectives, as discussed in the program document (PD), which were also the policy pillars: (1) reducing fiscal risks, and (2) levelling the playing field for private sector development, as stated in the PD and LDP\.4 In the portal, the PDOs are instead: “The objective of First Moldova Economic Governance Development Policy Operation is to contribute to better economic governance in the areas of financial sector, public finance and business environment\.” Probably, the portal was not updated after the change in the TTL-ship and in the operation occurred at the early stage\. The ICR report refers to the PDOs in the PD as baseline for the assessment, being the ones which the operation and the prior actions seem to fully build on\.5 Original Policy Areas/Pillars Supported by the Program (as approved) 7\. Policy areas supported by Pillar A, “Reducing fiscal risks”: • Eliminating the pension deficit, tightening the link between contributions and pensions, and keeping the replacement rate above 25 percent\. Among the pension system reforms necessary were changing the pension formula, raising the retirement age, eliminating special pension benefits for civil servants, and introducing retroactive valorization of pensions of existing pensioners • Expanding fiscal space by increasing revenues from excise taxes in the short term and reducing health- related expenses in the longer term • Contributing to a sustainable and efficient allocation of public resources by enhancing transparency and oversight of SOEs 3 IMF 2016\. Press Release No\. 16/241\. 4 There is no explicit reference in the Financial Agreement to the PDOs\. 5 The data sheet at the beginning of the document is automatically generated and reports the PDOs as described in the operations portal\. Page 7 of 40  The World Bank Moldova Economic Governance DPO1 (P156963) • Promoting a transparent fiscally and socially sustainable public sector by reinforcing the asset declaration regime\. 8\. Policy areas supported by Pillar B, “Leveling the playing field for private sector development”: • Facilitating competition and founding of firms by simplifying procedures for businesses through the one- stop-shop (OSS), and reducing the numbers of authorizations, licenses, and certificates required • Improving productivity, competitiveness and market access for Moldovan farmers by facilitating their access to agricultural inputs developed in the EU • Supporting effective intermediation of funds by building up bank internal governance arrangements • Improving the transparency of and competition for electricity procurement by requiring compliance with new guidelines and monitoring the tender-related process\. B\. Significant Changes During Implementation 9\. A risk, assessed as moderate in the PD, was that the momentum of the reform agenda efforts might stop or weaken in an election year6, and it materialized immediately after the operation was approved and the credit disbursed\. 10\. The government passed a Fiscal Package on July 26, 2018, with specific measures that seemed not fully aligned with the spirit of some reforms supported by the World Bank and the EGDPO\.7 One concern, for example, was that while the EGDPO sought to increase the transparency and limit public servant conflicts of interest through the reform of asset declarations system, the Fiscal Package included a capital amnesty that would allow previously undeclared income and assets to be legalized after paying a 3 percent tax\.8 The Fiscal Package also supported a cut in the contribution rate for real sector employers, from 23 to 18 percent\. This, together with the subsequent introduction of special top-ups in the pension system later in 2018, strained the financial sustainability of the pension system and, more importantly, weakened the link between contributions and benefits\. Since July 2018, the World Bank has actively advocated, including through the issuance of a press statement, both a reversal of the new measures and the full realization of the EGDPO-supported reforms\.9 The IMF and other development partners acted in a similar manner\.10 In July 2018, due to “non-democratic practices during local elections” the EU put on hold its budget support\.11 Donor advocacy resulted in government introducing a set of measures that averted the realization of risks related to capital amnesty\. 11\. Since July 2018, Moldova has changed three governments and has undergone a constitutional crisis after the parliamentary elections held in February 2019\. In June 2019, a coalition was formed and both the IMF and the EU and 6 The elections were originally scheduled for November 2018 but postponed to early 2019\. 7 Law No\. 180/2018 on voluntary declaration and fiscal stimulus; Law No\. 178/2018, including changing the taxation threshold for individuals; Law No\. 179/2018 on illicit assets, introduced with publication of the Official Gazette on July 26, 2018\. 8 The effectiveness of the asset declaration system, which was strengthened through Prior Action 4 was affected by the adoption of Law 180/2018 (http://lex\.justice\.md/index\.php?action=view&view=doc&lang=1&id=376854)\. In 2018, the Government agreed with the donor community to amend some of the elements, for example by raising the tax rate to 6 percent and by increasing the restrictions on categories of individuals who could benefit from the voluntary declaration program by adopting Law No\. 243/2018 regarding the amendment of Law no\. 180/2018 regarding voluntary declaration and fiscal stimulation http://lex\.justice\.md/md/378181/\. Finally, after the parliamentary elections in 2019, the law was abolished\. 9 World Bank: https://www\.worldbank\.org/en/news/statement/2018/07/27/world-bank-moldova-statement-on-the-tax-initiatives-and-capital- amnesty-package; News article: http://news\.trust\.org/item/20180727103038-j2tb6/\. 10 IMF: https://www\.imf\.md/press/pressl/pressl-180726\.html 11 http://www\.europarl\.europa\.eu/doceo/document/TA-8-2018-0303_EN\.html\. Page 8 of 40  The World Bank Moldova Economic Governance DPO1 (P156963) restored budget support and the World Bank has reinitiated its policy dialogue\. In November 2019, this coalition was replaced by a new one and a new government has taken power\.12 II\. ASSESSMENT OF KEY PROGRAM DESIGN AND OUTCOMES Table 2: Prior Actions and Results Indicators Results Indicators: Results Indicators: Efficacy: Value Prior Actions Target Achievement of objectives/outcomes at achieved at (original and revised) completion or in target years completion or target years PILLAR A: Reducing fiscal risks Prior Action 1: Result Indicator 1: RI exceeded\. Partially Achieved\. The results indicator Enacted amendments to its Average old age Status: 28\.3% (RI) has been fully met\. public pension legislation by pensions replacement (2018 - actual) In addition, amendments to the introducing a new benefit rate (percent) administration of the military pension formula and indexation, Baseline (2018 – status scheme (consolidating recording of increasing the retirement age, quo): 24% service time and pensionable wage, and streamlining the special Target (2018 - reform): adding the military as contributors to the pension regimes\. 26% general pension system) built a foundation for continued dialogue on the integration of this system into the general one\. However, liquidation of the special judiciary pension scheme was overturned in the Constitutional Court of Moldova\. In addition, the reduction in the contribution rate, and ad-hoc interventions made by the authorities after the credit was disbursed, weakened the pension system balance by creating a long-term deficit of about 0\.9 percent of GDP\.13 The goal of the reform was to retain fiscal sustainability while building up social sustainability\. The changes supported by the 2019 IMF program will partly offset the revenue loss, but more action is needed to broaden the revenue 12See also https://freedomhouse\.org/country/moldova/freedom-world/2020 13If all other post-EGDPO measures are taken into account - surviving spouse pension, recalculation of pensions for working pensioners, and small additional deficit due to the switch to indexation twice a year – and the judiciary and military pension schemes deficit, the deficit would amount to 1\.5% of GDP\. Page 9 of 40  The World Bank Moldova Economic Governance DPO1 (P156963) base and address remaining special pensions\. Prior Action 2: Result Indicator 2: RI not met\. Partially Achieved\. The RI has not been Enacted legislation to increase Excise tax collections Status: ‒1\.9% met\. The increase in tobacco excises specific excise taxes on from tobacco percent (2018 tracked the planned increase beyond the cigarettes\. Baseline (2016): - actual) EGDPO target but the results indicator has MDL 1\.7 billion not been met, possibly because of a rise Target (2018): in non-registered sales of tobacco\. baseline + 12 percent in Measures taken to limit duty-free sales in real terms 2019 might result in better revenue collection from 2020 on as duty-free licenses gradually expire\. Prior Action 3: Result Indicator 3: RI met\. Achieved\. The RI has been met\. Currently Enhanced transparency and Percentage of medium Status: 50% 19 of the 38 state and municipal entities oversight of SOEs by enacting and large Municipal (June 2019 are submitting audits\. However, the legislation that: (a) mandates the Enterprises and actual) quality of the audits needs improvements auditing of the annual financial medium and large to ensure accurate evaluation of statements of state/municipal State-Owned enterprise financial performance and thus enterprises which are part of the Enterprises that have facilitate any future privatization plans\. medium, large, or public interest submitted audit category; (b) classifies Large SOEs reports to the as public interest entities and competent national obligates them to prepare authority financial statements under IFRS; Baseline (2017): 38% and (c) establishes improved Target (June 2019): institutional and funding 50% arrangements for an audit oversight system\. Prior Action 4: Result Indicator 4: RI partially Partially Achieved\. The RI has been Strengthened its asset Number of asset and met\. partially met\. Although more than 69,000 declaration regime by (a) interest declarations Status: declarations were submitted in both 2018 enacting amendments to the NIA filed electronically Declarations and 2019, there has been no automatic Law, the Law on Declaration of Baseline (2016): 0 filed cross-check verification in bulk, mostly Assets and Interests, the Criminal Target (2018): 60,000 electronically due to interoperability issues with other Code, and the Contravention 69107 (2018) registries\. National Integrity Authority Code; (b) adopting a regulation Number of asset 71504 (2019)14 (NIA) has accessed public registries for on the methodology for declaration undergoing cross-checking information in individual verification of asset declarations automatic cross-checks Cross-checked: asset declarations\. NIA reports issues with and conflicts of interests; and (c) with public registries 0 (2018 – (i) limited access to the other registries launching the NIA’s electronic Baseline (2016): 0 actual) and (ii) existing inaccuracies in other asset declaration and verification Target (2018): 60,000 0 (2019 – registries, for example land and system online\. actual) population\. PILLAR B: Leveling the playing field for private sector development 14 NIA 2019 Report are available at http://ani\.md/sites/default/files/Raport%20ANI%209%20luni%202019\.pdf\. Page 10 of 40 The World Bank Moldova Economic Governance DPO1 (P156963) Prior Action 5: Result Indicator 5: RI met\. Partially Achieved\. The RI has been met\. Enacted amendments to its Number of Status: 152 The number of permits and licenses legislation on the regulation of authorizations (permits permits are required has been reduced to 152, and entrepreneurial activity to and licenses) listed in the 135 are configured in the OSS\. However, streamline requirements for Baseline (2016): 300 Law, of which just 69 are fully operational\. The private application and the procedure for Target (2018): 153 135 are in the sector reports that use of the system has receiving authorizations, OSS, although reduced time needed from 20 to 6 days\. including mandating the use of a only 69 are in There are requests from permit issuing OSS, and to reduce the list of used authorities to remove some permits from required licenses, authorizations, (2020 – actual) the system, and more effort is needed to and certificates\. promote use of the OSS\. Prior Action 6: Result Indicator 6: RI partially Partially Achieved\. The RI has been Enacted amendments to its Number of plant met\. partially met\. According to the latest legislation to improve farmers’ varieties, types of Status: seeds statistics from the National Agency for access to agricultural inputs fertilizers and (+40 percent), Food Safety, imports of fertilizers and (seeds, seedlings, fertilizers, and pesticides imported seedlings (‒1 seeds have increased\. However, pesticides) by simplifying the Baseline (2016): seeds percent), secondary legislation covering fertilizers, domestic mandatory 566; seedlings 90; fertilizers (+41 pesticides, seeds, and seedlings needs to requirements for testing and fertilizers 146; percent), be aligned with the primary law and registration for European Union- pesticides 754 pesticides (no registration fees reduced\. The Ministry of registered inputs\. Target (June 2019): data) (June Agriculture, Regional Development and baseline + 10 percent 2019) Environment (MARDE) reported that amendments to secondary legislation were under preparation and to be finalized by March 2020\. However, no legal drafts had been shared yet\. Prior Action 7: Result Indicator 7: RI exceeded Exceeded\. The RI has been met\. All banks The National Bank of Moldova Number of banks Status: 11 of are compliant with the new laws and are initiated evaluation of materially complying 11 (December regularly supervised for continued compliance by three banks in with the governance 2019) compliance\. accordance with the bank provisions in the Law governance provisions of the new on Banks’ Activity and Law on Banks’ Activity and the the Regulation on new Regulation on Internal Internal Governance Governance and Risk and Risk Management Management in Banks through its Baseline (2016): 0 out on-site and off-site monitoring of 11 systems\. Target (June 2019): 5 out of 11 Prior Action 8: Result Indicator 8: RI met\. Partially Achieved: The RI has been met\. Taken steps to improve the Share of electricity Status: 80 Since 2017, almost 80 percent of transparency and competition in purchased under percent (2018 electricity has been purchased according the wholesale electricity market published Guidelines and 2019) to published guidelines\. However, the by i) the approval of the (for April-March 12 Group of Observers (2018) reported lack Guidelines for Annual months cycle) of transparency, involvement of the Procurement of Electricity for the Baseline (2016): 0 Ministry of Economy and Infrastructure purchase of electricity on the (MOEI) in procurement, and de facto lack Page 11 of 40  The World Bank Moldova Economic Governance DPO1 (P156963) wholesale market (excluding Target (2018): 50 of competition\. The Guidelines are to be regulated purchase of domestic percent replaced by the new procurement rules\. power generation, power reserves, and emergency supply); and by ii) the involvement of the Group of Observers in the monitoring of the tender-related process\. A\. Relevance of prior actions Rating: Highly Satisfactory 12\. The operation is grounded in the National Development Strategy (NDS) Moldova 2020 and in the three-pillar Country Partnership Framework (CPF) drawn up in 2017 for 2018‒21\.15 The operation is aligned with three of the seven NDS strategic priorities: (1) improving the business environment, promoting competition and streamlining the regulatory framework; (2) increasing energy efficiency and encouraging reliance on renewable sources of energy; and (3) ensuring financial sustainability of the pension system\.16 It also supports the “economic governance” focus area in the CPF and its priority areas: (1) business-friendly policies to foster private sector development and job creation; (2) better accountability in selected economic institutions, i\.e\., government agencies and ministries and state-owned enterprises (SOEs); and (3) improved governance of financial institutions\. The tobacco taxation and energy sector reforms supported by the operation both contribute to the CPF “service governance” focus area, which is directed to achieving efficient, equitable, and transparent public services, such as education, energy, health, transport, and water\.17 The tobacco tax reform is anchored in the Health Strategy of the Government 2014‒20 (“national public health strategy”), which includes adoption of the National Tobacco Control Program 2017‒21 (Moldova 2016)\.18 13\. Pillar A reforms aimed at reducing fiscal risks by ensuring that the pension fund is financially sustainable, increasing collection of excises, and heightening the transparency of SOEs and the public sector generally\. Prior Action #1 supported parametric reform of the pension system to tighten the link between contributions and the pension benefits and equity of Moldova`s pension system while ensuring its fiscal sustainability, and thus directly addresses an NDS priority and contributes to the first PDO of this operation\. After the reform, the system was well-positioned to provide basic social security to recipients: instead of sliding below 15 percent, the average pension replacement rate would rise toward the range of 25‒35 percent\. Moreover, projections indicated that the pension system would be practically balanced over the long term (with an average deficit of -0\.1% GDP)\. Prior Action #2 supported the enactment of laws to increase specific taxes on cigarettes in order to open up fiscal space in the short term and improve health outcomes in the medium term, which should eventually help to reduce health spending\. Finally, Prior Actions #3 and #4 to improve transparency and ensure sustainable and efficient use of public spending directly targeted two of the three CPF economic governance priorities: making government agencies, ministries, and SOEs more accountable and improving the governance of financial institutions\. Therefore, both reforms positively contributed to the development objective of achieving a reduction of fiscal risks\. Before the reform which was supported by Prior Action #3, the requirement of the law to make financial statements of SOEs publicly available was rarely observed\. Such practices led 15 The NDS Moldova 2020 is available here: https://bit\.ly/3dO8tBo 16 The other four priorities are: (1) national education system aligned with labor market requirements to enhance labor productivity and increase employment; (2) improving roads to reduce transportation costs; (3) increasing the quality and efficiency of justice and fighting corruption; and (4) reducing financing costs by increasing competition in the financial sector and developing risk management tools\. 17 The third focus area of the CPF 18-21 deals with skills development\. 18 The National Tobacco Control Program 2017-2021 is available at https://gov\.md/sites/default/files/document/attachments/intr07_127\.pdf Page 12 of 40  The World Bank Moldova Economic Governance DPO1 (P156963) to poor transparency and high potential fiscal risks arising from the SOEs sector which represents up to one third of Moldovan GDP\.19 Finally, Prior Action #4 supported more transparency and accountability of public officials, key challenge in a country still recovering from the 2014 bank fraud and dealing with its consequences\. For example, given the risks associated with the financial sector and the high costs of the 2014 bank fraud crisis, the reform indeed extended application to key staff positions that are at higher risk of corruption, such as banking supervisors\. 14\. Pillar B supported private sector development by leveling the playing field\. Prior Action #5 supported relieving the regulatory burden on businesses by reducing the number of required authorizations, licenses, and permits and clarifying the procedures for accessing the application through the OSS\. Through a reduction of the number of permits and the introduction of a transparent and simplified procedure for getting permits, the reform aimed at reducing the bureaucratic burden for firms, hence facilitating firm creation, and increasing competition and streamlining application process, hence reducing costs for business opening in line with the EGDPO objective\. Prior Action #6 promoted easier farmer access to EU-registered plant varieties, fertilizers, and pesticides; it was designed to reduce the monopoly power of vested interests, such as seed importers, and the costs of complying with regulations, thus lowering the costs of agricultural inputs and enhancing agricultural productivity\. Building on work done during the Programmatic DPO, this action was designed to promote competition in agricultural inputs\. Prior Action #7 helped to enhance the governance of banks to ensure that the banking system can effectively intermediate funds to productive investments to foster economic development and growth\. The reform also helped to strengthen internal bank oversights and control management practices, extremely relevant in a country still paying the cost of the 2014 banking crisis, as shown by the still limited, yet recovering, financial intermediation\. Finally, Prior Action #8 supported introduction of new guidelines for energy procurement, an initial step towards heightening transparency and competition and possibly lowering energy prices, in a small and highly concentrated market\. As discussed in the PD, political involvement in electricity procurement was considerable, and the annual electricity procurement process always suffered from a lack of competition and transparency and the potential for collusion between traders and generators\. As a result of the reform, SOEs that participated in tenders had to make an effort to comply with the Guidelines\. Through media reports, Moldovans were informed about the new Guidelines and that international organizations were monitoring the process\. 15\. Moreover, in keeping with the Bank’s twin goals of reducing poverty and promoting shared prosperity, the pension and tobacco taxation reforms supported by Pillar A and agricultural inputs reform from the Pillar B were meant to have a direct positive impact on reducing poverty and inequality: the pension reform would prevent a decline in the replacement rate for new pensioners, improve the rate for existing pensioners, and make the system more equitable by addressing special pensions and the gender gap\. Although the tobacco taxation reform was expected to push up prices, this was estimated to affect proportionately more households in the middle and upper categories of the income distribution while promoting better health outcomes over time (Fuchs and Meneses 2018)\.20 Finally, the agricultural inputs reform was designed to improve farm productivity and reduce the volatility of farmer incomes as agriculture employs 80 percent of poor Moldovans and 70 percent of the population at the bottom 40 percent of the income distribution\. The other reforms were expected to have neutral or positive welfare effects\. 16\. Given the above discussion, all prior actions proved to be highly relevant given the country context, as they addressed important reform areas and sectors for Moldova and triggered necessary reforms to be advanced in the medium and long- term\. Thus, all prior actions have a strong and direct link to achieving the intended PDOs as they appropriately tackled critical risks to fiscal sustainability and addressed critical obstacles to a level playing field\. Therefore, the overall relevance of the prior actions is rated Highly Satisfactory\. 19 World Bank\. 2018\. Moldova Country Economic Memorandum: Rekindling Economic Dynamism\. World Bank: Washington, DC\. 20 Fuchs A\., and F\. Meneses (2018) Tobacco Price Elasticity and Tax Progressivity in Moldova\. Policy Research Working Paper 8327\. World Bank, Washington DC\. Page 13 of 40  The World Bank Moldova Economic Governance DPO1 (P156963) Figure 1\. EGDPO Theory of Change B\. Achievement of Objectives (Efficacy) Rating: Moderately Satisfactory 17\. As approved, the PDOs were to reduce Moldova’s fiscal risks and level the playing field for private sector development\. When this report was written, as Table 2 shows, five results indicators (RIs) were met or surpassed (average old age pension replacement rate; number of SOE/ME audits; number of permits reduced; number of banks complying with new governance regulations; electricity procurement adhering to the guidelines)\. Two were met in part (number of electronic declarations of assets and interests, imports of agricultural inputs), and one (excise tax collection) was not achieved\. 18\. Assessment of RI achievement alone does not fully reflect achievement of the objectives —how effective the operation as a whole was\. For example, although the pension reform RI, Prior Action #1, has been achieved, the intended intermediate and final outcomes were not, as additional measures were introduced subsequently by the authorities not aligned with the intent of the original reform\. The reform foresaw two main outcomes: (1) to eliminate the deficit of the pension system and (2) maintain the replacement rate\. The RI chosen was an increase in the average old-age replacement rate, which covers only the social sustainability of the reform\. After the reform, a series of policy initiatives (contribution cut, top-ups, twice-a-year double indexation) were introduced\. These helped to raise the replacement rate—the target was even overshot\. But the subsequent government initiatives weakened the financial sustainability outcome\. Similarly, for Prior Action #5, the RI mirrors mostly the legislative changes and the reduction in the number of documents listed in Annex 1 of Law no\. 160/2011, although the objective has been partly achieved, and less than half of the documents are processed as mandated through the OSS\. 19\. As for the tobacco taxation reform (Prior Action #2), since 2016 the government has rigorously increased the excise rates in line with the agreed reform and the EU Association Agreement, but several factors, some not within the control of the authorities, have reduced collections and prevented achievement of the targeted 12 percent increase in Page 14 of 40  The World Bank Moldova Economic Governance DPO1 (P156963) real revenues that depended on excise revenue\. Similarly, in the case of the electronic asset declaration (Prior Action #4), although the RI has not been fully met, the impact of the transition to electronic submission and online publication, although difficult to measure, has been very important\. Civil society, media and other stakeholders can now access the filed asset declarations forms as soon as they have been filed without encountering any delay\. This makes their use in the monitoring of unjustified variations of wealth and conflicts of interests more effective\. 20\. The efficacy rating in this ICR, while informed by relevance of the RIs, is driven by the achievement of the reform objectives through implementation of the prior actions\. Overall, the RIs are clear and measurable and, as Table 2 shows, five RIs were met or surpassed, two were partially met, and one was not met\. Looking at the achievement of outcomes, as also summarized by Table 2, six out of eight outcomes were partly achieved, while the remaining two either achieved or surpassed\. Therefore, the overall efficacy of the operation is rated as moderately satisfactory\. The misalignment between the two assessments raises concerns about whether the selected RIs properly reflected the results that the operation wanted to achieve as will be discussed in Section IV\. This section instead assesses in detail the efficacy of the operation by prior action\. PDO1/Pillar A: Reducing fiscal risks 21\. Prior Action #1 supported the parametric reform introduced in December 2016 by Law No\. 290 to ensure that Moldova`s pension system was on the path to fiscal and social sustainability, in line with the purpose of the system as established by Law 156/1998, Art\. 1: to “ensure a fair and sustainable pension system\.” The reform included parametric changes such as valorization of wages included in the pension base, change in accrual rate and benefit indexation, increase of the retirement age, and elimination of some special pensions\. The changes were designed to preserve financial sustainability while ensuring social sustainability\. Before the reform, the replacement rate was expected to slide down to 15 percent, and, despite the deficit in 2015‒17, the social fund, which includes social assistance and pension funds, was expected to register a surplus as the replacement rate deteriorated\. As Figure 5 shows, the system’s deficit under the EGDPO pension reform was indeed projected to approach negligible levels by 2020 and stay there for the forecast horizon, while the replacement rate would have risen towards the range of 25-35 percent\. 22\. As anticipated in Section I\.B, after the reform, at the end of 2018, the social contribution rate paid by employers in the real sector, higher education, and health care was reduced from 23 to 18 percent\. Moreover, in 2018 and 2019 the authorities introduced a series of ad-hoc policy initiatives, such as permanent increases of low pensions, recalculation of pensions of working pensioners, and twice-a-year indexation\.21 23\. Prior Action #1 targeted, as an RI, the average old-age replacement rate\. The RI chosen, and met, is expected to stay in the range of 25‒35 percent (Figure 2)\.22 In particular, the average replacement rate for all pensioners is on track to 26 percent, and the one for new pensioners who were affected by the reform in the short term went up more than 2 percentage points to 28 percent\. The post-reform measures contributed to a further 0\.7 percent increase in the replacement rate for existing pensioners\. The reform has helped to improve the social sustainability of the system, as shown by the drop in the dependency ratio (Figure 3)\. In addition, the reform addressed the regime of special pensions for civil servants, and amendments to the administration of the military pension scheme (consolidating recording of service time and pensionable wage, adding the military as the contributors to the general pension system) built foundation for continued dialogue on the integration of this system into the general one\.23 21 Thanks to the joint effort of World Bank and IMF teams the initial proposal of double indexation has been reframed as twice-a-year indexation, which is included in the IMF 2020 program (March 2020)\. 22 The average replacement rate estimate is based on official data from the MHLSP and Prost simulations\. National Social Insurance House calculates actual replacement, which is used to calibrate and verify the Prost model simulations\. 23 The reform supported also liquidation of special judiciary pension scheme which was however overturned in the Constitutional Court of Moldova\. Page 15 of 40  The World Bank Moldova Economic Governance DPO1 (P156963) 24\. Despite the achievement of the results indicator and progress made in the area of special pensions, the post- reform initiatives undermined the potential gains of the 2016 reform, especially on the fiscal front\. This raises concerns about the design of the prior action itself (see Section IV for a fuller discussion)\. The contribution rate cut had the most significant impact (Figures 4 and 5) with the permanent loss of contribution revenue estimated at 0\.7 percent of GDP\. By 2026 that would spike the deficit for the pay-as-you-go (PAYG) pension system from 0 as a result of the 2016 reform to 1\.4 percent of GDP\. Moreover, simulations suggest that increases in the wage bill, waged employment, or both are not likely to compensate for the revenue loss, because in future they would also be offset by higher pension system liabilities\. The introduction of measures in the pre-election phase in 2018, such as ad hoc pension top-ups for those receiving lower pensions while providing income support to low-income households, would not be the most efficient or effective way to support low-income groups\. A wave of measures that came between the 2019 Parliamentary and the 2020 Presidential elections, including twice-a-year indexation, holiday bonuses for pensioners, and a 5-year payment guarantee for survivors, had similar impact: these “anti-poverty” measures targeted pensioners, the group with the lowest poverty rate, but failed to reach the most vulnerable groups\. Moreover, they weakened the link between paid contributions and pension amounts\. It not only undermined compliance, it also contrasts with the principles of the pension system itself\. On a positive side, in Spring 2020, as part of the World Bank COVID emergency support, the authorities implemented a significant design change to the social assistance program, partially addressing the above deficiencies and setting on a path for further improvement of the cash transfer program\. 25\. Since the release of the 2018 fiscal package, the World Bank team, in coordination with the IMF, has actively engaged with the government to find ways to address the reversal and mitigate the impact of the policy initiatives, such as the deficit created in the pension funds\. The team has also raised awareness of the need to tackle the unfinished pension reform through a special note in the biannual economic update\.24 Recent measures that are part of the 2019 and 2020 IMF programs25 partly reverse, and reduce the damage of, the post-EGDPO initiatives, but more is needed to broaden the contributor basis and to address privileged pensions\. Figure 2\. Replacement Rate for Pensioners Figure 3\. System Dependency Ratio (Total Beneficiaries/Effective Contributors), Percent 125\.0 120\.0 115\.0 110\.0 105\.0 100\.0 95\.0 90\.0 85\.0 2057 2017 2021 2025 2029 2033 2037 2041 2045 2049 2053 2061 2065 2069 2073 2077 no reform reform (w/o contribution cut) reform and contribution cut 24http://pubdocs\.worldbank\.org/en/947531574937556947/Moldova-Special-Focus-Note-Unfinished-Pension-Reform-en\.pdf 25IMF\. 2020\. Republic of Moldova: Staff Report for the 2020 Article IV Consultation and Sixth Reviews Under the Extended Credit Facility and Extended Fund Facility Arrangements-Press Release; Staff Report; and Statement by the Executive Director for the Republic of Moldova\. IMF: Washington DC\. Page 16 of 40  The World Bank Moldova Economic Governance DPO1 (P156963) Source: World Bank staff calculation\. Source: World Bank staff calculation\. Figure 4\. Effective Contribution Rate, Percent Figure 5\. Pension System Deficit 29\.00% 28\.50% 28\.00% 27\.50% 27\.00% 26\.50% 26\.00% 25\.50% 25\.00% 2017 2047 2022 2027 2032 2037 2042 2052 2057 2062 2067 2072 2077 no reform reform (w/o contribution cut) reform and contribution cut Source: World Bank staff calculation Source: World Bank staff calculation\. 26\. Prior Action #2 supported enactment of laws to raise excise taxes on cigarettes\. The RI measures the real increase of revenues from those excises since 2016\. This reform was expected to raise the average tax on tobacco from €20 per 1,000 cigarettes in 2016 to €22 in 2017, toward the target of €90 by 2025 set in the 2014 Association Agreement between the Republic of Moldova and the EU\. 27\. In 2017–19, in compliance with the Association Agreement, the government approved the gradual annual growth of the duty on tobacco products (Cetinkaya 2020)\.26 According to official statistics, excise tax revenue amounted to MDL 1\.86 billion in 2018 and 2\.03 billion in 2019, compared with MDL 1\.73 billion in 2016 (Figure 6)\. While in nominal terms, tobacco excise revenues grew by 7\.7 percent in 2018 compared to 2016, in real terms excise revenues dropped in 2018 compared to 2016 instead of the growth target of 12 percent\. The RI of 12 percent increase in real terms was identified based on actual data on real revenues growth of 10 percent in 2017 and an estimated 42 percent nominal increase for 2018\. The projections also accounted for a likely fall in demand\. However, several factors came into play and may explain the actual decline in revenues after 2016\. About 10 percent of smokers switched to electronic cigarettes, which were excluded from excise coverage until Summer 2019 (Marquez and Guban 2018)\.27 Further, duty- free sales had expanded in 2018 which reduced the imports of cigarettes while closure of the duty free shops at entry, including those neighboring with the regions on the left bank side of river Nistru, de-facto has been postponed until 2022 when the licenses of those shops are to expire;28 smuggling to neighboring countries (Ukraine and Belarus) also fell as the price of tobacco in those countries rose to Moldova levels\. The reform supported in Moldova is in fact part 26 See also Cetinkaya, Volkan\. 2020\. Disclosable Version of the ISR - Moldova Health Transformation Project - P144892 - Sequence No: 13 (English)\. Washington, D\.C\.: World Bank Group\. 27 Marquez P\.V\. and I\. Guban\. 2018\. What countries can l earn from Moldova’s successful tobacco taxation efforts\. Available at: https://blogs\.worldbank\.org/health/what-countries-can-learn-moldova-s-successful-tobacco-taxation-efforts 28 It is important to note that starting from January 1, 2020 und until the expiry of the activity licenses of the duty-free shops at entry, in the territory and at the border at the exit, import duties will be paid for excisable products sold at the duty free shops at entry\. Page 17 of 40  The World Bank Moldova Economic Governance DPO1 (P156963) of a global and, more importantly, regional effort to reduce tobacco consumption (Global Tobacco Control)\. As a result of this effort, between 2016 and 2018 the number of imported cigarettes halved, from 6\.2 to 3\.4 million (Figure 7)\. 28\. As another primary goal of the reform was to improve health outcomes by discouraging consumption of tobacco, the failure to achieve the RIs may actually be a sign of success towards this goal\. The reform supported by Prior Action #2 did in fact prepare the ground for the authorities to introduce additional measures\. In Law No\. 97 (July 2019), despite removal of the reference to the Minimum Reference Price introduced with the 2017 Budget Law (Law 279, December 16, 2016) 29, in compliance with the EU Association Agreement the government approved gradual annual growth in the excise on tobacco products\. As part of the IMF program, the definition of the term "smoking" has also been expanded to include use of heated tobacco (IMF 2019)\.30 All kinds of tobacco products are now treated equally in Moldova, as the World Bank team had recommended, unlike many other countries where the excise rates applied to electronic and similar products are lower than on regular ones (Marquez and Guban 2018)\. The average tax on tobacco has thus risen to an estimated €35 per 1,000 cigarettes\.31 On the overarching objective of improving the health outcomes discussed in the PD, it is too soon to draw any conclusions\. Figure 6\. Tobacco Excise Tax Revenue, 2016–19 Figure 7\. Total Imported Cigarettes\. Thousands 2,100,000 6,500,000 2,050,000 6,000,000 2,000,000 5,500,000 1,950,000 5,000,000 1,900,000 4,500,000 1,850,000 4,000,000 1,800,000 3,500,000 1,750,000 3,000,000 1,700,000 2,500,000 2016 2017 2018 2019 2016 2017 2018 2019 Source: MoF\. Source: MoF\. 29\. Prior Action #3 supported the mandatory auditing of annual financial statements of medium and large companies and companies of public interest (more than 50 percent state-owned) (Law No\. 246, 2017) in line with the re-classification of SOEs and MEs, based on the Accounting Directive 2013/34/EC (Law No\. 287 2017); and improved institutional and funding arrangements for an audit oversight system (Law 271 2017)\. Before the reform, the Law on State Enterprises (Law 146, 1994) only required audit of the annual financial statements of SOEs that exceeded two of three thresholds in two consecutive years\.32 As of December 31, 2017, out of 606 entities (146 state, 460 municipal), only 67 state enterprises (no municipal) were subject to mandatory auditing\. Even though the law required SOEs to make their financial statements publicly available, the requirement was rarely observed, even in part\. Economically significant SOEs were not classified as public interest entities and were therefore subject to National Accounting 29 Law No\.279 of December 16th, 2016\. 30 IMF\. 2019\. Republic of Moldova – Fourth and Fifth Reviews under the Extended Credit Facility and Extended Fund Facility Arrangements, Completion of the Inflation Consultation, and Request for Extension of the Arrangements and Rephasing of Access\. Washington DC\. 31 Other initiatives have been discussed but not yet approved\. such as raising the minimum age to purchase tobacco products from 18 to 21\. 32 Capital exceeding MDL 500,000; total revenue exceeding MDL 10m; and more than 100 employees\. See the SOE Diagnostics for Moldova (World Bank 2017) for details\. Page 18 of 40  The World Bank Moldova Economic Governance DPO1 (P156963) Standards, which require less disclosure than the International Standards\.33 Finally, MEs were exempted from any auditing requirements (Regulation 387/1994)\. The assessment of the SOEs and MEs sector done by Pirvan (2018) based on 2017 data showed indeed a severe shortage of transparency in Moldova\.34 30\. After the legal changes, because most SOEs and MEs are classified as small entities and restructuring and privatization plans are being gradually implemented, as of February 2020 just 38 entities were required to commission audits of their annual financial statements, of which 20 are state enterprises (4 large and 16 medium) and 18 municipal\.35 The RI that 50 percent of 38 entities be audited was met: 19 annual reports have been audited and the audit reports have been published online at the time of writing this report\. Of 20 SEs subject to mandatory audits, 13 submitted audit reports\. Of the 18 MEs, 6 submitted their audits\. The reports are available on the Public Property Agency website\.36 The reform is continuing with World Bank TA and STAREP support, and, since late 2019, additional modifications are under consideration to further strengthen the system\. These include for example, requirements to extend the mandatory annual external audit to all SOEs (Draft Law No\.85/2019)\. However, Law 246/2017 does not specify any penalty if entities do not submit mandatory audits, which may undermine compliance\. Often, entities have financial difficulties and limited resources to perform audits\. The quality of audits also needs to be improved to ensure accurate evaluation of the financial performance of enterprises to support future privatization plans\.37 31\. Prior Action #4 supported the transition to a new model for declaration of assets and interests through amendments to the laws on asset declaration and the NIA, adoption of regulations on the methodology for verification, and launch of the electronic asset declaration and verification system\.38 Prior to the reform only high-level public officials (e\.g\. members of the Supervisory Board and the Executive Committee of NBM and National Commission of Financial Markets, NCFM) were covered by the legislation\. Moreover, before the reform, organizations collected paper- based declarations and transported them to NIA for manual processing\. The process was cumbersome, involving scanning, indexing, masking personal data, and publishing declarations, etc\. Therefore, electronic filling dramatically reduced costs and time\.39 The goal of the reform was to create an effective system for declaring and verifying declarations by public officials, and their family members, not only in their name, but also as beneficial owners, and to broaden the coverage of the asset declaration regime to include critical high-level public servants\. The reform therefore broadened the application of the asset declaration regime as set by Article 3 of Law 133, 2016 defining which public officials and their family members are obligated to declare their wealth and personal interests\. In case of NBM and NCFM, the coverage was extended to include all high-level public officials and employees, except for those performing auxiliary activities, e\.g\., secretarial, protocol, administrative, and technical\.40 Given the risks associated with the financial sector and the high costs of the 2014 bank fraud, the reform extended therefore the application to key staff positions that are at higher risk of corruption, such as banking supervisors\. Finally, a new verification methodology was 33 Accounting Law (Law 113/2007) requires public interest companies to use IFRS\. 34 The report is developed within the project “Promoting transparency and financial sustainability of regional policies, state-owned enterprises and local authorities in Moldova”\. The initiative is being implemented by the Institute for Development and Social Initiative s (IDIS) “Viitorul”, in partnership with the Institute for Economic and Social Reforms in Slovakia (INEKO), with the financial support of the Official Development Assistance of the Slovak Republic (SlovakAid)\. Results are available at http://companies\.viitorul\.org/\. 35 According to Law 287/2017, s small entity is a micro entity that at the reporting date, does not exceed two of the following criteria: (a) total assets – 63,600,000 lei; (b) revenues from sales - 127,200,000 lei; (c) average number of employees during the period - 50\. 36 https://app\.gov\.md/ro/advanced-page-type/intreprindere-de-stat 37 Although having an international company performing the independent audit is not a guarantee of quality, none of the SOE audits published in the Public Property Agency website is from a foreign entity, although some local audit companies are part of international circuits\. 38 Although the transition to a fully digital system may seem ambitious, and not many countries have done it, Moldova relatively high degree of e-government made it possible to support the government in this process\. For example, the Digital Adoption Index – Government subcomponent is close to the average for ECA, high-income included, and much higher than in neighboring countries, including Ukraine, where the electronic declaration system has been successful\. Source: https://www\.worldbank\.org/en/publication/wdr2016 39World Bank 2018\. Moldova\. Mobile ID Case Study\. World Bank Group: Washington DC\. 40 As amended by Law 66, May 24,2018\. Previously, only members of the Board and Executive Committee were subject to the declaration\. Page 19 of 40  The World Bank Moldova Economic Governance DPO1 (P156963) adopted to ensure that scarce NIA resources for inspectors are used to target high-risk declarations while complying with the requirement to focus at least 40 percent of the verifications on officials holding “public dignitary” functions\.41 32\. The RIs were partially met\. More than 60,000 declarations were submitted through the e-Integrity portal in both 2018 and 2019, although they could not be published online in machine-readable format which allows for automatic reading of data\.42 However, no asset declarations have undergone automatic cross-check in bulk as in theory the system should allow\.43 Concerning the verification methodology, NIA explained that risk categories for 2018 and 2019 were selected based on internal analyses of the lists generated by the e-Integrity information system\. 33\. Two major factors created risks during the implementation of the asset declaration reform\. First, in July 2018, the Fiscal Package allowed for capital amnesty (see above, Section I)\. However, amendments adopted in November 2018 through Law No\. 243/2018 helped mitigate concerns about voluntary declaration\. The amendments excluded from voluntary declaration all officials and their family members and partners who were and are required by Law 133 of June 17, 2016, to file declarations of assets and interests\. 34\. Second, an unforeseen technical error prevented activation of the cross-check function44 and NIA is currently seeking a new contractor that would help remove the error and upgrade the system \. The World Bank team offered support for a functional review and testing of the system in FY20 to inform technical requirements for further development of e-Integrity\. The review could be conducted after work on the system upgrade is completed\. Most importantly, as the World Bank recommended, NIA has committed to connecting e-Integrity with four relevant registries—land cadaster, register of vehicles, register of legal entities, and tax database—to ensure automated cross- checks of declarations in bulk by the end of 2020\. However, NIA reported issues related to the interoperability between different registries and the inadequacy of the information in other registries, which needs to be addressed\.45,46 35\. A final consideration relevant to assessment of the efficacy of the asset declaration reform is that at the time of the reform NIA was not fully operational due to a protracted institutional reform discussed by TransparenCEE and documented by Transparency International in 2017\.47 This suggests that the RI for Prior Action #4 may have been set too high; the higher risk related to institutional capacity should have been taken into account (see Section IV for a fuller discussion)\. Nevertheless, the results achieved so far are significant given the low starting point and the importance of this reform to the country\. Although the RI itself has not been fully met, the impact of the transition to electronic submission and online publication is broad and significant\. NIA operations have been strengthened, as have the transparency and visibility of its activities (NIA 2019)\.48 In 2019, NIA filed 68 administrative cases and 6 were brought to prosecution (NIA 2020)\.49 According to the new 2019 selection procedure, NIA played a key role in appointment of 41 Order 4/2018 amended by Order 35 and 36 in 2018 by NIA President\. 42 NIA published reports about its activity at http://ani\.md/ro/node/147\. At the moment, the Data Protection Agency allows publication of asset declarations only in PDF format, which does not allow for automatic reading of the data\. 43 Verifications are done digitally but not in bulk as contemplated by the reform\. Declarations are available here: https://declaratii\.ani\.md/searchDeclarations/index 44 Functional testing of e-Integrity took place first after the system was developed and then after it was transferred from the e-Government Agency (e-GA) to NIA in the presence of NIA, ITSEC (a supplier of IT service), e-GA and the World Bank\. It found that the functionality of automatic cross-checks with other state registries was developed under the system’s initial terms of reference and was functional after the t ransfer\. Only later, it was reported that an unforeseen error prevented the module to be used\. 45 The interoperability platform (MConnect) is currently used by more than 30 authorities with no significant issues reported for data exchange\. 46 Although quality of other registries is an issue, the seriousness of the situation varies across registries\. Moreover, the problem could be alleviated by complementing the cross-checks with the use of red flags, as part of a broader verification framework\. See the case of Ukraine where a similar reform has been introduced, and a broad verification framework based on cross-checks and risk-based approach has been adopted\. 47 See, for example, http://assetdeclarations\.transparencee\.org/ and http://www\.transparency\.md/2017/11/07/national-integrity-authority- risks-of-compromising-the-reform/, 48 NIA\.2019\. Activity Report January-September 2019\. Chisinau\. 49 NIA\. 2020\. Objectives and results during 2019\. Chisinau\. Page 20 of 40  The World Bank Moldova Economic Governance DPO1 (P156963) the General Prosecutor\. The EGDPO helped achieve closer coordination among the institutions involved, such as the National Center of Data Protection, which allowed NIA to proceed with electronic filing and access more registries\. Moreover, the declarations, publicly available and easily accessible through the e-Integrity portal, have been shaping public discussion, which is contributing to a greater sense of transparency and accountability in a country still recovering from a major bank fraud\.50 As discussed in a recent study conducted with support of the United Nations Development Programme (UNDP), CBS-Research and Norwegian Ministry of Foreign Affairs, NIA receives now greater consent among Moldovan individuals and businesses than in 2017, although more efforts are needed to boost awareness and trust in how it is functioning\.51 PDO2/Pillar B: Leveling the playing field for private sector development 36\. As part of Prior Action #5, with TA from the IFC Investment Climate Reform Project launched in 2015, Moldova amended Law No\. 160/2011 on regulation of entrepreneurial activity and reduced the number of total authorization documents issued by the government authorities from 300 in 2017 to 152\.52 The amendments also introduced a transparent procedure for getting the application, suspending the term of examination; created a tacit approval mechanism; and established predictable costs for obtaining licenses, permits, and certificates\. The amended law also stipulated that any authorization can be registered only if it is included in the Nomenclature of Permissive Acts and in the Single Governmental Public Service Portal (Article 4, para 3)\. Another important amendment mandated the use of the OSS platform for application and issuance of the documents listed in Annex 1 to the Law No\. 160 (Article 4, para 4)\. OSS allows individuals and businesses to interact online with the government to enter and register applications, which are then transferred to a respective issuing agency and sector regulator for a review and approval\. Multifunctional service centers (physical OSSs) are also operational throughout the country so that businesses get support for submitting applications through the OSS platform, which was launched in July 2018\.53 37\. In line with the RI, currently 152 documents issued by 30 government agencies are listed in the Nomenclature of Permissive Acts\. However, although the RI has been met, the objective is not yet fully achieved\. In fact, although 135 of the 152 were configured in the OSS, and 25 of the 30 issuing authorities have configured their permits and licenses through OSS, just 69 are fully operational\.54 Yet, despite not being fully used, the OSS has already demonstrated success: between July 2018 and June 2020, 36,430 permits were processed on-line, and 39 percent of all applications were submitted remotely through OSS\. Businesses report that the average processing time dropped from 20 to just 6 working days reducing the cost of doing business\. 38\. Some issuing authorities have refused to integrate their systems with the OSS, claiming that sectoral laws prevail over the Law No\. 160\. Some issuing authorities made attempts to remove their permits (17 in all) from the Law #160 and from the mandatory participation in OSS\.55 This may be due to a misunderstanding about the role of OSS, 50 See: https://www\.moldova\.org/ani-verificat-declaratiile-de-avere-si-interese-personale-400-de-judecatori-urmeaza-procurorii/\. 51 UNDP\. 2019 National Integrity and anti-corruption strategy impact monitoring survey\. Moldova 2019\. Joint with CBS and Norwegian Ministry of Foreign Affairs\. 52 An initial cut occurred in July 2016 with Law #181\. Previously, Moldovan authorities were issuing 416 licenses, authorizations and certificates as regulated by not only Law #160 (July 22, 2011) but also numerous unrelated laws and regulations\. The EGDPO supported another decrease through Law #185 (September 21, 2017)\. 53 The platform is owned by the Ministry of Economy and Infrastructure (MOEI) and administered by the Public Service Agency (PSA)\. 54 Based on Law #160 businesses may apply for permits in three ways: (1) submit an application on paper to the issuing agency in person or through the post office; (2) apply through a multifunctional service center in paper or through the OSS; and (3) apply electronically through OSS or by email\. However, when the application is submitted on paper, some agencies might not be able to process the permit through the OSS because the issuing agency’s internal systems and the OSS platform are not interoperable; weak implementation capacity of the issuing authorities, or a lack of competences of their staff\. 55 Including National Bank of Moldova and National commission for financial Markets Page 21 of 40  The World Bank Moldova Economic Governance DPO1 (P156963) which is simply a digital tool to enhance the efficiency of public services and reduce costs for businesses; it does not affect the independence and decision making of an issuing authority\. 39\. The II Competitiveness Enhancement Project is currently helping the government to address barriers to competitiveness\. Legal amendments have been drafted and MOEI has agreed to introduce a provision in the Law #160 requiring that every permit must have a unique number generated by the OSS, with a QR code that will reference an electronic permit (i\.e\., when the code is scanned on a mobile device, an internet browser will show online an extract of the permit in the OSS)\. This should further promote the use of OSS\. The Project Implementation Unit (PIU) planned additional outreach in the first half of 2020 to better inform the issuing authorities and businesses on how the OSS operates, to increase their willingness to participate, and to show businesses the benefits of the OSS\. The PIU is evaluating and quantifying the impact of the OSS application and of the amendments to the law\.56 40\. Prior Action #6 supported legislative amendments to improve farmers’ access to agricultural inputs (seeds, seedlings, fertilizers, and pesticides) by simplifying domestic requirements for testing and registration for EU-registered inputs\. Concerning fertilizers, the primary law was modified to include cancellation of registration and testing requirements and fees for imported fertilizers registered in the EU catalogue\.57 Regarding pesticides, amendments to the primary law simplified the procedure for approval of plant protection products authorized in EU member states and shortened the process from one year to 40 days \. Although the amendments to the primary law went into effect immediately, a review of secondary legislation related to fertilizers and pesticides found that they also needed modifications to remove contradictions with the new primary law and clarify implementation details\.58 With regard to seeds and seedlings, amendments to the primary law were approved in May 2018 and it was foreseen that secondary legislation would be amended within six months thereafter so that the changes would take effect on December 1, 2018\. As of yet, however, secondary regulations have not yet been amended\. 41\. The RI called for a 10 percent increase, in the number of imported plant varieties and types of fertilizers and pesticides, from the 2016 baseline\. Based on data provided by the National Agency for Food Safety (ANSA), in 2019, imports of fertilizers went up by 41 percent and of seeds by 40 percent, but imports of seedlings dropped by 1 percent\. No data were available on pesticides imports\. Although secondary legislation is not yet fully aligned with the primary laws, the reform seems to be working, so the RI was met at least in part\. However, the authorities have to complete the reform in its full entirety as per the commitment at the time of appraisal, and as expressed in the Letter of Development Policy (LDP)\. 42\. The MARDE seemed to have concerns about the reform and reform priorities that suggest a lack of ownership\. The World Bank team has actively engaged in supporting the reforms by providing TA and expert assessments to address and clarify these concerns and identifying provisions to be amended\. In January 2020 the MARDE sent a letter informing the MOF of amendments to secondary legislation on seeds and seedlings that were expected to be finalized in March\. 59 Based on the information received, the World Bank team noticed some progress with regard to 56 Itwill now be important to ensure broader use of the OSS by increasing awareness across the board, especially as the PIU contract ends in May 2020 and the PSA will continue managing the system\. 57 Law No\. 245 as of November 23, 2017\. 58 Amendments to secondary regulations are especially needed to describe the new 40-day simplified procedure for registration and to reduce or abolish the fee of €4,000 charged for official approval and registration of p lant protection products\. While large importers and international companies do not flag the registration fee as an impediment, agricultural producers, both large and small, do voice concerns about the limited variety of the catalogue, especially in view of the recent removal of many plant protection products from the catalogue (due to new rules)\. This jeopardizes their competitiveness on the target markets, especially on the high-value export markets\. 59 During the ICR mission, the MARDE representatives stressed that their experts did not support the liberalization of registration requirements for EU-registered pesticides, seeds and seedlings, on the theory that (1) due to the higher risks to the soil, pesticide should be closely controlled; (2) domestic testing of seeds and seedling varieties was important and there was a risk that local producers of seeds and seedlings would be disadvantaged by the reform\. Their belief was that the government should invest into local producers to develop their production and export potential (currently utilized by 50 percent only)\. In any case, in Moldova protective measures are already in place, and the government provides Page 22 of 40  The World Bank Moldova Economic Governance DPO1 (P156963) harmonizing national legislation with EU norms and practices in the area of seeds and plant protection products (for example, GD 257/2019, GD 42/2020, etc\.)\. These changes however are not related to the EGDPO supported reform, thus no progress has been made yet to put in place the needed implementation framework for the reform to work in practice\. 43\. Prior Action #7 supported adoption of the Law on Bank Activity No\.202/2017, which entered into force in January 2018\. In alignment with the law, in July 2017 NBM had introduced the Regulation on Internal Governance and Risk Management in Banks but updated it in December 2018\. The law and the regulation significantly improved banks’ governance\. According to the NBM, the following actions demonstrate this: banks (1) obtained the new licenses and authorized copies of the authorization for their branches; and (2) adapted their organizational structures, statutes and branches’ regulations to the new requirements, which recognized the difference between “subsidiary” and “branch\.” 44\. In 2018‒19, the NBM performed seven on-site and four off-site inspections that took into account the requirements of the law and the regulation and reviewed the board committees the banks had appointed\. Five of the banks have established all four specialized committees: audit, risk, nomination\. and remuneration; six smaller banks chose not to appoint nomination and remuneration committees\. In parallel, NBM verified the adequacy of the bank’s management bodies and gave five banks a “no-objection” decision on their proposed governance structure, and the other six have adjusted their decisions to take into account NBM objections\. As of December 2019, all 11 banks are compliant with the new law and regulation\. 45\. Prior Action #8 supported the drafting of Guidelines for the annual electricity procurement by suppliers and network operators in Moldova and the creation of a Group of Observers to monitor the procurement process, by Order of the MOEI in January 2017\.60 The Order also recommended that transmission and distribution system operators and regulated suppliers comply with the Guidelines\.61 Moldova has very few sources of electricity\. Of the electricity consumed, only 20 percent, some of it from renewables, is generated on the right bank of Nistru river, while 80 percent is procured from MGRES or external sources\. As discussed in the PD and by the Energy Community Secretariat (ECS), political influence in electricity procurement was considerable, and the annual electricity procurement process always suffered from a lack of competition and transparency and the potential for collusion between traders and generators\.62,63 46\. Since the Guidelines were issued, electricity procurement has become more formally organized and conducted\. Between 2017 and 2020, the RI that at least 50 percent of electricity procurement would be done in line with the Guidelines was exceeded; in fact, according to the MOEI, since the Guidelines were adopted, about 80 percent has been sourced that way\. Moreover, each year, as the Group of Observers has noted, the Secretariat has drafted amendments to the Guidelines, which the MOEI has adopted to respond to shortcomings observed and to accumulated experience\. In 2017 and 2018, the Group published an annual Report of the results of procurement processes with subsidies available through a designated payment agency that are restricted to the use of domestic varieties of seeds and seedlings (see, e\.g\., measure No\. 2\.1 for vineyards)\. Source: http://www\.aipa\.gov\.md/ru/node/1872 and http://aipa\.gov\.md/sites/default/files/Ghid_submasura_1\.2\.pdf\. 60 http://www\.moldelectrica\.md/files/docs/8/97_E_2017_2_Instr_achiz_EE\.pdf\. 61 In 2017 the Group of Observers comprised representatives of the Moldovan Energy Regulator (ANRE), MOEI, the Energy Community Secretariat, the EU delegation in Moldova, and the EU High-Level Adviser for Energy Policy\. To depoliticize the process, since 2018 MOEI and ANRE have not been members\. According to the Report of Group of Observers (2017) ANRE showed no interest in the Groups work its central role in monitoring procurement, and MOEI had multiple, sometimes conflicting roles in the process\. In 2018, MOEI acted as “information center” for the Group\. 62 https://www\.energy-community\.org/dam/jcr:a0e594ea-3b4d-481a-925d-03194fc507af/Report_Procurement_EL_MD_2017\.pdf 63 In 2016, the ECS, ANRE and the Deputy Prime Minister signed an action plan to increase competitiveness in procurement and make the process more transparent while keeping the electricity supply secure\. The plan was a transitional measure on the way to establishing an open and interconnected wholesale market\. It is expected that by 2023 the first unit of the back-to-back station between Moldova and Romania will become functional, attracting more participants in electricity procurement\. Page 23 of 40  The World Bank Moldova Economic Governance DPO1 (P156963) comments and recommendations\.64 The 2017 report noted the improvement in the procurement process during the first year which included also the willingness of MOEI to have open, competitive, and transparent procedures and its responsiveness throughout the process\. Offshore companies that previously acted as intermediaries no longer participated\. The Group also stressed that in the second round of negotiations there was real competition between two tender finalists\. In the second year, the process was more disciplined, and deadlines were largely respected\. The number of postponed deadlines fell; as a result, the new electricity contract was signed two weeks before the old contracts expired\. The pre-qualification and bidding phases were also more clearly separated\. 47\. Although the RI has been met, as the Group of Observers noted, the objective of greater transparency and competition was only partly achieved\. The Group identified the need and respective areas for significant improvement in procurement procedures\. The major criticism relates to conflicting roles that MOEI plays in the process, its, at times, unjustified involvement at different stages of procurement, and the lack of actual competition\.65 Finally, in the initial phases of the process MOEI did not reply to requests for information from the observers\. The 2019 Group Report was drafted but not made public\. The Group ceased its work in 2019\. In 2021 the Guidelines will be replaced by a new procurement procedure drafted by the Secretariat in collaboration with the sector regulator and market participants\. ANRE will organize and monitor the process\. According to the MOEI and the EU High-Level Adviser for Energy Policy, the new procedure should make procurement more efficient\. It reflects many comments provided in the Group of Observers Reports\. For example, it envisages introduction of an electronic trading platform —a virtual, truly competitive market, where supply and demand meet, trading occurs in real time, without any interference from outside, and consumers get the best value for their money\. The achievement of sustained transparent competition will also require expanding the number of potential suppliers (the MGRES plant on the left bank and the DTEK group in Ukraine have been de facto in a duopoly to supply Moldova for the last decade) which is expected to happen at the 2023/2024 time horizon with the commissioning of the BtoB interconnection with Romania\. C\. Overall Outcome Rating and Justification Rating: Moderately Satisfactory 48\. For the reasons discussed in Section II, the overall rating for the EGDPO is Moderately Satisfactory: the operation as a whole and each supported reform proved highly relevant for the country; two out of eight reform outcomes were achieved, while the remaining six were partially achieved due to several shortcomings\. In terms of achievement of results indicators, five out of eight RIs have been met (PAs #1,#3,#5,#7,#8), two have been partially met (PAs #4 and #6) and one RI has not been met (PA #2)\. III\. OTHER OUTCOMES AND IMPACTS A\. Poverty, Gender and Social Impacts 49\. Policy actions supported by this operation were expected to have positive impact on poverty reduction and shared prosperity in the medium term\. Prior Action #1 on pension reform was conducted to support parametric 64https://www\.energy-community\.org/dam/jcr:4ac144c7-49e2-4247-ae46- c2f7c3e6f312/Report%20of%20the%20Group%20of%20Observers%202018\.pdf 65 The Report stressed that MOEI “confuses the role of the policy‐ and rule‐setter, which requires neutrality” and it also supported and intervened in the tender process on behalf of one of the participants, a state-owned company, which basically acts as a trader of electricity on the Moldovan market\. The Group of Observers also reported that several companies submitted bids but withdrew them at the final stage of the tender, after negotiating contracts outside of the official tender process with the state-owned trader company, the participant which eventually won the bid\. Page 24 of 40  The World Bank Moldova Economic Governance DPO1 (P156963) changes that were designed to preserve fiscal sustainability and to ensure social sustainability by preventing the replacement rate from slipping below 15 percent\. Although in 2018 and 2019 several government policy initiatives undermined the medium-term fiscal sustainability of the pension system, the reform still generated positive social outcomes: Compared to 2016, in 2018 average old age pensions were worth 15\.1 percent higher in real terms (13\.4 percent for women and 18\.5 percent for men)\. In addition, real wages grew by 14 percent, including in agriculture, which employs most poor Moldovans\. Meanwhile these factors contributed to a decline in poverty (measured at the international moderate threshold of $5\.50/day PPP) from 16\.4 to 14\.7 percent\. B\. Environmental, Forests, and Natural Resource Aspects 50\. The reforms supported by the EGDPO had a positive or neutral environmental impact\. The prior actions under Pillar A are expected to have overall a neutral environmental impact, while reforms supported by Pillar B were expected to have overall positive environmental impact\. Prior action #4 and prior action #5, despite being legislative in nature, contributed to the introduction of the electronic asset declaration and to the reduction of multiple, duplicative, and burdensome procedures and to the introduction of an electronic OSS, hence encouraging more environment-friendly processes\. Prior Action #6 instead generated climate co-benefits, because farmers could improve access to inputs, widely used in Southern Europe, and more resistant to droughts and variability of weather conditions\. C\. Institutional Change/Strengthening 51\. The EGDPO contributed to building institutional capacity\. For example, Prior Action #3 supported greater transparency and accountability for medium and large SOEs and MEs and tighter oversight by stakeholders\. Upgrading the asset declaration regime supported transition to a new institutional model for identifying and fighting corruption and launched the electronic filing of declarations (Prior Action #4)\. Amendments to laws, supported by Prior Action #5, clearly reduced the regulatory burden on businesses and streamlined procedures for obtaining permits\. Prior Action #5 also helped reduce the number of direct contacts required between businesses and issuing agencies and moved away from paper-based applications\. Prior Action #7 supported reforms to reinforce governance in Moldovan commercial banks by adherence to the new Banking Law and the Regulation on Internal Government and Risk Management\. Finally, Prior Action #8 reforms are a major step forward in promoting competition and transparency for electricity procurement on the wholesale market\. The new procurement procedures have not only been invaluable in advancing transparency but have also helped to identify barriers to real competition\. These reforms are a useful transitional stage to adoption of more advanced procurement procedures\. D\. Other Unintended Outcomes and Impacts 52\. None\. IV\. BANK PERFORMANCE Rating: Satisfactory Quality at entry 53\. Quality at entry measures the extent to which the World Bank identified, facilitated preparation of, and appraised the operation so that it was most likely to achieve planned development outcomes consistent with the Page 25 of 40  The World Bank Moldova Economic Governance DPO1 (P156963) Bank’s fiduciary role\. Although the operation is characterized by a considerable breadth in terms of reform areas, and is significant in relation to the amount of the lending itself, the EGDPO was designed to leverage (i) reforms supported earlier, in areas such as banking and agricultural inputs; (ii) existing TAs and parallel projects, with exemplary World Bank collaboration, and; (iii) the World Bank collaboration with development partners like the EU and the IMF (IMF 2018)\.66 Coordination with the IMF was particularly important for the energy and banking reforms\. As discussed also in Section I, the nature of the majority of the prior actions, being policy changes also anchored to well-established engagement and existing operations, also justified the choice of the stand-alone versus programmatic approach, except for the reform of agricultural inputs which needed secondary legislation to be fully effective, but for which the World Bank team not only had continuously offered TA, based also on a long-standing engagement with the counterpart, but had also the commitment of the Government in the LDP\. 54\. The analytical underpinnings of the operation are comprehensive\. Although the section dedicated in the PD mostly refers to the 2016 SCD and its background research, more references can be found in the main text\. Additional references emerged during consultations with the team\. Table 3 reports key analytical sources\. Table 3: Analytical Support for the Prior Actions Prior Actions Analyses World Bank (2015) Republic of Moldova\. Pension Reform Part I: Policy Options for Urgent Parametric Reform\. World Bank\. Washington DC\. Prior Action 1 World Bank (2016) Moldova\. Paths to Sustained Prosperity\. A Systematic Country Diagnostic\. World Bank\. Washington DC\. World Bank (2017) Moldova Poverty and Shared Prosperity Update \. EU 2016 Public Expenditure and Financial Accountability (PEFA) Assessment Update for Moldova (2012- 2014) World Bank (2016) Moldova\. Paths to Sustained Prosperity\. A Systematic Country Diagnostic\. World Bank\. Washington DC\. Prior Action 2 World Bank (2016) Republic of Moldova\. Moldova Public Finance Review\. Towards More Efficient and More Sustainable Public Finances\. World Bank\. Washington DC\. Fuchs A\. and F\. Meneses (2018) Tobacco Price Elasticity and Tax Progressivity in Moldova \. World Bank\. Washington DC\. World Bank (2016) Moldova\. Paths to Sustained Prosperity\. A Systematic Country Diagnostic\. World Bank\. Washington DC\. Prior Actions 3-5 World Bank (2017)\. Support to State Owned Enterprises (SOE)\. Preliminary Diagnostics and Reform Assessment: Phase 1\. World Bank\. Washington DC\. World Bank (2015) Moldova Public Expenditure Review: Agriculture\. World Bank\. Washington DC\. World Bank (2016) Moldova\. Paths to Sustained Prosperity\. A Systematic Country Diagnostic\. World Bank\. Washington DC\. Prior Action 6 World Bank (2016b) Poverty Reduction and Shared Prosperity in Moldova: Progress and Prospects\. World Bank\. Washington DC\. ABG GmbH (2017) Moldova Regulatory Assessment of Agricultural Input Markets\. Report commissioned by the World Bank Group and Government of Sweden and implemented by Moldova Investment Climate Reform Project\. Prior Action 7 IMF and World Bank (2016) Financial System Stability Assessment\. Washington DC\. 66IMF 2018\. Third Reviews under the Extended Credit Facility and Extended Fund Facility arrangements and request for modification of performance criteria\. IMF: Washington DC\. Page 26 of 40  The World Bank Moldova Economic Governance DPO1 (P156963) World Bank (2016) Moldova\. Paths to Sustained Prosperity\. A Systematic Country Diagnostic\. World Bank\. Washington DC\. Energy Community Secretariat (2016) The National Energy Regulatory Authority of Moldova\. Prior Action 8 World Bank (2016) Moldova\. Paths to Sustained Prosperity\. A Systematic Country Diagnostic\. World Bank\. Washington DC\. 55\. The team developed strong prior actions that triggered reforms in critical areas like public finance and pensions system stability, enterprise and government officials’ accountability which contribute to reduction of fiscal risks\. At the same time, other prior actions aimed at leveling the playing field for the private sector in the areas of business regulations, financial sector stability, access to production inputs and product markets development, initiated reforms and set the direction for the reforms advancement\. 56\. The team adopted clearly defined RIs, though the design could have been improved to better capture the efficacy of the operation and the results chain - the link between the prior action, the output, intermediate outcomes, and the PDO\. In some cases, the RIs do not necessarily reflect the outcomes that the operation was trying to achieve, so despite of the achievement of the numerical targets, the link with the development objectives turned out to be not enough strong\. In the case of Prior Action #1, the results indicators do not fully capture the intended outcomes of the reforms, with implications for the efficacy assessment as discussed in Section II\. The choice of more comprehensive RIs could have strengthened the results chain\. For Prior Action 2, the potential risks to achieve the RI target could have been discussed in the PD given that there are many factors that influence revenue collection beyond the excise rate\. For Prior Action #4, the RI which targets the automatic cross-checks may be too ambitious given the limited institutional capacity at the time of the operation and the technical steps involved\. On the contrary, for Prior Action #5 instead, the RI could have targeted the use of the OSS, in addition to the reduction in permits as by the supported legal changes\. In particular, • For the pension reform supported by Prior Action #1, the RI does not fully capture the sustainability of the final fiscal and social outcomes\. The results chain would have been strengthened by an additional component of RI such as specifying a percent goal for the pension fund deficit\.67 The intermediate outcomes for this reform, such as “elimination of the pension deficit,” should also have been explained more carefully\. Before the reform, though in 2015‒17 the pension fund registered a deficit, over time it was expected to remain in surplus\. The reform was intended to raise the replacement rate while keeping the deficit sustainable in the medium term\. But post-EGDPO government actions heightened the pressure on the fund, pushing up the deficit\. • The RI for Prior Action #4 includes both the number of asset declarations submitted electronically and the number cross-checked\. Given the status of NIA when it was implemented and the numerous problems reported by NIA with the interoperability with and the inaccuracy of other registries, this RI was also too optimistic and could have been eased to account for limited institutional capacity\. • For Prior Action #5, reduction in the number of permits and mandatory use of OSS, the RI seems to mirror the legal changes but does not capture the objective of the reform: use of the OSS supported and mandated by the reform, which would reduce face-to-face interactions, simplify procedures and eventually bolster firm creation\. An additional co-indicator could have specified, for example targeting the time to start a business/obtain permits or percent of permits issued through OSS, while recognizing the efforts needed to fully configure and issue permits through the OSS\.68 Moreover, description of the indicator could have specified whether the target refers to total permits listed in the law or only those that used the OSS\. 67 See, e\.g\., the reform supported by the 2018 Ukraine Economic Growth and Fiscally Sustainable Services Policy Based Guarantee (P164414)\. 68 Se , e\.g\., the OSS reform supported by the 2018 People’s Republic of Bangladesh First Programmatic Jobs Development Policy Cr edit (P167190)\. Page 27 of 40  The World Bank Moldova Economic Governance DPO1 (P156963) 57\. The reform program as a whole was adapted to Moldova’s institutional framework and capacity and strategically leveraged donor coordination\. For example, for the tobacco-related RI, Moldova established a National Tobacco Control network, with representatives from MOF, MHLSP, NGOs, and other development partners\. In such areas as tobacco taxation, asset declaration, and the financial and energy sectors, the World Bank team coordinated effectively with the IMF, the EU, and other development partners\. For some, actions complementary to EGDPO were part of other development partners’ 2017 programs, Third Review of the IMF and Macro-Financial Assistance of the EU\. The joint efforts were crucial in difficult areas like pensions, asset declaration, and agriculture\. Not all efforts were equally successful; as in previous operations, vested interests generated strong headwinds in some areas, and in others only partial measures were pursued, as in the reform of agricultural inputs\.69 58\. Finally, at time of approval, the World Bank team and management were aware of such risks to the success of the EGFPO-supported program given the Parliamentary elections expected in November 2018\. Correspondingly, a fair and candid assessment of these risks was made: the risks are noted in the Macroeconomic Outlook, Debt Sustainability, and Risks section and in the Summary of Risks and Mitigation\. The ex-ante assessment builds also on the risk assessment in the CPF 18-21 released just before the operation in June 2017\. Table 4 compares the risk assessments in the EGDPO and the CPF 18-21\. The assessment of risks within the CPF framework reflects broadly the country context over a longer horizon and the high political and governance risks related to the uncertain policy environment beyond the 2018 elections\. To mitigate these risks, only the first half of the CPF period was programmed, and the EGDPO was intended to be an integral part of the program to help advance key reforms in a non-electoral year\. Although the EGDPO risk ratings in meeting the specific PDOs may not coincide with the overall country risk assessment and are instead operation specific, after mitigation measures have been taken into account, more justification could have been provided in the PD\. The risk rating seems optimistic compared also to the Implementation Completion and Results (ICR) report for the previous programmatic DPO series published in 2018, the experience with DPO-1 suggested the need to make the “political and governance” risk high because of the events of 2014 and 2015; continuing resistance from vested interests in the judicial, financial, and agricultural sectors; and the complexity of the fraud investigation that was still underway\. Moreover, the statement in the PD that “The Parliamentary elections in 2018 may erode fiscal discipline and undermine sustainability,” might have suggested a higher risk rating to better reflect the risks related to coming elections and potential vested interests\. Also, the PD states that the choice of a stand-alone operation was based on the need to advance difficult reforms in a pre-election year\. Although the ratings in the PD are supported by the foreseen mitigation measures, more justification could have been provided\. Table 4\. Summary of Risks Risk Categories CPF 18-21 Rating EGDPO Rating Political and Governance H M Macroeconomic S S Sector Strategies and Policies M S Technical Design of Project and Program M S Institutional Capacity for Implementation S M Fiduciary S M Environmental and Social M L Stakeholders M M Other L Overall S M 69 World Bank (2018)\. Implementation Completion and Results Review on loans and credits in the amount of USD 75 Million to the Republic of Moldova for a series of DPOs\. Washington DC\. Page 28 of 40  The World Bank Moldova Economic Governance DPO1 (P156963) Quality of Supervision 59\. “Quality of supervision” refers to the extent to which the World Bank identified and resolved risks to the achievement of development outcomes and to the Bank’s fiduciary role\. The DPO team tracked implementation of the prior actions very closely\. It coordinated not only with the MOF but also with other line Ministries, and there was a clear attribution of competences per prior action as detailed in the February 2018 letter from the MOF\. The team reacted swiftly when in July 2018 Government adopted measures that weakened reforms supported by the EGDPO\. In coordination with the IMF program, the World Bank team issued a public statement (press release) responding to the reversal measures and actively engaged in advocacy and public outreach\. As a result, the capital amnesty risks were fully averted with the measures which government introduced\. The team also provided the government with analytical notes explaining how the measures adopted would negatively affect the fiscal sustainability of the pension system and what risks the capital amnesty implied for asset declaration and broader governance issues\. In 2018‒19, the World Bank Social Protection expert worked closely with the IMF to identify and design pension measures to make the system fiscally sustainable\. Close coordination with other development partners also helped to improve the quality of supervision, among them the EC and World Health Organization (WHO) on tobacco taxation, the European Energy Secretariat on wholesale energy purchases, and the IMF, the EU, and the USAID on strengthening governance of banks\. TA was instrumental in achieving results and was also part of the monitoring and evaluation framework\. For example, hands-on TA was central to achievement of Prior Action #5\. In the first stage of the IF Investment Climate Reform Project, the laws were reviewed to reduce the number of authorizations needed from more than 400 first to 300 and then to less than 150\. Similarly, the Governance team actively supported NIA in testing and use of the e-Integrity system\. 60\. The overall rating for bank performance is Satisfactory: although with some shortcomings at the stage of the operation design, the team put together a comprehensive program in a complex political environment, and Bank performance was strong in the implementation phase, especially dealing with reversal and coordination with development partners\. Main shortcomings at the design stage include the design of the RIs and the link between RIs and objectives which could have been strengthened or better explained in the PD\. As also discussed in the “Lessons Learned” section, the lack of alignment of political and technical commitment, sustainability of reforms in key areas and during political cycles, ex-ante assessment of political risk and institutional capacity could have also received more attention\. V\. RISK TO SUSTAINABILITY OF DEVELOPMENT OUTCOMES 61\. Political volatility remains a risk\. In 2018 and 2019 a series of initiatives weakened the sustainability of the reforms pursued through the EGDPO\. Despite the noticeable decline in perceived corruption observed in 2019 and the numerous initiatives put in place in recent months to reveal and address corrupt schemes, corruption is still a serious concern in Moldova\. Vested interests retain significant influence over political, prosecution, and court processes\. Several measures have been taken in 2019, also at the international level to investigate the bank fraud suspects and tackle high level corruption, however there are concerns that some of the momentum has faded away given complex and political environment exacerbated by upcoming Fall 2020 presidential elections, uncertain nature of the governing coalition and COVID-19 imposed challenges\. Adherence to the rule of law is still a major challenge for Moldova, and concerted action will be necessary to bring about the so much needed justice sector reform\. 62\. There are also considerable macroeconomic risks linked to impacts of COVID-19 pandemic\. The containment measures needed to flatten the contagion curve have resulted in social and economic crisis\. Moldova is expected to enter recession in 2020, which will put further pressure on fiscal and external balances\. The fiscal costs are on top of a Page 29 of 40  The World Bank Moldova Economic Governance DPO1 (P156963) record-high deficit of 3\.3 percent of GDP associated with the 2020 budget that relied heavily on external assistance and implies substantial increases in spending on social assistance and potential need for a higher transfer to the pension fund due to falling contributions\. The IMF program completed right before the pandemic unfolded, incorporated some fiscal consolidation measures—it eliminated the VAT exemption for hotels, restaurants, and cafes; abolished the tax amnesty; and removed the exemption for duty-free shops at entry\. However, presidential elections and COVID-19 crisis may trigger reversal of some of these measures\.70 There are also concerns about the independence of the NBM\.71 While after a difficult period the banking sector has regained stability and profitability, risks are building up in nonbanking credit organizations and insurance sector\. Both the 2019 IMF program and World Bank TA provided support to the NBM and NCFM to tackle these issues\. VI\. LESSONS AND NEXT PHASE A\. Lessons Learned 63\. Future operations need to recognize the importance of minimizing ex-ante the risk of policy reversals or partial implementation of the reforms\. In the case of the Moldova EGDPO, the reversal of the pension reform and the incomplete implementation of the agricultural reform suggest the need to consider additional measures to minimize ex-ante these risks, including strengthening accountability mechanisms, building stronger reform coalitions to ensure sustainability across different governments and designing prior actions to encompass the whole expected reform (e\.g\. secondary legislation for agricultural inputs)\. 64\. Political and technical commitment and ownership must be aligned to ensure successful reforms\. In case of the Moldova EGDPO, the political will was not in synch with the technical will represented by the MARDE which proved unfavorable for successful and timely implementation of reforms supporting improved access to agricultural inputs\. For the new primary law to be fully effective, secondary laws needed to be amended to avoid contradictions with it\. Although the MOF committed in the LDP to put in place the needed implementation arrangements, the amendments have not yet been passed\. 65\. Future operations need to recognize that the sustainability of reforms may be fragile and political volatility high, especially in election years, and it is important to be ready with corrective measures\. The EGDPO pension reform is a notable example of how critical it is to assess reform sustainability, especially in highly sensitive areas subject to extreme political volatility\. Because of the political cycle, since the 2016 pension reform supported by this operation, the formula for pension indexation was changed in 2017, 2018, 2019, and already in 2020\. Reforms are a continuous process, and it is important to be ready with corrective measures when opportunity appears in the political cycle\. 66\. To the extent possible, operations should provide a more accurate ex ante assessment of risks, especially those related to politics and governance and to institutional capacity\. All the risks related to the 2018 elections that were identified, but underrated, in the PD were manifested as the implementation phase of the reforms got underway\. Moreover, in the case of the asset declaration reform, the competent authority, NIA, was itself being restructured\. This created an additional technical complication because the IT system had to be transferred from one institution to another with implications for system testing and timely functioning\. 70 The commitment to maintain a 20% VAT rate for HORECA has been reverted, and the VAT rate has been reduced from 20% to 15% as part of the COVID-19 package\. 71 See also IMF 2020\. Republic of Moldova: Staff Report for the 2020 Article IV Consultation and Sixth Reviews Under the Extended Credit Facility and Extended Fund Facility Arrangements-Press Release; Staff Report; and Statement by the Executive Director for the Republic of Moldova\. Page 30 of 40  The World Bank Moldova Economic Governance DPO1 (P156963) 67\. Results indicators should be designed to capture as much as possible the intended objective of the reform so that its efficacy can be accurately assessed\. In the case of the EGDPO, two RIs could have been strengthened (pension reform, OSS)\. 68\. Coordination with development partners through complementary actions is crucial during both design and implementation of the reforms to reinforce reform progress and ensure sustainability\. For the EGDPO in Moldova, (1) during its design, some prior actions were either complemented or supported by other donor programs (IMF, EU), and (2) during implementation, especially after release of the Fiscal Package, joint work and coordinated messages from the development partners community were crucial to address, and in some cases reverse, new initiatives, such as the capital amnesty\. B\. Next Phase 69\. The Safeguarding Stability and Strengthening Competitiveness Development Policy Operation (DPO) is being discussed because of the reforms needed to counter the COVID-19 induced recession and to put the Moldovan economy on a recovery path through completion of the unfinished reform agenda\. In particular, the underlying analysis for the new DPO preparation has helped advance the discussion in important areas, such as Ajutor Social, reinforcing the EGDPO supported aspirations\. 70\. As part of the crisis relief support to Moldova during the COVID -19 emergency, the World Bank team has mobilized a fast-track support through an Emergency COVID-19 Response Project (P173776)\. It seeks to provide an immediate response support to the COVID-19 outbreak, with a focus on building the capability of the health system to handle severe cases and mitigating the negative impact of the crisis on the most vulnerable households\. Recognizing the importance of a well-balanced intervention mix, the project provides support to build the case detection capacity, improve the safety and capacity of frontline staff at all levels, and reinforce the capacity of the health system to handle a surge in severe cases by bolstering the human and technical capacity of intensive care units (ICUs)\. The project will also support social assistance efforts to mitigate the effect of containment measures on the poor\. 71\. With regard to Pillar A areas, the World Bank team is still deeply engaged in Moldova\. Since the 2016 reform, the team has supported the MHLSP and MOF in ensuring a fiscally and socially sustainable pension system\. As part of the PforR financing for health sector modernization, one of the Disbursement-Linked Indicators relates to the prevalence of smoking among Moldovans aged 18‒69 (P144892)\. New TA is also supporting the government in its plan to manage SOEs strategically\. Moreover, the Bank-financed Land Registration and Property Valuation Project (P161238) seeks to systematically register 95 percent of 1\.1 million unregistered properties, of which about 30 percent are public\. Finally, the team has remained engaged through technical advice and assistance in the risk- and prioritization-based verification framework of asset declarations\. 72\. With regard to Pillar B areas, the business environment is at the core of the Second Competitiveness Enhancement Project (P144103)\. The IFC Investment Climate Reform Project team is helping to identify amendments to secondary legislation that are necessary to facilitate access to agricultural inputs\. As for the financial sector, in a joint effort with the IMF to enhance financial stability and governance, the World Bank team has mobilized TA to support revision of the laws related to insurance and non-banking credit organizations\. Finally, the Power System Development Project (P160829) is working to build the capacity and reliability of Moldova’s power transmission system, which would allow for cross-border interconnection between Moldova and Romania\. Page 31 of 40  The World Bank Moldova Economic Governance DPO1 (P156963) ANNEX 1\. RESULTS FRAMEWORK \. RESULTS INDICATORS Pillar: Reducing fiscal risks Indicator Name Unit of Measure Baseline Target Actual Achieved at Completion Average old age pensions Text 24 (2018 - status quo) 26 (2018 - reform) 28\.3 (2018 - actual) replacement rate 31-Dec-2018 31-Dec-2018 31-Dec-2018 Comments (achievements against targets): The results indicator (RI) has been exceeded\. Indicator Name Unit of Measure Baseline Target Actual Achieved at Completion Excise tax collections from Percentage 0\.00 12\.00 -1\.90 tobacco 31-Dec-2016 31-Dec-2018 31-Dec-2018 Comments (achievements against targets): The increase in tobacco excises tracked the planned increase beyond the EGDPO target but the results indicator has not been met, possibly because of a rise in non-registered sales of tobacco and other factors\. Page 32 of 40  The World Bank Moldova Economic Governance DPO1 (P156963) Indicator Name Unit of Measure Baseline Target Actual Achieved at Completion Audited financial statements Percentage 38\.00 50\.00 50\.00 for medium and large MEs and SOEs: 31-Dec-2017 30-Jun-2019 30-Jun-2019 Comments (achievements against targets): The RI has been met\. Currently 19 of the 38 state and municipal entities are submitting audits\. Indicator Name Unit of Measure Baseline Target Actual Achieved at Completion Number of asset and interest Number 0\.00 60000\.00 69107\.00 declarations filed electronically 31-Dec-2016 31-Dec-2018 31-Dec-2018 Comments (achievements against targets): The RI has been met and more than 69,000 declarations were submitted in both 2018 and 2019\. Indicator Name Unit of Measure Baseline Target Actual Achieved at Completion Number of asset declaration Number 0\.00 60000\.00 0\.00 undergoing automatic cross- checks with public registries 31-Dec-2016 31-Dec-2018 31-Dec-2018 Page 33 of 40  The World Bank Moldova Economic Governance DPO1 (P156963) Comments (achievements against targets): The RI has not been met as there has been no automatic cross-check verification in bulk, mostly due to interoperability issues with other registries as reported by the National Integrity Authority\. Pillar: Leveling the playing field for private sector development Indicator Name Unit of Measure Baseline Target Actual Achieved at Completion Number of authorizations Number 300\.00 153\.00 152\.00 (permits and licenses) 31-Dec-2016 31-Dec-2018 30-Jun-2020 Comments (achievements against targets): The RI has been met\. The number of permits and licenses required has been reduced to 152\. Indicator Name Unit of Measure Baseline Target Actual Achieved at Completion Number of plant varieties, Text 0 10 partially met types of fertilizers, and pesticides imported 31-Dec-2016 30-Jun-2019 30-Jun-2019 Comments (achievements against targets): The RI has been partially met\. According to the latest statistics from the National Agency for Food Safety, imports of fertilizers and seeds have increased by 41 and 40 percent respectively, while imports of seedlings have reduced by 1 percent\. No data were available for pesticides\. Page 34 of 40  The World Bank Moldova Economic Governance DPO1 (P156963) Indicator Name Unit of Measure Baseline Target Actual Achieved at Completion Number of banks materially Number 0\.00 5\.00 11\.00 complying with the governance provisions in the Law on Banks’ 31-Dec-2016 30-Jun-2019 31-Dec-2019 Activity and the Regulation on Internal Governance and Risk Comments (achievements against targets): The RI has been exceeded\. All 11 banks are compliant with the new laws and are regularly supervised for continued compliance\. Indicator Name Unit of Measure Baseline Target Actual Achieved at Completion Share of electricity purchased Percentage 0\.00 50\.00 80\.00 under published Guidelines (for April–March, 12 months cycle) 31-Mar-2016 31-Mar-2018 31-Mar-2019 Comments (achievements against targets): The RI has been met\. Since 2017, almost 80 percent of electricity has been purchased according to published guidelines\. \. Page 35 of 40  The World Bank Moldova Economic Governance DPO1 (P156963) ANNEX 2\. BANK LENDING AND IMPLEMENTATION SUPPORT/SUPERVISION PROCESSES A\. TASK TEAM MEMBERS Name Role Preparation Elisa Gamberoni EGDPO Team Leader Elena Corman Procurement Specialist(s) Oxana Druta Financial Management Specialist Alexandru Cojocaru Team Member Team Member Anatol Gobjila Andrei Busoioc Team Member Brett E\. Coleman Team Member Carolina Odobescu Senior Country Officer Cesar Niculescu Senior Environmental Specialist Constantin Rusu Team Member Fabrice Karl Bertholet Team Member Felicia Pricop Team Member Galina Cicanci Team Member Laura Pop Team Member Maja Murisic Team Member Marcel Chistruga Team Member Patricio V\. Marquez Team Member Ruslan Piontkivsky Team Member Page 36 of 40  The World Bank Moldova Economic Governance DPO1 (P156963) Sandu Ghidirim Team Member Viorica Dumitri Strah Program Assistant Yuliya Smolyar Team Member Supervision/ICR Natasha Rovo Task Team Leader(s) Maryna Sidarenka Team Member – ICR Co--Author Adrien Arnoux Dozol Team Member Ilie Volovei Team Member Natalie Nicolau Team Member Sanja Madzarevic-Sujster Team Member Roman Zhukovskyi Team Member Vahe Vardanyan Team Member Volkan Cetinkaya Team Member \. B\. STAFF TIME AND COST Staff Time and Cost Stage of Project Cycle No\. of staff weeks US$ (including travel and consultant costs) Preparation FY17 23\.066 107,223\.64 FY18 65\.648 275,706\.63 FY19 5\.200 27,585\.18 Total 93\.91 410,515\.45 Supervision/ICR FY20 8\.947 36,796\.15 Total 8\.95 36,796\.15 \. Page 37 of 40 The World Bank Moldova Economic Governance DPO1 (P156963) Page 38 of 40 The World Bank Moldova Economic Governance DPO1 (P156963) ANNEX 3\. BORROWER, CO-FINANCIERS, AND OTHER DEVELOPMENT PARTNERS’/STAKEHOLDERS’ COMMENTS The draft ICR report has been sent to the Government of Moldova for their review and comments\. Consolidated comments have been received from the Ministry of Finance on July 17th, 2020 (Official Letter #11/2-7/55)\. The comments have been provided directly in the draft document which has been uploaded separately as supporting document to the ICR together with the accompanying letter from the Ministry of Finance\. Overall no major disagreement with the assessment were expressed\. Major comments included: 1\. Ministry of Agriculture, Regional Development and Environment (MARDE) commented on the secondary legislation\. The Ministry listed a series of new regulations approved\. The ICR team consulted with the EGDPO sector team who confirmed that those regulations refer mostly to EU alignment and do not directly relate to the EGDPO reform\. In paragraph 42, the team has acknowledged some reform progress in the area, however clarifying that no progress has been made directly related to the full implementation of the EGDPO reform\. 2\. MARDE also reported that during a meeting with some stakeholders - representatives of some international companies producing phytosanitary products and some local economic agents - fees were reported not to be a problem\. The team has discussed this in footnote 58\. 3\. The National Bank of Moldova reacted to a statement about the independence and clarified the foundations for recent monetary policy decisions\. In paragraph 62, the team has removed the discussion concerning the recent monetary policy decisions, however the mention of the risk to central bank independence remains, as also by the recent discussion in IMF 2020 RFI document\. 4\. Ministry of Economy provided updated statistics on the implementation of the OSS and achievement of the Result Indicators for PA5\. The team has verified the statistics with the EGDPO team and added updated numbers as of June 2020 as received by the Project Implementation Unit\. 5\. Other minor factual corrections were received from the authorities and are reflected in the final version\. The team sent the draft ICR report for comments also to the development partners, in particular to the EU and the IMF\. The EU did not have any and confirmed it with an email (uploaded as supporting material to the ICR), while IMF did not reply\. However, during the ICR mission in February 2020, the team had already extensive consultations with the IMF team, discussed and agreed on the preliminary assessment\. Page 39 of 40 The World Bank Moldova Economic Governance DPO1 (P156963) ANNEX 4\. SUPPORTING DOCUMENTS Cetinkaya, Volkan\. 2020\. Disclosable Version of the ISR - Moldova Health Transformation Project - P144892 - Sequence No: 13 (English)\. Washington, DC: World Bank Group Fuchs A\., and F\. Meneses\. 2018\. “Tobacco Price Elasticity and Tax Progressivity in Moldova\.” Policy Research Working Paper 8327\. World Bank, Washington DC\. Group of Observers\. Reports on Procurement of electricity in Moldova (2017, 2018)\. IMF 2016\. Request for an extended arrangement under the Extended Fund Facility and an arrangement under the Extended Credit Facility – press release; staff report; and statement by the Executive Director for the Republic of Moldova\. https://www\.imf\.org/external/pubs/ft/scr/2016/cr16343\.pdf\. ———\. 2018\. Third Reviews under the Extended Credit Facility and Extended Fund Facility Arrangements and Request for Modification of Performance Criteria\. International Monetary Fund, Washington DC\. ———\. 2019\. Republic of Moldova – Fourth and Fifth Reviews under the Extended Credit Facility and Extended Fund Facility Arrangements, Completion of the Inflation Consultation, and Request for Extension of the Arrangements and Rephasing of Access\. International Monetary Fund, Washington DC\. ———\. 2020\. Republic of Moldova: Staff Report for the 2020 Article IV Consultation and Sixth Reviews Under the Extended Credit Facility and Extended Fund Facility Arrangements-Press Release; Staff Report; and Statement by the Executive Director for the Republic of Moldova\. IMF: Washington DC\. Marquez P\.V\., and I\. Guban\. 2018\. “What Countries Can learn from Moldova’s Successful Tobacco Taxation Efforts\.” https://blogs\.worldbank\.org/health/what-countries-can-learn-moldova-s-successful-tobacco-taxation-efforts\. National Development Strategy „Moldova 2020”: SEVEN solutions for economic growth and poverty reduction (approved by Law nr\. 166 of July 11th, 2012)\. https://cancelaria\.gov\.md/en/apc/national-development-strategy- moldova-2020-seven-solutions-economic-growth-and-poverty-reduction\. National Integrity Authority\. 2019\. “Activity Report January-September 2019\.” Chisinau: NIA\. ———\. 2020\. “Objectives and Results during 2019\. Chisinau: NIA\. National Tobacco Control Program 2017‒21, https://gov\.md/sites/default/files/document/ attachments/intr07_127\.pdf\. National Public Health Strategy 2014‒20\. https://www\.legis\.md/cautare/ getResults?doc_id=18438&lang=ro\. UNDP (UN Development Programme)\. 2019\. National Integrity and Anticorruption Strategy Impact Monitoring Survey\. Moldova 2019\. New York, NY: UNDP, joint with CBS and Norwegian Ministry of Foreign Affairs\. World Bank\. 2016\. World Development Report 2016: Digital Dividends\. Washington, DC\. ———\. 2017\. SOE Diagnostics for Moldova\. World Bank, Washington, DC\. ———\. 2018a\. “Implementation\. Completion \.and Results Review on loans and credits in the amount of USD 75 Million to the Republic of Moldova for a series of DPOs\.” World Bank Group, Washington DC\. ———\. 2018b: “Moldova\. Mobile ID Case Study\.” World Bank Group: Washington DC\. ———\. 2019\. “Fall 2019 Moldova Economic Update\. Special Focus Note: Unfinished Pension Reform”\. http://pubdocs\.worldbank\.org/en/947531574937556947/Moldova-Special-Focus-Note-Unfinished-Pension-Reform- en\.pdf\. Page 40 of 40

REVIEW

P129769

Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review GH-NREG TA Grant (FY13) (P129769) Report Number : ICRR0020935 1\. Project Data Project ID Project Name P129769 GH-NREG TA Grant (FY13) Country Practice Area(Lead) Ghana Environment & Natural Resources L/C/TF Number(s) Closing Date (Original) Total Project Cost (USD) IDA-H8510 31-Dec-2016 5,000,000\.00 Bank Approval Date Closing Date (Actual) 06-Jun-2013 31-Dec-2016 IBRD/IDA (USD) Grants (USD) Original Commitment 5,000,000\.00 0\.00 Revised Commitment 4,999,709\.10 0\.00 Actual 4,872,217\.88 0\.00 Prepared by Reviewed by ICR Review Coordinator Group Katharina Ferl Victoria Alexeeva Christopher David Nelson IEGSD (Unit 4) 2\. Project Objectives and Components a\. Objectives According to the Project Appraisal Document (PAD) (p\.7) and the Financing Agreement (p\. 4) of November 8, 2013 the objective of the project was to “improve the institutional capacity of key ministries, departments and agencies (MDAs), in natural resources and environmental management\.” The project was part of the second phase of Bank support to Ghana’s National Resources and Environmental Governance (NREG) program\. Page 1 of 12  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review GH-NREG TA Grant (FY13) (P129769) b\. Were the project objectives/key associated outcome targets revised during implementation? No PHEVALUNDERTAKENLBL c\. Will a split evaluation be undertaken? No d\. Components The project consisted of three components: 1: Supporting policy-making and knowledge management (appraisal estimate US$2\.62 million, actual US$2\.41 million)\. This component was to finance consultancies, services, and operating costs towards the development of studies and related consultations to address key issues on natural resources and environmental governance including the development of public consultation guidelines for the National Resources and Environment (NRE) sector, the socio-economic analysis of benefit sharing arrangements in the forest sector, development of guidelines for local procurement in the mining sector, and development of Climate Change Support & Impact Monitoring Disclosure System (CCSI-MDS)\. 2: Strengthening institutional capacity to support sustainable natural resources and environmental management (appraisal estimate US$1\.56 million, actual US$1\.82 million)\. This component was to finance consultancies, services, goods and operating costs towards the development of capacity building activities meant to strengthen the capacity of responsible agencies to deliver key services\. Activities under this component were to include the development of a revenue forecasting model for natural resources, and capacity building for forest management and forest planning in district offices\. Also, this component was to finance the strengthening of the Minerals Commission, the Minerals Commission district offices, and the Environmental Protection Agency (EPA) for managing Artisanal and Small-Scale Mining (ASM) and training of government of Ghana negotiators and policy makers for Climate Change\. 3: Project management and related capacity building (appraisal estimate US$0\.82 million, actual US$0\.64 million)\. This component was to finance consultancies, services, good and operating costs to ensure planning, management, coordination, reporting, and auditing of activities in line with Bank standards\. e\. Comments on Project Cost, Financing, Borrower Contribution, and Dates Project costs: The project was estimated to cost US$5\.0 million, actual cost was US$4\.87 million\. Financing: The project was financed by a US$5\.0 million grant by the International Development Agency (IDA)\. Borrower Contribution: A contribution from the recipient was not planned\. Dates: The project closed on its original closing date on December 31, 2016\. 3\. Relevance of Objectives & Design a\. Relevance of Objectives Page 2 of 12  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review GH-NREG TA Grant (FY13) (P129769) The project’s objective was highly relevant given the importance of developing and exploiting natural resources in Ghana\. Natural resources are critical for the country’s economic growth, jobs, and poverty alleviation\. According to the ICR (p\. 1), land, water, forest, and fisheries resources contribute to more than 20 percent of Ghana’s Gross Domestic Product (GDP) and 60 percent of jobs\. According to the 2005 Ghana Natural Resources Management and Growth Sustainability Economic and Sector Work, the economic cost for lost productivity due to damage of natural assets such as agricultural land, forest and savanna woodlands, coastal fisheries and wetlands, wildlife and Lake Volta was US$516 million\. In 2006 the Country Environmental Analysis showed that the rate of natural resources degradation adds up to a cost of approximately 10 percent of the country’s GDP\. The objective was in line with Ghana’s Natural Resources and Environmental Governance (NREG) program for 2008 to 2012, which aimed to ensure economic growth, poverty alleviation, revenue increase, and improvement of environmental protection\. Also, the objective of the project was in line with Ghana’s Long- Term National Development Plan (2018-2057), which is currently under preparation and includes an objective aiming to ensure environmental sustainability\. The project was also in line with the Bank’s most recent Country Partnership Strategy (FY13-FY17), which recognized the importance of natural resource wealth for economic and social development\. Rating High b\. Relevance of Design The project was built on several studies conducted by the Bank and Development Partners\. Activities to improve the institutional capacity of key ministries, departments and agencies in natural resources and environmental management included developing public consultation guidelines for the National Resources and Environment (NRE) sector, and conducting a socio-economic analysis of benefit sharing arrangements in the forest sector\. Additional activities included the development of a revenue forecasting model for natural resources, and capacity building for forest management and forest planning in district offices\. The underlying assumption of how certain activities were to contribute to the achievement of the PDO was clear\. However, the design had several shortcomings\. First, the implementation arrangement was overly complex due to the number of institutions (three ministries and three agencies) being responsible for Natural Resource and Environment Governance (NREG)\. Second, the project design was not clear enough in terms of specific activities under each component and the different entities’ responsibility in project implementation\. And third, the initial project design included two different sets of M&E indicators, and therefore not providing a clear Results Framework\. Rating Modest Page 3 of 12  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review GH-NREG TA Grant (FY13) (P129769) 4\. Achievement of Objectives (Efficacy) PHEFFICACYTBL Objective 1 Objective Improve the institutional capacity of key ministries, departments and agencies (MDAs), in natural resources and environmental management\. Rationale • A revenue forecasting model for the Natural Resource Management (NRM) sector was developed, tested and reported to be ready\. However, the finalization of the model was delayed and the model is not operational yet and will only be used in the budget cycle of the new Government\. • While in March 2013 only two District Mining Committees were established, this number increased to 24 by December 2016 surpassing the target of 13 District Mining Committees\. In total 115 individuals were trained and areas of training included exploration, surveying, mining and processing techniques, book keeping, and policy and legal issues\. • The Forestry Development Master Plan was revised and validated and related training on its implementation was provided, achieving the target\. • The Nationally Appropriate Mitigation Action Plan was fully finalized, achieving the target\. The plan was posted on the Environmental Protection Agency’s (EPA) website and includes a complete implementation budget, a time-bound implementation plan, an assessment of potential climate change mitigation that can be achieved and a cost analysis\. • 30 small-medium enterprises that supply goods and services to mining companies were trained in procurement\. The new procurement guidelines were introduced to 20 supply managers\. • Several studies and plans were developed including a benchmarking study on operating cost for exploration and mining operations in Ghana, feasibility studies for the adoption of the System of Integrated Environmental and Economic Accounting Framework (developed by the United Nations Statistics Commission), a Land Reclamation Plan for old mining sites with high risks of pollution\. • Eleven mining companies submitted local procurement plans according to the new regulations and verified by the Mining Commission, achieving the target\. • An Inter-Ministerial Task Force was established resulting in the arrest and deportation of about 6,000 foreigners engaged in illegal mining\. Also, the amendment of the Minerals and Mining Act of 2015 was developed\. • The attorney general endorsed legislative proposals for the forest and wildlife policy\. • A grievance redress system for the EPA to formalize and restructure its processes for resolving public complaints was developed\. • A Climate Change Support and Impact Monitoring Disclosure System was formulated, designed and operationalized\. • A gold assay laboratory at the Kotoka International Airport in Accra was established\. • Ten regional workshops were conducted to train 2,500 environmental officers in environment management\. Page 4 of 12  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review GH-NREG TA Grant (FY13) (P129769) • Guidelines on conduct of consultations with non-state actors engaged in the NRE sectors through a participatory process by the Technical Coordinating Committee (TCC) were prepared and disseminated to all sectoral agencies and posted on the Ministry of Finance’s Website, achieving the target\. • A review of schemes on tree tenure and benefit-sharing drafted in a participatory process was completed, achieving the target\. The participatory process included stakeholder workshops, regional consultations, focused stakeholder groups, and inter-sectoral consultations\. This review is planned to serve as a basis for piloting the schemes that are most enabling for tree and forest protection and most beneficial to tree owners\. • Forestry Management Plans were approved for three forest reserves by the Forest Committee and the Ministry of Lands and Natural Resources, achieving the target of three reserves\. The Forest Management Plans serve as a management tool for each reserve and contribute to the capacity of the Forest Commission in order to effectively and efficiently manage, protect, and develop forest and wildlife resources in the respective reserves\. • The Forest Plantation Strategy for 2016-2040 was drafted by the Forestry Commission and submitted for consultation with state and non-state stakeholders, achieving the target\. • A Public Expenditure Review of the forestry sector was prepared\. Recommendations included revisions into the forecasting system in the Forest Commission to enable it to conduct better forecasts of expenditures and revenues and improve budgetary allocations and releases\. • Three consultative meetings covering all 10 regions in the country were conducted to receive inputs for the Forestry Development Master Plan\. In addition, a national validation workshop was held\. Rating Substantial PHREVDELTBL PHREVISEDTBL 5\. Efficiency The ICR points to the fact that for a TA, it was not necessary to calculate an economic and financial rate of return\. An ex-post analysis was not possible at project closure, as the revenue forecasting model was yet to be integrated into the GoG annual budgeting process, expected to be followed by tax recovery (ICR, page 18)\. The project closed as schedules, despite a 9-month delay in commencing the activities\. The original estimation for project management was 16 percent of the grant, however, project management accounted only for 13 percent of the grant\. It took two years for the project to become ready for implementation for reasons that included low priority on the part of the recipient given to the project, and weaknesses in Bank’s quality at entry (inadequate terms of references for the analytical work that had to be re-done)\. In 2015 several activities were dropped due to cost overruns as some of the consultancies ended up being more expensive than planned at appraisal\. Page 5 of 12  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review GH-NREG TA Grant (FY13) (P129769) Efficiency Rating Modest a\. If available, enter the Economic Rate of Return (ERR) and/or Financial Rate of Return (FRR) at appraisal and the re-estimated value at evaluation: Rate Available? Point value (%) *Coverage/Scope (%) 0 Appraisal 0 Not Applicable 0 ICR Estimate 0 Not Applicable * Refers to percent of total project cost for which ERR/FRR was calculated\. 6\. Outcome Relevance of objective was rated High given the economic importance of natural resources in Ghana\. Relevance of design was rated Modest due to several shortcomings such as overly complex implementation arrangements and the inclusion of two set of indicators in the Results Framework\. Achievement of the objective was rated Substantial and Efficiency was rated Modest\. Overall, the project’s outcome rating is Moderately Satisfactory\. a\. Outcome Rating Moderately Satisfactory 7\. Rationale for Risk to Development Outcome Rating While the government continues to be committed to the NREG, there are several challenges that might affect the sustainability of the development outcomes\. According to the ICR (p\. 12), the NREG implementing agencies have adequate technical expertise in their central and local offices to continue the implementation of critical NREG activities\. However, the number of civil servants might continue to be a challenge due to the civil service hiring freeze, as requested by the International Monetary Fund\. Second, the government faces fiscal constraints and therefore might not have sufficient financial resources to ensure the implementation of NREG activities on a bigger geographical scale\. Attracting long-term external financing will be critical\. And third, ensuring the sustainability of the mining sector depends on developing a mechanism to improve the use of the revenue stream to govern the sector\. Overall, the risk to development outcome rating is Substantial\. Page 6 of 12  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review GH-NREG TA Grant (FY13) (P129769) a\. Risk to Development Outcome Rating Substantial 8\. Assessment of Bank Performance a\. Quality-at-Entry The project was built on the analytical work that was conducted during the first Development Project Operation series\. The PAD (page 12) only provides a vague analysis of risk factors and does not state mitigation measures\. In addition, there were shortcomings in the technical design and the M&E framework that included two sets of indicators (see section 10a for more details)\. Also, the project design did not sufficiently specify the linkage between the different sectors\. Finally, the ICR (p\. 20) states that coordination and consultation with other development partners was not sufficient even though the project was part of a broader National Resources and Environmental Governance program\. Quality-at-Entry Rating Moderately Unsatisfactory b\. Quality of supervision As reported by the ICR, the Bank team conducted regular supervision missions\. During supervision missions, the Bank team reviewed the project risks and identified opportunities to adjust the project design and activities\. Also, the Bank regularly assessed progress towards the PDO and identified bottlenecks that hindered project implementation\. During the first supervision mission the Bank team modified the Results Framework and decided on one set of PDO indicators\. The Bank team provided adequate technical support in regards to financial management and procurement and conducted regular expenditure and post-procurement reviews\.The ICR (p\. 12) states that the Bank’s aide memoires and ISRs provided very little information on financial management\. All three Task Team Leaders (TTLs) were based in the country allowing for continuous support and guidance throughout project implementation\. A the same time, while the project benefited from the TTLs’ international experience, the frequent changes of TTLs made it difficult to develop a close relationship with the government and caused implementation delays\. Quality of Supervision Rating Moderately Satisfactory Overall Bank Performance Rating Page 7 of 12  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review GH-NREG TA Grant (FY13) (P129769) Moderately Satisfactory 9\. Assessment of Borrower Performance a\. Government Performance The government was committed to the overall NREG program and had implemented critical reforms during the first phase of the program such as passing the Forest and Wildlife Policy and Climate Change Policy, and six regulations to enforce the Minerals and Mining Act of 2006\. Also, the government identified qualified staff to work with the Bank team\. However, the government’s commitment to the project was inconsistent during preparation and implementation\. Lacking commitment and the TA’s low priority were among the factors that contributed to a long project preparation phase that ended up taking two years and led to delays in completion of the main activity (the revenue forecasting model for the NRM sector)\. The government set up a multi-sectoral Technical Coordinating Committee (TCC) to oversee project implementation and coordinate between different sectors and entities\. The TCC was to be chaired by the Chief Director of the Ministry of Finance\. However, the TCC was often chaired by the project coordinator, who did not have the seniority of the Chief Director\. Therefore, the project did not have sufficient oversight by a senior official resulting in a lack of close monitoring and timely addressing of implementation challenges\. Government Performance Rating Moderately Unsatisfactory b\. Implementing Agency Performance The Ministry of Finance, Minerals Commission, Forestry Commission, and Environmental Protection Agency were responsible for the implementation of the project\. Each entity provided staff to form the project team\. The ICR (p\. 21) states that the implementing agencies were not committed to project implementation and implementation issues were not addressed in a timely manner resulting in significant delays\. The procurement risk remained substantial throughout project implementation and the project experienced several procurement related challenges such as coordinating procurement among the different implementing agencies, obtaining up to date information on contract implementation and cash flow projection, fulfilling the Bank’s minimum procurement documentation requirements and submitting information in a timely manner\. Also, the contract of the project’s procurement specialist within the Ministry of Finance was not extended during the last year of implementation, resulting in lack of capacity to perform the procurement role\. At the same time, the ICR (p\. 21) states that the fiduciary reviews did not find any significant deviations from agreed procedures or lack of necessary documents\. In addition, reporting on M&E was not timely\. Implementing Agency Performance Rating Moderately Unsatisfactory Overall Borrower Performance Rating Page 8 of 12  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review GH-NREG TA Grant (FY13) (P129769) Moderately Unsatisfactory 10\. M&E Design, Implementation, & Utilization a\. M&E Design The PAD included two different sets of indicators\. In section B (p\. 8) the PAD presented five PDO indicators and in Annex 1 (p\.17) it included the Results Framework with three PDO indicators (different from those in section B) and six Intermediate Outcome Indicators\. It is not clear why the PAD included two different sets of indicators\. All of these indicators were measurable in terms of numbers, timing and location\. However, the second set of PDO indicators was output and process oriented and did not measure any progress made towards institutional capacity building\. The project ended up using a mix of both sets of indicators\. Those indicators were: i) Revenue forecasting model for the NRM sector in place and operational at the Ministry of Finance; ii) Forestry Development Master Plan revised and validated and related training on its implementation provided; iii) Number of District Mining Committees established, trained and equipped; iv) Nationally appropriate mitigation action plan fully finalized (costed and time-bound); and v) Project beneficiaries\. The M&E design was embedded within the Ministry of Finance in order to support the development of a robust and comprehensive M&E system for future monitoring reforms in the NRE sector\. The proposed data collection methods were adequate\. The Ministry of Finance was responsible for collecting the data and preparing progress reports towards achieving the PDO and submitting them to the Technical Coordination Committee and the Bank\. b\. M&E Implementation During the Bank’s first supervision mission the Results Framework was adapted to only include one set of indicators\. The Bank did not restructure the project since it was only seen as a clarification of indicators already included in the approved PAD\. The Ministry of Finance was responsible for data collection and reporting\. The Forestry Commission, the Minerals Commission and the Environmental Protection Agency were responsible for monitoring the indicators\. Due to implementation delays it was agreed to increase the progress reporting from a biannual to a quarterly basis\. However, progress reporting to the Bank was irregular and often delayed\. The ICR (p\. 10) states the collected data was accurate and the mentioned M&E shortcomings did not have a negative impact on project implementation\. c\. M&E Utilization Due to budgetary constraints the project could not implement the M&E system within the Ministry of Finance\. The National Resources and Environment Agencies generated data for the revenue forecasting model through other analytical work that was supported under the project\. The Forestry Commission implemented a M&E system that allows them to track the status of forest resources and revenue collection\. M&E results were used to inform decision making and monitor implementation progress\. Page 9 of 12  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review GH-NREG TA Grant (FY13) (P129769) M&E Quality Rating Modest 11\. Other Issues a\. Safeguards The project was classified as category B and triggered the Bank’s safeguard policies OP/BP 4\.01 (Environmental Assessment) and OP/BP 4\.36 (Forests)\. It was assumed that the project would trigger these safeguards due to the expected impact of the analytical work on land use, land ownership, and access to resources\. For example, it was assumed that the findings of the benefit-sharing study would result in changes in the benefit sharing regime such as moving from a system where the state own trees to one where ownership is distributed more equitable between land owners, tree keepers, and land users\. Furthermore, it was assumed that the review of the Forests Management Plans might result in access restriction to forest reserves which might result in a loss of income or limitation of access\. The project team prepared detailed terms of references for the analytical work and disclosed it publicly\. Also, outputs relevant to safeguards such as the Ghana Forest Plantation Strategy 2016-2040, Forest Management Plans for the three forest reserves, the Grievance Redress Mechanism Operational Manual, the ASM Framework the Ghana Forestry Development Master Plan 2016-2036 were published on the website of the implementing agency\. The ICR (p\. 11) states that no safeguards issues were identified during project implementation and safeguard aspects were satisfactory\. b\. Fiduciary Compliance Procurement: A Procurement Specialist within the Ministry of Finance had the overall responsibility for any procurement related activities\. However, the project faced several procurement related challenges such as coordinating procurement among the different implementing agencies, obtaining up to date information on contract implementation and cash flow projection, fulfilling the Bank’s minimum procurement documentation requirements and submitting information in a timely manner\. During the last year of implementation, the Procurement Specialist only worked part-time resulting in weaker contract management and delays in submitting relevant information to the Bank\. Despite all these challenges, all procurement activities were completed by project closing and no violations of the Bank’s procurement rules were identified\. Financial Management: The project did not encounter Financial Management related issues throughout project implementation\. A qualified and experienced Financial Management Specialist within the Ministry of Finance was responsible for the project’s financial management\. The project benefited from competent staff within the Ministry of Finance’s Accounts Department and adequate internal control procedures including complete supporting documentation of all expenses to allow verification\. Interim financial reports were submitted on a regular basis, sometimes delayed, at an acceptable standard\. Throughout project Page 10 of 12  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review GH-NREG TA Grant (FY13) (P129769) implementation audit reports were submitted of which none had a qualified opinion\. c\. Unintended impacts (Positive or Negative) NA d\. Other --- 12\. Ratings Reason for Ratings ICR IEG Disagreements/Comment Moderately Moderately Outcome --- Satisfactory Satisfactory Risk to Development Substantial Substantial --- Outcome Moderately Moderately Bank Performance --- Satisfactory Satisfactory IEG agrees with the ICR on moderately unsatisfactory rating for Government\. The performance of IA is rated Moderately Moderately Borrower Performance moderately unsatisfactory for Satisfactory Unsatisfactory lack of comittment and timely resolution of issues, as well as procurement related challenges\. Quality of ICR Substantial --- Note When insufficient information is provided by the Bank for IEG to arrive at a clear rating, IEG will downgrade the relevant ratings as warranted beginning July 1, 2006\. The "Reason for Disagreement/Comments" column could cross-reference other sections of the ICR Review, as appropriate\. 13\. Lessons The ICR (p\. 22) includes lessons learned adapted by IEG: 1 \. It is important for the Bank to stay engaged with a government to continue the dialogue on critical topics also during unfavorable fiscal times\. This project showed that progress in a critical area can also be made with a technical assistance project when there is no appetite/fiscal space for a larger scale operation\. Page 11 of 12  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review GH-NREG TA Grant (FY13) (P129769) 2 \. Addressing the management of natural resources through a multi-sectoral approach for achieving sustainable outcomes is critical but also challenging and requires strong leadership\. This project aimed to bring practitioners from various sectors together to create and enhance synergies, and promote collective processes and joint decision making\. However, since there was no strong senior leadership team in place, the project lacked timely policy guidance, technical expertise and collaboration across all sectors\. 14\. Assessment Recommended? No 15\. Comments on Quality of ICR The ICR provides a good overview of project preparation and implementation and is concise\. The ICR is candid in the assessment of factors that influenced project implementation\. Lessons are based on the experience\. However, the ICR is sometimes inconsistent\. For example on page 8 it states that the procurement specialist‘s contract was not extended during the last year while it states on page 11 that the procurement specialist only worked part-time\. a\. Quality of ICR Rating Substantial Page 12 of 12

REVIEW

P003552

 Shandong agricultural development project Report No: ; Type: Report/Evaluation Memorandum ; Country: China; Region: East Asia And Pacific; Sector: Agriculture Adjustment; Major Sector: Agriculture; ProjectID: P003552 China: Shandong Agricultural Development Project (Credit 2017-CHA) The China Shandong Agricultural Development project, supported by Credit 2017-CHA for US$109\.0 million equivalent, was approved in FY89\. The Credit was fully disbursed and closed on schedule in FY95\. The Implementation Completion Report (ICR) was prepared by the East Asia Regional Office\. The borrower prepared a separate completion report which is included in the ICR as Annex B\. The project's objective was to accelerate rural development in three areas of Shandong Province where agricultural productivity was low: the coastal lowlands, the Tuhai River Basin, and the Yi Meng mountains\. The four components designed to meet this objective aimed to develop culture fisheries on unproductive coastal lands; intensify crop and livestock production and processing in the Tuhai River Basin; create employment, primarily for women, by intensifying livestock production and processing in the Yi Meng mountains; and improve capacity for project management through technical assistance, training, and applied research\. The project was generally well designed and met most of its objectives, despite some initial delays in the provision of counterpart funds from local levels of government\. New horticultural crops and foodgrains were established on 56,540 hectares, exceeding the target by more than 13 percent, and a total of 284,200 hectares of irrigated land were rehabilitated, exceeding the SAR target by 5 percent\. Development of livestock farms and fast-growing tree plantations achieved their targets fully\. Thirty-eight agroprocessing plants were established, against an initial target of 42\. The construction of shrimp ponds was below expectations by 20 percent, however, and a viral disease that affected the entire Chinese coastal zone in 1993 halted shrimp production\. The project created additional employment for more than 220,000 people in the Yi Meng mountains, and 56 percent of these jobs went to women\. Women accounted for half of the 12,000 person-months of training the project provided in the Yi Meng mountains, and 29,000 women received credit for livestock development\. The benefits from expanded irrigation were realized more slowly than planned because installation of on-farm irrigation works by bebeficiaries did not keep pace with off-farm project works\. Not all the wastewater treatment plants associated with agricultural processing were operational when the project closed, but IDA will continue to monitor this issue during supervision of ongoing projects in the province\. The ICR estimates the project's Economic Rate of Return at 31 percent, 2 percentage points higher than at appraisal\. The Operations Evaluation Department (OED) agrees with the ICR in rating project outcome as satisfactory, sustainability as likely, and institutional development as modest\. Sustainability will be highly dependent on the completion of on-farm irrigation works, the continued high collection rate of irrigation water charges, and the successful marketing of new agricultural and food products\. Both the ICR and OED rate Bank performance as satisfactory\. The main lessons that can be drawn for this project suggest that: (i) a well-prepared rural development project, with effective coordination during implementation, can begin to produce substantial benefits for rural communities within a short space of time; but (ii) the effective participation of all levels of government is needed in project design and implementation if decentralized projects are to achieve their full potential by helping to ensure that local counterpart funds are made available as needed and local project works are implemented on schedule\. Overall, the ICR is satisfactory\. The tables are extensive and the brief text is sufficient, although it interprets project outputs prematurely as development impacts\. The Aide-Memoire of the ICR mission is minimal and the ICR contains no map\. No audit is planned\.

REVIEW

P043421

 ICRR 13337 Report Number : ICRR13337 IEG ICR Review Independent Evaluation Group 1\. Project Data: Date Posted : 04/14/2010 PROJ ID : P043421 Appraisal Actual Project Name : Br Rj M\.Transit Prj\. US$M ): Project Costs (US$M): 436\.5 426\.6 Country : Brazil Loan/ US$M ): Loan /Credit (US$M): 230\.0 230\.0 Sector Board : TR US$M): Cofinancing (US$M ): Sector (s): General transportation sector (98%) Central government administration (2%) Theme (s): State enterprise/bank restructuring and privatization (50% - P) Other urban development (50% - P) L/C Number : L4291; L7508 Board Approval Date : 03/05/1998 Partners involved : Closing Date : 06/30/2002 06/30/2009 Evaluator : Panel Reviewer : Group Manager : Group : Ramachandra Jammi Fernando Manibog IEGSE ICR Reviews IEGSE 2\. Project Objectives and Components: a\. Objectives: The project development objectives (PDOs) as recorded in the Loan agreement were to improve : (a) the quality of urban transport services in the RJMR (Rio de Janeiro Metropolitan Region) by supporting the development of an integrated urban transport system; and (b) the level of service provided by the FLUMITRENS (Companhia Fluminense de Trens Urbanos ) System while reducing the operating subsidies it receives from the Borrower, through substantial reduction of the Borrower ’s participation in the operations and management of the FLUMITRENS ’ System\. (The Staff Appraisal Report (SAR) further specifies that the reduction of the operating subsidies would be "through the substantial participation of the private sector in its operations and management "\. This is taken into account in this review)\. The SAR also notes that subsidiary o bjectives would be the improvement of mobility of the low -income population who are the main user of Flumitrens and public transport and the reduction of environmental impacts (mainly air quality and noise) on the RJMR due to road-based vehicle use\. Following the Mid-term Review (MTR) in December 2001, the implementing agency, FLUMITRENS, was replaced by CENTRAL (Companhia Estadual de Engenharia de Transportes e Log ística) after the suburban rail system concession was awarded to the private company SuperVia in 1999\. This restructuring did not require Board approval since the PDOs were unchanged \. b\.Were the project objectives/key associated outcome targets revised during implementation? No c\. Components (or Key Conditions in the case of DPLs, as appropriate): Component A: Institutional and Policy Reforms (At Appraisal : US$19\.8M; At Completion: US$39\.6M) Provision of technical assistance in the implementation of the institutional and policy reforms undertaken in connection with the RJMR’s transportation sector, including activities related to concession and management of such public services, as follows: 1\. In respect of FLUMITRENS: (a) provision of assistance in the preparation of the bidding documents, including concession contracts, to be used in the concession process; (b) provision of assistance, until the Concession Contract enters into effect, to further rationalize and streamline FLUMITRENS ’ operations and maintenance; (c) carrying out of technical engineering studies in railway signaling and telecommunications; and (d) provision of consultants’ services to support the supervision of the investments described in Component B of the Project \. 2\. Carrying out of studies to support the adoption of a modal integration policy framework for the AMTU -RJ (Metropolitan Urban Transport Agency of Rio de Janeiro ), such studies to consist of : (a) updating of the transport, land use and air quality sections of the master plans of the RJMR with emphasis on route rationalization and modal and tariff integration; (b) inter-municipal route management and rationalization; and (c) preparation of feasibility and bidding documents for the Niter ói-São Gonçalo mass transportation system \. 3\. Training of FLUMITRENS’ staff in the management of the investments described in Part B of the Project and of assets not included in the concession and in the monitoring of the Concessionaire on behalf of ASEP -RJ (State of Rio de Janeiro Regulatory Agency for Public Services )\. 4\. Review of the Borrower’s environmental program related to urban traffic issues, consisting of an inspection and maintenance strategy for vehicle emissions and noise \. 5\. Design of a more reliable system to collect traffic violation fines with emphasis on ways of enforcing them as a deterrent to traffic accidents \. Component B: Infrastructure and Equipment (At Appraisa l: US$416\.8M; At Completion: US$486\.1M) Improvement of the infrastructure and equipment of FLUMITRENS ’ System through: 1\. (a) rehabilitation and modernization of twelve passenger stations; (b) construction of one passenger station; (c) construction of five pedestrian over /underpasses; and (d) installation of nine Kilometers of fences in areas adjacent to passenger stations to reduce tariff evasion \. 2\. (a) replacement of 50,000 sleepers; and (b) conversion of one track of the Gramacho -Saracuruna segment into broad gauge\. 3\. (a) installation and repair of transmission lines in the Leopoldina corridor; (b) rehabilitation or construction of electric substations; (c) installation of a central traffic control in D \. Pedro II and Deodoro yards and Sta \. Cruz and Japeri corridors; (d) installation of an automatic train control system in the Deodoro, Sta \. Cruz and Japeri corridors; (e) installation of automatic fare collection; (f) installation of fiber optic cable links in the Japeri corridor, provision of a central telephonic exchange station and an integrated telecommunication system in the operations control center\. 4\. Rehabilitation of about 139 electrical multiple units\. After the MTR in 2001, the Bank agreed to restructure the project to finance the purchase of 20 new trains in lieu of rehabilitating some 55 existing trains\. Also, the planned Systems subcomponent (primarily transmission lines) was greatly reduced in part because of delays in the rolling stock program \. Component B was recast into seven sub-components on December 18, 2001 and revised for a second time on June 16, 2004, along with changes to Component A parts 2 and 5\. The final changes are as below : Component A\.2 added: (d) economic, financial and technical feasibility analyses, as well as the respective basic project, for a transport system, known as Line 6 connecting Rio de Janeiro with Duque de Caxias \. Component A\.5 (traffic enforcement system) was eliminated and this part of the loan was cancelled \. Component B: “Improvement of the infrastructure and equipment of Central ’s System through: 1\. (a) rehabilitation and modernization of passenger stations, including public services known as "Estações da Cidadania" (community hubs) 2\. (a) Replacement of 50,000 sleepers; (b) rehabilitation of the Santa Teresa tramway system; (c) improvement of the Saracuruna-Guapimirim rail track; and (d) construction of the Caxias station underpass road \. 3\. Installation and repair of transmission lines \. 4\. (a) Rehabilitation of 50 electrical multiple units; (b) rehabilitation of diesel-electric locomotives; (c) rehabilitation of passenger cars; (d) rehabilitation of light rails cars of the Santa Teresa tramway system; and (e) installation of air conditioner equipment on electric multiple units \. 5\. Installation of air conditioner systems in 18 electrical multiple units 6\. Rehabilitation of diesel multiple units\. 7\. Acquisition of 20 electrical multiple units with air conditioner system \. The project amendments were requested by the Borrower primarily to facilitate implementation under unfavorable fiscal conditions and mostly involved minor changes to the project components, loan categories, disbursement percentages and extensions of the closing date to complete implementation \. d\. Comments on Project Cost, Financing, Borrower Contribution, and Dates: The original Bank loan was approved for US$ 186M\. Amounts of US$17\.1M and US$10\.6M were cancelled from the loan in October 2000 and June 2004 due to the Borrower’s fiscal restrictions\. In November 2006, the total canceled amount (US$27\.7 million) was reinstated at the Borrower’s request\. An additional financing of US$44M was approved by the Board in December 2007 to help finance the costs associated with the devaluation of the US$ and the Korean Won (currency of one of the biggest contracts financed by the loan ) in relation to the Brazilian Real (R), and shortages in counterpart funds \. Project cost at completion (US$426\.6M) was marginally lower than at appraisal (US$436\.5M), and the Bank's lending at completion was US$ 230M, the same as planned at appraisal \. Within this envelope, the rolling stock rehabilitation program was reduced and replaced by a large increase in the acquisition of new rolling stock\. The project was originally scheduled to close on June 30, 2002, but the final closing date was extended five times until June 30, 2009\. This was mainly due to delays in the signing of the loan agreement by the Federal and State governments; insufficient counterpart funds from 2000 to 2003 due to the financial crisis; and delays on the part of regulatory and overseeing agencies \. 3\. Relevance of Objectives & Design: Objectives: The PDOs built upon those of earlier Bank projects -- Rio de Janeiro Metropolitan Transport Decentralization Project , which supported the transfer of the Rio de Janeiro subdivision of the Brazilian Urban Train Company (CBTU) to the State Government -- and the Rio de Janeiro State Reform Privatization Project , which supported a staff rationalization and concession program \. The PDOs responded to the State of Rio de Janeiro (SRJ) 's interest in improving modal and tariff integration of urban trains with the state -owned subway, the ferry system, and the bus transport system\. It also responded to SRJ's desire to deal with the huge subsidies to urban transport agencies that absorbed 8-10 percent of State revenues \. The project was consistent with the Bank ’s Country Assistance Strategy 1997 whose priorities included reform of public enterprises, fostering private sector participation in infrastructure, and reducing Government subsidies through improved tariff policies and financial management \. The current Country Partnership Strategy (CPS 2008-11) notes that the urban transport agenda needs to address simultaneously ever -increasing urban congestion, respond to demands for provision of better metropolitan passenger transport services, as well as ensure that the main cities can efficiently play their role as transport hubs \. Overall relevance of the project objectives is rated high\. Design: The project design appropriately linked the major objective of improving the quality of urban transport services in RJMR with institutional objectives (inter-governmental and intermodal integration ); operational improvements in the FLUMITRENS/CENTRAL system; and the fiscal objective of reducing subsidies \. In institutional terms, the project addressed the lack of coordination and oversight from the three levels of government involved in urban transport which has resulted in poor modal integration, no tariff integration, lack of prioritization in urban transport investments, and no common policy on pricing and subsidies \. These three levels involve: (a) the State Secretary of Transport (SETRANS) which regulates all the inter-municipal bus, rail and ferry services of the region; (b) the Secretary of Transport of the Municipality of Rio de Janeiro (MRJ) which regulates municipal bus services and is also responsible for traffic management and control in RJMR; and (c) the State Directorate for Roads\. In terms of integrating transport modes, the project addressed a situation where, despite an expansive existing rail network, the lack of integration between the Metro (2 lines, 23 km) and the Flumitrens system (241 km) discouraged trips in favor of buses and automobiles, creating heavy congestion and pollution during peak hours, and significantly increasing work-related travel times\. (In 1998, SRJ transferred the vast majority of the rail transport system (5 lines, 225 km) from FLUMITRENS to CENTRAL, both state-owned companies, to a private concessionaire SuperVia \.) The Bank overestimated the political commitment on part of various levels of government \. The demand projections for ridership that underpinned the private concession for the FLUMITRENS /CENTRAL system, proved to be highly optimistic\. The Bank prevailed upon SRJ to provide adequate counterpart funds in its budget for 1997, 1998, and in subsequent years\. However, this mitigation measure turned out to be ineffective after 1999 as the regional financial crisis set in and fiscal restrictions were imposed by the central government \. In modernizing the rail transport system, the project originally relied mostly on rehabilitation of existing EMUs (Electromotive Units) rather than introducing new rolling stock to a greater extent \. This option turned out to be inefficient for technical and economic reasons as well as due to insufficient management capacity \. QAG's Quality of Supervision Assessment (QSA 2004) noted that the Bank could have adopted a somewhat more realistic implementation period at entry given the complexity of the project and the need for both state and Federal approval, but conceded that it was not possible to mitigate all the factors that contributed to the implementation delays\. The QSA rating was satisfactory \. Overall relevance of design is rated substantial \. 4\. Achievement of Objectives (Efficacy): (a) To improve the quality of urban transport services in the RJMR by enhancing the development of a fully integrated urban transport system \. Substantially Achieved \. The creation and continued operation of AMTU -RJ, PDTU, and AGETRANSP are significant achievements, even though there continue to be shortcomings in their functioning\. Even though tariff and modal integration fell short of targets and were delayed, it is recognized that this extent of progress was achieved from a situation where no such integration existed \. Inter-modal integration: The ICR states that the State and local Governments were not able to fully comply with their commitments to integrate the bus networks with the suburban rail system \. The project did achieve physical integration between Metro and inter -municipal buses\. The target for the number of stations in CENTRAL /Flumitrens's system physically integrated with bus and metro services (20%) was reached in 2008 -- several years after the target date -- compared to no integration at project appraisal \. SuperVia services were physically integrated with Metro services in 4 stations and with bus services in 18 stations\. Progress was made in respect of SuperVia and bus services covering 120 municipal bus lines and 20 inter-municipal bus lines in 2008, but no baseline or target values are provided \. Tariff integration : The ICR states that tariff integration with municipal bus services "was less than expected" but does not provide any specific measure of progress in this regard \. To that extent the rationale for introducing integrated tariffs -- that they would cost less than the sum of individual tickets, thereby creating inclusion by benefiting the lower income segments of the population -- was not served\. As a percentage, the passengers from the lowest socio-economic classes (C, D and E) decreased from 89% in 1999 to 74% in 2007\. This can also be attributed to the application of the financial-economic equilibrium clause of the concession agreement (which ensures a 12% rate of return on investment to SuperVia) which resulted in an increase of over 300% in suburban rail tariff (from R$0\.6 in 1998 to R$2\.5 in 2009)\. Municipal bus tariffs, which compete with SuperVia, also increased correspondingly \. The tariffs on inter-municipal buses that compete with SuperVia in general are much higher than SuperVia \. Institutional integration : SRJ signed an implementation agreement with 20 municipalities to create a regional transportation coordination commission (AMTU-RJ), to ensure the planned expansion of physical and tariff integration\. The project also supported the creation of AGETRANSP (Metropolitan Transport Regulatory Agency ) in 1997 for coordinating and regulating the multi -jurisdictional transportation systems in the RJMR \. However, the ICR notes that AMTU-RJ lacks sufficient authority for setting regional priorities and AGETRANSP needs support and strengthening to perform their roles effectively \. Quality of urban transport services : According to the Region's comments, punctuality improved from 27% (in 1998 before the project) to 92%; availability of trains increased from 58% to 90%; reliability improved significantly with the new and better maintained trains although no baseline was available \. Improvements in the service quality of the CENTRAL/Flumitrens system since the SuperVia concession were noted by 91% of respondents in user surveys \. The impact of this on the overall quality of the transport system in RJMR may be limited due to the marginal increase in the share of CENTRAL/Flumitrens among all RJMR trips (see discussion under PDO (b) below)\. Meanwhile informal public transport services in RJMR have proliferated, offering door -to-door service, but with lower quality and safety than the formal transport services \. No specific indicators or data is available on the impact of these developments on congestion and air pollution \. (b) To substantially improve the level of service provided by CENTRAL /Flumitrens while reducing the operating subsidies it receives from the State through the substantial participation of the private sector in its operations and management \. Modestly Achieved \. There were significant shortcomings in : achieving the share of CENTRAL/FLUMITRENS system among all trips in the RJMR; number of paying passengers per day; investments by the private sector\. IEG considers passenger demand to be an important intermediate outcome /outcome indicator along with the project’s broader rationale of creating inclusion by benefiting the lower income segments of the population\. Level of service on CENTRAL/FLUMITRENS system : The share of the CENTRAL/FLUMITRENS system among all trips in the RJMR increased slightly from baseline of 4% to 5%, against a target of 10%, for a number of reasons including the shortage of rolling stock, and higher than anticipated fares due in part to a lack of integrated modal tariffs\. The average interval between trains at peak hour (headway), was reduced from 13 minutes to 7 minutes against a target of 6 minutes\. The ICR reports that punctuality (92%) and reliability (99%) of rail operations improved, but no baseline values are provided \. Improved accessibility (bridges, crossings, and escalators ), illumination, security, bicycle parking, and government service offices were provided, and had a positive impact on low-income neighborhoods\. Paying Passengers : The total number of paying passengers carried per day (linked trips) tripled from 150,000 in 2008 to 465,000 in 2009) this was less than 40% of the original target (1\.288 million)\. This was due to a combination of factors including a shortage of rolling stock, a lack of inter -modal integration (particularly with buses), and growing competition from informal modes\. As a percentage, the passengers from the lowest socio -economic classes (C, D and E) decreased from 89% in 1999 to 74% in 2007\. This is mainly attributed to the increase in tariffs for rail and buses despite a decrease in the generalized cost of travel (including travel times, wait times, reliability, etc \.)\. Financial performance : Only one-third of the planned investment of US$ 240M from the private sector has been realized to date\. Also, maintenance expenditure per car -km in 2007 was a fraction of what it was in 1999, though this may be partly due to the larger share of new rolling stock \. SuperVia’s balance sheet showed negative equity from 2002 to 2006\. This is attributed to lower than expected ridership demand combined with delays by the State in compensating operators for discounted fares (i\.e\., for schoolchildren, elderly)\. Since 2007, however, SuperVia's financial position has turned positive, due to improvement in the efficiency of its operations \. Operating subsidies as well as subsidies for staff costs associated with the CENTRAL /Flumitrens system were as per target since 2001 and have remained steady until the last year recorded (2006)\. This has saved SRJ as much as US$l80M till 2006, which the State has been able to reinvest in capital improvements to the transport system \. Operational efficiency : Availability of rolling stock (trains in operation/total train fleet) improved from 58% to 90%, which compares favorably with the industry benchmark \. SuperVia’s productivity ratio (operating costs per car-km) improved significantly from 4 to 1\.4 in constant prices and from 4\.4 to 3\.4 in nominal prices during 1999 to 2008\. At project completion, seven contracts under Component B including the purchase of 30 new EMUs and modernization of 14 trams were ongoing and are expected to be completed with local funding during 2010\. 5\. Efficiency (not applicable to DPLs): A cost-benefit analysis was carried out using the same model as at appraisal, and the latest cost estimates \. The following assumptions/changes were made to reflect the situation at project completion : all benefits (savings in travel time, operating costs, road maintenance costs; accidents, air pollution ) were reduced by 66% to reflect a corresponding shortfall from the ridership projected at appraisal; a 2-year delay was introduced in the stream of benefits; investment costs were updated; the reduction in wages and the incremental increase in operating and maintenance cost were kept consistent with those at appraisal \. The ERR at completion was 14% against 64% at appraisal\. Due to several factors, including the financial crisis during the early years of project implementation, and delays due to the borrower and implementing agency, the project was delayed by seven years as compared to the original implementation period of four years \. However, it is recognized that the realized ERR of 14% is still higher than the opportunity cost of capital \. The Region's comments state that this ERR is favorable compared to urban rail transport projects in similar country situations\. Efficiency is rated substantial \. ERR )/Financial Rate of Return (FRR) a\. If available, enter the Economic Rate of Return (ERR) FRR ) at appraisal and the re -estimated value at evaluation : re- Rate Available? Point Value Coverage/Scope* Appraisal Yes 64% 96% ICR estimate Yes 14% 92% * Refers to percent of total project cost for which ERR/FRR was calculated\. 6\. Outcome: The project outcome is rated moderately satisfactory based on substantial relevance, modest efficacy and substantial efficiency\. a\. Outcome Rating : Moderately Satisfactory 7\. Rationale for Risk to Development Outcome Rating: There is currently a low risk of investments for urban mass transit being affected by macroeconomic or fiscal conditions\. All levels of government are giving priority to investments in rolling stock, stations and system upgrades, and overall operating capacity in anticipation of Rio de Janeiro hosting the 2014 World Cup and 2016 Olympics\. There is a moderate risk of the tariff structure rising above inflation from the application of the "financial-economic equilibrium" clause of the concession contract, as ridership and revenues continue to be far short of original estimates\. This may result in more lower-income riders switching to cheaper, lower -quality alternatives such as informal vans\. To mitigate this risk, SRJ is continuing to pursue intermodal tariff integration (which was part of the first PDO) to lower general travel costs\. A recent positive development (December 2009) in this regard is SRJ's legislative assembly approval of an integrated modal tariff in 2010 for inter-municipal transport over which the State has jurisdiction (including buses, ferries, Metrorio and SuperVia )\. MRJ is currently studying a similar proposal \. There is a moderate risk of SuperVia deferring maintenance of the fleet and facilities, thereby affecting the long -term sustainability of the rail system \. Maintenance costs per car-km in 2007 were a fraction of those in 1999, though it has not been determined to what extent this reduction was driven by deferred maintenance of newer rolling stock and through increased worker productivity \. Finally, the recently-approved Rio Mass Transit 2 Project (US$211\.7 million, Loan 7719-BR; effective December 3, 2009) builds on the current project with technical assistance to support the implementation of integrated modal tariffs and specific targets for bus -rail tariff integration in all five of SuperVia ’s lines\. In addition, and as part of plans to host events for the 2014 World Cup and 2016 Olympics in Rio de Janeiro, SRJ is interested in acquiring at least 60 additional new suburban trains \. RJM is also interested in renovating and rationalizing the municipal bus fleet owned by private operators under a reform and renewal of concessions in the coming years \. Overall risk is rated Moderate\. a\. Risk to Development Outcome Rating : Moderate 8\. Assessment of Bank Performance: Quality at Entry: Project design was largely appropriate to the main issues of inter -modal institutional and tariff integration for improving the quality of urban transport in RJMR , as well as to improve the efficiency of CENRAL/FLUMITRENS through private sector participation \. However, the complexity and time required for making progress on institutional and tariff integration was underestimated \. The assumptions and analysis behind demand projections for metro ridership proved to be highly optimistic \. Overall, quality at entry is rated moderately satisfactory \. Supervision: A Quality of Supervision Assessment (QSA) carried out by the Bank's Quality Assurance Group (QAG) in 2004 rated supervision as “Satisfactoryâ€? and commended the project team for its understanding of the client’s needs\. The project team made efforts to promote inter -modal tariff integration through dialogue with stakeholders (including bus operators), policy advice, and reports on the implications and status of integration in the region\. The QSA report, noted that "on the Borrower's counterpart funding, it might have been useful to elevate this issue to a higher level of Bank management and to involve the IMF (International Monetary Fund) in the discussions as this issue also affects other projects in the portfolio \." However, as pointed out by the task team, it is not clear if this would have resulted in any practical options that had not already been considered \. The QSA report also noted that the ISRs could have been more useful as a management instrument if they had rated IP (Implementation Progress) more objectively (only one of 38 IP ratings in the ISRs was less than satisfactory )\. Overall, Bank supervision is rated Satisfactory \. at -Entry :Moderately Satisfactory a\. Ensuring Quality -at- b\. Quality of Supervision :Satisfactory  c\. Overall Bank Performance :Moderately Satisfactory 9\. Assessment of Borrower Performance: Government: During project preparation, SRJ supported necessary studies, reviewed lessons from previous experiences and initiated reforms such as the creation of AMTU -RJ and AGETRANSP in 1997\. Starting around the year 2000, the project suffered from an extended lack of counterpart funding, which caused considerable delays in project implementation\. This was due to the impact of the financial crisis originating in Argentina and the devaluation of the Brazilian Real \. Since January 2007, SRJ has provided greater counterpart funds that have helped close the funding gap \. This together with the the Bank ’s additional financing of US$44M have helped to execute most contracts by project completion \. Both the federal and state governments were responsible for the initial delay in signing of loan agreements that lasted more than one year\. The Borrower's ICR considers this one of the major reasons for the overall delay in implementing the project\. The Borrower's ICR also suggests that the lack of effectiveness on the part of the regulatory agency AGETRANSP and the overseeing agency SETRANS also contributed to delay in project implementation\. During procurement of rolling stock, SRJ was at times late in making 'progress payments', as a result of which the implementing agency was not able to trigger penalty clauses for vendors in case of late delivery of trains \. This resulted in a shortage of of rolling stock for SuperVia, constraining operating capacity and lowering demand in the long-run\. Overall Government performance is rated moderately unsatisfactory \. Implementing Agency: CENTRAL's Project Implementation Unit was adequately staffed, its management was stable, and generally produced detailed and timely reports \. However, the procurement process for the rehabilitation and acquisition of new trains was delayed due to shortcomings in complying with the Bank's procurement guidelines\. The train rehabilitation program experienced numerous changes and delays due to procurement issues and interdependencies between contracts \. On the positive side, CENTRAL/FLUMITRENS applied advanced engineering solutions for activities including modernizing stations, and made efforts to connect each station with the adjacent areas, thereby positively affecting the quality of life of passengers and the local community in general\. Overall implementing agency performance is rated moderately satisfactory \. a\. Government Performance :Moderately Unsatisfactory b\. Implementing Agency Performance :Moderately Satisfactory c\. Overall Borrower Performance :Moderately Satisfactory 10\. M&E Design, Implementation, & Utilization: Design: This project was appraised before the current requirements for a results framework based on outcome indicators began to be applied \. The task team provided two sets of indicators : for PDO 1(percentage of integrated stations; mode share of suburban rail ) and for PDO 2 (average headway in the peak hour; number of paying passengers; availability of rolling stock; staff costs; and operating subsidy )\. These are mainly in the nature of output indicators which were measurable directly or through standard transport or operational models \. The ISRs reported on two other output indicators : “concession of the system to the private sector â€? and “concession sustainable and modal integration with buses and metro in progress â€? but these may have been too general and qualitative to inform management decisions\. There were no specific indicators for environmental impacts (mainly air quality)\. Importantly, the M&E framework did not provide specific indicators for overall quality of urban transport, and the general benefit to public welfare or impact on the poor \. Implementation and Utilization: The Project team used the physical and financial output indicators to supervise the progress of the works and the delivery of equipment \. As stated above, there were not indicators to mark progress on overall intermodal urban transport quality and welfare outcomes \. a\. M&E Quality Rating : Modest 11\. Other Issues (Safeguards, Fiduciary, Unintended Positive and Negative Impacts): Fiduciary: According to the ICR, the project's financial management was generally in compliance with Bank procedures\. In April 2001, a non-compliance issue was noted in respect of the Special Account (SA) under Section 4\.01 of the Legal Agreement\. This was resolved in early 2003 and noted in the semi-annual monitoring report\. There were no significant financial management (FM) weaknesses and the FM ratings were moderately satisfactory or satisfactory throughout project implementation (ICR page 16)\. QSA 2004 concluded that the quality and timeliness of procurement actions were satisfactory \. Safeguards: The project was placed in Environmental Assessment Category B \. The Borrower’s environmental program covered urban traffic issues, and contained an inspection and maintenance strategy for vehicle emissions and noise\. The ICR notes that there was regular reporting of environmental management programs by the concessionaire, but no specific details are provided \. According to the ICR, independent consultants confirmed that resettlement was not necessary given that works were in existing right -of-ways\. 12\. 12\. Ratings : ICR IEG Review Reason for Disagreement /Comments Outcome : Moderately Moderately Satisfactory Satisfactory Risk to Development Moderate Moderate Outcome : Bank Performance : Satisfactory Moderately Moderate shortcomings in quality at Satisfactory entry\. Borrower Performance : Moderately Moderately Satisfactory Satisfactory Quality of ICR : Satisfactory NOTES: NOTES - When insufficient information is provided by the Bank for IEG to arrive at a clear rating, IEG will downgrade the relevant ratings as warranted beginning July 1, 2006\. - The "Reason for Disagreement/Comments" column could cross-reference other sections of the ICR Review, as appropriate \. 13\. Lessons: When complex institutional changes are attempted, the commitment of all important entities and overall political feasibility should be judged objectively \. Shortcomings in these factors in the current project limited progress in respect of institutional changes that cut across different levels of government and modes of transport, despite a greatly extended time -frame\. Demand projection models should be based on realistic assumptions, especially where such projections are crucial for the overall outcomes of a project \. In this project, demand for ridership on CENTRAL /FLUMITRENS was greatly overestimated, and resulted in much lower benefits than anticipated \. Realistic levels of counterpart funding should be proposed for projects \. For the larger portion of this project, acute shortage of counterpart funds affected the procurement of new rolling stock, thus delaying higher capacity utilization and benefits \. 14\. Assessment Recommended? Yes No Why? An assessment of this project together with the follow -up project RJ Mass Transit 2 would cover over 15 years of experience relating to the sub -sector strategy that was formulated in 1997\. Such an assessment can yield several lessons relating to institutional integration, private sector participation, and subsidy and tariff issues, that can be applied beyond the transport sector and the country /region\. 15\. Comments on Quality of ICR: The ICR is informative and frank in its assessment of the project \. Overall, the ICR is rated satisfactory \. a\.Quality of ICR Rating : Satisfactory

REVIEW

P111290

IEG Report Number: ICRR14847 ICR Review Independent Evaluation Group 1\. Project Data: Date Posted: 11/25/2015 Country: Cote d'Ivoire Project ID: P111290 Appraisal Actual Project Name: Ivory Coast Protected Project Costs (US$M): 2\.54 2\.34 Area Project L/C Number: Loan/Credit (US$M): 2\.54 2\.34 Sector Board: Environment Cofinancing (US$M): - - Cofinanciers: - Board Approval Date : 04/30/2009 Closing Date: 11/30/2013 12/31/2014 Sector(s): Public administration- Agriculture; fishing and forestry (50%); Forestry (50%) Theme(s): Biodiversity (60%); Environmental policies and institutions (30%); Participation and civic engagement (10%) Prepared by: Reviewed by: ICR Review Group: Coordinator: Keith Robert A\. Oblitas John R\. Eriksson Christopher David IEGPS1 Nelson 2\. Project Objectives and Components: a\. Objectives: To Improve the sustainable management of the fauna and habitat of Comoe National Park \. (Source: Global Environment Facility Grant Agreement, July 21\. 2009) (The PAD has identical wording) b\.Were the project objectives/key associated outcome targets revised during implementation? No c\. Components: The Protected Area Project’s (PARC) components were: 1\. Institutional, Financial and Technical strengthening for protected area management and oversight (Estimated GEF project costs at appraisal: US$1\.02 million; actual GEF project costs at completion: US$ 0\.89)\. (a) Capacity building through training and equipment for the Office Ivoirien des Parcs et Reserves (OIPR) in the north-east of the country (which contains the Comoe National Park)\. Staff would be trained in participatory conservation methods, technical knowledge, procurement and financial management; and (b) Support to the development and operations of the Fondation Parcs et Reserves de la Cote d’Ivoire (FPRCI), an autonomous Foundation legally independent from Government, to be in charge of raising funds for the national parks\. Training was in fundraising, financial and asset management, and communications\. 2\. Management planning and implementation for the Comoe National Park\. (Estimated GEF project costs at appraisal: US$1\.0 million; actual GEF project costs at completion (US$0\.73 million)\. Updating and implementing the Comoe Park Management Plan, including training, participatory involvement of communities in Plan preparation and implementation; and biodiversity Impact Monitoring by OIPR staff and communities using air as well as ground transects to identify poachers and animal concentrations\. 3\. Support to Park communities (Estimated GEF project costs at appraisal: US$0\.27 million; actual GEF project costs at completion: US$0\.18 million)\. Support to the park fringe communities through awareness campaigns, biodiversity training, and land management contracts\. 4\. Project Management and Results Monitoring Estimated GEF project costs at appraisal: US$0\.25 million; actual GEF project costs at completion: US$0\.37)\. Recruitment and retention of a project manager, procurement specialist, and an accountant\. Some OIPR staff, including an M&E specialist, would join the team funded by Government\. d\. Comments on Project Cost, Financing, Borrower Contribution, and Dates: Costs and Financing\. Total project costs (GEF financing only as the ICR does not provide costs by component for other sources) were estimated at appraisal as $2\.54 million, and actual costs at completion of the Protected Area Project (PARC) were $2\.34 million, 92 percent of the appraisal estimate\. The GEF Grant was for $2\.54 million, of which $2\.34 million was disbursed\. Government’s contribution (for recurrent costs and salaries) was planned to be $7\.6 million, but actual expenditures were $5\.17 million\. A number of development agencies, while not in formal parallel financing with GEF, provided funds or financed activities related to PARC's objectives\. German aid from GTZ and KfW totalling $15\.9 million, primarily funded capitalization of the Endowment Funds (section 4) set up for Comoe, and later for Tai National Park, and also supported some conservation activities\. The World Wildlife Fund separately financed activities related to project objectives or broader park management issues, providing a contribution of $3\.1 million\. Japan financed with $2\.62 million their own activities associated with Cote d'Ivoire's forest conservation program\. The International Union for Conservation of Nature provided about $70,000 financing for training and the updating of the Comoe National Park Management Plan\. An intended contribution from the Wild Chimpanzee Foundation did not materialize\. PARC was also to be supported by the IDA financed Rural Land Management and Community Infrastructure Development Project which was to finance the project’s alternative livelihood micro-projects through earmarked parallel IDA financing of $1\.2 million\. But this became unavailable as the project was closed early (Section 3b)\. Project Duration and Restructuring\. The project was approved on April 30, 2009 and was intended to close on November 30, 2013, an implementation period of 4 ½ years\. Actual closure was on December 31, 2014, following a 13 month extension\. This was provided to compensate for implementation breaks during post-conflict interruptions in 2011, and to make up for delays in 2013 due to late provision of the treasury budget\. The extension was part of a restructuring of the project which included reallocation between disbursement categories, and significant adjustment of the Monitorable Indicators, primarily to substitute some indicators (which were seen as unmeasurable or providing little information), by more defined indicators without changing their respective monitoring intentions\. 3\. Relevance of Objectives & Design: a\. Relevance of Objectives: Cote d’Ivoire has the highest level of biodiversity in West Africa and the largest intact ecosystems of Guinean forest and Sudanian savanna\. Protecting Cote d’Ivoire’s habitat, and flora and fauna is thus a strategically important need for the Global Environment, for Cote d’Ivoire, and as an international ecological treasure\. Yet inadequate funding for protection of Cote d’Ivoire’s eight national Parks (where most of the nation’s protected species are found) left these resources vulnerable to poaching, farming, cattle grazing and human settlement\. The need for protective action has been recognized for some time\. The Bank and other partners had been engaged with Government since 1995, and this had led to issuance by Government in 2000 of a National Protected Area Management Program\. In 2002 a new law allowed for creation of the Office Ivoirien des Parcs et Reserves (OIPR), to be in charge of the nation’s parks and reserves\. And in 2003, the Fondation Parcs et Reserves de la Cote d’Ivoire (FPRCI), an independent foundation which was to be in charge of raising funds for the parks and reserves\. Protected area preservation also falls within the Bank’s general strategy\. The project was consistent with the broader tenets of the Bank’s Interim Strategy Note (FY08-09), in particular the Note’s emphasis on livelihood support and provision of basic services\. The Country Partnership Strategy was at concept stage in mid-2015, before issuance of the ICR\. but the ICR advises that the framework, amongst other thrusts, emphasizes inclusive growth, human capital, and a greater strategic role for Cote d’Ivoire in regional development\. Thus, the project tackled an urgent ecological need, which was well recognized by both Government and the Bank\. PARC’s Relevance of Objectives was High\. b\. Relevance of Design: In most key institutional and technical areas, PARC’s design was well suited to achieving its objectives\. The project was a balanced combination of institutional and human capacity development with particularly strong community involvement in villages proximate to the Comoe National Park\. Villagers were to be involved in monitoring against poaching and cattle herding, the two most direct threats to the Park’s ecosystem and biodiversity\. Contracts for monitoring and other park maintenance activities would be awarded to villagers, and there was also provision for welfare improving micro-projects providing incomes and alternative employment for the villagers\. Design restricted the project to one park (although this was by far the largest of Cote d’Ivoire’s national parks), which was appropriate given that the project’s park management approach would be piloting much that was new to the country, and it would be best to test the approach with focused effort before expanding\. The institutional arrangements - (i) using the existing government agency for park management (OIPR) as the base institution; (ii) building capacity of a private foundation (FPRCI) responsible for raising funds for park management; and (iii) creating a small project coordination unit to orchestrate project activities including a Framework Agreement between OIPR and FPRCI - proved to be workable\. Also, the decentralization of park management responsibilities to the relevant regional administration of OIPR and a field-based project coordination unit, provided for a more hands-on implementation\. There were nevertheless some weaknesses\. First, PARC’s financing plan relied for one component – the alternative livelihoods micro-projects, an important element in the community involvement strategy – on financing by another Bank project – the Rural Land Management and Community Infrastructure Development Project\. This project performed unsatisfactorily and closed early, leaving a financing void\. Reliance upon another project to finance a key project component was a risky strategy\. And second, there were inconsistencies in the Results Framework and between the framework and the design of M&E\. Also, monitorable Indicators were in some cases impractical to measure, and in others had limited informative value (section 10)\. PARC’s Relevance of Design was Modest\. 4\. Achievement of Objectives (Efficacy): The ultimate success of PARC’s objective to improve the sustainable management of the fauna and habitat in Comoe National Park can be assessed from changes in bio-indicators and in the financial and management capacity of the institutions involved\. As concerns bio-indicators, the primary data sources are aerial surveys done in 2010 and 2014, and transect monitoring (observations along lines through different parts of the park for prevalence of a species or action)\. Data reported from surveillance patrols was also used\. Measurements were used to create and compare changes over time such as frequency of poaching, changes in livestock numbers, and population density of bio-species\. Changes in fauna and habitat are limited at this stage\. Most directly, they comprise measured increases in the populations in the park of three bio-indicator species\. Results vary considerably: The Hartebeest population grew by 40 percent, and the Kob population increased by 130 percent\. But Buffalo declined by 13 percent\. These results are not unanimously conclusive but increases in wild mammals would be consistent with other indicators\. Another direct result was the almost total elimination of livestock grazing in the park - using transect monitoring, detected presence of livestock was found to be 28 “indices” (observations) per 10 km at the beginning of the project and fell to 0\.3 indices by closure\. Another important change was in the incidences of poaching, which fell by 74 percent\. Although no “controls” are available, PARC activities can be expected to have been the dominant influence on the changes above – Influencing factors included increased OIPR staffing and improved technologies, improved surveillance, village awareness campaigns, community engagement in planning, and management, improved equipment and infrastructure, and strong support from local government and traditional authorities\. Some 125 communities (against a target of 70) had at least some engagement in park activities\. There was some paid work as well in opening and maintaining surveillance tracks\. Most of these activities reached or exceeded targeted achievements\. The percentage area of the park that came under surveillance (zero at project commencement) reached 80 percent, compared with the targeted percentage of 70 percent\. Financially and managerially\. Comoe National Park is much improved\. The most dramatic development was the major capitalization of FPRCI due in particular to strong performance in soliciting contributions from development agencies\. The target for funds mobilized was $3\.5 million\. Actual funds raised were $41\.2 million, 12 times the target\. More generally, management of both OIPR and FPRCI was strengthened through implementing the project, supported by an intensive training program\. Training in participatory park management was provided to 24 OIPR staff (the target was 26), and provision of 25 training modules for 122 staff (number as targeted) including staff from other OIPR zones\. The most comprehensive measure of the effectiveness of Comoe National Park’s management is the Management Effectiveness Tracking Tool (METT) - GEF’s standard multi-criteria rating system\. The METT showed improvements in law enforcement, demarcation, participatory planning, biomonitoring, research, awareness training, and community engagement\. Comoe Park’s METT score reached 70, as targeted, from a baseline situation estimated retroactively at 35\. As referred to earlier, one intended project activity – financing micro-projects to enhance livelihoods in villages around the Park - failed\. The intention was to augment incentives for villagers to support the project, but the decision to have this sub-component financed by another project, which was then closed early due to poor performance, left the sub-project without finance\. Alternative financing was not found and OIPR was only able to do three pilot sub-projects\. At project completion, the French development agency, AFD, agreed to take up the livelihoods program\. Summary of Efficacy Taking the project overall, notwithstanding some shortfalls, the project achieved its objectives\. Comoe National Park management improved considerably, and first results show increased presence of several bio-indicator species, virtual elimination of cattle grazing, and reduced threat from poachers\. The improved technical capabilities of OIPR field and managerial staff, improved management in both OIPR and FPRCI, and the financial strength being created by FPRCI’s capitalization, provide good prospects for the sustainable management of fauna and habitat in Cote d’Ivoire’s largest park\. PARC’s Efficacy was Substantial\. 5\. Efficiency: An economic rate of return was not calculated at appraisal or in the ICR\. The ICR uggests that the institutional, environmental, and capacity building long-term benefits would be difficult to quantify\. Hence, efficiency was assessed through cost-effectiveness measures\. The project met most implementation targets while project costs were 8 percent less than appraisal estimates\. And funds raised by FPRCI were over 10 times the appraisal targets\. The ICR contains a commentary that Comoe National Park’s management costs are significantly lower than average costs of other protected areas in Africa, but the calculation and comparative data supporting this comment is not clear\. Nevertheless, low cost operations for the Comoe Park are likely, based on its operational approach, amongst these: (i) use of low-cost community based contracts for O&M, biomonitoring and patrolling; (ii) use of NGOs for awareness campaigns; (iii) limited physical infrastructure; (iv) primary use of OIPR staff rather than consultants; (v) field-based training to reduce transport costs; and (vi) for patrolling, complementary use of personnel from other sources (army, former rebels)\. The one significant inefficiency was the 13 month extension of the original 4 ½ year project period\. But a 5 ½ year project period could be considered not an excessive duration given that the project had to introduce a new, participatory form of park management without prior experience; and that there were post-election security related interruptions in implementation during 2011\. The Efficiency of PARC was Substantial\. a\. If available, enter the Economic Rate of Return (ERR)/Financial Rate of Return (FRR) at appraisal and the re-estimated value at evaluation : Rate Available? Point Value Coverage/Scope* Appraisal No ICR estimate No * Refers to percent of total project cost for which ERR/FRR was calculated\. 6\. Outcome: The Protected Area Project’s objectives were Highly relevant as it tackled the rapid degeneration of biodiversity in Cote d’Ivoire – the country with the highest biodiversity in West Africa\. PARC was at the forefront of Cote d’Ivoire’s strategy to halt the degeneration of its national parks and reserves\. The project’s design could have been better in some respects, notably in its reliance on another project, which closed early, for financing of one of its components – livelihood micro-projects\. Relevance of Design was Modest\. Nevertheless, the project achieved its principal focus to develop a new approach to Park management, and was innovative in the type of community involvement and in the establishment of an effective institution to collect funds for future management\. The new approach was efficient as investment and recurrent costs of the park were low\. Both PARC’s Efficacy and Efficiency were Substantial\. The overall Outcome of the project was Satisfactory\. a\. Outcome Rating: Satisfactory 7\. Rationale for Risk to Development Outcome Rating: The two main uncertainties relate to continued funding of Comoe National Park’s recurrent costs, and the continuation of the community engagement strategy\. Continued availability of funds for managing the Park appears likely\. For the present, Government is funding operating costs through a regular budget line\. But as FPRCI’s endowment builds, financing options through the Foundation’s interest earnings will increase\. For 2015, FPRCI is expected to provide for recurrent expenditures, amounts of US$ 600,000 to Comoe National Park and US$ 800,000 to another park – Tai National Park - from endowment fund investments\. Thus, funding from FPRCI’s endowment is feasible, and funds from user fees may also be possible\. Moreover, FPRCI's revenues will become larger over time, but this could be eroded if FPRCI is expected to finance recurrent costs in other parks and reserves before its capital base has sufficiently developed\. Concerning the community engagement strategy, ongoing initiatives – such as the commencement of the micro-project program funded through French development aid - will tend to strengthen the program – but the strategy as a whole will need continued policy support\. This is likely as communities have been supportive in Park management\. They would advocate for continued Government support, and such pressures could be sufficient for maintaining OIPR’s community involvement services\. Both the continuation of funding and of community involvement for the Comoe National Park are achievable and within OIPR’s and FPRCI’s capabilities; and FPRCI’s financial strength should grow over time\. PARC’s Risk to Development Outcome is Moderate\. a\. Risk to Development Outcome Rating : Moderate 8\. Assessment of Bank Performance: a\. Quality at entry: The project was well designed in its overall structure, and the technical quality of its design details was good, reflecting both the Bank’s long engagement with Government in environmental conservation (since 1995), and a team skilled in the specializations required for biodiversity and park management\. A short preparation period (5 months between the Concept Review and Board Approval) may have contributed to inconsistencies between the results framework and the design of M&E – some monitorable indicators were not clear or not measurable\. Also, an external evaluation survey concluded that there had been insufficient local level consultation with social groups, local authorities and government (ICR page 21)\. This appears, however, to have not unduly affected the generally successful engagement and contracting with local communities for park maintenance and surveillance that the project experienced\. The main preparation shortfall was the decision to fund the other aspect of community outreach – the community micro-project livelihood program – through another project, which was subsequently terminated leaving the livelihood program unfunded\. Reliance on another project was an avoidable risk\. However, strong technical preparation formed a platform for a largely successful project implementation, and PARC's Quality at Entry is rated Moderately Satisfactory\. Quality-at-Entry Rating: Moderately Satisfactory b\. Quality of supervision: Supervision was regular, with missions about every 6 to 9 months, and the team contained the technical specializations to guide a project introducing relatively new concepts and activities (the last TTL was, for instance, a specialist in park management)\. At the beginning of the project a fiduciary team provided intensive financial management and procurement support to the project implementers\. The Mid-Term-Review was a particularly thorough exercise, setting the project up for accelerated implementation and higher quality execution\. The overall quality of Bank Supervision was Satisfactory\.  Quality of Supervision Rating : Satisfactory Overall Bank Performance Rating : Moderately Satisfactory 9\. Assessment of Borrower Performance: a\. Government Performance: The Government had developed a workable strategy for preserving the ecology and biodiversity of Cote d’Ivoire’s protected areas and reserves, and had established FPRCI as the foundation for mobilizing external funds for funding the operational and maintenance costs of the park\. Government also helped resolve OIPR staffing shortages through assisting OIPR in hiring of forestry interns and former rebels for surveillance\. On the other hand, provision of counterpart funds was below planned amounts, necessitating stringent cost cutting by OIPR\. Thus, Government provided $ 5\.2 million to OIPR and FPRCI combined over the project period, but this was about 30 percent lower than the planned amount at appraisal of $7\.6 million\. The ICR (page 9) comments that the shortfall "impacted at times the scale of surveillance operations in the Comoe Natiional Park but OIPR managed to overcome generally these challenges by adjustments in planning and securing additional support\." The shortfall in Government counterpart funds was also contrary to a covenant in PARC's Grant Agreement where Government committed to provide $1\.76 million annually to OIPR\. Nevertheless, given that the project was implemented despite these financial constraints (although the principal credit for operating within the constraints was OIPR, and its accessing of other funding sources), and that in other respects Government was mostly effective in its support to OIPR and FPRCI, Government Performance is rated in the satisfactory range at Moderately Satisfactory\. Government Performance Rating Moderately Satisfactory b\. Implementing Agency Performance: OIPR’s performance was Satisfactory\. It progressively improved its performance over the project period, and provided effective support\. Financial management and procurement were in general satisfactory, and were eventually mainstreamed into OIPR’s overall operations\. There were no safeguard issues\. The agency was flexible and adaptable in learning from its experience and in facing new situations\. This included OIPR's finding solutions to the counterpart funds shortfall, through cost-cutting or soliciting funds from the donor community\. Despite such constraints, OIPR succeeded in attaining or surpassing it's project targets\. FPRCI’s performance was Highly Satisfactory\. It operated as intended, there were no fiduciary or procurement issues, and fund raising greatly exceeded expectations\. The Foundation could assume over time a greater role in management of the country’s parks, as already being done for the Tai Park\. OIPR's generally satisfactory performance and the particularly strong performance of FPRCI lead in combination to an Implementing Agencies Performance of Satisfactory\. Implementing Agency Performance Rating : Satisfactory Overall Borrower Performance Rating : Moderately Satisfactory 10\. M&E Design, Implementation, & Utilization: a\. M&E Design: M&E was to be implemented by OIPR through a park-based unit, and the M&E director based in Abidjan\. The unit would also be informed by data from OIPR’s and FPRCI’s technical and management staff\. The Information to be monitored was aligned both to routine reporting for management information purposes, and information designed to assess the project’s progress and results from a more qualitative perspective\. The Monitorable Indicators were extensive –nearly 20 – and ranged from bio-indicators such as trends in abundance of indicator species, to GEF’s METT tracking tool for park management effectiveness\. However, not all of the Results Framework was covered by the M&E system, and there were several cases where an indicator was not clear or not measurable\. (At Mid-Term-Review most of these were replaced by more measurable indicators), b\. M&E Implementation: The capacity and quality of M&E developed over time through accumulating experience as the work program developed\. The restructuring at Mid-Term-Review included a thorough re-assessment of the Monitorable Indicators\. About half of the Indicators were either revised, dropped, or replaced by a more measurable indicator\. Monitoring included more complex measures such as bio-monitoring and assessing the quality of park management\. c\. M&E Utilization: MIS type data proved a useful management tool for following project progress\. Technical and qualitative monitoring, developing over time, has informed project evaluation and decision making for future protected area projects\. The project’s M&E system has been adopted by OIPR for all of its parks\. And the M&E approach has been adopted by Germany’s GTZ, and by UNESCO\. In summary, the quality of M&E has improved over time, but not without deficiencies in a number of areas: In particular, there was a partial mis-match between the Results Framework, the monitorable indicators and M&E data collected; and the M&E Manual was issued late\. Quality of M&E was Modest M&E Quality Rating: Modest 11\. Other Issues a\. Safeguards: PARC was a Category B project and triggered two safeguards: Environmental Assessment (OP/BP 4\.01) and Involuntary Resettlement (OP/BP 4\.12)\. An Environmental and Social Impact Analysis and a Resettlement Policy Framework were prepared during project preparation\. Both environmental and social safeguards were complied with\. This included preparation of an environmental management implementation manual and training of staff in environmental screening and management for park roads and buildings\. No resettlement actions were required\. Participatory management and engagement of communities were consistent with guidelines in the Participatory Policy Framework\. b\. Fiduciary Compliance: Financial Management Financial reporting was regular and of acceptable quality\. Audits were unqualified except for one, which commented on irregularities in reporting dates for evaluation of some goods and services that had been procured with counterpart funds (this was later explained and justified by the PCU)\. The Bank provided training and technical support to OIPR and FPRCI in both financial management and procurement\. Procurement Procurement followed Bank procurement policy and there is no evidence of deviation from standard procedures\. In most cases procurement targets were started and completed within the planned timeframe, but there were several inefficiencies\. First, due to the perceived risk of procurement in a project involving multiple and field-based partners such as NGOs and community associations, the Bank had required a large proportion of procurement to be subject to prior review\. This proved cumbersome for the borrower and Bank alike\. Second, the location of procurement staff was never fully satisfactory\. The first arrangement was to have procurement staff based in the field, but this was found to be inefficient and remote from supervision and training\. Procurement and financial management was then transferred to Abidjan, but this caused delays due to the distance involved for signing\. Finally, use of the Procurement Cycle Tracking System was cumbersome and also contributed to delays\. Nevertheless, by PARC's completion, some 92 percent of the GEF grant had been disbursed, and most project targets had been met, indicating that the procurement system had been at least somewhat effective\. c\. Unintended Impacts (positive or negative): d\. Other: 12\. Ratings: ICR IEG Review Reason for Disagreement/Comments Outcome: Satisfactory Satisfactory Risk to Development Moderate Moderate Outcome: Bank Performance: Moderately Moderately Satisfactory Satisfactory Borrower Performance : Satisfactory Moderately Shortfalls in Government's provision of Satisfactory counterpart funding, caused operational constraints and at times reduced surveillance activities\. Quality of ICR: Satisfactory NOTES: - When insufficient information is provided by the Bank for IEG to arrive at a clear rating, IEG will downgrade the relevant ratings as warranted beginning July 1, 2006\. - The "Reason for Disagreement/Comments" column could cross-reference other sections of the ICR Review, as appropriate\. 13\. Lessons: The project's experience yields the following lessons of wider applicability (lessons 1 to 3 are from the ICR): 1\. Dependence on a separate funding source for financing a key activity presents risks \. For example, in the case of PARC’s sub-component for developing community micro-projects to improve livelihoods and enhance incentives for park protection, financing was to be provided by another Bank project\. This project was terminated due to bad performance, leaving the micro-projects without a funding source\. Financing as a component within PARC would have provided a safer source of funds for the micro-projects\. 2\. The success of community engagement was enabled through a multi -faceted approach\. The project involved multiple ways to engage communities in changing damaging practices to proactive management of the park\. These included: awareness raising, co-opting local authorities such as local politicians and traditional village leaders, and contracting villagers for park maintenance and surveillance; and, in the original design, village livelihoods micro-projects\. Sufficient ownership was achieved to influence a radical reduction in cattle grazing and significantly reduce poaching\. Further, this multifaceted program to engage communities in park management and maintenance was still able to succeed without the livelihoods micro-projects, a standard element of many park management projects\. 3\. In a post-conflict situation , to the extent feasible within the time pressures present , a detailed situational and risk analysis, and extensive consultation with stakeholders are important bases for project preparation \. The five-month preparation period left little time for more than rapid assessments and limited consultation\. A lengthier preparation period would have provided more opportunity for consultations with communities and donors, assessing baselines and targets for monitorable indicators, learning from past project experience, and tailoring the design for more expeditious project implementation\. 4\. Collecting funds through a dedicated non -Governmental Foundation can be a successful way of generating funds for the management of parks or similar environmental projects \. The Foundation for Parks and Reserves of Cote d’Ivoire (FPRCI), a private foundation dedicated to collecting funds for maintaining the Parks, attracted far greater financing than anticipated – well over the needs of Comoe Park\. 5\. A project’s logical framework , design, monitorable indicators and M &E need close linkage \. There were some gaps in the linkages, until the Mid-Term-Review which revised about a third of the Indicators, and part of the M&E program\. 14\. Assessment Recommended? Yes No Why? As part of a review of several protected area management projects to compare different approaches to park management and features conducive to success or failure, thereby deriving lessons from the diversity of experience between the projects examined\. 15\. Comments on Quality of ICR: The report is strong in it's informative, thoughtful, and generally well organized review, and is candid in discussion of issues\. Material in the annexes - such as the time sequenced maps showing the changing densities of livestock, bio-indicator mammals, and human activity over time; the beneficiary survey results; and Government funding by year of FPRCI and OIPR - add to the understanding of ecological and financial changes over time\. There are several areas where the report could have been strengthened: (i) The Efficacy section (pages 15 to 18) could have been better structured around the two core elements of the project objectives – the sustainable management of the park; and the impact of this on the park’s biodiversity\. Much of the present “outcome’ discussion could fit readily into the former, but the impact on biodiversity (or prospects for biodiversity) could have been expanded and consolidated by drawing together the various data leading to protection of biodiversity; (ii) the apparently very favorable comparison of management costs in Comoe with the higher average costs in other parks is reduced in value as the calculation is not entirely clear; and (iii) the lessons section could have been expanded to include, for instance, the basis for FPCRI’s success, and the aspects of community involvement that were particularly significant to effective park management\. Notwithstanding, in most respects, the analysis and discussion in the ICR form a persuasive diagnostic, and, overall, the Quality of the ICR is Satisfactory\. a\.Quality of ICR Rating : Satisfactory

REVIEW

P062682

 ICRR 11954 Report Number : ICRR11954 ICR Review Operations Evaluation Department 1\. Project Data: Date Posted : 12/17/2004 PROJ ID : P062682 Appraisal Actual Project Name : Kyrgyz Flood Emergency Project Costs 14\.1 12\.7 Project US$M ) (US$M) Country : Kyrgyz Republic Loan/ Loan US$M ) 10 /Credit (US$M) 9\.55 Sector (s): Board: RDV - Flood Cofinancing 4\.1 3\.15 protection (69%), Irrigation US$M ) (US$M) and drainage (25%), Central government administration (6%) L/C Number : C3166 Board Approval 99 FY ) (FY) Partners involved : Austrian grant Closing Date 09/30/2001 03/31/2004 Prepared by : Reviewed by : Group Manager : Group : Anna Amato Kris Hallberg Alain A\. Barbu OEDSG 2\. Project Objectives and Components a\. Objectives The objective of this Emergency Rehabilitation Loan was to rehabilitate or reconstruct (i) damaged flood protection infrastructure along rivers; and (ii) irrigation infrastructure, which, if unattended could lead to loss of human life and economic losses beyond acceptable levels \. b\. Components 1\. Rehabilitation and Reconstruction of River Protection and Irrigation Infrastructure, and Establishment of a Flood Warning System (Appraisal - US$9\.4 million; Actual - US$9 million) This included a) repair and rehabilitation of 8\.8 km\. of river embankments along 5 rivers; b) rehabilitation or reconstruction of 23 deflector spurs; c) construction of 12 irrigation schemes inside river beds, including 19 intake and protection spurs; d ) urgent repair or reconstruction works outside river beds for 4 irrigation schemes and spillways from debris collection dams; and e ) repair and reconstruction of river gauging stations and flood warning systems in the Kugart River basin \. 2\. Project Management and Implementation Support (Appraisal US$0\.60 million: Actual US$0\.55) c\. Comments on Project Cost, Financing and Dates The Credit was extended twice and was completed two and a half years later than expected at appraisal \. During initial implementation, it became clear that rather than rebuilding existing infrastructure, more durable flood protection structures needed to be designed and constructed \. As such, it became a full-fleged infrastructure investment project and was extended two years \. The second delay occurred because work was halted during floods in early 2003\. The US$10 million IDA credit was fully disbursed at US$ 9\.55 million, with the shortfall due to the SDR exchange rate devaluation over the project period \. 3\. Achievement of Relevant Objectives: The project largely met its overall objectives and in some cases, exceeded its component objectives \. The appraisal projected that the project would protect 25 villages with a total population of 38,000\. The ICR reports protection of 24 villages with a total population of 40,000\. This was in the most densely populated region in Kyrgyzstan with a high incidence of poverty\. By component: 1\.a) and b) Exceeded component objectives : Rather than 8\.8\. km of embankments and 23 spurs of 100 m each, 27\.4 km of embankments were returned to operational condition \. The deflection spurs were not repaired as planned because the stream geometry was considered more suitable for longitudinal embankments \. A bridge across the Kugart River at Suzak was also constructed \. 1\.c) and d) Did not meet component objectives : Only 8 of 16 planned irrigation schemes were completed \. In the PAD, 39,000 ha of irrigated areas were planned \. The 8 completed schemes resulted in 34,300 ha, or 88 percent of planned irrigated area\. All four irrigation works outside of river beds and some proposed works inside river beds were dropped at the request of the GOK in 2001 because additional river protection works were judged to be of greater priority\. 1\.e) Met component objectives\. River gauging stations and flood warning systems were built on four rivers \. 2\. The original component was to finance staff and equipment for the PIU, technical assistance, training activities and two study tours\. The component actually financed staff, equipment and one study tour \. Technical assistance and training did not have to be financed by IDA to the extent envisioned in the PAD, according to the ICR \. 4\. Significant Outcomes/Impacts: New design and construction methods, such as use of Reno mattresses, were successfully introduced \. This resulted in manufacturers learning this technology \. Also more staff than planned were trained in these methods and in their maintenance\. An unplanned replacement of the Kok Art bridge in Suzak and 3 nearby embankments resulted in protection for this city and 3 villages upstream of it\. In 2002-2003 large floods occurred in some of the rivers where protection works were completed with no damage reported\. The works were carried out to high enigneering standards, at least -cost for those standards, with the cost per km of protected embankment considerably lower than estimated at appraisal \. 5\. Significant Shortcomings (including non-compliance with safeguard policies): Many contracts suffered delays in implementation due to poor counterpart financing \. IDA eventually agreed to raise its disbursement percentage of the project to pick up the slack \. Construction implementation time was underestimated \. In particular, the need for construction work stoppages and setbacks during the flood season were not incorporated \. There has been no monitoring of yield levels or detailed recording of water deliveries on any of the 8 irrigation schemes rehabilitated by FEP and hence no objective assessment of benefits can be made \. 6\. Ratings : ICR OED Review Reason for Disagreement /Comments Outcome : Satisfactory Satisfactory Institutional Dev \.: Substantial Substantial Sustainability : Highly Likely Highly Likely Bank Performance : Highly Satisfactory Highly Satisfactory Borrower Perf \.: Satisfactory Satisfactory Quality of ICR : Satisfactory NOTE ICR rating values flagged with ' * ' don't comply with OP/BP 13\.55, but are listed for completeness\. NOTE: 7\. Lessons of Broad Applicability: Simple technologies and design approaches which are new for the borrowing country can be successfully introduced, and adopted by relatively inexperienced contractors if the necessary support of international experts, along with effective local support, is provided \. Import of new products can demonstrate the effectiveness of new technologies and provide the key to their acceptance on a wider scale, as well as a guide and comparative gauge for local manufacture\. A generally cooperative approach to resolving contractors ’ difficulties, especially lenience with extension of contracts without imposing penalties, eased project implementation \. In this case, flexibility of project design, accompanied by good resource planning, sound engineering design, and effective management for implementation, produced very good results \. What was planned as an emergency recovery project has enhanced not only the nation ’s long-term infrastructural assets, but also its stock of engineering and contracting expertise and has provided significant short -term employment\. Good communication with all levels made for effective problem solving by Bank staff \. A very high proportion of project funds in infrastructure projects are channelled to contractors \. The impact of these projects on the contracting industry could be substantial, especially in transition economies \. Timely project implementation depends on good project planning \. In this case, the time-frames of both sub-project contracts and the project itself had to be extended because no proper account was taken of the need to halt works during the flood season \. On-the-job training and regular supervision by experienced engineers is critical for satisfactory results and to provide a relatively homogeneous quality level \. 8\. Assessment Recommended? Yes No 9\. Comments on Quality of ICR: This ICR is inffromative and generally complete\. One shortcoming, however, is that, whereas the project shifted from rehabilitation to become a "full-fledged infrastructure investment project" with more extensive changes to the physical landscape and estuary systems, nothing much is said in the ICR about whether the environmental impact work done at appraisal was adequate for the new components\. So it is unclear whether safeguard policies were complied with in the end\. Also, more effort into calculating ERR and cost and benefits could have been made, as there was some baseline information available and calculations such as increased production from irrigation upgrades and flood protection could have been done\. More explanation of Bank supervision activities could have been provided\. It was clear from the solutions appiled to difficulties delineated in the ICR that some extra effort was made, but it is not that clear exactly what the Bank did to help – other than providing consistent personnel and good communication\. More infromation would have been helpful and could have been iincluded in the Lessons Learned for other task managers\.

REVIEW

P083311

 ICRR 13402 Report Number : ICRR13402 IEG ICR Review Independent Evaluation Group 1\. Project Data: Date Posted : 09/01/2010 PROJ ID : P083311 Appraisal Actual Project Name : Honduras First US$M ): Project Costs (US$M): 25 35 Programmatic Financial Sector Development Policy Credit Country : Honduras Loan/ Loan /Credit (US$M ): US$M): 25 35 Sector Board : FPD US$M ): Cofinancing (US$M): Sector (s): Banking (37%) General finance sector (30%) Payment systems securities clearance and settlement (23%) Law and justice (10%) Theme (s): Regulation and competition policy (29% - P) Standards and financial reporting (29% - P) Other financial and private sector development (14% - S) Macroeconomic management (14% - S) Corporate governance (14% - S) L/C Number : C4036; C4500 Board Approval Date : 02/22/2005 Partners involved : Closing Date : 06/30/2006 05/30/2009 Evaluator : Panel Reviewer : Group Manager : Group : George Polenakis Rene I\. Vandendries Ali Khadr IEGCR 2\. Project Objectives and Components: a\. Objectives: The objective of the First Programmatic Financial Sector Development Policy Credit (FPFSDPC) was to support the Honduran Government’s efforts in strengthening the financial sector, so as to ensure its positive contribution to long term growth and poverty reduction \. The DPC was conceived as a two phased operation \. The first phase (a two year, two tranches operation ) would support the institutional development of the reforms in the following five areas: 1\. Strategy for management of systemic risks 2\. Strengthening of legal and regulatory framework  3\. Anti money laundering and financing of terrorism prevention system 4\. Strengthening of supervision and control of systemic risks 5\. Strengthening of the payments syste m The second DPC did not materialize, for reasons not related to project performance \. Instead a Supplemental Financing Credit under the Food Crisis Response Program was issued in response to the challenges that the 2008 food crisis was imposing on the economy \. The reasoning linking it to the financial reform was that higher food prices negatively affected the portfolio of consumer loans and the country ’s macroeconomic stability\. b\.Were the project objectives/key associated outcome targets revised during implementation? No c\. Components (or Key Conditions in the case of DPLs, as appropriate): The First PFSDPC’s five objectives where directly linked to key conditions that would trigger the first and second tranche disbursements, as well as indicative measures for the preparation of the Second PFSDPC \. 1\. Strategy for management of systemic risks : To defend the financial sector against a system -wide crisis the reform requested the development and approval of a contingency plan with a detailed risk map and early warning system that would allow intervention early enough, to avoid fully fledged crises; a clear description of crisis management policies and actions needed to be taken if such crisis developed; identification of legal, regulatory and organizational gaps needed to address a potential crisis; and a communications plan with all the stakeholders if such crisis occurred \. The second tranche conditions requested that the Financial Sector Policy Committee recommends a Contingency Plan (CP) for systemic financial crisis management; and that this CP is approved by an executive order (Acuerdo Presidential)\. Given the fiscal and political costs associated with solving a systemic crisis, the issue of solvency of the financial sector would be addressed through a consolidation strategy agreed by all involved parties \. The indicative measures for the second loan were linked to this requirement \. 2\. Strengthening of legal and regulatory framework : In order to address identified weakness in the legal and regulatory frameworks (FSAP diagnostic), the government undertook a general reform of the banking law \. The first tranche conditions required the enactment of the Financial System Law (LSF) which included a modern bank resolution framework, the legal framework to enable CNBS (the National Bank and Insurance Commission -Comisión Nacional de Bancos y Seguros ) to supervise all, and license the new financial companies, and an improved framework for corporate governance \. The second tranche conditions expected that the CNBS would issue norms and procedures for the resolution of financial institutions and the liquidation of their assets; the creation of a bank capitalization fund (BCF) would be approved; the draft law to improve bankruptcy and corporate reorganization, creditor rights; and corporate governance of non -financial business corporations would be presented by the Executive to the Congress \. Indicative measures/conditions for the preparation of the second loan directed all banks to have risk management systems according to CNBS norms; the framework of the LSF to be operational; banks to be in compliance with portfolio ratings and provisioning norms; BCF funds to start being used to recapitalize banks participating in the consolidation strategy and; Congress to have approved the new legal framework \. 3\. Anti-money laundering and financing of terrorism prevention syst em: Honduras was susceptible to be used as a money laundering base, especially in the context of transshipments of illegal narcotics \. The government has moved to develop the legal, regulatory and institutional structures needed to comply with the international AML and CTF standards (Financial Action Task Force FATF 40+8), including: Implementation of the know-your-customer (KYC) policy in banks, insurance and securities agencies subject to CNBS supervision; and establishment of the Interinstitutional Committee for the Prevention of Money Laundering (first tranche conditions)\. Inclusion of financing of terrorism in the Penal Code and of other high risk entities in the reporting system \. (second tranche condition )\. The triggers for the Second Loan under this heading were that Honduras would maintain its status as a FATF cooperating country and comply with all the FATF 40+8 recommendations\. 4\. Strengthening of supervision and control of systemic ris ks: In Honduras most large banks were created by  local economic groups in search of capital for their non -financial activities\. CNBS had limited control and supervision over their levels of financial exposure and activities \. This in itself was considered a systemic risk \. The financial reform instructed CNBS to approve a program to reduce related party loans, to complete the database of bank related parties and to approve a program to strengthen the capacity of intensive supervision of high risk institutions (first tranche conditions)\. The second tranche conditions requested that the above is functional and operational\. The triggers for the Second Loan under this heading were that CNBS would have the capacity to carry out consolidated supervision of all the financial groups that operate in the country, and would be evaluating and controlling the risks of these groups \. 5\. Strengthening of the payments system : The Government, with technical support from the Bank and participation of all the stakeholders, designed a Payments Project to address the limitations of the payments system (identified in the FSAP), most of them with systemic-risk implications (credit and liquidity, legal, operational, custody and settlement for securities transactions )\. A number of agreed actions were implemented prior to first and second tranche disbursements : Amendment of the BCH (Banco Central de Honduras) Law to widen BCH’s role with respect to the payments system; Implementation of the Payments Project; Resolutions issued by BCH approving a regulatory framework for the payments system \. The Supplemental Financing was a fast disbursing mechanism to support the Government ’s response to the food crisis and did not include any additional conditions \. d\. Comments on Project Cost, Financing, Borrower Contribution, and Dates: The First PFSDPC totaling US$ 25 million was disbursed in two equal tranches (of US$ 12\.5 million each)\. The first tranche was disbursed upon effectiveness, in support of up front reform measures taken by the Honduran Government; and the second tranche against the agreed conditions \. The Credit was approved by the Board on February 22, 2005 with expected closing date June 30, 2006\. The first tranche was declared effective in August 16 of the same year\. In 2006, the closing date was revised to 06/29/2007 due to delays in meeting the conditions for second tranche disbursement\. The delays were attributed to political transition from one administration to another and some resistance from specific pressure groups \. In 2007 the Government of Honduras requested another year extension to handle implementation, given existing political dynamics \. The closing date was again revised to March 31, 2008\. The second tranche was disbursed on May 15, 2008 after the Borrower met the required triggers \. In the same year the Borrower requested Supplemental Financing to meet demands for additional fiscal resources derived from the food crisis of mid-2008\. The Credit Agreement was retroactively extended to provide an amount of US$ 10 million to be disbursed upon effectiveness \. This supplemental financing was approved by the Board on August 7, 2008\. It became effective on January 15, 2009 and fully disbursed on January 22\. The Closing date of the DPC was then formally revised to April 30, 2009\. This operation was designed from the beginning to be a two part credit \. The second Credit never materialized \. 3\. Relevance of Objectives & Design: The First PFSDPC was relevant to the economic reality of Honduras and was designed in accordance with the Government strategy and the CAS\. A change in the political reality during implementation delayed its progress and affected the relevance of PDOs which were, however, never formally revised \. The supplemental financing did not contribute in any positive way to the program ’s relevance and postponed further the project ’s closing date\. By the time the first PFSDPC was closed the country ’s macroeconomic deterioration shifted priorities towards investment lending instead of development policy operations \. The second PFSDPC was therefore cancelled although some of its objectives were still relevant \. The FSTAC and other TA continued to support the implementation of key reforms in the financial sector \. In terms of design, the program linked policy reforms and outputs, but left the causal relationship to desired outcomes only vaguely identified \. Its results framework is set around a list of conditions that would trigger first and second tranche disbursements and a set of indicative measures for the preparation of the second loan \. Results were expected to be achieved by both phases of the development policy operation (there are no separate objectives for each of the two phases )\.  The PFSDPC was designed to create the conditions that would alleviate the unpredictable fiscal expenditures arising from the need to restructure or close failing banks which was a major risk for the government ’s developmental agenda\. Moreover, in a longer-run, soundness of the financial sector would have a positive impact on economic growth by broadening access to finance \. In response to the findings of the 2003 FSAP, the Honduran authorities embraced the financial system reform to which the FPFSDPC ’s five major objectives where fully relevant\. The FPFSDPC was therefore relevant to Honduras' development needs \. The FPFSDPC was also relevant to the Bank ’s strategy\. Honduras' 2003 CAS supported a substantial agenda in the area of financial sector reform, in line with the country ’s PRSP first pillar (Accelerating Equitable and Sustainable Growth) that included strengthening and deepening of the financial sector \. Some of the program’s objectives still remain relevant to date : e\.g\. banks are still in need of support for improving their legal and regulatory framework \. Despite significant improvements, banks remain vulnerable to downgrades in credit quality brought about by the sharp reduction in household and enterprise income, as a result of reduced economic activity, increased unemployment and lower remittances from the USA \. The program’s objective to enhance capacity of the CNBS (and other authorities) to lead the financial reform has lost relevance, in view of the remarkable capacity demonstrated by the private banks to restructure themselves \. The 2008 IDA CAS Progress Report indicated that while the FY 2007-10 CAS remains relevant, the deterioration of the country’s macroeconomic reality shifted resources from development policy operations to investment operations and therefore led to the cancellation of the proposed second PFSDPC \. On the other hand the FSTAC and other TA continue to support the implementation of key reforms in the financial sector \. 4\. Achievement of Objectives (Efficacy): Measures taken by the Honduran authorities under the first PFSDPC strengthened the banking system in a way allowing it to adequately withstand the financial crisis of 2007-2010\. Solvency and stability in the banking sector was improved (at least until the 2007 crisis) and credit to the private sector grew substantially \. The decision not to proceed with the second DPC reduced the efficacy of the intervention and will delay the eventual realization of the intended outcomes\. Moreover, Honduras’ economic deceleration combined with the international crisis may strain the banks and produce a credit crunch that will constrain growth in the coming future \. The program’s objective to mitigate the unpredictable fiscal expenditures - a major risk for the government’s developmental agenda - arising from deficiencies in the financial sector (most notably the need to restructure or close failing banks) was only partially achieved\. 1\. Strategy for management of systemic risks : Modest Achievement \. The design and approval of the CP and the early warning system was an important step towards managing systemic crises\. Its effectiveness has not until now been put to test \. Furthermore the planned agreement on a consolidation strategy for the financial sector did not go through \. 2\. Strengthening of legal and regulatory framework : Modest Achievement The legal and regulatory frameworks have been substantially reinforced as planned \. The LSF has been enacted and CNBS issued norms and resolutions for its implementation \. It has been put to test successfully for disolving of a savings and loans association in 2007\. In March 2008 Congress approved the creation of a bank capitalization fund (BCF), which up to now has not received expressed interest to use its funds \. Nevertheless, the fact that the fund has been established provides a sense of stability and security to the banking system because the banks know that funds are available to support bank consolidations or the resolution of problematic banks\. The Congress has not yet approved the new legal framework to improve bankruptcy and corporate reorganization; creditor rights; and corporate governance of non -financial business entities\. Although the respective bills of law have been presented to Congress, they are still under discussion and their approval is uncertain\. Anti -money laundering and financing of terrorism prevention system \. Modest Achievement \. 3\. Anti- The regulatory and institutional structures to comply with AML /CTF international standards have been put in place\. The know-your-customer (KYC) policy is implemented in all the banks, finance companies, and savings and loans institutions\. KYC policy has been issued for the insurance and securities sector \. The Interinstitutional Committee for the Prevention of Money Laundering was established \. The Congress approved an amendment to the Criminal Code to declare the financing of terrorism as an autonomous crime, and another to the Anti -Money Laundering Law to incorporate additional activities into the system that reports suspicious transactions to the UIF\. Honduras works systematically to maintain status as a FATF cooperating country \. It does not comply yet, however, with all the FATF 40+8 recommendations\.  4\. Strengthening of supervision and control of systemic risks : Substantial Achievement \. CNBS has established a much stronger supervisory role \. It did develop capacity (program to reduce related party loans, database of bank related parties, capacity of intensive supervision of high risk institutions ) and monitors risks of the financial institutions (credit, liquidity, market, operational, legal )\. It currently evaluates only credit and AML related risks but plans to expand on the evaluation of other risks as well \. It has defined credit risk profiles for the supervised entities and relevant business plans \. CNBS initiated a permanent monitoring system of the liquidity position of the supervised entities \. The outcome indicator that CNBS would have the capacity to carry out consolidated supervision of all the financial groups that operate in the country was overly ambitious and did not materialize \. The progress towards this end is substantial, yet this is a long term process and will take several years to be fully implemented \. 5\. Strengthening of the payments system \. Substantial Achievement \. The payments system has improved substantially \. Since late 2006 the Center for Interbank Processing operates an Automated Clearing house for Electronic Payment Transaction (ACH Pronto)\. This system allows individuals and enterprises to make electronic transactions with their banks and 18 out of 20 banks are participating\. Payments are processed in less than 48 hours in most cases\. The next step is the establishment of a high value payments system\. 5\. Efficiency (not applicable to DPLs): ERR )/Financial Rate of Return (FRR) a\. If available, enter the Economic Rate of Return (ERR) FRR ) at appraisal and the re -estimated value at evaluation : re- Rate Available? Point Value Coverage/Scope* Appraisal No ICR estimate No * Refers to percent of total project cost for which ERR/FRR was calculated\. 6\. Outcome: The Financial Sector DPC was originally designed as two consecutive operations \. The first was intended to be a two year operation\. The First PFS DPC focused on policy reforms in the financial sector and improvement of the banks' solvency\. As such (and in cooperation with the FSTAC) it contributed to strengthening Honduras ’ financial sector and reducing the risk of systemic financial crisis in the country \. However the decision not to continue with a Second Financial Sector DPC, and the long delays in implementation reduced its effectiveness and impact\. Its overall outcome rating is Moderately Unsatisfactory \. The performance of the Banking sector steadily improved until 2007\. When the international financial crisis (2007-2010) started, it affected Honduras as well \. Between 2002 and 2007, non- performing loans (NPLs) dropped as a percentage of total loans from 11\.3 percent to 3 percent; provisions as a percent of NPLs went from 38\.7 percent to 90\.4 percent; and return on equity (ROE) increased from 8\.2 percent to 46\.3 percent\. By November 2008, the NPL to total loans ratio increased to 5\.0 percent (5\.9 percent a year later) and provisions as a percentage of NPLs dropped to 64\.5 percent (68\.9 percent a year later)\. Bank profitability dropped sharply \. ROE decreased to 26\.5 percent in November 2008 and to 15 percent a year later\. Despite the challenges, the Honduran banking system remains solid with a capital adequacy ratio of 14 percent in November 2009, with all the banks showing capital adequacy ratios above the regulatory 10 percent\. Liquidity has also increased, from 33\.9 percent in November 2008 to 34\.5 percent in November 2009\. The banking sector has proven surprisingly resilient in facing the shocks of the international financial crisis, yet the 2007 FSAP concluded that Honduras ’ financial system still remains vulnerable to external and internal shocks and that the banking system will find it difficult to absorb large shocks to credit portfolios \. A change in the political reality during implementation delayed the program ’s progress\. In addition, the supplemental financing extended the closing date for another year \. By the time the first PFSDPC was closed the country’s macroeconomic deterioration has shifted priorities towards investment lending instead of development policy operations, and the second DPC was cancelled \. This decision has limited the scope of reforms and the achievement of the program’s development objectives\. a\. Outcome Rating : Moderately Unsatisfactory 7\. Rationale for Risk to Development Outcome Rating: The project’s outcomes are not exposed to major risks \. The reforms implemented under the First PFSDPC were approved by the Congress and gained strong legitimacy and political support \. Their positive influence on day-to-day financial operations is widely accepted by the sector \. Although the Honduran government shifted resources from development policy to investment operations and therefore cancelled the second DPC, it is still committed to the financial sector reform and indicates intent to implement further legal reforms necessary to improve the functioning and stability of the financial sector \. The FSTAC is assisting positively towards this end \. It appears that the financial reform has gained legitimacy, political support and momentum that will most likely sustain its development outcome if the Honduran government stays committed to the financial sector reform \. a\. Risk to Development Outcome Rating : Moderate 8\. Assessment of Bank Performance: The operation was well designed \. The Bank was present and engaged with the relevant authorities and offered technical assistance even before inception of this DPC \. The financial sector reform was also supported by the FSTAC\. The First PFSDPC was based on the diagnosis and recommendations of the 2003 FSAP\. Despite these efforts some of the stated expected outcomes proved to be overly ambitious for the timeframe\. The Bank supported the project throughout its extended duration, providing frequent monitoring, followed by technical assistance\. Along these lines the FSTAC was providing supplemental assistance to the financial sector reform\. Furthermore the Bank did not discount any of the conditions and triggers albeit the project was at times strained by pressure groups and pressured by the international financial crisis \. at-Entry :Satisfactory a\. Ensuring Quality -at- b\. Quality of Supervision :Satisfactory c\. Overall Bank Performance :Satisfactory 9\. Assessment of Borrower Performance: The government embarked in this operation with full commitment, worked along with the Bank to design the DPC and started implementing reforms even before the DPC's approval \. The initial positive thrust started to fade with the second round of legal reforms linked to second tranche disbursement \. These reforms found resistance from the Executive and the Congress \. The change from one administration to another during mid-implementation resulted in a temporary displacement of ownership and commitment that resulted to further delays in implementation\. During this time the performance of the two implementing agencies (CNBS and BCH) was positive and supportive and at instances played (CNBS in particular) catalytic role\. Political developments have delayed the Second DPC and the series was cancelled \. This decision is attributed to the decision to shift resources from development policy to investment operations, in view of the deteriorating macroeconomic conditions \. a\. Government Performance :Moderately Unsatisfactory b\. Implementing Agency Performance :Satisfactory  c\. Overall Borrower Performance :Moderately Unsatisfactory 10\. M&E Design, Implementation, & Utilization: The project objectives are linked to a series of outputs and only weakly to outcomes \. In the ISRs the indicative actions for a second operation are presented as PDO indicators and intermediate outcome indicators \. The FFSDPC's M&E design was linked to second tranche conditions and indicative actions or triggers for a second operation for each of the five policy areas \. However, while some indicators were specific and easy to measure, others were less specific and subject to interpretation \. The M&E design lacked a clear definition of the results chain\. It defined well what needs to be monitored and evaluated by the ISRs, and was implemented promptly throughout the project's lifetime \. During implementation, all the project's components were monitored and progress was being reported in 8 ISRs with a rather unclear commitment to M&E\. Overall, M&E utilization was not prominent\. a\. M&E Quality Rating : Modest 11\. Other Issues (Safeguards, Fiduciary, Unintended Positive and Negative Impacts): N/A 12\. 12\. Ratings : ICR IEG Review Reason for Disagreement /Comments Outcome : Moderately Moderately The ICR drops or modifies some of the Satisfactory Unsatisfactory original indicators to reflect more realistically only the first operation \. This was however intended to be a two part operation and the outcomes should be assessed against the original PDOs \. Risk to Development Moderate Moderate Outcome : Bank Performance : Satisfactory Satisfactory Borrower Performance : Moderately Moderately See section 9\. Satisfactory Unsatisfactory Quality of ICR : Satisfactory NOTES: NOTES - When insufficient information is provided by the Bank for IEG to arrive at a clear rating, IEG will downgrade the relevant ratings as warranted beginning July 1, 2006\. - The "Reason for Disagreement/Comments" column could cross-reference other sections of the ICR Review, as appropriate \. 13\. Lessons: The ICR offers thoughtful lessons with which this review is in accord \. 1\. The quality of the technical analysis underpinning a policy based operation is crucial to its success \. The preparatory analysis prior to the DPCs design was crucial to its success \. 2\. Starting the process of strengthening the capability of the financial authorities to design and implement a reform program before approving a policy based operation improves the outcomes of the reform program \.  3\. Policy based operations that support the move from a compliance based supervision approach to a risk-based consolidated supervision approach should take into account that this change may take longer than usually envisaged 4\. Multi-tranched financial sector adjustment operations are effective instruments to support major financial sector reforms\. An additional lesson may be that such operations should not be allowed much longer duration than originally planned, because the internal or external conditions may change thus affecting negatively relevance or priority ranking\. 14\. Assessment Recommended? Yes No 15\. Comments on Quality of ICR: The ICR is comprehensive, well structured and fairly concise \. It gives a clear picture of the important milestones in the design and implementation of the First Programmatic Financial Sector Development Policy Credit, and provides a fair evaluative commentary \. It is fairly long due to the fact that the DPC was set to achieve a long list of legislative and institutional changes, thus the ICR focused on meeting conditions of tranches and not actual changes in the sector (as per section 10: M&E design)\. The evidence it provides is inclusive and thorough, yet it chooses to modify some and drop others of the original PDO indicators without extensive justification \. The reason can only be inferred and attributed to changes occurring in the country's reality so many years after initial inception\. Furthermore it does not expand on the relevance (or lack of it) of the supplemental financing\. The ICR contains enough information to make a clear case for its review and is overall considered satisfactory \. a\.Quality of ICR Rating : Satisfactory

REVIEW

P090656

 Document of The World Bank Report No: ICR2269 IMPLEMENTATION COMPLETION AND RESULTS REPORT (IDA-40870) ON A CREDIT IN THE AMOUNT OF SDR 17\.7 MILLION (US$ 27 MILLION EQUIVALENT) TO THE REPUBLIC OF ALBANIA IN SUPPORT OF THE SECOND PHASE OF THE US$1,000 MILLION ENERGY COMMUNITY OF SOUTH EAST EUROPE (APL) PROGRAM December 21, 2012 Sustainable Development Department South East Europe Country Unit Europe and Central Asia Region  CURRENCY EQUIVALENTS (Exchange Rate Effective November 5, 2012) Currency Unit = Lek 1\.00 = US$ 0\.0092 US$ 1\.00 = 109 Lek FISCAL YEAR January 1 – December 31 ABBREVIATIONS AND ACRONYMS International Development AMM Albania Market Model IDA Association International Financial Reporting APL Adaptable Program Loan IFRS Standards BER Bid Evaluation Report ISR Implementation Supervision Report CAPEX Capital Expenditure KESH Albanian Power Corporation CPS Country Partnership Strategy KfW Kreditanstalt fur Wiederaufbau DO Development Objective kV Kilovolt Millennium Development Goals DCA Development Credit Agreement MDG-F Achievement Fund, United Nations Ministry of Economy, Trade and DSO Distribution System Operator METE Energy EA Environmental Assessment NPV Net Present Value European Bank for Reconstruction and EBRD O&M Operation and Maintenance Development Albanian Transmission System EIRR Economic Internal Rate of Return OST Operator Energy Community of South East ECSEE PA Project Agreement Europe EIB European Investment Bank PCB Polychlorinated Biphenyls EMP Environmental Management Plan PDO Project development Objective EnC Energy Community PIU Project Implementation Unit European Network of Transmission Power Sector Generation and ENTSO-E PSGRP System Operators for Electricity Restructuring Project ERE Electricity Regulator Authority PSR Project Supervision Report Power Sector Rehabilitation and EU European Union PSRRP Restructuring Project FIRR Financial Internal Rate of Return QAG Quality Assurance Group FM Financial Management SDR Special Drawing Right FX Foreign Exchange SEE Southeast Europe GWh Gigawatt Hour TSO Transmission System Operator HV High Voltage Vice President: Philippe H\. Le Houerou Acting Country Director: Gerard A\. Byam Sector Manager: Ranjit Lamech Project Team Leader: Salvador Rivera ICR Team Leader: Yadviga Semikolenova  ALBANIA ENERGY COMMUNITY OF SOUTH EAST EUROPE (ECSEE) PROJECT APL2 Contents Data Sheet A\. Basic Information\. i B\. Key Dates \. i C\. Ratings Summary \. i D\. Sector and Theme Codes \. ii E\. Bank Staff \. ii F\. Results Framework Analysis \. ii G\. Ratings of Project Performance in ISRs \. v H\. Restructuring (if any) \. v I\. Disbursement Profile \. vi 1\. Project Context, Development Objectives and Design \. 1 2\. Key Factors Affecting Implementation and Outcomes \. 5 3\. Assessment of Outcomes \. 12 4\. Assessment of Risk to Development Outcome\. 14 5\. Assessment of Bank and Borrower Performance \. 14 6\. Lessons Learned \. 16 7\. Comments on Issues Raised by Borrower/Implementing Agencies/Partners \. 16 Annex 1\. Project Costs and Financing \. 17 Annex 2\. Outputs by Component \. 18 Annex 3\. Economic and Financial Analysis \. 22 Annex 4\. Bank Lending and Implementation Support/Supervision Processes \. 25 Annex 5\. Beneficiary Survey Results \. 27 Annex 6\. Stakeholder Workshop Report and Results\. 28 Annex 7\. Summary of Borrower's ICR and/or Comments on Draft ICR \. 29 Annex 8\. Comments of Cofinanciers and Other Partners/Stakeholders \. 402 Annex 9\. List of Supporting Documents \. 43 A\. Basic Information Energy Community of South East Europe Country: Albania Project Name: (ECSEE) Project APL2 (Albania) Project ID: P090656 L/C/TF Number(s): IDA-40870 ICR Date: 12/21/2012 ICR Type: Core ICR Lending Instrument: APL Borrower: ALBANIA Original Total XDR 17\.70M Disbursed Amount: XDR 14\.32M Commitment: Revised Amount: XDR 17\.70M Environmental Category: B Implementing Agencies: Albanian Transmission System Operator (OST) Cofinanciers and Other External Partners: European Bank for Reconstruction and Development (EBRD) B\. Key Dates Revised / Actual Process Date Process Original Date Date(s) Concept Review: 12/20/2004 Effectiveness: 12/21/2005 12/21/2005 04/17/2009 Appraisal: 02/22/2005 Restructuring(s): 11/22/2010 Approval: 06/28/2005 Mid-term Review: 07/28/2008 10/23/2008 Closing: 07/31/2009 06/30/2012 C\. Ratings Summary C\.1 Performance Rating by ICR Outcomes: Satisfactory Risk to Development Outcome: Moderate Bank Performance: Moderately Satisfactory Borrower Performance: Moderately Satisfactory C\.2 Detailed Ratings of Bank and Borrower Performance (by ICR) Bank Ratings Borrower Ratings Quality at Entry: Moderately Satisfactory Government: Moderately Satisfactory Implementing Quality of Supervision: Moderately Satisfactory Moderately Satisfactory Agency/Agencies: Overall Bank Overall Borrower Moderately Satisfactory Moderately Satisfactory Performance: Performance: i C\.3 Quality at Entry and Implementation Performance Indicators Implementation QAG Assessments Indicators Rating Performance (if any) Potential Problem Project Quality at Entry No Satisfactory at any time (Yes/No): (QEA): Problem Project at any Quality of Yes None time (Yes/No): Supervision (QSA): DO rating before Satisfactory Closing/Inactive status: D\. Sector and Theme Codes Original Actual Sector Code (as % of total Bank financing) Power 100 100 Theme Code (as % of total Bank financing) Regional integration 50 50 Regulation and competition policy 50 50 E\. Bank Staff Positions At ICR At Approval Vice President: Philippe H\. Le Houerou Shigeo Katsu Country Director: Gerard A\. Byam Orsalia Kalantzopoulos Sector Manager: Ranjit J\. Lamech Peter D\. Thomson Project Team Leader: Arturo S\. Rivera Iftikhar Khalil ICR Team Leader: Yadviga Viktorivna Semikolenova ICR Primary Author: Yadviga Viktorivna Semikolenova F\. Results Framework Analysis Project Development Objectives (from Project Appraisal Document) The project would provide investment support and technical assistance for Albania\. The objective of the investment is to extend the lifetime and improve the quality, reliability, safety and efficiency of the bulk power transmission system by replacing ageing existing facilities with new ones\. The technical assistance would serve to facilitate project implementation, strengthen the Transmission System Operator, and improve both the tariff structure and the procurement procedures applicable to electricity imports\. Revised Project Development Objectives (as approved by original approving authority) N/a ii (a) PDO Indicator(s) Original Target Formally Actual Value Values (from Revised Achieved at Indicator Baseline Value approval Target Completion or documents) Values Target Years Indicator 1 : ECSEE APL: Regional market liberalization Partially achieved\. ECSEE treaty is binding\. The Power law was amended; Value Regional as a result, Albania quantitative or Negligible electricity market now has 7 eligible Qualitative) is functioning customers with annual consumption of 684 GWh in 2011 Date achieved 06/01/2005 01/31/2009 06/14/2012 Comments The amended Albanian Power Sector Law qualifies as eligible all customers (incl\. % that: (1) are directly connected to the transmission system; and/ or (2) consume achievement) more than 50 GWh annually Indicator 2 : Capacity to transmit electricity is maintained at or above base levels Achieved\. The transmission system has delivered 6276 Value Equal to or greater GWh and 684 GWh quantitative or 6000 GWh than baseline respectively to the Qualitative) distribution network and to HV customers, in 2011 Date achieved 12/31/2004 01/31/2009 06/14/2012 100% achieved\. The Project improved the availability of 3 main substations and Comments increased the system reliability and transfer capacity\. Besides the yearly increase (incl\. % of transmission volumes, the transmission losses and the number of outages were achievement) reduced\. Transmission System Operator (TSO) functioning improved based on Indicator 3 : implementation of recommendations from technical assistance\. Final Partially achieved\. recommendations The final from technical Value TSO established with recommendations assistance quantitative or limited operational were submitted\. submitted and Qualitative) capability Recommendations decisions have have been partially been taken to implemented implement them Date achieved 07/14/2004 01/31/2009 06/14/2012 Comments Organizational structure, processes and human resources plan were adopted, as (incl\. % recommended\. Market operation division remains weak\. TSO needs to improve achievement) financial separation between the divisions and enhance its capacity to iii  operate/monitor the market Indicator 4 : Procurement procedures for import of electricity improved Final recommendations of technical Existing procurement Achieved\. assistance Value procedures are Procurement of submitted and quantitative or cumbersome and result in electricity decisions taken to Qualitative) delays and non-compliant amendments were implement them bids passed by appropriate changes in the relevant legislation Date achieved 06/01/2005 01/31/2009 02/29/2008 Comments 100% achieved\. Consultants prepared a report on procurement in 2007\. (incl\. % Government presented to Council of Ministers relevant amendments, which were achievement) passed in February, 2008 Indicator 5 : Increased availability of rehabilitated substations Value Achieved\. quantitative or 85\.42% 98% 98\.5% Qualitative) Date achieved 11/22/2010 06/29/2012 06/14/2012 Comments 100% achieved\. 98\.5% substations availability was achieved because during (incl\. % forced outages due to construction, the N-1 criterion for power transmission was achievement) respected; as a result, energy delivery to distribution system was not interrupted Indicator 6 : Reduced number of energy outages in the rehabilitated substations Value Achieved\. quantitative or 50 outages/ year 20 outages/ year 20 outages/ year Qualitative) Date achieved 11/22/2010 06/29/2012 06/14/2012 Comments 100% achieved\. There were 102 outages in 2011 because of forced outages due (incl\. % to construction achievement) (b) Intermediate Outcome Indicator(s) Original Target Actual Value Formally Values (from Achieved at Indicator Baseline Value Revised approval Completion or Target Values documents) Target Years Indicator 1 : Progress in rehabilitation of substations Value (quantitative 0% 100% 100% or Qualitative) Date achieved 06/01/2005 01/31/2009 06/14/2012 Comments 100% achieved\. 100% of rehabilitation works in 3 substations is finalized\. The (incl\. % Completion Certificate was issued on June 14, 2012 achievement) Indicator 2 : Progress in technical assistance iv Value (quantitative 0% 100% 100% or Qualitative) Date achieved 06/01/2005 01/31/2009 05/30/2008 Comments 100% achieved\. The technical assistance work envisioned in 3 contracts: (1) TSO (incl\. % strengthening, (2) Electricity tariff study and (3) Improving procurement achievement) procedures for electricity imports\. All of the contracts were completed G\. Ratings of Project Performance in ISRs Actual Date ISR No\. DO IP Disbursements Archived (USD millions) 1 12/07/2005 Satisfactory Satisfactory 0\.00 2 12/01/2006 Satisfactory Satisfactory 0\.75 3 12/21/2007 Moderately Satisfactory Moderately Satisfactory 1\.23 Moderately Moderately 4 06/30/2008 1\.39 Unsatisfactory Unsatisfactory 5 06/29/2009 Moderately Satisfactory Moderately Satisfactory 1\.39 Moderately Moderately 6 03/24/2010 3\.87 Unsatisfactory Unsatisfactory 7 03/30/2011 Moderately Satisfactory Moderately Satisfactory 11\.70 8 02/20/2012 Satisfactory Satisfactory 19\.35 9 06/26/2012 Satisfactory Satisfactory 19\.91 H\. Restructuring (if any) ISR Ratings at Amount Board Restructuring Disbursed at Restructuring Reason for Restructuring & Approved Restructuring Date(s) Key Changes Made PDO Change DO IP in USD millions Extension of the Closing Date 04/17/2009 N MU MU 1\.39 to January 31, 2011 (i) Amendments to the Legal Agreements (DCA and PA) to reflect the unbundling of the power sector and substitution of 11/22/2010 MU MU 6\.75 implementing entity; (ii) extension of the Closing Date to June 30, 2012; and (iii) revision of the intermediate performance indicators v I\. Disbursement Profile vi 1\. Project Context, Development Objectives and Design Albania is part of the Southeast Europe (SEE) group of countries, together with Bosnia and Herzegovina, Bulgaria, Croatia, Kosovo, FYR Macedonia, Montenegro, Romania and Serbia\. Prior to 1991, Albania was far less developed economically than any country in the region, and was the poorest country in Europe\. The fall of the Communist regime in 1990 inaugurated an era of economic reforms, providing a context in which the private sector could develop freely\. In the late 1990s, the collapse of several pyramid schemes brought the country to the point of economic collapse, and civil unrest ensued\. Economic recovery followed, and growth has been sustained since 1999\. Until 2009, the average growth was around 6 percent per year, one of the highest in Europe\. Significantly, increases in GDP led to Albania graduating from IDA in 2008\. Despite this, in 2011 Albania’s per capita income of US$4,027 lags behind the average of US$6,759 per capita for the SEE countries\. 1\.1 Context at Appraisal Overall ECSEE APL Program: Under coordination of the European Commission, the SEE countries decided to create a regional energy market with the longer-term objective of integrating it into the European Union’s (EU’s) internal energy market\. This initiative is known as the Energy Community of South East Europe (ECSEE), or just the Energy Community (EnC)\. ECSEE has been an integral element of the efforts of the Regional Members and the European Commission for all states in SEE to have access to stable and continuous energy supply which has been, and still is, regarded as essential for economic development and social stability\. The creation of an area without internal frontiers for energy would contribute to economic and social progress and a high level of employment, as well as balanced and sustainable development\. The key objectives of ECSEE are to create a stable regulatory and market framework in order to: (i) attract investment in power generation and energy networks in order to ensure stable and continuous energy supply; (ii) create a regional energy market allowing for cross-border energy trade and interconnection to the EU market; (iii) enhance security of energy supply; and (iv) improve the environmental situation in relation with energy production and supply in the region\. A Memorandum of Understanding was signed to that effect in December 2003, in Athens (the Athens Memorandum) and a legally binding Treaty (the Athens Treaty) was signed in October 2005\. The Treaty entered into force on July 1, 2006, and became fully operational in 2007, when the EnC Secretariat was set up\. The main provisions of the Treaty include, inter alia, the transposition into national legislation and implementation of EU Directives and Regulations in power, natural gas, energy efficiency, environment, and renewable energy, along with applying the main principles of EU competition policy\. It soon became obvious that major financial resources were needed to finance the investments necessary to enhance energy trade within the EnC and indeed to give life to the concept of the ECSEE as a whole\. For that reason the Bank decided in January 2005, to provide regional investment support through the Adaptable Program Loan (APL) 1 instrument\. Since then, the ECSEE APL facility has become a key component of the Bank’s working partnership with the European Commission\. The APL was intended to provide Bank support in a flexible manner and to operate both horizontally (on a regional basis to support the ECSEE member countries), as well as vertically (each country could in principle receive more than one APL over the program period)\. Countries become eligible for an APL once they meet ECSEE’s basic entry conditions as defined under the Athens Memorandum/Treaty 1 and remain substantively in compliance with the letter and spirit thereof\. Albania Power Sector: At the beginning of Albania’s transition in the early 1990s, the country was virtually 100 percent electrified and was a net electricity exporter, with exports of around 20 percent of the domestic generation in 1991 and 1992\. However, while the three hydropower plants of the Drin River cascade, which produce over 90 percent of the country’s electricity, were in reasonably good condition, the one significant thermal power plant, Fier, was in a poor state of repair\. The transmission and distribution systems were badly run down because of previous neglect of maintenance and outdated equipment and there were frequent power outages due to overloading of facilities\. Electricity demand within Albania fell initially to 79 percent of the 1989 level by 1992 because of declines in industrial production\. Thereafter it rose by about 10 percent per year to 5,870 GWh in 2001\. After 2001, Albanian electricity demand continued growing at about 2 percent per year and reached 6,230 GWh in 2004\. By 1998, Albania had become a net electricity importer\. By the second half of 2000, a serious electricity shortage had set in, partly as a result of a fall in hydroelectric production caused by reduced river flows\. The country was unable to get all the electricity it needed primarily because of transmission and financial constraints\. The result was large load shedding, which had serious adverse macroeconomic and social effects: industries cut production; businesses had to purchase and use costly back-up diesel generators; households had to suffer without electricity for many hours each day\. Since the beginning of 2001, the Albanian Power Corporation (KESH) started implementing actions to reduce illegal electricity consumption and improve collections\. As a result of these measures, collected revenue increased from 8\.7 billion Lek in 2000 to 26\.9 billion Lek in 2004\. Although total electricity losses remained high, they were reduced from 46 percent in 2000 to 42 percent in 2002 and 40 percent in 2004\. Load shedding decreased from 524 GWh in 2001 to 358 GWh in 2004\. In addition, the average tariff level had been regularly increased\. Albania also initiated power sector restructuring\. A new Law on Regulation of the Electricity Sector was enacted in May 2003, which provided for strengthening of the Electricity Regulatory Authority, ERE, and the full unbundling of the electricity sector\. In June 2003, a National Energy Strategy was adopted based on the recommendations of the Energy Sector Study conducted by the World Bank\. In July 2004, transmission was separated from KESH, and the transmission system operator, OST 2, was registered as a 1 The ECSEE APL requirements are that an electricity sector regulator and a transmission system operator have been established and are operational 2 OST: Albanian Transmission System Operator (Operatori Sistemit Transmetimit) 2 joint-stock company, with KESH as a holding company\. In August 2004, all non- household customers were granted the right to become eligible consumers and choose their own suppliers\. As a result of the sector reforms introduced, Albania complied with the ECSEE basic entry conditions and hence was eligible to use the ECSEE APL facility\. The main justification for the Albania ECSSE APL 2 Project was threefold\. First, Albania had by far the most unfavorable electricity supply imbalance among the ECSEE member countries and thus was expected to benefit the most from the creation of an integrated, well-functioning regional electricity market\. Second, the poor state of the transmission and distribution system was slowing down Albania’s integration into the regional electricity market: infrastructure had been run down, overloaded and thus unreliable\. Given the situation in the sector at the time, private investments were not forthcoming\. Third, the Bank had been playing the major role in the Albanian power sector since it began lending to Albania in 1992, both in supporting sector reforms and financing investments\. The Power Sector Rehabilitation and Restructuring Project (PSRRP), which was ongoing at the time, provided financing for transmission and distribution system rehabilitation and strengthening in the regions of Durres, Elbasan and Kucova\. The Power Sector Generation and Restructuring Project (PSGRP) had been financing the Vlore combined-cycle power plant, with co-financing from EBRD and EIB\. Both PSRRP and PSGRP projects also supported implementation of the Energy Strategy through separate reform-related components\. 1\.2 Original Project Development Objectives (PDO) and Key Indicators ECSEE APL Program Objective: The objective of the ECSEE APL is the development of a functioning regional electricity market in SEE and its integration into the internal electricity market of the EU, through the implementation of priority investments supporting electricity market and power system operations in electricity generation, transmission and distribution and technical assistance for institutional/systems development and project preparation and implementation\. The key indicator is liberalization of electricity markets in SEE in accordance with the Athens Treaty and creation of a functional regional electricity market\. ECSEE APL2-Albania Project DO: The Project provided investment support and technical assistance for Albania\. The objective of the investment was to extend the lifetime and improve the quality, reliability, safety and efficiency of the bulk power transmission system by replacing ageing existing facilities with new ones\. The technical assistance would serve to facilitate project implementation, strengthen the Transmission System Operator (TSO), and improve both tariff structure and procurement procedures applicable to electricity imports\. The key indicators were: (i) improved reliability of Albania power transmission network (i\.e\., improved capacity to transmit electricity); (ii) more effective functioning of the TSO (i\.e\., improved capacity due to implementation of recommendations from technical assistance); and (iii) removed impediments to the effective operation of the electricity market (i\.e\., improved procurement procedures for import of electricity)\. 3 1\.3 Revised PDO (as approved by original approving authority) and Key Indicators, and reasons/justification After the second Project restructuring in November 2012, two additional key results indicators were added (increased availability of rehabilitated substations; and reduced number of energy outages in the rehabilitated substations) in order to enable better monitoring of progress towards achievement of the PDO\. 1\.4 Main Beneficiaries All electricity consumers in Albania were the main beneficiaries of the ECSEE APL\. Successful integration of Albania into a functioning regional electricity market would address the serious electricity crisis that had been putting Albania’s economic growth at risk\. All electricity consumers in Albania were also the main beneficiaries of the Project\. Rehabilitation of the bulk power transmission system was expected to improve the reliability and quality of electricity supply\. Improved procurement procedures for importing electricity were expected to decrease delays in entering into contracts, thus improving security of supply\. The TSO was expected to benefit from the Project as well\. With implementation of Technical Assistance, the TSO was to develop and implement a new organizational structure, financial and accounting systems and business and managerial processes\. 1\.5 Original Components Eligible ECSEE APL Program Components: The Bank’s March 2004 framework paper concluded that significant investments in power generation, transmission and distribution, and technical assistance were required for a well-functioning power market\. Priority investments and technical assistance would be financed under the ECSEE APL program so that the ECSEE Regional Members could effectively participate in the regional electricity market\. ECSEE APL2-Albania Project: The Project consisted of: 1\. Investment Component: replacement of high-voltage equipment in the transmission substations at Burreli, Elbasan 1, Elbasan 2, Fier, Fierza, and Tirana 1, and replacement of control and protection equipment in the transmission substations at Burreli, Elbasan 2, Fier, Fierza, Komani and Vau Dejes\. 2\. Technical Assistance Component: (i) procurement activities and supervision of project implementation; (ii) strengthening of TSO (preparation of business plan, putting in place new financial and accounting systems; developing managerial and business processes; creating an open balance sheet; estimation of transmission tariff based on approved methodology); (iii) an electricity tariff study; and (iv) improving procurement procedures for electricity imports\. Successful implementation of the investment component was expected to improve reliability and stability of the Albanian power transmission system\. Implementation of the technical assistance component was aimed at strengthening TSO’s capacity as a system and market operator\. Successful completion of both components was expected to contribute to Albania’s effective participation in the functional regional electricity market\. 4 Out of the investment component, the Bank financed replacement of high-voltage equipment in Elbasan 1, Fier and Tirana 1 substations as well as control and protection equipment in Fier 3; Burreli, Elbasan 2, and Fierza were parallel-financed by European Bank for Reconstruction and Development (EBRD)\. The Bank financed the technical assistance component in full\. As IDA and EBRD financed procurement packages for separate substations, there were no cross-effectiveness conditions\. 1\.6 Revised Components N/a 1\.7 Other significant changes The effectiveness deadline was extended once, from October 21, 2005, to December 30, 2005\. The delay in declaring the IDA Credit effectiveness was due to 2005 Parliamentary elections: it took longer than expected to form the new government after the elections\. The Project was restructured twice\. The first restructuring extended the Project’s closing date from the original closing date of July 31, 2009, to January 31, 2011\. The second Project restructuring amended the Project Legal Agreements to reflect the unbundling of the power sector (TSO substituted KESH as the implementing agency); extended the Project closing date to June 30, 2012; and added two additional key results indicators\. Both times the closing dates were extended due to slow progress in implementation of the investment component of the Project\. By the Project closing date, about 20 percent of the Project funds remained undisbursed due to (i) FX fluctuations over the last 4 years of the Project life; (ii) equipment price fluctuations; and (ii) termination by TSO of a contract for project implementation support (part of the technical assistance component)\. The undisbursed balance of US$ 5,148,376 was cancelled on November 15, 2012\. 2\. Key Factors Affecting Implementation and Outcomes 2\.1 Project Preparation, Design and Quality at Entry The Project was prepared in close consultation with the Government and other donors active in the sector\. The most important consideration was the urgent need to improve Albania’s energy reliability and security\. The selection of an APL as the instrument allowed addressing reliability and security issues in a way that was consistent across the region\. Horizontally, the APL allowed the Bank to address energy policy, EU accession and Albanian transmission network issues using the same coordinated approach applied in other SEE countries; it also allowed matching Bank’s commitments to the region to the pace with which Albania was ready to move towards regional market integration\. Regular monitoring and regional benchmarking taking place in the ECSEE process were expected to provide higher publicity and awareness, peer support and peer pressure incentives for Albania to improve its performance so as to avoid falling behind other ECSEE members\. Vertically, the APL allowed the Bank to leverage its investments to improve reliability of the Albanian transmission system with advancing policy reforms in the energy sector\. 3 Control and protection equipment in Elbasan 1 and Tirana 1 substations had been installed by EIB before the Project\. 5 Since the investment needs to improve the reliability of the Albania transmission system were very large, several investments that could qualify under the ECSEE APL program criteria were considered: a new power dispatching system; new cross-border transmission lines; investments in expanding transmission network to meet growing demand; and rehabilitation of existing substations\. The first two options were rejected because they were being prepared with financing by Italy and KfW\. The third investment option was considered to have lower priority in terms of avoiding outages\. Rehabilitation of substations was required immediately to address system availability issues\. Evaluation by independent consultants identified the priority substations to be included in the Project\. Elbasan 1, Fier and Tirana 1 covered about 70 percent of electricity transmission in Albania and had been in dire need of urgent rehabilitation\. The Project was to complement the existing TSO program to replace old transformers at these substations\. The Project was designed taking into account the lessons learned from operation of other regional electricity markets, as well as previous interventions in the country\. A key lesson learned from other markets (e\.g\., NordPool) was that the progressive integration of energy markets and the implementation of common security of supply policies required close attention to be paid to the operation of subsidiary electricity markets which are best administered by TSOs\. Hence, capacity building of the TSO was essential in facilitating the effective integration of Albania into the ECSEE\. Experience from previous lending to the Albanian power sector showed that: (i) implementation of the investments by KESH had been satisfactory; and (ii) prior to 2001, KESH and the Government had not made much progress towards implementing previously approved sector reforms\. After 2001, with coordinated support by the donor community, KESH and the Government started improving sector performance\. These lessons justified selection of the APL as an instrument\. Along with financing physical investments, the Project was designed to include the ECSEE-agreed benchmarks and facilitate Albania’s sector reform actions\. The environmental and social aspects were carefully examined\. The overall ECSEE APL impact was expected to be positive since the common objective of the Athens Memorandum parties was to stimulate economic growth and investment in SEE\. ECSEE accelerates the introduction of EU-compatible environmental legislation and standards in the SEE region\. The Project was also expected to have no adverse social or environmental impacts\. No land acquisition or resettlement was required\. The investment component of the Project consisted entirely of replacing existing equipment\. Hence, the Project triggered only OP/ BP 4\.01 Environmental Assessment (EA)\. The major risks at preparation stage included: (i) ECSEE initiative risks (e\.g\., different pace of liberalization of the subsidiary markets might slow down SEE regional market integration); (ii) technical risks; (iii) implementation agency capacity risks; and (iv) sectoral risks due to ongoing unbundling\. ECSEE initiative risks were minimized by adopting gradual approach to market opening and voluntary approach to trading\. Technical risks were minimized by using proven technical designs and turnkey contracting approach\. The rest of the risks were mitigated through technical assistance component that addressed implementation support and strengthening of TSO capacity\. 6 2\.2 Implementation ECSEE APL Program: In May 2006, Albania ratified the Athens Treaty making it legally binding\. In 2007, distribution was separated from KESH, creating a new joint- stock company, Distribution System Operator (DSO), owned by KESH\. In June 2008, the ownership of both TSO and DSO was transferred to the Ministry of Economy, Trade and Energy (METE), completing the full unbundling of the sector in compliance with the Treaty\. In March 2009, DSO was privatized\. The Albanian Market Model (AMM) was approved by the Government in early 2008\. In parallel, ERE prepared new regulations, licenses, tariff methodologies, as well as technical and commercial codes\. As part of the DSO privatization process, the new Regulatory Statement was adopted for 2009-2014\. Under the adopted market structure, TSO was given a role of market operator\. The Power Law was amended in January 2010, and again in January 2012; it allowed all electricity customers who are connected directly to the transmission system and/or consume more than 50 GWh/year to become eligible\. The restrictions on allocation of interconnection capacity were formally removed\. Auctions open to third parties have been being held since February 2012\. However, the number of operations remains limited due to legislative gaps that hinder enforcement of contracts\. Albania’s legal framework still only partially complies with ECSEE obligations\. Little progress was made with implementing the acquis on the security of electricity supply in line with the Athens Treaty and little progress was made on aligning the Power Sector Law with the acquis\. Albania has not yet started aligning its legislation with the EU’s third internal energy market package\. The required transparency of the market remains problematic 4\. ECSEE APL2-Albania Project: Implementation of the Project investment component financed by IDA went through two main stages: (i) procurement and mobilization of the supply and installation contractor between Project effectiveness (December 2005), bid award (December 2008), and final mobilization of the contractor (July 2010); and (ii) actual implementation of physical works under the component (October 2010-June 2012)\. The procurement of the supply and installation contractor took an unusually long time\. The tender documents were issued in October 2006, but all the Bank’s comments were addressed in the final Bid Evaluation Report (BER) in the fall of 2008\. Such a long procurement process stemmed from constant disputes between KESH, TSO and the implementation support consultants, which led to confusion regarding the preparation of the BER\. The process was complicated further by a complaint by one of the bidders and insufficient responses and follow-up by KESH\. Additionally, procurement and contractor mobilization was slowed down by confusion of responsibilities under the Project\. After TSO had been separated from KESH, there were significant delays in the division of assets and liabilities between the two entities\. Hence, it was agreed during Project preparation that KESH, as the holding company of TSO, would become the implementing agency under the Project\. Such a set-up eventually created ambiguity of responsibilities, disrupting implementation\. After the sector was 4 Annual Report on the Implementation of the Aquis under the Treaty Establishing the Energy Community\. Energy Community Secretariat, September 2012 7 fully unbundled, KESH no longer had responsibilities for the Project, but TSO which had become responsible for the Project, had no legal relationship to the Project or the Bank\. The complicated relationship between KESH, TSO and the Project significantly delayed signing and then effectiveness of the supply and installation contract\. Procurement delays issues were addressed during the mid-term review in October 2008, which looked into the KESH/TSO dispute with the implementation consultants\. Based on the review recommendations, the procurement process was finalized and the bid was awarded in December 2008\. Because of the procurement delays, the Project closing date was extended to January 31, 2011\. The issues of ambiguous implementation responsibilities under the Project were highlighted in the QAG Disbursement Review in November 2009\. The review recommended Project restructuring to transfer implementation responsibilities to TSO, and potentially extending the Project closing date further\. The restructuring mission took place in February 2010\. It assessed TSO’s financial viability, management and technical capacity for Project implementation and concluded that with appropriate technical assistance and regulatory oversight, TSO had the capacity to remain financially viable, meet its commitments under the loan and maintain adequate control and financial reporting procedures\. Based on the mission recommendations, the Project restructuring action plan was agreed with TSO\. The contractual arrangements under the Project were transferred from KESH to TSO, and the supply and installation contract became effective in July 2010\. The formal Project restructuring was completed in November 2010\. The Project closing date was extended again to June 30, 2012\. After the Project had been restructured, implementation of the investment component financed by IDA proceeded smoothly and without any major delays\. All the required works for all 3 substations were completed with high quality and the Operational Acceptance Certificate was issued on June 14, 2012\. Implementation of the investment component, financed by EBRD, also experienced delays and has not been completed as of yet\. Approval of EBRD Loan came in July 2006, instead of October 2005, as had been originally expected\. EBRD’s approval of the Project was subject to significant improvement of KESH’s performance in the first quarter of 2006 and issuance of the necessary permits to build the Vlore Thermal Power Plant, which was co-financed by EBRD\. Since approval, implementation of EBRD- financed investments has been behind schedule, mainly due to unclear responsibilities of KESH and TSO under the Project\. After numerous attempts to establish clear responsibilities and good working relationship between KESH and TSO, EBRD loan is being restructured to transfer implementation responsibilities from KESH to TSO\. The EBRD-financed components are expected to be completed by June 2013\. Since IDA and EBRD financed rehabilitation of different substations, implementation of the IDA- financed investment component of the Project was not affected by the above\. Technical Assistance component of the Project was implemented successfully and without any delays\. Implementation support consultants were hired in January 2006, and supported the PIU through the procurement process\. During the implementation of works, TSO, under the Bank supervision, showed a high capacity to supervise the Project and decided to terminate the implementation support contract\. Recommendations to improve 8 procurement procedures for electricity imports were presented to the Government in 2007 and relevant amendments to the procedures were passed by the Parliament in February 2008\. A detailed business plan was prepared for and adopted by TSO\. A new organizational structure and human resources plan were recommended to TSO\. Those recommendations have been partially adopted\. The new organizational structure now includes, besides transmission network management and system operation divisions, market operation division\. However, market operation division remains weak\. TSO still needs to improve the financial separation between the divisions\. New dedicated accounting software was introduced and TSO’s financial audits are conducted based on International Financial Reporting Standards (IFRS)\. Tariff study was completed in 2007 and TSO has been using the materials from the study to support their tariff applications to ERE in 2007 and 2008\. After the new Regulatory Statement was adopted, the Bank, with the support of the MDG-F-financed fee-for-service activity, developed an Albania power sector financial model, which has been used by TSO in its recent tariff applications, as well as to update their business plan\. When it became apparent that about 20 percent of the Project would be undisbursed, the team decided not to restructure the Project again to introduce an additional component\. Given difficulties in the Project implementation during previous five years, the team decided to concentrate on successful implementation of the investment\. 2\.3 Monitoring and Evaluation (M&E) Design, Implementation and Utilization Monitoring and Evaluation of the Project was adequately designed\. The appropriate monitoring indicators were selected that were directly relevant to the achievement of the ECSEE APL objective and the ECSEE APL2-Albania PDO\. ECSSE APL 2 objective was aligned with the obligations under the Athens Treaty\. At the regional level, the Project benefited from the established mechanism for ECSEE coordination, monitoring and evaluation\. ECSEE’s Regulatory Secretariat has been providing regular monitoring reports of Albania performance against agreed ECSEE benchmarks\. For ECSEE APL 2-Albania Project, the indicators were relevant, quantifiable and measurable\. Monitoring was the responsibility of KESH and subsequently TSO\. Implementation support consultants provided regular progress reports during the procurement process\. These reports played an important role in finalizing the BER and contractor selection\. Regular reports were received on the progress of the technical assistance component\. After the implementation support contract was terminated, TSO became responsible for regular Project implementation reports\. TSO provided reports on time and their quality met the Bank’s requirements\. TSO experienced difficulties with collecting and reporting data on additional key results indicators, introduced after the Project’s second restructuring\. The Bank team worked closely with TSO to improve their data collection capacity since these additional indicators were crucial in monitoring system reliability\. From the Bank side, monitoring was carried out through the normal review procedures for procurement, regular supervision missions, the Financial Monitoring Reports, the independent annual financial audits of the Project, KESH and TSO statements\. The 9 values of the indicators were integrated in Aide Memoires, Project Supervison Reports (PSRs) and ISRs\. 2\.4 Safeguard and Fiduciary Compliance Safeguards Environment: The Project triggered OP/ BP 4\.01 Environmental Assessment (EA)\. The Project financed replacement of existing equipment in the existing locations\. The EA was carried out and an Environmental Management Plan (EMP) was prepared for substations under rehabilitation to define procedures to mitigate local impacts of the Project\. The mitigation measures included: avoidance of polychlorinated biphenyls (PCBs) in equipment purchased; ensuring that sewage water from substations was properly disposed of; appropriate movement of men, materials and equipment during construction/ erection (noise, dust); and minimizing noise and communication interferences during operation\. Satisfactory consultations about and disclosure of EMP took place\. The EMP was implemented in a timely manner and was closely monitored by TSO and the Bank supervision team\. Conditions at all three substation sites greatly improved and are within environmental standards\. TSO is still in the process of removing the remaining scrap material and replaced equipment from substations area\. Social: Potential social impacts were examined during the design stage\. The project did not require land acquisition or resettlement\. The Bank-financed works were confined inside the walls of the substations\. Fiduciary Procurement: Procurement was carried out consistent with Bank Guidelines and in accordance with the methods and thresholds specified in the DCA\. Procurement activities for the technical assistance component were carried out on time and without issues\. Procurement activities for investment component were carried out with the help of implementation consultants, who assisted with preparation of bidding documents\. The bidding documents were issued in October 2006, followed by three addenda and the bid validity period extension\. The bids were opened in February 2007\. The BER was submitted, after some delay, to the Bank in June 2007\. This initiated lengthy period of revisions, complicated by the lack of agreement between KESH, TSO and implementation consultants\. As a result, three revised BERs were required before the final reward was agreed in November 2008, over two years after procurement of the supply and installation contract was initiated\. Also, in the fall of 2006, a complaint was received by one of the bidders\. It took KESH about a year to respond to the complaint, which further delayed the BER finalization\. After the bid was awarded, no major issues were encountered relating to procurement\. Financial Management: FM arrangements from a fiduciary perspective were implemented in an adequate manner and maintained throughout the life of the Project\. PIU used a comprehensive set of accounting policies and internal control procedures in accordance with the Project financial management manual\. The quarterly Project interim financial reports were submitted in a timely manner\. KESH employed a financial specialist, who had the appropriate skills and abilities to manage the Project’s financial management and disbursement issues\. Consequently, this 10 specialist moved to TSO\. After Project implementation responsibility was transferred, TSO agreed with the Bank on an action plan to improve its FM capacity and strengthen Project systems and controls\. Following recommendations of the auditors and the Bank, TSO installed new accounting software\. However, it was only used for accounting and consolidation of the Project transactions into financial reports of TSO\. Project financial reports were still prepared in spreadsheets\. The audits of the entity and Project financial statements were submitted on a regular basis, albeit with some delays in a few instances\. Project financial statements consistently received unqualified opinion from the auditors\. TSO received modified opinions on its consecutive IFRS financial statements due to noted deficiencies in financial reporting process and weak control environment\. However, progress was noted in the 2011 IFRS financial statements, when the respective audit opinion was upgraded from disclaimer of opinion in 2010 to qualified opinion (except of) in 2011\. Counterpart financing was satisfactory during the Project life\. 2\.5 Post-completion Operation/Next Phase For successful compliance with ECSEE conditions, Albania needs to continue energy sector and market reforms\. Most of the necessary reforms are addressed in the current draft for a new Power Law, which has not been approved by the Government or submitted for public consultations\. With the draft adopted, effective opening of the electricity market could finally commence in Albania\. Hence, adoption of the new Power Law remains a priority for Albania\. In an integrated regional electricity market, TSO would have to play a leading role as a subsidiary market operator\. Despite improvements, TSO still lacks capacity to efficiently perform its responsibilities as a market operator and to monitor compliance with EU standards and the Athens Treaty\. TSO needs further investment support in order to establish and run an efficient electricity market\. In particular, TSO has to implement fully compliant rules for capacity allocation and power system balancing, with ERE overseeing the implementation\. The requirements for transparency of information provided by TSO for access to the networks needs to be monitored and enforced by ERE\. The rehabilitated substations do not require any particular measures other than standard maintenance\. With appropriate regulatory oversight, TSO has capacity to operate and maintain the rehabilitated substation, thereby insuring their technical sustainability\. TSO needs finish removing the remaining scrap material and replaced equipment from areas of rehabilitated substations\. In order to further improve reliability, safety and efficiency of Albanian bulk power transmission system, additional investments are required in expanding the transmission network to meet growing local and regional demand\. The system also needs to meet the ENTSO-E requirements for operational network security\. TSO is currently implementing the SCADA System which is expected to be in full operation in May 2013\. This project, and also others already implemented, will enable TSO to fulfill the requirements of ENTSO-E\. Also, TSO plans important projects in order to meet local and regional demands\. Those include an interconnection line Albania-Kosovo as well as a 110 kV circuit line “South Albaniaâ€?\. Implementation of both lines is expected to start in 2013\. 11 3\. Assessment of Outcomes 3\.1 Relevance of Objectives, Design and Implementation The PDO remains highly relevant today and is in line with the current 2010 Country Partnership Strategy (CPS) for FY11-FY14\. The CPS cites infrastructure, and electricity supply, as one of the main obstacles encountered by businesses\. The unreliability and poor quality of electricity supply has regularly been listed by Albanian firms of all sizes as one of their most critical constraints\. In 2008, firms reported an average of 32 outages per month, necessitating widespread reliance on stand-by generators and inhibiting expenditures on sophisticated technical equipment which might be damaged by power fluctuations\. A recent study 5 that assessed the Albanian power sector concluded that the security of the Albanian electricity supply would require maximizing transitions at the regional electricity market\. For that, TSO would need to improve its capacity to allocate border transfer capacity, aiming to increase cross border trading and minimize interruptions to service caused by transmission facilities maintenance\. The Project consequently addresses concerns which remain valid in 2012, as embedded in the PDO and the key indicators associated with regional integration, supply reliability and capacity of the TSO\. Selection of an APL as an instrument allowed dealing with these issues through consistent and coordinated approach applied across the region\. 3\.2 Achievement of Project Development Objectives ECSEE APL Program: The sector reforms introduced during the life of the Project (electricity sector unbundling, privatization of the DSO, adopting and implementing the new Regulatory Statement, allowing for eligible customers, introducing third-party auctions) brought Albania closer to regional market integration\. However, Albania’s legal framework still falls behind the Athens Treaty obligations 6\. Additional sector and market reforms are required to ensure sector viability and compliance with ECSEE requirements\. ECSEE APL2-Albania Project: The main DO of the Project (to extend the lifetime and improve the reliability, quality, safety and efficiency of the bulk power transmission system) has been achieved\. Transmission system capacity increased from 6,000 GWh at appraisal to over 6,200 GWh in 2011\. The Project has significantly improved the availability of the rehabilitated substations: from 85\.2 percent at the time of appraisal to 98\.5 percent by the time of closing\. Even with forced outages due to construction, the N- 1 criterion for power transmission 7 was respected and energy delivery to distribution system was not interrupted\. The number of energy outages in rehabilitated substations reduced from 50 outages per year to 20 outages per year 8 \. Besides the increase of transmission volumes, the transmission losses decreased from 5\.5 percent at the time of 5 A Stocktaking Assessment of the Albanian Power Market: Reform Progress and Market Monitoring— Final Report, AF-Mercados EMI, prepared for MDG-F, United Nations, and the World Bank, April 2012 6 Annual Report on the Implementation of the Aquis under the Treaty Establishing the Energy Community\. Energy Community Secretariat, September, 2012 7 The N-1 criterion expresses the ability of the transmission system to lose a linkage without causing an overload failure elsewhere\. A power transmission system must be able to supply power reliably under all conditions of demand on the network\. 8 The total number of outages in 2011 was 102 because of forced outages during construction\. 12 appraisal to 2\.3 percent in 2011\. Even though electricity consumption reached a new historic high of 7,340 GWh in 2011, no load shedding was applied\. TSO’s financial audits are conducted based on IFRS\. Albanian electricity sector financial model has been used by TSO to annually update its business plan and for tariff applications to ERE\. 3\.3 Efficiency ECSEE APL Program: The benefits from ECSEE electricity trade have been limited for Albania so far since the process of regional market integration has not been completed\. The benefits are expected to be significant: it has been estimated that if SEE were to operate as a regionally integrated system dispatching on a least-cost basis, operating costs could be reduced by 11-15 percent\. ECSEE APL2-Albania Project: An ex-post cost-benefit analysis was carried out for the IDA-financed part of the investment component\. The benefits of new investments include additional energy served due to better availability of substations and lower operation and maintenance (O&M) costs\. For economic analysis, the additional energy served has been valued at the marginal cost of supply (i\.e\., the cost of imported electricity)\. Together with saved O&M costs, it comprises economic benefits of the completed investments\. For financial analysis, the additional energy served has been valued at current approved transmission tariff\. Together with saved O&M costs, it represents financial gains to the TSO due to the implemented investments\. The economic internal rate of return (IERR) of the IDA-financed investment component is estimated to be 40 percent and the net present value (NPV) at a 10 percent discount rate is 46\.7 million Euros (or 6\.5 billion Lek)\. The financial internal rate of return (FIRR) of the implemented investments is 3 percent\. The reason for low FIRR is by design and consistent with the current regulatory regime\. The Government wishes to keep the retail tariffs as low as possible and does not necessarily require market-related returns on its equity; it prefers to finance transmission assets through borrowings\. Accordingly, the transmission tariff is based on a return on its asset base (effectively project CAPEX) that is the weighted average between the Bank of Albania long-term treasury rate (~7 percent) and is the average borrowing rate (~2 percent)\. All of this is incorporated into published tariff methodology and quite normal for a wholly state-owned monopoly such as TSO\. 3\.4 Justification of Overall Outcome Rating Rating: Satisfactory The Project is considered to be satisfactory in terms of the overall outcome\. APL as an instrument has proven to be successful\. During the life of the Project, the Government implemented a number of sector and electricity market reforms, though further reforms are necessary to bring Albania’s legal framework in compliance with ECSEE obligations\. By the time the Project closed, both IDA-financed investments and technical assistance were completed; reliability of power transmission system and capacity of TSO improved, as reflected in the respective monitoring indicators\. As discussed above, the PDO remains highly relevant to the current priorities of the Government and the Bank\. 13 3\.5 Overarching Themes, Other Outcomes and Impacts (a) Poverty Impacts, Gender Aspects, and Social Development N/a (b) Institutional Change/Strengthening During Project implementation, TSO introduced changes to its business practices\. They include: improved planning (TSO business plan is being updated annually); improved reporting (regular annual reports, combining financial, corporate and operation information, are published online, although only in Albanian); TSO submits regular tariffs filings to ERE, following the methodology outlined in the Regulator Statement; TSO’s financial audits are conducted based on IFRS; capacity of the TSO to manage investment projects has increased\. (c) Other Unintended Outcomes and Impacts (positive or negative) N/a 3\.6 Summary of Findings of Beneficiary Survey and/or Stakeholder Workshops N/a 4\. Assessment of Risk to Development Outcome Rating: Moderate The risk to the development outcome has been evaluated with respect to a number of criteria as summarized below: • ECSEE initiative risks are assessed as moderate\. Due to the outdated Power Law, Albania remains one of the ECSEE parties that is further away from compliance with the acquis\. Postponing the approval of the new Power Law, which is now in draft with the Government, would hinder Albania’s compliance with the ECSEE Treaty requirements further\. • Power system reliability risks are assessed as moderate\. Without transmission system expansion to meet growing local and regional demand and compliance with the ENTSO-E requirements for operational network security, Albanian power system could not be properly integrated into the regional market\. • TSO capacity risks are assessed as moderate\. Transparency and capacity of TSO to operate Albanian electricity market needs further strengthening\. Without an efficient, transparent and capable TSO, Albania’s effective participation in the regional market could be put at risk\. • Technical risks are assessed as low and manageable\. The technologies introduced are well established; TSO has capacity to insure technical sustainability of rehabilitated substations\. 5\. Assessment of Bank and Borrower Performance 5\.1 Bank Performance (a) Bank Performance in Ensuring Quality at Entry Rating: Moderately Satisfactory 14 The Bank selected a project that provided much-needed support to the sector and prepared it well\. The selection of the APL instrument was appropriate\. It allowed addressing reliability and security issues of the Albanian power system using consistent regional approach\. Applicable safeguards were identified\. The Project was linked to the continued effort to promote regional integration and improve Albanian energy sector performance\. However, not all of the risks were properly mitigated at the design stage\. Because of the ongoing sector unbundling at the time of appraisal, the Project should have specified conditions and milestones for transfer of responsibility for Project implementation to TSO\. (b) Quality of Supervision Rating: Moderately Satisfactory The Bank followed closely Project execution and provided guidance in critical moments\. Supervision of the Project was carried out on a regular basis, with numerous formal missions over the Project life, including a detailed mid-term review\. The Bank team’s recommendations during the mid-term review were instrumental in solving the procurement issues\. Critical Project and sector-related issues were addressed via Aide Memoires\. After Project implementation responsibility was transferred to TSO, the Bank team developed and agreed with TSO an action plan to improve its FM capacity and strengthen Project systems and controls\. However, the team should have recognized the need and restructured the Project at an earlier stage of the implementation process\. Also, it would have been of benefit had the team recognized during the time of the second restructuring that a part of the Project financing would not be used; that would have allowed utilizing IDA funds in full\. (c) Justification of Rating for Overall Bank Performance Rating: Moderately Satisfactory Based on moderately satisfactory quality at entry and moderately satisfactory supervision, the overall Bank performance is rated moderately satisfactory\. 5\.2 Borrower Performance (a) Government Performance Rating: Moderately Satisfactory The Government supported the Project throughout its execution\. It introduced a number of important sector and electricity market reforms in compliance with the Athens Treaty requirements\. However, more sector and market reforms are needed for Albania to fulfill its obligations under the ECSEE initiative\. Most of those are addressed in the current draft for a new Power Law, which has not been adopted yet\. (b) Implementing Agency or Agencies Performance Rating: Moderately Satisfactory The financial and procurement functions were performed in a satisfactory manner by the PIU\. The PIU provided quality technical management of Project implementation, which allowed them to terminate the implementation support contract\. The PIU was prepared for missions and complied with requests for supplementary information\. Field trips to observe implementation progress were efficiently organized\. Missions received attention 15 of the top management\. However, both KESH and TSO could have shown more determination in pursuing resolution of problems encountered during procurement stage\. (c) Justification of Rating for Overall Borrower Performance Rating: Moderately Satisfactory Based on moderately satisfactory rating of the Government and implementing agency performance, the overall Borrower performance is rated moderately satisfactory\. 6\. Lessons Learned Development of a functioning electricity market is a complex undertaking which requires coordinated actions from the Government, sector regulator and TSO\. Strong commitment from the Government; competent and committed staff in the regulatory agency and transmission utility; consistent donor support with regular progress monitoring against agreed benchmarks, are essential in this process\. Capacity building of a TSO is crucial in facilitating effective integration of a subsidiary market into a regional electricity market\. TSOs should be able and properly equipped to operate internal electricity markets and monitor compliance of the system with regional market requirements\. Choice of the APL instrument could be successful in addressing regional policy, country sector policy and infrastructure issues when physical investments are properly leveraged with appropriate policy actions and supported by complimentary activities\. Successful achievement of the ECSEE APL 2-Albania PDO was facilitated by other operations: it benefited from ongoing dialogue as a part of other projects (PSRRP and PSGRP) and the MDG-F-financed fee-for-service activities\. All the risks should be properly mitigated at design stage, including sector risks\. Proper mitigation of sector risks, such as ongoing unbundling, could prevent unnecessary delays during the project implementation stage\. Opportune restructuring of a project should be recognized through continuous tracing of project performance\. The Project provided an example of how a simple restructuring made a difference in implementation and contributed to successful achievement of the PDO\. The Project would have benefited had the restructuring taken place sooner, when issues of unclear responsibility under the Project had been identified\. 7\. Comments on Issues Raised by Borrower/Implementing Agencies/Partners (a) Borrower/implementing agencies Borrower’s comments on the draft ICR were received and were taken into account\. (b) Cofinanciers The Bank concurs with EBRD’s comments regarding Project delays due to disagreements between KESH, TSO and implementation consultants and unclear division of responsibilities under the Project between KESH and TSO\. (c) Other partners and stakeholders N/a 16 Annex 1\. Project Costs and Financing (a) Project Cost by Component (in USD Million equivalent) Actual/Latest Appraisal Estimate Percentage of Components Estimate (USD (USD millions) Appraisal millions) Investment Component 43\.398 45\.961 106% Technical Assistance 2\.4 2\.13 89% Component Total Baseline Cost 45\.798 48\.091 105% Physical Contingencies 4\.339 0\.00 0\.00 Price Contingencies 0\.742 0\.00 0\.00 Unallocated 1\.260 Total Project Costs 52\.139 48\.091 92% Front-end fee PPF 0\.00 0\.00 0\.00 Front-end fee IBRD 0\.00 0\.00 0\.00 Total Financing Required 52\.139 48\.09 92% (b) Financing Appraisal Actual/Latest Percentage Type of Estimate Estimate Source of Funds of Cofinancing (USD (USD Appraisal millions) millions) Borrower 5\.14 5\.814 113% European Bank for Reconstruction Loan 20\.008 20\.00 9 100% and Development International Development IDA Credit 27\.00 22\.274 82% Association (IDA) Total 52\.14 48\.09 92% 9 At the time of appraisal, EBRD committed Euro 16 million, or US$20 million, to the Project\. At the time of the ICR preparation, EBRD’s latest cost estimate remained Euro 16 million, or US$20\.8 million at current exchange rate\. 17 Annex 2\. Outputs by Component The Project consisted of two components: 1\. Investment component: a\. Replacement of high-voltage equipment in six transmission substations; b\. Installation of control and protection systems in six transmission substations\. 2\. Technical assistance component: a\. Procurement activities and supervision of Project implementation; b\. Strengthening of the TSO; c\. An electricity tariff study; d\. Improving procurement procedures for importing electricity\. Table A2\.1: Investment Component: Planned and Actually Installed High Voltage Equipment and Control and Protection Systems a\. Transformer Bays kV Level Substations Funding 400 220 110 35 Planned Installed Planned Installed Planned Installed Planned Installed 3 3 3 3 3 3 Elbasan 1 Fier IDA 2 2 8 4* 3 3 2 2 2 4 3 3 Tirana 1 Burelli 2 2 2 2 Elbasan 2 EBRD 1 1 1 1 In Fierza 1 process 1 1 10 10 16 13 9 9 TOTAL * At implementation stage, only 4 transformer bays were needed b\. Line Bays kV Level Substations Funding 400 220 110 35 Planned Installed Planned Installed Planned Installed Planned Installed 5 5 6 6 6 6 Elbasan 1 IDA 2 2 5 5 6 6 Fier 6 6 4 4 6 6 Tirana 1 Burelli 2 2 2 2 Elbasan 2 EBRD 1 1 3 3 In Fierza 2 process 1 1 18 18 19 17 18 18 TOTAL 18  c\. Bus Coupler Bays kV Level Substations Funding 400 220 110 35 Planned Installed Planned Installed Planned Installed Planned Installed 1 1 2 2 2 2 Elbasan 1 IDA 1 1 1 1 2 2 Fier 1 1 1 1 2 2 Tirana 1 Burelli 1 1 1 1 Elbasan 2 EBRD 1 1 Fierza 0 0 5 5 5 5 6 6 TOTAL d\. Bus Bar Measuring Bays and Control and Protection Systems kV Level Control and Substations Funding 220 110 Funding Protection Planned Installed Planned Installed Planned Installed Installed by EIB Elbasan 1 2 2 3 3 before the Project IDA 2 2 2 2 IDA 1 1 Fier Installed by EIB Tirana 1 2 2 2 2 before the Project 2 2 2 2 1 1 Burelli 2 2 1 1 Elbasan 2 In 1 In process Fierza EBRD 1 process EBRD 1 In process Komani 1 In process Vau Dejes 10 10 10 9 6 3 TOTAL Table A2\.2: Technical Assistance Component: Planned and Actually Completed Actually Completed Technical Status of Recommendations’ Planned Technical Assistance Implementation Assistance (i) Support of procurement activities (i) Support of procurement activities; completed; 1 (ii) Supervision of Project (ii) Implementation support contract implementation terminated for implementation stage TSO strengthening: (i) business plan adopted and being (i) development of a business plan (i) business plan developed; Albanian implemented; updated annually for TSO; electricity sector financial model using the developed model 2 developed (ii) development of a TSO (ii) Reports on TSO strengthening were prepared that included: suggested new (ii) TSO partially implemented the organization structure; development recommendations of the reports\. 19  Actually Completed Technical Status of Recommendations’ Planned Technical Assistance Implementation Assistance of business and managerial processes organizational structure and processes Organizational structure, processes including procurement, billing and (including new organization design, job and human resources plan were collection; preparation a human descriptions, suggested new organization adopted, as advised by the resources plan and Book of Ethics; chart), Book of Ethics, new human recommendations\. The new development of a salary scale; resources plan (including selection organizational structure now creation of a Book of Rules; guidelines, staff plan and performance includes, besides transmission management guidelines), suggested network management and system salary; operation divisions, a market operation division\. The new structure now supports HR, Finance and Procurement departments\. However, two additional departments were created that were not recommended: Investments and OST Security\. Market operation division remains weak\. Also, TSO still needs to improve financial separation between the divisions\. (iii) help to put in place new financial (iii) new accounting software acquired (iii) TSO’s financial audits are and accounting systems; creation of and installed conducted based on IFRS; the new an opening balance sheet; accounting software is only used for accounting and consolidation of the Project transactions into financial reports of TSO (iv) estimation of a transmission (iv) financial model developed that (iv) developed model is used by tariff based on the approved follows tariff calculation methodology TSO for tariff applications to ERE methodology outlined in the new Regulatory Statement TSO had used the materials from the study to support their tariff Electricity tariff study Completed applications to ERE in 2007 and 3 2008, before the new Regulatory Statement was adopted Recommendations to improve Relevant amendments to the Improving procurement procedures procurement procedures for electricity procedures were passed by the 4 for importing electricity imports were presented to the Parliament in February, 2008 Government in 2007 Tabl3 A2\.3: Performance indicators Percent of Baseline Target Current Target ECSEE treaty is binding\. The Power law was amended; as a ECSEE APL: Partially Regional electricity market result, Albania now has 7 Regional market Negligible Achieved is functional eligible customers with annual liberalization consumption of 684 GWh in 2011 6276 GWh to the distribution Capacity to transmit Equal or greater than 116% 6,000 GWh network; 684 GWh to HV electricity improved baseline customers 20  Percent of Baseline Target Current Target TSO functioning TSO established with Final recommendations improved based on limited operational from technical assistance The final recommendations were implementation of Partially capability submitted and decisions submitted\. Some of the recommendations Achieved have been taken to recommendations are being from technical implement them implemented assistance Final recommendations Existing of technical assistance procurement submitted and decisions Consultants prepared a Government presented to procedures are taken to implement report of procurement in Council of Ministers relevant 100% cumbersome and them by appropriate 2007 amendments, which were passed result in delays and changes in the relevant in February, 2008 non-compliant bids legislation Increased availability of 85\.42% 98% 100% rehabilitated 98\.5% substations Reduced number of energy outages in 50 outages/ year 20 outages/ year 100% the rehabilitated 20 outages/ year substations 21 Annex 3\. Economic and Financial Analysis The analysis below covers the IDA-financed investment component of the Project\. Methodology\. The economic analysis seeks to find the Net Present Value (NPV) and the Economic Internal Rate of Return (EIRR) of the three substations rehabilitation investments (in Elbasan 1, Fier and Tirana 1), with the following net costs and benefits: • Costs: The investment costs of the IDA-financed investment component were 18 million Euros; expenditure began in 2009\. • Benefits: The benefits include the additional energy served and lower O&M costs because of the Project-financed investments\. It is assumed that electricity demand would grow at about 2 percent per year; the new rehabilitated substations would be able to satisfy this growth in full\. Without the Project, the availability of substations would be less: they would be able to satisfy only 1\.8 percent of the growing demand\. This availability of the non-rehabilitated substations would come at increasing costs of O&M\. It is assumed that the O&M costs without the Project would grow 3 percent annually to provide appropriate availability of the substations with old equipment\. The rehabilitated substations are expected to deliver full benefits in 2012\. For economic analysis, the additional energy served is valued at the marginal cost of supply, which is the cost of imported electricity: in order to satisfy the demand in full, the distribution company would have to import\. Together with saved O&M costs, it represents economic benefits of the Project\. The current cost of imports to Albania is 60 Euros/ MWh, or 6 Eurocents/ kWh (8\.4 Lek/ kWh)\. For financial analysis, the additional energy served is valued at current approved transmission tariff, 0\.65 Lek/ kWh\. Together with saved O&M costs, it represents financial gains to TSO due to the implemented investments\. The costs and benefits of the IDA-financed investment component of the Project over a 25-year period in economic and financial terms are shown in Tables A3\.1 and A3\.2\. Economic internal rate of return (EIRR): Under the assumptions above, the EIRR of the IDA-financed investment component is 40% and the NPV at 10% discount rate is 46\.7 million Euros (or 6\.5 billion Lek)\. Financial internal rate of return (FIRR): Under the assumptions above, the FIRR of the IDA-financed investment component is 3% and the NPV at 10% discount rate is -6\.2 million Euros (or -0\.8 billion Lek)\. The financial internal rate of return (FIRR) of the implemented investments is 3 percent and the NPV at 10 percent discount rate is -6\.2 million Euros (or -0\.8 billion Lek)\. The reason for low FIRR and negative NPV is by design and consistent with the current regulatory regime\. The Government wishes to keep the retail tariffs as low as possible and does not necessarily require market related returns on its equity; it prefers to finance transmission assets through borrowings\. Accordingly, the transmission tariff is based on a return on its asset base (effectively project CAPEX) that is the weighted average between the Bank of Albania long-term treasury rate of about 7%, and is the average borrowing rate of about 2%\. All of this is included into to published tariff methodology and quite normal for a wholly owned state run monopoly such as TSO\. 22  Table A3\.1: Economic Cash Flow, Rehabilitation of Elbasan 1, Fier and Tirana 1 Substations 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2030 2031 2032 Cost Elbasan 1 (€) 0 0 0 552,214 2,895,212 1,376,831 748,617 0 0 0 0 0 0 0 Fier (€) 0 0 0 732,376 4,465,745 1,348,502 1,154,973 0 0 0 0 0 0 0 Tirana 1 (€) 0 0 0 458,265 2,264,298 1,301,776 628,702 0 0 0 0 0 0 0 Total investment costs (€) 1,742,855 9,625,254 4,027,110 2,532,293 TOTAL COSTS (kLek)* 0 0 0 230,127 1,326,071 565,165 355,382 0 0 0 0 0 0 0 Benefits a\. Net O&M costs O&M costs, w/ the Project Elbasan 1( kLek) 2,412 2,412 2,412 2,092 8,634 11,038 11,060 11,082 11,104 11,104 11,104 11,104 11,104 11,104 Fier( kLek) 2,622 2,622 2,622 2,256 6,131 2,911 2,917 2,923 2,929 2,929 2,929 2,929 2,929 2,929 Tirana 1( kLek) 3,417 3,417 3,417 1,973 146 512 513 514 515 515 515 515 515 515 O&M costs, w/o the Project Elbasan 1( kLek) 2,412 2,412 2,412 2,092 8,634 8,893 9,160 9,435 9,718 10,009 10,310 15,594 16,062 16,544 Fier( kLek) 2,622 2,622 2,622 2,256 6,131 6,315 6,504 6,700 6,901 7,108 7,321 11,073 11,406 11,748 Tirana 1( kLek) 3,417 3,417 3,417 1,973 146 150 154 159 164 169 174 263 271 279 Net O&M costs (kLek) 0 0 0 0 0 -897 -1,329 -1,774 -2,234 -2,738 -3,256 -12,382 -13,190 -14,023 b\. Net Energy Served Total energy delivered to distribution (GWh) 5,617 5,186 5,758 6,061 6,059 6,276 6,415 6,556 6,700 6,847 6,998 9,490 9,699 9,913 Energy served w/ the Project Elbasan 1(GWh) 372 344 382 402 402 416 424 433 441 450 459 606 618 630 Fier(GWh) 946 873 969 1,020 1,020 1,057 1,078 1,099 1,121 1,144 1,167 1,539 1,570 1,602 Tirana 1(GWh) 2,746 2,535 2,815 2,962 2,962 3,068 3,129 3,192 3,256 3,321 3,387 4,470 4,559 4,650 Energy served w/o the Project Elbasan 1(GWh) 372 344 382 402 402 409 416 424 431 439 447 574 584 595 Fier(GWh) 946 873 969 1,020 1,020 1,038 1,057 1,076 1,096 1,115 1,135 1,457 1,484 1,510 Tirana 1(GWh) 2,746 2,535 2,815 2,962 2,962 3,015 3,070 3,125 3,181 3,238 3,297 4,232 4,308 4,386 Net energy served (GWh) 0 0 0 0 0 78 89 99 111 122 134 444 483 524 Net energy served (kLek) 0 0 0 0 0 656,374 744,471 835,680 930,087 1,027,781 1,128,852 3,725,785 4,059,496 4,403,770 TOTAL ECONOMIC BENEFITS (kLek) 0 0 0 0 0 657,270 745,800 837,455 932,321 1,030,518 1,132,108 3,738,167 4,072,687 4,417,792 NET CASH FLOW (kLek) 0 0 0 -230,127 -1,326,071 92,106 390,418 837,455 932,321 1,030,518 1,132,108 3,738,167 4,072,687 4,417,792 NET CASH FLOW (€)* 0 0 0 -1,742,855 -9,625,254 656,305 2,781,943 5,967,326 6,643,304 7,343,013 8,066,895 26,636,507 29,020,141 31,479,209 IRR 40% NPV@10% (kLek) 6,542,441 NPV@10% (€) 46,438,658 * Exchange rate for €1: 123 Lek in 2006, 124 Lek in 2007, 123 Lek in 2008, 132 Lek in 2009, 138 Lek in 2010 and 140 Lek hereafter\. 23  Table A3\.1: Financial Cash Flow, Rehabilitation of Elbasan 1, Fier and Tirana 1 Substations 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2030 2031 2032 Cost Elbasan 1 (€) 0 0 0 552,214 2,895,212 1,376,831 748,617 0 0 0 0 0 0 0 Fier (€) 0 0 0 732,376 4,465,745 1,348,502 1,154,973 0 0 0 0 0 0 0 Tirana 1 (€) 0 0 0 458,265 2,264,298 1,301,776 628,702 0 0 0 0 0 0 0 Total investment costs (€) 1,742,855 9,625,254 4,027,110 2,532,293 TOTAL COSTS (kLek)* 0 0 0 230,127 1,326,071 565,165 355,382 0 0 0 0 0 0 0 Benefits a\. Net O&M costs O&M costs, w/ the Project Elbasan 1( kLek) 2,412 2,412 2,412 2,092 8,634 11,038 11,060 11,082 11,104 11,104 11,104 11,104 11,104 11,104 Fier( kLek) 2,622 2,622 2,622 2,256 6,131 2,911 2,917 2,923 2,929 2,929 2,929 2,929 2,929 2,929 Tirana 1( kLek) 3,417 3,417 3,417 1,973 146 512 513 514 515 515 515 515 515 515 O&M costs, w/o the Project Elbasan 1( kLek) 2,412 2,412 2,412 2,092 8,634 8,893 9,160 9,435 9,718 10,009 10,310 15,594 16,062 16,544 Fier( kLek) 2,622 2,622 2,622 2,256 6,131 6,315 6,504 6,700 6,901 7,108 7,321 11,073 11,406 11,748 Tirana 1( kLek) 3,417 3,417 3,417 1,973 146 150 154 159 164 169 174 263 271 279 Net O&M costs (kLek) 0 0 0 0 0 -897 -1,329 -1,774 -2,234 -2,738 -3,256 -12,382 -13,190 -14,023 b\. Net Energy Served Total energy delivered to distribution 5,617 5,186 5,758 6,061 6,059 6,276 6,415 6,556 6,700 6,847 6,998 9,490 9,699 9,913 Energy served w/ the Project ( h) Elbasan 1(GWh) 372 344 382 402 402 416 424 433 441 450 459 606 618 630 Fier(GWh) 946 873 969 1,020 1,020 1,057 1,078 1,099 1,121 1,144 1,167 1,539 1,570 1,602 Tirana 1(GWh) 2,746 2,535 2,815 2,962 2,962 3,068 3,129 3,192 3,256 3,321 3,387 4,470 4,559 4,650 Energy served w/o the Project Elbasan 1(GWh) 372 344 382 402 402 409 416 424 431 439 447 574 584 595 Fier(GWh) 946 873 969 1,020 1,020 1,038 1,057 1,076 1,096 1,115 1,135 1,457 1,484 1,510 Tirana 1(GWh) 2,746 2,535 2,815 2,962 2,962 3,015 3,070 3,125 3,181 3,238 3,297 4,232 4,308 4,386 Net energy served (GWh) 0 0 0 0 0 78 89 99 111 122 134 444 483 524 Net energy served (kLek) 0 0 0 0 0 50,791 57,608 64,666 71,971 79,531 87,352 288,305 314,128 340,768 TOTAL FINANCIAL BENEFITS (kLek) 0 0 0 0 0 51,688 58,937 66,440 74,205 82,268 90,608 300,687 327,318 354,790 NET CASH FLOW (kLek) 0 0 0 -230,127 -1,326,071 -513,477 -296,445 66,440 74,205 82,268 90,608 300,687 327,318 354,790 NET CASH FLOW (€)* 0 0 0 -1,742,855 -9,625,254 -3,658,806 -2,112,337 473,422 528,752 586,206 645,630 2,142,563 2,332,322 2,528,078 IRR 3% NPV@10% (kLek) -837,932 NPV@10% (€) -6,150,583 * Exchange rate for €1: 123 Lek in 2006, 124 Lek in 2007, 123 Lek in 2008, 132 Lek in 2009, 138 Lek in 2010 and 140 Lek hereafter\. 24 Annex 4\. Bank Lending and Implementation Support/Supervision Processes (a) Task Team members Responsibility/ Names Title Unit Specialty Lending Iftikhar Khalil Project Team Leader/Engineer ECSIE Kirsten Propst Counsel LEGEC Artan Guxho Operations Officer ECSIE Edward Daoud Senior Finance Officer LOAG1 Richard Hamilton Consultant Energy Economist ECSIE Kishore Nadkarni Financial Analyst ECSIE Olav Rex Christensen Sr\. Financial Mgnt Specialist ECSPS Bernard Baratz Consultant ECSSD Angelica Fernandes Procurement Analyst ECSIE Yolanda Gedse Program Assistant ECSIE Supervision/ICR Bernard Baratz Consultant EASCS Olav Rex Christensen Senior Public Finance Speciali HDNED Gazmend Daci Energy Specialist ECSEG Angelica A\. Fernandes Consultant ECSO2 Yolanda Litan Gedse Program Assistant ECSSD Elona Gjika Financial Management Specialis ECSOQ Artan Guxho Senior Infrastructure Speciali ECSS5 Richard E\. Hamilton Consultant CEUIF Charles A\. Husband Consultant ECSEG Ida N\. Muhoho Sr Financial Mgnt\. Specialist ECSO3 Kishore Nadkarni Consultant ECSEG Margaret Png Lead Counsel LEGEM Edon Vrenezi Operations Officer LCSDE Salvador Rivera Lead Energy Specialist ECSEG Yadviga Semikolenova Energy Economist ECSEG 25 (b) Staff Time and Cost Staff Time and Cost (Bank Budget Only) Stage of Project Cycle USD Thousands (including No\. of staff weeks travel and consultant costs) Lending FY05 18 157\.53 FY06 -0\.39 Total: 18 157\.14 Supervision/ICR FY05 0\.00 FY06 10 56\.80 FY07 18 95\.50 FY08 10 43\.11 FY09 14 52\.24 FY10 72\.56 FY11 78\.74 FY12 57\.95 FY13 Total: 456\.90 26 Annex 5\. Beneficiary Survey Results N/a 27 Annex 6\. Stakeholder Workshop Report and Results N/a 28 Annex 7\. Summary of Borrower's ICR and/or Comments on Draft ICR Annex 7A\. Summary of Borrower's ICR The full text of the Borrower’s completion report is attached to the Project files\. Below is the summary of the Borrower’s assessment of the outcomes and lessons learned\. Bulevardi\. Gjergj Fishta Tirane, Shqipëri Tel +355 4 2225581 Fax +355 4 2225581 info@ost\.al Document for The World Bank Report IMPLEMENTATION COMPLETION AND RESULTS REPORT (IDA-40870 ALB) ON A CREDIT IN THE AMOUNT OF SDR 17\.7 MILLION (US$ 27 MILLION EQUIVALENT) TO ALBANIA FOR ENERGY COMMUNITY OF SOUTH EAST EUROPE (ECSEE) - APL2 November, 2012 29 IMPLEMENTATION OF THE PROJECT 3\.1 PART A- replacement of high – voltage equipment, and control and protection systems in the substations; 3\.1\.1 PART A-1:"The reconstruction of 220/110/35 kV substations Tirana 1, Fier and Elbasan-1" The contract consists in: - The replacement of old and depreciated primary equipment in three substations\. - Transfer of 35kV system from the external to internal\. - Creation of appropriate premises/work environments for safe operation and needed space for maneuver by building substations fences, earth and illumination networks, internal roads and refurbishment (whitewashing) of metallic constructions and existing portals\. - Building new regional dispatching center at Fier substation, the renewal of monitoring control and protection relay system, as well as the renewal of existing concrete armed structures with new galvanized metallic structure\. Scope of Supply 220/110/35 kV Fier Substation • New control, protection and measuring system for all 220 kV bays, except otherwise specified elsewhere\. • New control protection and measuring system for all 110kV bays, except otherwise specified elsewhere\. • New distribution in metal-clad switchboard, control, protection and measuring system for all 35 kV feeders, • Computerized substation control and automation system, • All auxiliaries Services supplies, • All Civil works (such as main control room, MV switchboards room, LV and DC switchboards room, battery room, Telecom room, cable rooms, cable trenches etc\.) • Civil works for installation of new marshalling kiosks (1 kiosk per bay) outside in the switchyard, cable ducts/trenches outside the building, between marshalling kiosks and cable entrance to the building, • Installation of the control , protection and metering cubicles in main control room, • New cabling to connect the new control & protection relay system as well as necessary interfaces to the existing Power Plant\. Control concept for Fier\. The levels of control shall be as follows: • Substation control (all three voltage levels) from the operator’s desk in main control room by means of HMI (Human Machine Interface) and computerized substation automation system\. • Bay control from respective control panels for the 220/110 kV feeders which shall be located in the substation control room , 30 • Direct control (mechanical of electrical) of the 220/110 kV switching devices (circuit breaker, disconnect switches, earthing switches) at the primary equipment outside in the switchyard\. • Direct control from the LV compartment of the metal-clad switchgear 35 kV\. The bay control units, the substation control unit and the numerical protection relays shall be interlinked with fiber-optics\. 220/110/335/kV Tirana 1 and Elbasan 1 Substations • New distribution in metal-clad switchboard, control, protection and measuring system for all 35 kV feeders • Integration and interface of the new equipment in the existing Computerized substation control and automation system , • All supplementary auxiliaries Services supplies, • All Civil works ( such as MV switchboard room , LV and DC switchboard room, cable room, cable trenches etc\.) to provide shelter for the 35 kV metal clad switchgear, • Civil work for installation of new marshalling kiosk ( 1 kiosk per bay ) outside in the switchyard , cable ducts/trenches outside the control building ,between marshalling kiosk and cable entrance to the control building as well as the 35 kV building, • Installation of the control ,protection and metering cubicles in the existing main control room , • New cabling to connect the new control & protection relay system as well as necessary interfaces to the existing control, protection and monitoring system\. Control concept for Tirana1 and Elbasan1\. The control, measure, protection, and metering for Tirana1, and Elbasa1, are existing\. The levels of control shall be as follows: • Substation control (all three voltage levels) from the operator’s desk in main control room by means of HMI (Human Machine Interface) and computerized substation automation system , • Bay control from the respective control panels for the 220/110 kV feeders which shall be located in the substation control room , • Direct control (mechanical or electrical) of the 220/ 110 kV switching devices( circuit breaker ,disconnect switches, earthing switches) at the primary equipment outside in the switchyard , • Direct control from LV compartment of the switchgear 35 kV, which shall be located in a separate building\. The bay control units, the substation control unit and the numeric al protection relays shall be interlinked with fiber-optics\. Issues: The procurement was carried out consistent with Bank Guidelines and in accordance with the methods and thresholds specified in the Development Credit Agreement (DCA), but it resulted with long delays due to protracted procurement disputes on the key Supply and Install contract for the investment component-rehabilitation of substations in extremely poor conditions\. 31 The contract was finally signed with KESH in May 2009, however, the transfer of the contract to ATSO (the implementing agency after the unbundling) did not take place at that time due to: (i) the unbundling and privatization process which slowed down the needed due diligence of implementation and financial management capacity of ATSO; (ii) in the absence of this due diligence and transfer of contractual responsibilities to ATSO, ATSO could not mobilize or open the L/C with the contractor; and (iii) delays during the process of unbundling and privatization in the transfer of assets and liabilities among KESH, ATSO and Distribution System Operator, OSSH\. Therefore, the project team conducted a due diligence of ATSO and, subsequently, reviewed and agreed to the reassignment of contractual responsibilities from KESH to ATSO in February 2010\. With these actions taken, ATSO has managed to open the L/C (which is the instrument of payment of the contract), has updated the implementation schedule and mobilized the contractor, which has in turn led to progress in implementation and an increase in disbursement from of the Credit amount\. Works recognized intensive performance/development from October 2010 to May 2012\. With the termination of the works, we are satisfied to see that the three substations are new not only from technical but also from environmental point of view\. To complete this project were needed more than 60 overnight shifts (taking additional measures) and over 250 outages of line tracks (bays), minimally one month, each\. This was also dedicated to the fact that end-users (customers) were not left for a long time without power supply at any case\. Safeguard Policies This project is utterly reconstruction, meaning that its implementation would be conducted at the presence of 220, 110 kV, 35 kV and 0\.4 kV voltages without outage or cutting the supply to consumers\. Because of that, since at its (project) outset, strict measures were taken for the application of rules for technical safety at work by appointing responsible persons (charged with the task) both from ATSO and the Contractor\. Also special attention was dedicated to waste posts (this was done in cooperation with local authorities) observing applicable laws and WB requirements in effect, as respective measures were taken for the rehabilitation of facilities attacked\. Environmental risk No environmental risk is seen as the whole project is developed under the strict supervision and monitoring control of ATSO experts who have not allowed violation of effective legislation and WB requirements in effect\. 3\.2 PART B: Technical Assistance 3\.2\.1 Procurement activities and supervision of project implementation; The contract was signed on January 24, 2006\. The objectives of the contract were as following: - To guarantee the perfect bid organization and optimal evaluation according relative standards - To negotiate and manage in the ATSO profitable way for the client the contracts - To conduct supervision of the works to assist project implementation guaranteeing the highest quality the lowest ATSO and shortest construction period 32 - Provision of training to PMU and ATSO\. On April 21, 2009, the contract was amended because in order to reflect the changes that were made to first proposal, were all the lots I, II, III contractor’s bid were scheduled to be floated at the same time, July 2006 and the evaluation of the bids would not exceed four weeks for all contract negotiations\. Also the consultant claimed, that they provided additional services that were not included in the initial proposal, such as additional site visits of the substations of Lot I, followed be several meetings in KESH‘s offices to decide the work to be included in the Bid Documents for the contractors, as well as for more than 45 days for this bids evaluation\. Despite the efforts put by ATSO and also KESH to get the best service from the consultant, the consortium didn’t provide the service required by them\. During the supervision, it was founded out that the designs and also the predictions were in many cases incorrect\. Also the consultant was not present during the implementation of the contract; therefore, from ATSO there was a full commitment in order to supervise and to assure a successful project implementation\. 3\.2\.1 Strengthening of the ATSO The contract was signed on January 2006\. The technical assistance to strengthen ATSO will be financed from the IDA Credit for Energy Community of South East Europe APL2-Albania Project\. The objective of this technical assistance was to strengthen the ATSO to enable the company to carry out its full responsibilities in accordance with the ongoing power sector reform program, the Transitional Market Model and Albania’s commitments as a member of the Energy Community of South East Europe\. Detailed Tasks (i) Assist the ATSO to identify and determine the value of assets based on the asset revaluation study prepared for KESH by Deloitte and American Appraisal; (ii) Assist in documentation and allocation of liabilities; (iii) Assist the ATSO to prepare a capital structure and pro-form financial statements (balance sheet, income statement and flow and funds statement) based on the revalued assets; (iv) Estimate a transmission tariff based on the methodology approved by ERE; (v) Propose an organization structure for the ATSO; (vi) Prepare a human resources plan; (vii) Prepare a Book of the Ethics; (viii) Propose a salary scale; (ix) Create a Book of Rules; (x) Help put in place new financial and accounting systems; (xi) Develop business processes including procurement, billing and collection; (xii) Provide assistance and training to the ATSO personnel in implementation of the business plan for the ATSO based on the recommendations contained in the reports of the above tasks and accepted by the KESH and ATSO\. 4\. PERFORMANCE INDICATORS AND PROJECT OUTCOMES The APL2 - Albania Project is completed\. All the substations of transmission system are renovated with a new control and monitoring system\. The objective of the project to extend the lifetime and improve the quality, reliability, safety and efficiency of the bulk 33  power transmission system by replacing ageing existing facilities with new ones, is fully achieved\. The Albania Power Transmission operates now with greater reliability\. The forced outages of the lines and autotransformers due to defects of the bays equipment (circuit breaker, disconnector, current transformer, voltage transformer, surge arrester, and protection equipment) are reduced significantly\. In the table below are given statistic data for the forced outages of the lines and autotransformers of the transmission system, caused from the damages of bays equipment, for the years 2008, 2009, 2010\. Outages due to bays equipment defects in years 2008,2009 and 2010 400 - 220 kV Lines 2008 2009 2010 annual average Name of the line Outage time Outage time Outage Time Outage time No\. h No\. h No\. h No\. h Line L\.220-1 V\.Dejes-Koman 1 28\.33 0 0 1 0\.9 0\.7 9\.74 Line L\.220-3 V\.Dejes-Tirana1 1 6\.7 2 16\.8 0 0 1\.0 7\.83 Line L\.220-4 V\.Dejes-Koplik 1 2\.33 0 0 0 0 0\.3 0\.78 Line L\.220-5 Tirana1-Elbasan1 2 3\.33 0 0 0 0 0\.7 1\.11 Line L\.220-7 Elbasan1-Fier 3 6\.25 3 9\.25 0 0 2\.0 5\.17 Line L\.220-8/1 Elbasan1-Elbasan2 2 7 3 5\.4 0 0 1\.7 4\.13 Line L\.220-8/2 Elbasan1-Elbasan2 0 0 0 0 1 0\.2 0\.3 0\.07 Line L\.220-9/1 Fierze-Burrel 0 0 2 0\.7 0 0 0\.7 0\.23 Line L\.220-9/2 Burrel-Elbasan1 3 13\.1 2 21\.9 0 0 1\.7 11\.67 Line L\.220-10/1 Fierze-Titan 1 0\.52 1 0 0 0 0\.7 0\.17 Line L\.220-11 Fierze - Koman 0 0 1 0 0 0 0\.3 0\.00 Line L\.220-12 Fierze-Prizren 0 0 5 12\.8 7 23\.35 4\.0 12\.05 Line L\.220-13/1 Koman-Kolacem-Tir2 0 0 0 0 1 0\.75 0\.3 0\.25 Line L\.220-15/1 Tir1-Tir2 (Rrashbull) 1 0 1 6 1 1\.5 1\.0 2\.50 Line L\.220-16 Fier-Babice 0 0 1 1\.7 4 3\.28 1\.7 1\.66 TOTAL 15 67\.56 21 74\.55 15 29\.98 17\.0 57\.36 Autotransformers 2008 2009 2010 annual average Name of the Autotransformer Outage time Outage time Outage Time Outage time No\. h No\. h No\. h No\. h AT2 ne N/St\. V\.Deja 2 5\.6 0 0 0 0 0\.7 1\.87 AT2 - N/St\. Tirana1 0 0 0 0 1 4\.1 0\.3 1\.37 AT1 - N/St\. Fier 0 0 0 0 1 0\.2 0\.3 0\.07 AT2 - N/St\. Fier 0 0 0 0 1 1\.25 0\.3 0\.42 34 TOTALE 2 5\.6 0 0 3 5\.55 1\.7 3\.72 110 kV Lines 2008 2009 2010 annual average Name of the line Outage time Outage time Outage Time Outage time No\. h No\. h No\. h No\. h Line L110-19 V\.Dejes-Shkoder 3 9\.1 1 0\.83 2 23 2\.0 10\.98 Line L110-20/2 Burrel-Bulqize 1 0\.4 0 0 0 0 0\.3 0\.13 Line L110-27 Fierze-F\.Arrez 1 0\.6 1 1\.5 2 4\.7 1\.3 2\.27 Line L110-33 Fierze-B\.Curri 0 0 1 4\.16 0 0 0\.3 1\.39 Line L110-2/2 Tirana1-Kashar 0 0 0 0 3 5\.1 1\.0 1\.70 Line L110-2/3 Tirana1-Kashar 0 0 1 1\.1 1 4\.13 0\.7 1\.74 Line L110-22/1 Tirane-F\.Kruje 0 0 0 0 2 2 0\.7 0\.67 Line L110-22/2 Tirana1-Traktora 1 1\.1 1 11 0 0 0\.7 4\.03 Line L110-16/ Elbasan1-Fiber 1 0\.4 0 0 0 0 0\.3 0\.13 Line L110-16/1 Elbasan1-Kombinat 0 0 0 0 1 16\.7 0\.3 5\.57 Line L110-14 Elbasan-Cerrik 1 1\.75 1 1\.6 0 0 0\.7 1\.12 Line L110-4/3 Elbasan-Ibe 0 0 0 0 1 0\.83 0\.3 0\.28 Line L110-15 Fier-Vlore 0 0 2 6\.75 0 0 0\.7 2\.25 Line L110-10/1 Fier-Ballsh 2 5\.1 1 0\.1 4 12\.7 2\.3 5\.97 Line L110-21/2 Fier-Lushnje 1 0 2 10\.47 3 10\.95 2\.0 7\.14 Line L110-40 Fier-Selenice 2 3\.3 3 4\.42 3 23\.83 2\.7 10\.52 TOTAL 13 21\.75 14 41\.93 22 103\.94 16\.3 55\.87 As it is presented in the table the average numbers of outages and the time have been: For the 400 and 220 kV Lines average 17 outages with total duration of time 57\.36 hours\. For the Autotransformer average 4 outages with total duration of time 3\.72 hours\. For the 100 kV Lines average 16\.3 outages with total duration of time 55\.87 hours\. According to the statistic figures for 2012(until November 15, 2012), it results that the line and autotransformer outages of the transmission system, which are caused from the damages in the substations (bays and busbar), have been reduced significantly in number, and which is the most important, also in time duration\. These data are introduced in the table below: 35  Outages in 2012 (until 15 November) due to bays equipment defects 400 - 220 KV Lines Outages time Name of the line No\. h Line L\.220-4 V\.Dejes-Koplik 1 2\.68 Line L\.220-7 Elbasan1-Fier 1 0\.45 Line L\.220-9/1 Fierze-Burrel 1 4\.2 Line L\.220-10/2 Titan-Tirana1 1 0\.1 Line L\.220-12 Fierze-Prizren 2 4\.1 Line L\.220-14/1 Koman-Tirana2 1 0\.37 Total 400-220 kV Lines 7 11\.9 Autotransformer Outages time Name of the autotransformer No\. h AT1+AT2 S/s\. Fierze 2 0\.82 AT1 - S/s\. Tirana1 1 0\.2 AT3 - S/s\. Fier 1 1 Total Autotransformer 4 2\.02 Line 110 kV Outages time Name of the line No\. h Line L110-8 V\.Dejes-Bushat2 2 3\.25 Line L110-20/1 Ulez-Burrel 3 3 Line L110-20/2 Burrel-Bulqize 1 2\.8 Line L110-27 Fierze-F\.Arrez 3 3\.28 Line L110-2/2-1 Tirana1-Kashar 1 0\.42 Line L110-2/3-1 Tirane-Kashar 1 0\.42 Line L110-9/1 Fier-Kucove 1 3\.33 Total 110 kV Lines 12 16\.5 As result of these reductions, the project itself, has given its effect on the reduction of the un-served electricity\. The Technical Assistance in Strengthening of Albanian Transmission System Operator, have been very important for ATSO, particularly the assistance and training to the ATSO personnel in implementation of the business plan, estimation a transmission tariff based on the methodology approved by ERE, and the new organization structure and establishment of the Market Operator Directory\. 36 The progress report on Albanian market reforms and their monitoring prepared by a consultant makes an evaluation of Albanian power sector, its current condition and gives respective recommendations on the prospect development with the intention to meet development priorities of this sector established in the Market Model\. The viewpoint and consequently, the analysis and recommendations given in this report include all aspects and institutions that make up the Albanian market of electricity which monitor and regulate this market in order to fit the objectives and targets set in front of this sector\. The Market Operator, as operating entity to meet ATSO functions and liabilities considers the analysis and the recommendations given in this report on the allocation of interconnection capacities and the implementation of a balancing market and the publication of market information as necessary\. The Albanian market of electricity from January, this year recognized the reset of conditions to get the status of eligible client and because of that we have noticed an extension of active market participants in the market of power supply provided to these customers, thus an extension of electricity market transactions\. As result of the above developments, there is an increasing number of electricity consumers which are free to choose their electricity supplier, and also now Albania operates in the regional power market in accordance with the ECSEE Treaty\. 5\. THE WORLD BANK PERFORMANCE WB has been periodically present with own experts inspecting the project by all indicators and making aware its own opinion on the project performance\. Cooperation with the WB has been very fruitful and correct\. WB has given it support and commitment, during all the phases and issues of the project, but we especially emphasize that WB and its specialist, have shown a great interest and support on the environment issues\. We must also mention the very important assistance provided by World Bank referring to the terms of the facility management of the substations during the project implementation process, in order to help ATSO meeting the standards of environmental requirements\. Furthermore, this assistance has served ATSO for the development of the Environmental Management System Manual of ATSO, and control of environmental management, which previously has not been performed by the ATSO\. In May 2012, the three reconstructed substations were set into operation within the objectives of the project and without any serious technical problem\. This shows the fruitful and excellent cooperation between ATSO and WB\. 6\. CONCLUSIONS The APL2 - Albania Project has fully contributed to the development of Albanian and regional market\. All the substations of transmission system are rehabilitated with a new control and monitoring system and all the ageing existing primary equipment are replaced, extending the lifetime and improving the quality, reliability, safety and efficiency of the bulk power transmission system\. Furthermore the new systems local control of the substations serve to the successful implementation of the project to a new system of control SCADA / EMS that is in the process of implementation\. 37  Assistance provided through the project (Strengthening of ATSO) has served not only to a better organization of the structures of ATSO, but has been like a school for development of the business plan, evaluation of assets, the calculation of transmission tariff, etc\. Regarding the assistance provided for the implementation of the project, we have to mention that it has been noted that in the stage of preparation of tender documents it has been a weak assistance and also it was completely absent during the implementation phase\. Despite the problems that caused the lack of a consultant during the implementation phase, there was a great effort by the specialists of ATSO as well as by the experts of WB for this project, in order to assure a successful implementation of the project\. As result of the above developments, now Albania operates in the regional power market in accordance with the ECSEE Treaty\. Below, we present the pictures of the substations, which present their situation before the implementation of the project and after the implementation (the completed works)\. Tirana1 Substation BEFORE (RECONSTRUCTION) AFTER (RECONSTRUCTION) 38 Fier Substation BEFORE (RECONSTRUCTION) AFTER (RECONSTRUCTION) Elbasan1 Substation Before Reconstruction After Reconstruction 39 Annex 7B\. Borrower’s Comments of Draft ICR Dear Ms\. Semikolenova, Please be informed that OST, does have only one comment: Point 2\.5 , page 11: In order to further improve reliability, safety and efficiency of Albanian bulk power transmission system, additional investments are required and already planned by OST in expanding the transmission network to meet growing local and regional demand\. The Albanian system also needs to meet the ENTSO-E requirements for operational network security, therefore OST is implementing the SCADA System which will be in full operation within May 2013\. This project and also others already implemented, will enable OST to fulfill the requirements of ENTSO-E\. Also in OST planning, are already predicted very important projects in order to meet the local and regional demand\. Among them there is the project for “ The interconnection Line Albania –Kosovoâ€? and also the project “110 kV circuit line South Albaniaâ€?, which are expected to start the implementation within Year 2013\. Thank you for your collaboration, Best Regards, Aurora Vasili Head of PIU OST sh\.a\. Bulevardi "Gjergj Fishta" Tirana, Albania Po Box: 251/1 Mob: +355694086931 40 Annex 8\. Comments of Cofinanciers and Other Partners/Stakeholders Comments were received from EBRD: POWER TRANSMISSION SUBSTATIONS PROJECT – OpID 36112 Background Sovereign guaranteed loan, signed in October 2006 for the amount of EUR 16 million10 with Korporata Elektroenergjetike Shqiptare (KESH) to support the restructuring and commercialisation of the Albanian power sector\. The project is co-financed by IBRD (World Bank), with a sovereign guaranteed loan of USD 27\.5m\. The loan was declared effective in October 2007\. Total disbursement to date is EUR approximately 11 million\. The operation will enable the Transmission System Operator (OST), the actual beneficiary after KESH’s unbundling, to finance the rehabilitation of six transmission substations crucial to the operation of Albania's transmission system and to its participation in the regional energy market\. This infrastructure development is part of an overall series of improvements needed in Albania and elsewhere in South East Europe for respective domestic purposes\. This rehabilitation is also expected to assist the region to achieve a greater integration with the EU as planned under the ECSEE Treaty leading to a single electricity market\. The overall project, including the part financed by the World Bank/IDA, comprises two components: (A) Replacement of high-voltage equipment and control, monitoring and protection systems in the main transmission substations; and (B) Technical assistance for Procurement activities and supervision of project implementation, strengthening of the OST an electricity tariff study; and improving procurement procedures for importing electricity\. The Bank is financing only part of the A component, and the procurement process is led by the World Bank\. The project has suffered significant delays due to (i) disagreements between the client and the international consultant on technical and financial matters related to the preparation of tender documents; (ii) disagreement with technical solution proposed by contractors; and (iii) unclear responsibilities between KESH and OST in the Bank’s loan administration\. Draft bidding documents were submitted to the Bank in May 2008\. The Bank reviewed the draft documents and provided comments\. For about one year the Bank’s team was involved in a lengthy discussion with the client, the World Bank, and the consultant in order to find ways to improve cooperation - crucial for the successful implementation of the project\. In particular, the Bank asked that the consultant allocates specific resources 10 US$ 20 million 41 to the management of the Bank-financed project components and that the Bank had more control over this process\. These issues were resolved and subsequently, on 12 June 2009 the Bank issued its no-objection to the tender documents\. The tender notice was published in the Bank's website on 22 June, 2009\. On 5 December 2012, the EBRD, OST, KESH and the Ministry of Finance Republic of Albania signed a Novation Agreement transferring the loan to OST as the new borrower\. The Novation Agreement is expected to become effective in December 2012\. Current Status Contract 1: CMP system for Fierza, Komani and Vau i Dejes HPP substations and equipment for Fierza HPP substation Original Completion Date: 24 January 2013 Estimated Final Completion Date: 24 April 2013 Physical Progress: In Fierza, significant delays were caused due to determining the positioning of the control building, so that it would guarantee operational safety and efficiency\. The issue has now been resolved\. Technical designs are completed, the control building is ready for operation, 80-90% of civil works are performed, while installation of electrical infrastructure is under progress\. In Vau i Dejes and Komani, technical blockage of works was caused by the inability to temporarily take out 10 kV line during the heavy import season\. A technical agreement was reached with KESH that enabled completion of works blocked\. The technical designs are completed, the control building is constructed, 90% of civil works are finished and the installation of equipment is underway\. A change order was approved as it became evident that additional unforeseen new equipment and replacement of old ones were necessary\. Contract 2: Equipment and CMP system for Burreli and Elbasan 2 substation Original Completion Date: 27 January 2012 Estimated Final Completion Date: 30 December 2012 Physical Progress: All technical design and civil works are completed\. All equipment have been delivered to the site and installed\. Testing and commissioning as well as all most of the items in the punch list are completed\. The implementation in the Zemblak unit of Elbasani 2 s/s faced delays as TSO was not able to take out the high tension line and make the site available\. According to recent TSO reporting, Zemblak installations have resumed and are near completion, but it is critical to pay the Contractor the overdue amounts, in order to avoid any liabilities and open the way to an agreement on the contract extension/amendment for the Zemblak unit\. 42 Annex 9\. List of Supporting Documents Albania – The Second Phase of the US$1,000 Million Energy Community of South East Europe (APL) Program Project Appraisal Document, May 2005 ECA Disbursements Learning Review – Quality Assurance Group Review of ECSEE APL2(Albania) Project, November, 2009 Albania CPS for FY11-FY14 – The World Bank, June 2010 Energy Community of South East Europe (CESEE)\. Adaptive Program Loan (APL) Program Results Brief – The World Bank, March 2012 Annual Report on the Implementation of the Aquis under the Treaty Establishing the Energy Community – Energy Community Secretariat, September 2012 Albania 2012 ECSEE Progress Report – European Commission, October 2012 A Stocktaking Assessment of the Albanian Power Market: Reform Progress and Market Monitoring – Final Report, AF-Mercados EMI, April 2012 Supervision Aide Memoires and Project/ Implementation Status Reports 43  KOSOVO KOS\. NOVEMBER 2012

REVIEW

P077717

Document of The World Bank Report No: ICR00003965 IMPLEMENTATION COMPLETION AND RESULTS REPORT (TF-56781) ON A GRANT FROM THE GLOBAL ENVIRONMENT TRUST FUND IN THE AMOUNT OF US$25\.0 MILLION TO THE UNITED MEXICAN STATES FOR A LARGE-SCALE RENEWABLE ENERGY DEVELOPMENT PROJECT October 27, 2016 Energy and Extractives Global Practice Mexico and Colombia Country Management Unit Latin America and Caribbean Region  CURRENCY EQUIVALENTS (Exchange Rate Effective October 2016) Currency Unit = Mexican Peso (MXN) US$ 1\.00 = 18\.65 MXN FISCAL YEAR January 1 – December 31 ABBREVIATIONS AND ACRONYMS AMDEE Spanish acronym for the Mexican Wind Power Association (Asociación Mexicana de Energía Eólica) CDM Clean Development Mechanism CENACE National Energy Control Center (Centro Nacional de Control de Energía) CFE Federal Electricity Commission (Comisión Federal de Electricidad) CO2 Carbon Dioxide CO2e Carbon Dioxide Equivalent CPS Country Partnership Strategy CRE Energy Regulatory Commission (Comisión Reguladora de Energía) EIRR Economic Internal Rate of Return ESMAP Energy Sector Management Assistance Program FIRR Financial Internal Rate of Return FM Financial Management FMA Financial Management Assessment FOTEASE Fund for the Energy Transition and Sustainable Use of Energy (Fondo para la Transición Energética y el Aprovechamiento Sustentable de la Energía) FY Fiscal Year GEF Global Environment Facility GEO Global Environment Objective GHG Greenhouse Gas GW Gigawatt GWh Gigawatt-hour IBRD International Bank for Reconstruction and Development ICR Implementation Completion Report INECOL Institute of Ecology (Instituto de Ecología A\.C\.) IP Implementation Progress IPP Independent Power Producer ISR Implementation Status and Results Report kWh Kilowatt-hour LAERFTE Spanish acronym for the Law for the Use of Renewable Energy and the Energy Transition Financing (Ley para el Aprovechamiento de las Energías Renovables y el Financiamiento para la Transición Energética)\. M&E Monitoring and Evaluation MTR Mid-Term Review MW Megawatt MWh Megawatt-hour NAFIN Nacional Financiera, S\.N\.C\., I\.B\.D\. NPV Net Present Value O&M Operation and Maintenance PAD Project Appraisal Document PDO Project Development Objective PERGE Spanish acronym for Large-Scale Renewable Energy Development Project (Proyecto de Energías Renovables a Gran Escala) PIU Project Implementation Unit (UREP for its acronym in Spanish) POISE Investment Plan for the Power Sector (Programa de Obras e Inversiones del Sector Eléctrico) PPA Power Purchase Agreement ROE Return on Equity SEDESOL Ministry of Social Development (Secretaría de Desarrollo Social) SEMARNAT Ministry of Environment and Natural Resources (Secretaría de Medio Ambiente y Recursos Naturales) SENER Ministry of Energy (Secretaría de Energía) SESA Strategic Environmental and Social Assessment SHCP Ministry of Finance and Public Credit (Secretaría de Hacienda y Crédito Público) SRMC Short Run Marginal Cost TA Technical Assistance tCO2e Metric tons of CO2e Senior Global Practice Director: Anna Bjerde (Acting) Practice Manager: Antonio Barbalho Project Team Leader: Guillermo Hernández González ICR Team Leader: Guillermo Hernández González  MEXICO Large-Scale Renewable Energy Development Project Contents A\. Basic Information B\. Key Dates C\. Ratings Summary D\. Sector and Theme Codes E\. Bank Staff F\. Results Framework Analysis G\. Ratings of Project Performance in ISRs H\. Restructuring (if any) I\. Disbursement Profile 1\. Project Context, Global Environment Objectives and Design\. 1 2\. Key Factors Affecting Implementation and Outcomes \. 5 3\. Assessment of Outcomes \. 13 4\. Assessment of Risk to Development Outcome \. 19 5\. Assessment of Bank and Borrower Performance \. 19 6\. Lessons Learned\. 22 7\. Comments on Issues Raised by Borrower/Implementing Agencies/Partners\. 25 Annex 1\. Project Costs and Financing \. 26 Annex 2\. Outputs by Component\. 27 Annex 3\. Economic and Financial Analysis \. 30 Annex 4\. Bank Lending and Implementation Support/Supervision Processes\. 35 Annex 5\. Beneficiary Survey Results \. 37 Annex 6\. Stakeholder Workshop Report and Results \. 38 Annex 7\. Summary of Borrower's ICR and/or Comments on Draft ICR \. 39 Annex 8\. Comments of Cofinanciers and Other Partners/Stakeholders \. 40 Annex 9\. List of Supporting Documents \. 41 MAP……………………………………………………………………………………\.42 A\. Basic Information Large-scale Renewable Energy Development Country: Mexico Project Name: Project (Phase I = US$25 million; Phase II = US$45 million) Project ID: P077717 L/C/TF Number(s): TF-56781 ICR Date: 09/05/2016 ICR Type: Core ICR Specific Investment UNITED MEXICAN Lending Instrument: Borrower: Loan STATES Original Total US$25\.00 million Disbursed Amount: US$24\.63 million Commitment: Revised Amount: US$25\.00 million Environmental Category: B Global Focal Area: C Implementing Agencies: SENER Cofinanciers and Other External Partners: B\. Key Dates Revised / Actual Process Date Process Original Date Date(s) Concept Review: 08/06/2002 Effectiveness: 05/02/2007 04/18/2007 06/11/2013 Appraisal: 05/15/2006 Restructuring(s): 05/12/2014 03/21/2015 Approval: 06/29/2006 Mid-term Review: 06/14/2013 07/02/2013 Closing: 06/30/2014 04/30/2016 C\. Ratings Summary C\.1 Performance Rating by ICR Outcomes: Satisfactory Risk to Global Environment Outcome Low or Negligible Bank Performance: Satisfactory Borrower Performance: Satisfactory C\.2 Detailed Ratings of Bank and Borrower Performance Bank Ratings Borrower Ratings Quality at Entry: Satisfactory Government: Satisfactory i  Implementing Quality of Supervision: Satisfactory Satisfactory Agency/Agencies: Overall Bank Overall Borrower Satisfactory Satisfactory Performance: Performance: C\.3 Quality at Entry and Implementation Performance Indicators Implementation QAG Assessments Indicators Rating Performance (if any) Potential Problem Quality at Entry Project at any time No None (QEA): (Yes/No): Problem Project at any Quality of Yes None time (Yes/No): Supervision (QSA): GEO rating before Satisfactory Closing/Inactive status D\. Sector and Theme Codes Original Actual Sector Code (as % of total Bank financing) Central government administration 15 15 General finance sector 25 25 Other Renewable Energy 60 60 Theme Code (as % of total Bank financing) Climate change 17 17 Environmental policies and institutions 17 17 Infrastructure services for private sector development 17 17 Regulation and competition policy 16 16 Technology diffusion 33 33 E\. Bank Staff Positions At ICR At Approval Vice President: Jorge Familiar Pamela Cox Country Director: Gerardo M\. Corrochano Isabel M\. Guerrero Practice Manager/Manager: Antonio Barbalho Susan G\. Goldmark Project Team Leader: Guillermo Hernández González Charles M\. Feinstein ICR Team Leader: Guillermo Hernández González ICR Primary Author: Eugene D\. McCarthy ii F\. Results Framework Analysis Global Environment Objectives (GEO) and Key Indicators(as approved) The GEO, as per the Global Environment Facility Operational Program #No\.6 on Climate Change, is to reduce greenhouse gas (GHG) emissions by addressing and reducing the barriers to development of grid-connected renewable energy technologies and markets in Mexico\. The approved GEO indicators were: 1\. Increased electricity supplied to national system from renewable energy sources, over baseline (GWh/yr\.)\. 2\. Increased total installed renewable capacity over baseline (MW) 3\. Emissions reduced (tons/year) over baseline (CO2, NOx, SOx, and particles)\. 4\. Barrier Removal outcome indicators under the PDO\. Revised Global Environment Objectives (as approved by original approving authority) and Key Indicators and reasons/justifications The GEO was not revised\. However, during the second project restructuring in May 2014, two GEO targets were revised (electricity supplied to the national system per year from renewable energy sources and the avoided emissions per year) and two core indicators were incorporated, that is, generation capacity of renewable energy constructed (other than hydropower), and generation capacity of renewable energy constructed – Wind\. The final set of key GEO indicators was the following: 1\. Increased electricity supplied to national system from renewable energy sources, over baseline (GWh/yr\.)\. 2\. Renewable capacity over baseline (MW) 3\. Emissions reduced (tons/year) over baseline (CO2, NOx, SOx, and particles)\. 4\. Barrier Removal indicators as described under PDO\. 5\. Generation Capacity of Renewable Energy (other than hydropower) constructed 6\. Generation Capacity of Renewable Energy constructed – Wind\. iii (a) GEO Indicator(s) Original Target Formally Actual Value GEO Values (from Revised Achieved at Baseline Value Indicator approval Target Completion or documents) Values Target Years Increased electricity supplied to national system from renewable energy Indicator 1 : sources, over baseline (GWh/yr\.)\. 270\.3 GWh Value 367\.9 GWh 287\.8 GWh from annually (quantitative or 7\.36 annually (257\.5 January to qualitative) (257\.5 GWh GWh minimum) December 2015\. minimum) Date achieved 04/18/2007 04/18/2007 05/12/2014 12/31/2015 The project achieved the following: - 94\.2 percent of revised target in 2013; Comments - 104\.5 percent of revised target in 2014; (incl\. % achievement) - 106\.5 percent of revised target in 2015\. Since commissioning, the project has supplied 1069 GWh (October 2012 to July 2016) to the national system\. Indicator 2 : Increased total installed renewable capacity, over baseline (MW)\. Value 101 MW (70 (quantitative or 2 (wind) n\.a\. 102\.85 MW qualitative) MW minimum) Date achieved 04/18/2007 04/18/2007 n\.a\. 10/03/2012 Comments The project achieved 101\.83 percent of target when the La Venta III wind (incl\. % achievement) farm was commissioned in October 2012\. Emissions reduced (tons/year) over baseline (CO2, NOx, SOx, and Indicator 3 : particles)\. 177,594\.45 tons Value 247,000 tons per 167,000 tons of CO2e from (quantitative or 0 year of per year of qualitative) January to operation\. operation\. December 2015\. Date achieved 04/18/2007 04/18/2007 05/12/2014 12/31/2015 The project achieved the following: - 94\.2 percent of revised target in 2013; Comments - 104\.5 percent of revised target in 2014; (incl\. % achievement) - 106\.5 percent of revised target in 2015\. Since commissioning, the project has avoided 659,634 tonCO2e (October 2012 to July 2016)\. Indicator 4 : Barrier Removal results as described under PDO\. Value Partially achieved (quantitative or As described in PAD Barriers removed n\.a\. (Barriers greatly qualitative) reduced)\. Date achieved 04/18/2007 04/18/2007 n\.a\. 04/29/2016 Comments This indicator refers to those barriers identified at appraisal and addressed (incl\. % through the institutional capacity-building efforts supported by the iv achievement) Technical Assistance component of the project (PDO indicators 1 and 2, and intermediate indicators 1-18)\. Barriers have been greatly reduced, as shown by the strong development of wind power in recent years (approximately 3,000 MW of installed capacity across the country by the end of 2015), as reported by the Mexican Wind Power Association (AMDEE)\. Generation Capacity of Renewable Energy (other than hydropower) Indicator 5 : constructed (MW) Value (quantitative or 0 n\.a\. 100 102\.85 qualitative) Date achieved 05/12/2014 n\.a\. 05/12/2014 10/03/2012 Comments The project achieved 102\.85 percent of target\. This indicator was (incl\. % introduced at project restructuring in May 2014 to incorporate core achievement) indicators into the results framework\. Indicator 6 : Generation Capacity of Renewable Energy constructed - Wind (MW) Value (quantitative or 0 n\.a\. 100 102\.85 qualitative) Date achieved 05/12/2014 n\.a\. 05/12/2014 10/31/2012 Comments The project achieved 102\.85 percent of target\. This indicator was (incl\. % introduced at project restructuring in May 2014 to incorporate core achievement) indicators into the results framework\. Project Development Objective (PDO) and Key Indicators(as approved) The PDO of the project was to assist Mexico in developing initial experience in commercially-based grid-connected renewable energy applications by supporting construction of an approximately 101 MW IPP wind farm, while building institutional capacity to value, acquire, and manage such resources on a replicable basis\. The approved PDO indicators were the following: 1\. Established CFE (Comisión Federal de Electricidad) system short-run marginal cost- based reference price combined with agreed maximum US cent 1\.1 Global Environment Facility (GEF) tariff support (per kWh for 5 years) sufficient to attract bids, investment, construction, and operation of 70-100 MW wind farm\. 2\. Subsequent Investment Plans for the Power Sector (Programa de Obras e Inversiones del Sector Eléctrico, POISE) include plans for additional wind independent power producer (IPP) procurement at higher reference price and/or lower incentive support level (subject to the availability of subsidy funds - GEF or other)\. 3\. The set of intermediate outcome indicators below (intermediate indicators 1-19)\. v Revised Project Development Objectives (as approved by original approving authority) and Key Indicators and reasons/justifications The PDO was amended in the legal documents during the first project restructuring (June 2013) to make it identical to the PDO in the Project Appraisal Document (PAD)\. The PDO in the PAD included the approximate size of the wind farm that would be supported and built, while the one in the Legal Agreement did not\. The amended PDO in the legal agreement became: “The development objective of the proposed project is to assist Mexico in developing initial experience in commercially-based grid-connected renewable energy applications by supporting construction of an approximately 101 MW IPP wind farm, while building institutional capacity to value, acquire, and manage such resources on a replicable basis\.” The final set of key PDO indicators was the following: (b) PDO Indicator(s) Original Target Formally Actual Value PDO Values (from Revised Achieved at Baseline Value Indicator approval Target Completion or documents) Values Target Years Established CFE system short-run marginal cost-based reference price combined with agreed maximum US cent 1\.1 GEF tariff support (per kWh Indicator 1 : for 5 years) sufficient to attract bids, investment, construction and operation of 70-100 MW wind farm\. IPP contract IPP contract issued to winning Value issued to an bidder for (quantitative or None n\.a international firm qualitative) construction and (Contract No\. PIF- operation of > 70 005/2009)\. MW wind farm\. Date achieved 04/18/2007 04/18/2007 05/12/2014 06/09/2009 Comments Achieved\. (incl\. % achievement) Two bids were received and one contract for 100 MW was awarded\. Subsequent POISE include plans for additional wind IPP procurement at Indicator 2 : higher reference price and/or lower incentive support level (subject to availability of subsidy funds - GEF or other)\. Value POISE includes (quantitative or None n\.a\. 8 qualitative) >1 such plant Date achieved 04/18/2007 04/18/2007 n\.a\. 05/12/2014 The project exceeded the target eight-fold since the POISE 2012-2026 Comments included 8 new wind plants which are expected to start operation between (incl\. % 2014-2019: Sureste III, IV, and V (908 MW); Rumorosa I, II, III (300 achievement) MW); and Tamaulipas I, II, III (600 MW) - none of which benefits from additional tariff support\. vi (c) Intermediate Outcome Indicator(s) Original Target Actual Value Intermediate Formally Values (from Achieved at Outcome Baseline Value Revised Target approval Completion or Indicator Values documents) Target Years Functioning mechanism for the auctioning of tariff subsidy support through Indicator 1 : competitive bidding established, with incremental tariff support provided by GEF\. Value Mechanism is (quantitative or None Full in place and Achieved qualitative) functioning\. Date achieved 04/18/2007 04/18/2007 05/12/2014 06/09/2009 Comments One contract awarded for 100 MW through competitive bidding\. Tariff (incl\. % support mechanism in place and with monthly disbursements since October achievement) 2012 until project closing (April 2016)\. Operational Manual for the auctioning mechanism finalized with CFE sign- Indicator 2 : off, and adopted by CFE\. Value Operational (quantitative or None Full Manual Not completed qualitative) adopted\. Date achieved 04/18/2007 04/18/2007 05/12/2014 06/09/2009 Comments Since the auctioning mechanism was finalized and implemented by CFE (incl\. % through competitive bidding, the Operations Manual was no longer achievement) relevant\. Regional Environmental Assessment is completed and made available for Indicator 3 : the La Venta III wind farm bidding package\. Regional Value Environmental Partially (quantitative or None Full qualitative) Assessment achieved completed\. Date achieved 04/18/2007 04/18/2007 05/12/2014 04/30/2016 An environmental assessment was prepared before the bidding but it did Comments not include a regional review\. A comprehensive Strategic Environmental (incl\. % and Social Assessment (SESA), which was completed before project achievement) closing, includes a review of the cumulative environmental and social impacts of wind development in the Tehuantepec area\. CFE base solicitation allowing for locations other than the currently Indicator 4 : identified for La Venta III wind farm, including those that would require a change in transmission lines\. Authorization to change Value location (quantitative or None Full Achieved qualitative) included in the bidding documents\. vii Date achieved 04/18/2007 04/18/2007 05/12/2014 06/09/2009 Comments Flexibility to change the location of the wind farm was included in the (incl\. % achievement) bidding documents\. Indicator 5 : Number of qualified bids received from tender\. Value At least three (quantitative or None 3 qualified bids 3 qualitative) received\. Date achieved 04/18/2007 04/18/2007 05/12/2014 06/09/2009 Comments (incl\. % 100 percent (2 technical bids and 1 financial bid)\. achievement) CFE commitment to acquire renewable energy capacity through Power Indicator 6 : Purchase Agreements (PPAs) (MW) IPP wind Value solicitation for (quantitative or None n\.a\. Achieved qualitative) >70 MW published\. Date achieved 04/18/2007 04/18/2007 n\.a\. 06/09/2009 Comments (incl\. % 100 percent\. IPP wind contract for 100 MW awarded to international firm\. achievement) Winning bid is to develop wind turbine site within area identified as Indicator 7 : suitable by CFE's REA\. Value (quantitative or None Full n\.a\. Achieved qualitative) Date achieved 04/18/2007 04/18/2007 n\.a\. 06/09/2009 Comments Environmental authorization obtained by CFE for the La Venta III wind (incl\. % farm site\. If a different site were chosen, bidder would have been achievement) responsible for obtaining the authorization\. Financing plans presented by bidders as part of pre-qualification accepted Indicator 8 : as adequate by CFE (co-financing provided by private entities and export credit agencies by way of capital investments) Value > 1 bidder pre- (quantitative or None n\.a\. Achieved qualitative) qualified Date achieved 04/18/2007 04/18/2007 n\.a\. 06/09/2009 Comments 100 percent (1 financial bid)\. An international firm was awarded the (incl\. % contract for the construction of La Venta III wind farm after its technical achievement) and financial proposals were deemed as acceptable by CFE\. Mechanism for payments to ejidos, indigenous communities, and small Indicator 9 : landowners executed, with established process through which landowners or ejidos can verify revenue and requisite payments\. Value None Executed n\.a\. Achieved (quantitative or viii qualitative) Date achieved 04/18/2007 04/18/2007 n\.a\. 10/03/2012 Comments Mechanism for payments is in place since commissioning (October 2012)\. (incl\. % The IPP has continuously made all payments both for land use and for achievement) contributions to the municipal social program\. Indicator 10 : Funds disbursed to ejidos, indigenous communities, and small landowners\. Payments MXN 54\.423 Value received in million (quantitative or None accordance with n\.a\. (approximately qualitative) negotiated land US$2\.9 million) leases\. since 2012\. Date achieved 04/18/2007 04/18/2007 n\.a\. 12/31/2015 Comments Achieved\. IPP disbursed MXN 11\.884 million in 2015 both for land use (incl\. % and for contributions to the municipal social program, for accumulated achievement) MXN 54\.423 million since 2012\. Indicator 11 : Significant avian/bat mortality is avoided\. Number of turbine- associated bird Avian/bat and bat Value mortality is mortalities (quantitative or None within 1800 / yr\. qualitative) established by acceptable monitoring ranges\. exercise / ongoing assessment\. Date achieved 04/18/2007 04/18/2007 05/12/2014 12/31/2015 Comments Achieved\. Estimated avian/bat mortality, including the undercounting (incl\. % effect, was reported by CFE for the first time in 2015\. Avian/bat mortality achievement) is in line with data from around the world\. CFE purchase tariff proposed for Phase II which reflects Short Run Marginal Cost (SRMC) plus renewable energy capacity value and Indicator 12 : energy portfolio diversification value as defined by the Ministry of Energy (Secretaría de Energía, SENER)\. Value Appropriate Not completed (quantitative or None multi-component n\.a\. (No longer qualitative) tariff proposed\. necessary) Date achieved 04/18/2007 04/18/2007 n\.a\. 04/30/2016 Comments This activity was no longer relevant since no subsidies are required (incl\. % anymore for wind power development in Mexico\. Therefore, Phase II of the achievement) project, as originally envisioned, is no longer necessary\. CFE purchase price tariff proposed for Phase II which requires reduced Indicator 13 : GEF subsidy from Phase I\. ix Value GEF subsidy for Not completed (quantitative or None Phase II < US n\.a\. (No longer qualitative) 1\.1 cent/kWh necessary) Date achieved 04/18/2007 04/18/2007 n\.a\. 04/30/2016 Comments This activity was no longer relevant since no subsidies are required (incl\. % anymore for wind power development in Mexico\. Therefore, Phase II of the achievement) project, as originally envisioned, is no longer necessary\. Least-cost methodology for calculation of renewable energy procurement Indicator 14 : reflecting Full System Marginal Cost developed Value (quantitative or None Full n\.a\. Completed qualitative) Date achieved 04/18/2007 04/18/2007 n\.a\. 04/30/2016 This activity was completed with Energy Sector Management Assistance Comments Program (ESMAP) funds but the developed methodology is no longer used (incl\. % achievement) since the Mexican power sector moved from a monopoly to a wholesale market approach according to the energy reform of 2013\. Planning and dispatch model installed and used in CFE to incorporate Indicator 15 : intermittent sources\. Value Installed and (quantitative or None n\.a\. Completed qualitative) used\. Date achieved 04/18/2007 04/18/2007 n\.a\. 04/30/2016 CFE implemented dispatch tools to incorporate renewables\. In July 2013, a World Bank expert delivered a workshop on integrating renewables into the grid to top technical officials from CFE, SENER and the Energy Regulatory Comments Commission (Comisión Reguladora de Energía, CRE)\. However, CFE is (incl\. % achievement) no longer in charge of dispatch\. Instead, an Independent Operator System (the National Center for Energy Control, Centro Nacional de Control de Energía, or CENACE) is now responsible for the dispatch after the energy reform of 2013\. Strategic Environmental Assessment is developed and accepted as basis Indicator 16 : permitting scale-up of wind energy in Oaxaca region\. Strategic Value Environmental (quantitative or None Full Assessment Completed qualitative) completed and disseminated\. Date achieved 04/18/2007 04/18/2007 05/12/2014 04/30/2016 SESA has been completed and disseminated\. Negotiations between SENER and the Ministry of Environment and Natural Resources (Secretaría de Medio Comments Ambiente y Recursos Naturales, SEMARNAT) to decide whether SESA could (incl\. % be used as a basis for permitting scale-up of wind energy in Oaxaca region achievement) are still in progress, since the recommendations and findings of this assessment must be adapted to the new regulatory framework for the energy sector after the reform of 2013-2014\. x  Publishing of new intermittent energy connection contract by CRE Indicator 17 : including renewable energy capacity recognition\. Value (quantitative or None Full n\.a\. Completed qualitative) Date achieved 04/18/2007 04/18/2007 n\.a\. 05/31/2012 Comments In May 2012, CRE published the General Rules for permit holders (using (incl\. % achievement) renewable energy) to be granted the interconnection to the National Grid\. Strengthening of SENER Investment Promotion Unit business development services addressing marketing, permitting issues, financing Indicator 18 : facilitation, and business advisory services to sponsors of renewable energy projects, including for self-supply projects\. Business development Value services of the Unit None (quantitative or for Promotion of n\.a\. Achieved qualitative) Investment within SENER judged adequate\. Date achieved 04/18/2007 04/18/2007 n\.a\. 04/30/2016 The World Bank supported the design of a ‘one-stop shop’ for facilitating Comments development of renewable energy projects\. This activity was adjusted to (incl\. % achievement) adapt to SENER's necessities after the changes in the Mexican legislation derived from the energy reform of 2013\. Institutional capacity sufficient to issue and manage tenders for additional Indicator 19 : wind farms / other renewable energy resources\. Value Assessed as (quantitative or None n\.a\. Achieved qualitative) adequate\. Date achieved 04/18/2007 04/18/2007 n\.a\. 04/30/2016 Comments Capacity is in place for various renewable energy sources, including wind\. (incl\. % Development of wind farms has been very strong over the past few years achievement) (3000 MW installed capacity across the country by the end of 2015)\. G\. Ratings of Project Performance in ISRs Actual Date ISR No\. GEO IP Disbursements Archived (USD millions) 1 09/08/2006 Satisfactory Satisfactory 0\.00 2 05/11/2007 Satisfactory Satisfactory 0\.00 3 10/23/2007 Satisfactory Satisfactory 0\.00 4 06/09/2008 Satisfactory Moderately Satisfactory 0\.00 Moderately 5 06/26/2008 Moderately Satisfactory 0\.00 Unsatisfactory xi  Moderately 6 12/17/2008 Moderately Satisfactory 0\.00 Unsatisfactory Moderately Moderately 7 05/18/2009 0\.00 Unsatisfactory Unsatisfactory 8 06/23/2009 Moderately Satisfactory Moderately Satisfactory 0\.00 9 11/17/2009 Moderately Satisfactory Moderately Satisfactory 2\.00* 10 05/20/2010 Moderately Satisfactory Moderately Satisfactory 2\.08* 11 12/28/2010 Moderately Satisfactory Moderately Satisfactory 0\.08 12 06/28/2011 Moderately Satisfactory Moderately Satisfactory 0\.08 13 02/08/2012 Moderately Satisfactory Moderately Satisfactory 0\.33 14 09/19/2012 Moderately Satisfactory Moderately Satisfactory 0\.36 Moderately 15 01/20/2013 Moderately Satisfactory 0\.36 Unsatisfactory Moderately 16 10/30/2013 Moderately Satisfactory 3\.26 Unsatisfactory 17 12/07/2013 Moderately Satisfactory Moderately Satisfactory 3\.98 18 07/19/2014 Moderately Satisfactory Moderately Satisfactory 6\.61 19 04/09/2015 Moderately Satisfactory Moderately Satisfactory 9\.94 20 12/17/2015 Moderately Satisfactory Satisfactory 15\.95 21 04/29/2016 Satisfactory Satisfactory 23\.26 *Note: The Government of Mexico applied for a US$2 million disbursement for a designated account which was later reimbursed due to a change in the cash-flow arrangements\. H\. Restructuring (if any)1 ISR Ratings at Amount Board Restructuring Disbursed at Restructuring Reason for Restructuring & Approved Restructuring Date(s) Key Changes Made GEO Change GEO IP in USD millions This restructuring transferred the responsibility of making payments to the IPP that built and operated the wind farm supported by the project from 06/11/2013 N MS MU 0\.41 financial agent Nacional Financiera (NAFIN) to CFE\. This change derived from amendments to Mexican laws that prevented NAFIN from 1 The restructuring dates are those when the different restructurings were approved by the World Bank\. The first grant amendment (first restructuring process) was signed by the Ministry of Finance and Public Credit (SHCP) on June 12, 2013, whereas the second grant amendment (third restructuring process) was signed by the borrower on April 13, 2015\. xii  making deposits to institutions other than the Federal Treasury (Tesorería de la Federación, TESOFE) or the treasuries of the project executing agency or implementing entity\. Also, this restructuring amended the PDO in the legal documents to make it identical to the PDO in the PAD\. The PDO in the PAD included the approximate size of the wind farm that would be supported and built, while the one in the Legal Agreement did not\. The amended PDO in the legal agreement became: “The development objective of the proposed project is to assist Mexico in developing initial experience in commercially- based grid-connected renewable energy applications by supporting construction of an approximately 101 MW IPP wind farm, while building institutional capacity to value, acquire, and manage such resources on a replicable basis\. This restructuring adjusted the results framework by revising energy production and reduction of GHG emissions based on actual data collected over 1 year of 05/12/2014 N MS MS 5\.74 wind farm operation\. Original energy production and reduced emissions assumed an average capacity factor of 42 percent, whereas actual average capacity observed xiii  during wind farm's first year of operations was approximately 30 percent\. The discrepancy was due to the limited data available in the area when La Venta III wind farm was going to be built at the project preparation stage\. In addition, two core indicators were included (that is, Generation Capacity of Renewable Energy (other than hydropower) constructed, and Generation Capacity of Renewable Constructed - Wind\. This restructuring also extended the project closing date by 22 months (that is, from June 30, 2014 to April 30, 2016) and reallocated US$2 million among categories\. This restructuring increased the tariff subsidy for the operation of La Venta III wind farm from US cents 1\.1/kWh to US cents 3\.9/kWh\. This restructuring allowed enhanced flexibility in case further increases were necessary by transferring the specific reference to the subsidy amount from the 03/21/2015 N MS MS 9\.54 Grant Agreement to the Operations Manual\. This increase in the subsidy to the tariff did not modify the aggregate subsidy amount being provided through the GEF grant but enabled the total subsidy allocated under the main component (Component 1) to be disbursed by the closing date (April 30, 2016), given the xiv  delays during the construction of the wind farm and the reduced annual generation from the La Venta III wind farm than had been forecast at appraisal\. I\. Disbursement Profile xv 1\. Project Context, Global Environment Objectives and Design 1\.1 Context at Appraisal 1\. Country context\. Mexico’s energy sector has been of strategic importance to the economy and is also an important driver of economic growth\. Mexico has also been a major oil exporting country for many decades, with crude oil production being an important source of foreign exchange earnings and an important contributor to fiscal revenues\. However, starting in 2004, oil production started to decline\. The decline in domestic oil production gave rise to increasing pressures on Government fiscal policy\. It also started to focus attention on the need to diversify the country’s energy resources away from oil towards an increased use of natural gas and the development of the country’s renewable energy potential\. In this regard, Mexico’s wind energy resources in the state of Oaxaca, estimated at the time to be of the order of 5,000-6,000 MW of electric power capacity, were considered to have significant potential\. Finally, in the context of the Kyoto Protocol which had come into effect in February 2005, Mexico, at that time, was the world’s ninth largest greenhouse gas (GHG) emitter\. Consequently, the development of the country’s renewable energy potential was an important component of a national strategy to reduce GHG emissions and commit the country to specific climate change goals at the Conference of the Parties, 14th meeting in Poland in December 2008\. 2\. Sector context\. At the time of appraisal in 2006, the two main sector institutions with responsibility for the development of Mexico’s electricity sector were: (a) Ministry of Energy (Secretaría de Energía, SENER), which was responsible for energy sector planning as well as for policy formulation in the sector; and (b) the state-owned power company, Federal Electricity Commission, (Comisión Federal de Electricidad, CFE), which was responsible for generation, transmission and distribution of electricity\. In addition, the Energy Regulatory Commission (Comisión Reguladora de Energía, CRE) was responsible for regulation and oversight of the electricity subsector2\. 3\. Historically, the Mexican electricity system had been dominated by a single, state-owned entity (CFE), which provided electricity to 95 percent of the population; CFE also owned approximately 75 percent of the country’s installed capacity\. Despite CFE’s near monopoly presence in the sector, there had been a steady increase in investment in new capacity since 1990 provided by independent power producers (IPPs), which generated power for self-use as well as for sale to CFE under long term contracts\. By 2009, IPPs represented approximately 23 percent of total installed capacity and generated 32 percent of total electricity3\. 4\. The potential for renewable energy development in the country was considerable\. However, the development of the country’s renewable energy potential had been constrained by CFE’s preference to develop large scale investment projects based on natural gas as well as to use least-cost criteria to prioritize its investment options\. The need for large scale investments to meet the growing demand of Mexico’s population together combined with the lack of incentives to 2 The entire Mexican energy sector was re-shaped by a major reform supported by the Federal Administration in 2013, which among other changes, opened up generation and distribution to the private sector\. 3 The IPP and the generation for self-use figures were introduced by an earlier energy reform supported by the Federal Administration in 2008\. In the first case, the IPP would sell its entire energy production to CFE, whereas in the second case, a cluster of companies would partner to buy electricity from another private investor\. 1 promote the development of its own renewable energy potential had resulted in the development of only 2 MW of grid-connected wind power at the time of project preparation4\. 5\. With a view to further promote the development of renewable energy sources, the Government had taken two recent policy initiatives: (a) a provision for accelerated depreciation, which allowed 100 percent investment in renewable energy technologies to be eligible for depreciation in the first year, starting in January 2005; and (b) a proposed Renewable Energy Law (and later enacted in 2008)5, the purpose of which was to (i) define a range of methodologies and dispatch conditions that better captured the contributions of energy derived from renewable sources; and (ii) set up a domestic financing mechanism, that is, ‘Fondo Verde’ (Green Fund) to further support the development of renewable energy\. Rationale for Bank Involvement 6\. World Bank involvement in this operation, using funds from the Global Environment Facility (GEF), coincided with two important changes that were taking place in Mexico’s energy sector\. First, an active policy dialogue was underway within the Government on the importance of diversifying future power sector investment away from the country’s high dependency on fossil fuels toward a strategy focused more on developing Mexico’s significant renewable energy potential, particularly its wind energy resources; the World Bank’s active involvement in this dialogue helped consolidate a consensus around a new energy diversification strategy\. Second, within the Mexican Government, a consensus had been steadily formed with regard to the need to commit to national climate change goals\. Both these changes in policy direction provided the World Bank with an opportunity to support Mexico’s transition to a more diversified energy development strategy and to strengthen national commitment to bringing about a reduction in the country’s significant emissions of GHGs\.6 7\. The rationale for World Bank involvement was, therefore, strong\. First, it was able to bring its extensive past experience in power sector reform to the discussions underway within the Government\. Second, it was also able to bring to the policy dialogue recent examples of international best practice in developing renewable energy resources, highlighting in particular the incentives needed to attract private investment capital for the development of Mexico’s considerable wind energy potential\. Finally, the availability of different lending instruments such as the GEF enabled the World Bank to use its broad experience in developing a market for renewable energy while limiting its financing involvement to a modest amount, in line with the stated goals of the World Bank’s Country Partnership Strategy (CPS) of April 2004, i\.e\. Promote development in harmony with nature and the environment, and in particular in support to Pilar 4: Promote Environmental Sustainability\. 4 La Venta I, a CFE grid-connected, demonstration project\. 5 The Law for the Use of Renewable Energy and the Energy Transition Financing (Ley para el Aprovechamiento de las Energías Renovables y el Financiamiento para la Transición Energética, LAERFTE), was approved in 2008 and later replaced by the Electric Industry Law, which was published in 2014 after the major energy reform of 2013\. 6 At the time, Mexico was the 9th largest emitter of GHG while CO2 emissions increased by 23 percent between 1990 and 2000\. 2 High Level Objectives to which the Project Contributes 8\. The project made a number of specific contributions to higher level objectives that were an integral part of the World Bank’s CPS of April 2004\. First, supporting environmental sustainability was a basic objective of the World Bank’s presence in Mexico\. Second, the provision of important public utility services, without the need for budget support, was also critical for sustaining further development of the country’s energy sector\. Finally, improving the business climate in Mexico through attracting private capital to support the development of the country’s energy resources was also a CPS objective to which the project contributed\. 1\.2 Original Project Development Objective (PDO), Global Environment Objectives (GEO) and Key Indicators 9\. The PDO was to assist Mexico in developing initial experience in commercially based grid- connected renewable energy applications by supporting the construction of an approximately 101 MW IPP wind farm while building institutional capacity to value, acquire and manage such resources on a replicable basis\. 10\. The GEO was to reduce GHGs emissions by addressing and reducing the barriers to the development of grid-connected renewable energy technologies and markets in Mexico\. 11\. The key GEF global performance indicators were the following: ï‚ Total electricity generated (GWh/ per year\.) from renewable energy ï‚ Total renewable energy generation capacity (MW) ï‚ Emissions reduced (tons/ per year): CO2, NOx, SOx, and particles ï‚ Renewable energy barrier removal as indicated under the key outcome indicators below, that is, Institutional Capacity; 12\. The key outcome indicators were the following: ï‚ A successful IPP tender, including CFE reference price and GEF tariff support, resulting in the construction and operation of a 100 MW wind farm; ï‚ Institutional capacity sufficient to issue subsequent tenders for additional wind farms/other renewable energy resources at a higher reference price and/or lower incentive support level (GEF or other); 1\.3 Revised GEO (as approved by original approving authority) and Key Indicators, and reasons/justification 13\. The GEO was not changed\. Only the PDO was amended in the legal documents during the first project restructuring (June 2013) to make it identical to the PDO in the Project Appraisal Document (PAD)\. However, revisions were made to the target values of two of the key GEO indicators during a Level II Project Restructuring in May 2014\. Both targets were revised downwards to reflect the fact that the capacity factor of the La Venta III wind farm was lower than had been estimated at appraisal\. As a consequence, the forecast yearly production of the plant was reduced from an original target of 376\.9 GWh to 270\.3 GWh\. Similarly, the original emissions reduction target was reduced from 247,000 tons per year to 166,769 tons per year\. In addition, two core indicators were included: (a) Generation Capacity of Renewable Energy (other than hydropower) Constructed and (b) Generation Capacity of Renewable Energy Constructed - Wind\. 3 1\.4 Main Beneficiaries 14\. The direct beneficiaries of the project were CFE and SENER, whose institutional capacities benefitted from the technical assistance (TA) components of the GEF operation; the indirect beneficiaries were the electricity consumers in Mexico\. This first, large scale, commercial wind development project laid the basis for further private sector investment in IPPs based on wind resources\. Since then, power generation based on renewable energy has expanded significantly over the past decade (approximately 3,000 MW of installed capacity by the end of 2015, according to the Mexican Wind Power Association (Asociación Mexicana de Energía Eólica, AMDEE)\. The main benefits for the country have been to diversify new investment in power generation away from an almost exclusive dependence on fossil fuels to power generation based on renewable energy sources, in particular wind energy\. In addition, there has been an important global benefit in reducing the growth of GHGs emitted by Mexico\. 1\.5 Original Components 15\. The project comprises three main components, which are detailed below\. Component 1: Financial Mechanism 16\. This component aims to stimulate organizational learning and cost reduction by providing US$20\.4 million in energy production incentives on an output-based aid basis (US cents 1\.1 per kWh for the first five years of generation) offered in response to a CFE competitive solicitation for 101 MW of IPP wind power\. Component 2: Technical Assistance 17\. The activities supported by this component are the following: (a) System-based least-cost determination\. It comprises analytical and methodological activities designed to enhance the value of renewable resources within the CFE system and determine reference prices\. (b) Integration of renewable energy in System Operations\. Modeling capabilities and associated training within CFE and dispatch operations for improved technical integration of renewable energy\. (c) Project and Business Development\. Development of protocols and capabilities to strengthen SENER’s capacity to serve as a ‘one-stop shop’ for prospective renewable energy developers and design renewable energy-tradeable permit systems\. (d) Wind potential assessment\. Development of a national wind resource map and provision of measuring and monitoring equipment\. (e) Regional plan for the Southern Isthmus of Tehuantepec\. Preparation of a long term wind development plan for this area of Mexico, including a regional environmental assessment, and other related studies\. Component 3: Project Management 18\. This component was designed to strengthen the management capacity of SENER\. 4 1\.6 Revised Components 19\. None of the original project components, or sub-components, were revised or dropped from the project scope\. However, the project underwent three Level-II restructurings, described in detail in section 2\.2\. 1\.7 Other significant changes 20\. The tariff subsidy was increased from US cents 1\.1 per kWh to US cents 3\.9 per kWh during the third project restructuring in March, 2015 to enable the project to disburse all the funds allocated for such a purpose by the closing date of April 30, 2016, without changing the total remuneration of the original contract with the IPP (see paragraph 32)\. This tariff increase would compensate for the earlier delays, which occurred during the procurement process for the wind farm, which, in turn, resulted in delays in the commissioning date\. There were no other significant changes made to the project during the implementation period\. An amount of US$250,000 from the original US$25 million GEF grant was cancelled following the April 30, 2016 closing date, mainly due to the appreciation of the US dollar against the Mexican peso in recent years\.7 2\. Key Factors Affecting Implementation and Outcomes 2\.1 Project Preparation, Design and Quality at Entry 21\. Project preparation of the GEF grant started in 2003\. The Project Concept Note was reviewed in March 2003\. Project appraisal took place three years later in May, 2006, followed by Board approval on June 29, 2006\. The GEF grant became effective on April 18, 2007\. The main reasons for the lengthy preparation period were (a) the proposed first investment in wind energy on a commercial scale was not least cost and presented constitutional difficulties for CFE , which needed to be overcome; (b) this was one of the first operations for SENER, with a development bank, hence it took time to assess SENER’s administrative capacity in the area of renewable energy as well as familiarize SENER with the World Bank’s modus operandi; and (c) the World Bank’s regional management was initially hesitant to process the GEF project preparation grant as a World Bank-executed grant because of perceived risks associated with the retention of fiduciary responsibility\. One benefit of the long preparation period was the strengthened commitment to the main project development objective on the part of CFE and SENER, which turned out to be a key factor in achieving the first successful IPP development based on wind energy\. 22\. Soundness of the background analysis\. Considerable attention was devoted to undertaking a detailed background analysis of Mexico’s energy sector during project preparation during the three-year period from concept review to board approval\. At the time, Mexico’s energy sector was at crossroads and its future development called for radical though politically difficult policy changes\. First, domestic oil production was declining and fossil fuel imports were steadily growing, placing increased pressure on the country’s balance of payments\. Second, while domestic energy reform measures were underway, power supply, transmission, and distribution remained 7Project expenses were incurred in Mexican pesos and later reimbursed by the World Bank using the exchange rate at the time of expense effectiveness\. 5 an exclusive right of the state, with private investment limited to self-generation schemes of no more than 20 MW\. Third, Mexico’s considerable renewable energy potential –in wind energy, small hydro, and geothermal- was well established but remained undeveloped, lacking the needed incentives to attract private investment capital\. Finally, Mexico, as the world’s ninth largest emitter of GHGs, had recently made commitments to mitigate its GHG emissions under the Kyoto Protocol\. These issues formed the sector backdrop to the GEF operation\. 23\. The World Bank had been gradually establishing a close working relationship with Mexico, encouraging the Government to embark on a strategy of energy sector diversification and to develop its renewable energy potential\. In this regard, the World Bank was well positioned to bring its practical experience elsewhere-in power sector reform, renewable energy technologies, the development of markets for renewable energy, and in mobilizing the emerging financing potential from carbon mitigation schemes-to support Mexico’s first significant development of its renewable energy potential\. 24\. Project design\. The limited progress made in developing the country’s renewable energy potential had a major influence on the project design\. At the time of project preparation, it was important for Mexico to take a significant, ‘demonstration,’ step in developing its renewable energy potential by attracting an established international private company to invest in a commercially based, grid-connected wind energy development; in addition, it needed to build up sufficient institutional capacity to manage the further development of its renewable energy potential\. The project design addressed both these objectives\. The project’s first component provided a financial mechanism, which addressed the main policy and tariff issues hindering the development of large-scale renewable energy, specifically wind energy\. The inclusion of a financial mechanism to provide tariff price support was based on different experiences in developing wind energy in Europe as well as in California\. The project’s second component addressed the need for a strengthened institutional capacity within the main sector ministry, SENER, while also providing funds to address other barriers to renewable energy development more broadly and to support the business development aspects of renewable energy\. In summary, the project design was sound and well targeted to provide a single, key incentive, that is, tariff support, for potential investors; it was also efficient in the sense that the project required only modest funds\. Finally, the decision to design the project initially in two phases -of US$25 million and US$45 million, respectively- was also prudent, given the uncertainty at the time in terms of investor response to develop Mexico’s wind energy potential\.8 25\. Government commitment\. The Government was strongly committed to the main project objective of developing commercially based, grid-connected renewable energy applications through the construction of IPP wind farms\. At the time of project preparation, a significant shift in the country’s energy development strategy was underway, the main elements of which comprised (a) energy diversification away from fossil fuels; (b) incentives to attract increased private sector investment; and (c) development of the country’s significant renewable energy potential\. A measure of the Government’s commitment to reduce existing barriers that were impeding the development of renewable energy was the enactment of two policy initiatives in 2005 at the time of project preparation (a) a provision for accelerated depreciation to enable 100 percent 6 investment in renewable energy technologies eligible for depreciation in the first year; and (b) a draft Renewable Energy Law 9affecting, among others, dispatch conditions and designed to better capture the contributions made by energy provided from renewable sources\. In addition, the Government had made a strong commitment to reduce its GHG emissions, a commitment that went beyond its obligations under the United Nations Convention on Climate Change\. The development of its renewable energy potential was a key factor underlying the realization of this commitment\. 26\. Assessment of risks\. During preparation, several risks to the development outcome were identified and specific steps proposed to mitigate these risks\. Four of the identified risks were rated ‘substantial’ and included (a) a loss of political commitment; (b) difficulties in arriving at an agreed base tariff and being able to bridge the incremental costs with the available GEF funds; (c) a failed bid from any private sector party; and (d) lack of a competitive response from private sector bidders\. Potential risks due to bird mortality- a possible consequence of which would have been to shut down the wind farm at times of peak bird migration- were also identified and rated as ‘Modest’\. The different risk mitigation measures were pragmatic and clearly identified\. The overall project risk rating was ‘Substantial’, an appropriate rating given the untested market for investing in the development of Mexico’s wind energy potential, the limited development of the country’s renewable energy potential at the time, and political uncertainty regarding the longer- term sustainability of Government commitment\. Overall, the risks were thoroughly assessed and the proposed mitigation measures were reasonable\. 27\. Quality at Entry\. No Quality at Entry review was carried out by the World Bank for this GEF operation\. 2\.2 Implementation 28\. Implementation covered a 10-year period, starting in June 2006 after Board approval and ending in June 2016, when the last GEF disbursement was made\. The project implementation period had been initially planned from August 2006-August 2009, with disbursements continuing through to mid- 2013; the original closing date for the GEF grant was June 30, 2014 but was later extended by 22-months to April 30, 2016, to enable full disbursement of the tariff subsidy component\. The project implementation period envisaged an initial bidding and construction period of three years for the wind farm plant (101MW), followed by a 5-year ‘operational’ period of the plant during which the targeted tariff subsidy of US cents 1\.1 per kWh would be disbursed- starting in mid-2009 and continuing to mid-2013\. The TA component of the GEF grant were expected to be implemented, and the corresponding funds disbursed during the first three years after board approval\. 29\. The planned implementation period of three years for bidding and construction was delayed\. Only two bidders (from an initial group of 14 who had expressed interest) submitted proposals to the first bid request, because of a high demand for wind turbines globally\. 8 A planned Phase II for the project was not needed since investor response to the tariff incentive provided in Phase I was successful, despite initial delays, and has been followed by a rapid development of Mexico’s wind energy potential over the past few years, which has not needed a similar incentive\. 9 Later approved in October, 2008 7 Subsequently, only one of these bidders met the technical requirements but its price proposal exceeded the maximum specified tariff (in US cents per kWh)\. Consequently, the bidding process had to begin again, with increased flexibility in regard to the permissible tariff\. The second bidding process began in July 2008 and was completed in February 2009\. Two pre-qualified firms presented bids and a contract was subsequently signed in June 2009 with the lowest bidder, which had offered a ‘levelized’ generation price of US cents 9\.8 per kWh\. The contract signing marked a critical step forward toward the development outcome since a contract had now been signed with an international power company with extensive experience in the development of wind energy, which was now contractually committed to develop, and market, Mexico’s wind energy potential in this region of the country\. 30\. Construction of the wind energy plant took two years and the plant became fully operational in October 2012\. During construction, considerable attention was given to safeguards supervision, in particular to social safeguards which are discussed further in section 2\.4\. The early operational data from the plant during the first three years of operation indicated that the plant was operating at a capacity factor of around 30 percent, significantly lower than had been forecast during appraisal, which was above 40 percent\. This early operational data provided the basis for a restructuring of the tariff subsidy- from US cents 1\.1 per kWh to US cents 3\.9 per kWh- to enable full disbursement of the subsidy before the extended closing date of April 30, 2016\. 31\. Midterm review (MTR)\. The MTR for the project took place in July 2013 and was timely since the La Venta III wind farm had already started operations and there was now a need to make a number of adjustments\. Since Board approval in 2006, the project had suffered a number of delays due to: (a) a lengthy bidding process (2007-2009) followed by a two year construction period for the La Venta III wind farm (2010-2012); (b) administrative difficulties in enabling the main sector ministry, SENER, to access the TA funds; and (c) delays in processing the first project restructuring to enable payments to be made by CFE directly to the IPP\. The MTR reviewed the following issues: (a) the need to adjust the target indicator values for electricity generation and emissions reductions to reflect the actual data from the wind plant during its first year of operation; (b) make changes to the content of the TA component to reflect current priorities within SENER; (c) extend the closing date for the GEF grant to compensate for the observed delays; and, finally, (d) to give increased attention to safeguards supervision in a project area prone to social conflict, and in particular to (i) enable environmental monitoring of birds and bats mortality throughout the year and (ii) prepare a Strategic Environmental and Social Assessment (SESA), which had been identified as a mitigation measure but had yet to be implemented\. The review of these issues led to further project restructurings, adjustments to the specific target values, an extension of the closing date by 22 months, and a sustained supervision effort over the remaining period of implementation\. 32\. Implementation of TA components of the GEF grant was slow\. Three years after the GEF grant was approved, no disbursements had been made and discussions continued within SENER, the main beneficiary, in regard to the most effective use of these funds\. Part of the delay can be attributed to the earlier delays and uncertainties in the outcome of the bidding process for the IPP wind energy plant\. At the same time, the amount of funding allocated for TA, that is, almost US$4 million, appeared to exceed the absorptive capacity of SENER at the time\. In addition, SENER took time to assume full ownership of the funding while administrative budget limits within SENER- which did not appear to have been anticipated during appraisal-constrained the transfer 8 of GEF funds between the Ministry of Finance and Public Credit (Secretaría de Hacienda y Crédito Público, SHCP) and SENER, leading to further delays in implementation\. 33\. Notwithstanding these early delays, productive use was made of the TA funding before closing and the TA activities continued to remain relevant in support of the development of wind energy in Mexico\. First, the TA helped Mexico address and remove the barriers to clean energy development\. Then, a SESA was carried out to examine the more important social, economic, environmental impacts of wind energy development in the region\. Despite delays in completing the SESA, it will have an important impact during the next phase of wind energy development in Mexico until 2022\. In addition, a long term wind development plan was prepared for the Isthmus of Tehuantepec region, where most of the country’s wind energy development was taking place\. By project closing, installed wind capacity had reached 3,000 MW and is forecast to increase to 15,000 MW by 2022\. Finally, funds were used to purchase the acquisition of wind speed metering stations, and software licenses to evaluate the impact of renewable energy on Mexico’s power system planning and operation\. Collectively, and despite the early delays, the studies and equipment acquisitions were a productive use of the TA funds\. 34\. Supervision reporting\. Over the lengthy implementation period from 2006 to 2015, supervision missions visited Mexico, including the project development area in the state of Oaxaca, on average, about twice a year\. The first supervision mission took place in July 2011 with the final supervision mission taking place in the first half of 2016\. During the last five to six missions, the focus was on the remaining GEF component of the project (that is, Component 2, Technical Assistance and Institutional Strengthening)\. Overall, there were 21 Implementation Status and Results Reports (ISRs) completed during project implementation\. Staff responsibility for supervision was shared between Washington, DC and Mexico City\. The key GEO and implementation progress (IP) ratings were rated ‘Satisfactory’ for the first three ISRs\. Following the failure of the first bidding process in May 2009, both the development objective and IP were downgraded to Moderately Unsatisfactory, reflecting uncertainty as to whether a qualified private company could be attracted to invest in the development of the country’s first commercial wind energy development and delays in implementing the TA components\. As a result, the project became a ‘problem project’\. However, following the success of the second bidding process, the development objective was upgraded to Moderately Satisfactory\. Later, in 2013, the IP was again downgraded to Moderately Unsatisfactory, due to continuing, unresolved delays in implementing the TA component of the project\. However, GEO and IP were rated ‘Moderately Satisfactory’ in ISRs 17-19, given the sustained progress on both the tariff subsidy and the TA components\. Finally, the GEO and IP rating were rated ‘Satisfactory’ in the final ISR since most of the funds were either disbursed or committed, and the project was on track to meet all of its targets\. 35\. Project restructurings\. Three Level II restructurings took place during the course of implementation\. The first restructuring was on June 11, 2013, and transferred the responsibility from Nacional Financiera, (Mexico’s Development Bank) to CFE to make payments to the IPP, which was building and operating the wind farm\. The restructuring also amended the PDO in the legal documents to make it identical to the PDO in the PAD, which included the approximate capacity of the wind farm, that is, 101 MW being supported and built\. A second Level II restructuring took place on May 12, 2014, which (a) extended the project’s closing date by 22 months from June 30, 2014, to April 30, 2016; (b) reallocated approximately US$2\.1 million of funds for consultants’ services and for training and operating expenses to the purchase of goods, 9 in particular wind profile and oceanographic metering stations as well as for software licenses; and (c) made revisions to the target values of the project’s indicators based on the results from the first year of operation of the plant\. The third, and final, Level II restructuring took place on March 21, 2015, and amended the project’s Grant Agreement through an increase in the subsidy to the tariff for the operation of the La Venta III wind farm from US cents 1\.1 per kWh to US cents 3\.9 per kWh\. This increase in the subsidy to the tariff did not modify the aggregate subsidy amount being provided through the GEF grant but enabled the total subsidy allocated under the main component (Component 1) to be disbursed by the closing date, given the reduced annual generation from the La Venta III wind farm than had been forecast at appraisal\. 2\.3 Monitoring and Evaluation (M&E) Design, Implementation and Utilization 36\. M&E design\. A comprehensive set of indicators was chosen to monitor progress toward achievement of both the global environmental and project development objectives\. The main GEO outcome indicator was the emissions reduction of CO2, NOx, SOx, and particles in reference to an agreed baseline\. The main PDO indicators were: (a) increase in electricity supplied to the national network from renewable energy sources against an agreed baseline, measured in GWh per year; and (b) increase in total installed renewable energy capacity against an agreed baseline, measured in MW\. In addition, two further indicators were selected to monitor progress being made in the reduction of barriers to the development of commercially-based and grid-connected renewable energy: (a) establishment of a CFE system reference price together with an agreed GEF tariff subsidy sufficient to attract commercial bids; and (b) progress of plans for a higher reference price/lower tariff subsidy still able to attract commercial bids for renewable energy development\. Overall, the choice of the main outcome indicators was sound and broadly based and enabled an effective annual monitoring of progress towards both the GEOs and the PDOs\. 37\. A large number of intermediate indicators was also chosen\. Their main purpose was to monitor readiness to move to a possible Phase II of the project; some of these intermediate indicators were already steps in the Phase I bidding process and could have been simplified\. Intermediate indicators were also included to monitor the impact of the wind power development on sensitive social safeguards during project implementation such as fairness of compensation payments being made to small landowners and the effectiveness of mitigation measures to reduce avian and bat mortality as a result of the wind towers; these intermediate indicators were important in helping monitor compliance with key social and environmental safeguards\. 38\. M&E implementation\. Responsibility for results monitoring of the main project component, that is, Component 1, was shared between CFE and SENER\. CFE had the main responsibility for data collection, in particular generation data, which was the basis of payments made to the IPP\. SENER had primary responsibility for the calculations of reduced emissions and for the preparation of progress reports\. The monitoring performance of these Government agencies throughout the implementation period was ‘Satisfactory’\. As noted in section 2\.2 above, the monitoring data was used at the time of the MTR to make adjustments to the target indicator values for electricity generation and emissions reductions to reflect the actual data from the wind plant during its first year of operation\. 39\. M&E Utilization\. The monitoring data obtained during the first year of operation of the La Venta III wind farm was used to make adjustments to the original quantitative target values\. These targets had been based on a higher assumption for the capacity factor of the plant, that is, 10 42 percent versus an actual capacity of 30 percent, and did not have the benefit of the actual operational performance of a wind plant in this region\. As a result, the first-year data was used to provide a more realistic forecast of the plant’s future operational performance and, therefore, the future flow of tariff subsidy payments\. 2\.4 Safeguard and Fiduciary Compliance (i) Safeguards 40\. During preparation, it was expected that the project would trigger the following safeguard policies: Environmental Assessment (OP/BP/GP 4\.01); Natural Habitats (OP/BP 4\.04); Indigenous Peoples (OP/BP 4\.10), given the location of the wind plant in a region of Mexico with a high proportion of indigenous peoples; and Cultural Property (OP 4\.11), dependent on the specific location of the plant, which was not known at the time of preparation before the outcome of the bidding process\. (a) Environmental 41\. The main environmental impact expected as a result of the construction of La Venta III wind farm was the potential collision of birds (both local and migratory) and bats with the wind towers\. Because the specific area of the Isthmus of Tehuantepec was already recognized as an important corridor for migratory birds, a number of consultative and procedural measures had been agreed during preparation to minimize the impacts on both bird and bat populations\. 42\. Compliance with environmental safeguards was closely monitored throughout supervision\. At the World Bank’s request, monitoring of the wind plant’s impact of bird mortality was extended to include the entire year, not just the migratory seasons; it was also extended to include the monitoring of bat mortality\. The Institute of Ecology (Instituto de Ecología A\.C\., INECOL) was hired by the IPP to monitor the wind plant’s impact on bird mortality, and its contract will continue for a further two years beyond the closing date until 2018\. The findings to date indicate that both bird and bat mortality are in line with data from other regions in the world, and was recently adjusted to reflect an under-counting phenomena, which is typically reported in the literature\. The safeguard rating was used effectively to help ensure compliance when there were delays in submitting data or corrections needed to be made in mortality counts, as occurred, for example, in 2015 to be in compliance with the Natural Habitats safeguard policy\. Finally, the methodology used for updating estimates of bird and bat mortality (including the undercounting effect) is an example of best practice, with applicability not only in Oaxaca but in other regions of Mexico where wind energy is being developed\. The World Bank’s supervision of this safeguard was ‘Highly Satisfactory’\. (b) Social 43\. The social impacts of the investment in the wind energy plant were also carefully monitored during supervision and exhibited many aspects of good practice\. Even though the World Bank did not have a financing presence in the construction of the plant, regular updates on payments to landowners for land use as well as contributions to the municipality’s social program were provided to the World Bank supervision team by the IPP, and reviewed by the World Bank’s social specialist\. The social investment program undertaken by the IPP, which comprised a number of infrastructure works beneficial to the nearby community (expansion of a high school facility, construction of a playground, equipment for a community gym, and 11 pavement, water and sewage works), and the social approach adopted by the IPP involving a continuous consultation process with the affected landowners and municipal leaders, was exemplary\. It has set a standard to be followed by other companies developing wind energy in the Isthmus\. The key to its effectiveness was strong and sustained commitment to the social concerns of the immediate community as well as the deployment of an experienced social team devoted to these tasks and able to offer assistance and guidance at a local level on a daily basis\. 44\. The construction of a 10 km transmission link from La Venta III wind farm to the main transmission grid during implementation raised the possibility that the Involuntary Resettlement safeguard policy (OP/BP 4\.12) would be triggered\. However, following a field visit in February 2011, during which several landowners affected by this link were interviewed, the World Bank concluded that this safeguard policy was not triggered because the transmission line involved the voluntary imposition of easements\. 45\. With regard to OP 4\.10, Indigenous Peoples, an Indigenous Peoples plan was prepared and consulted locally in July 2012 to be in compliance with this safeguard requirement\. Overall, World Bank supervision of social safeguards was ‘Highly Satisfactory’\. Fiduciary (a) Financial 46\. A Financial Management Assessment (FMA) was undertaken before Board approval and the project financial management (FM) risk was rated as ‘Modest’\. Even though neither CFE nor SENER had prior experience managing a World Bank project, their financial systems were considered acceptable\. Also, Nacional Financiera (NAFIN) was able to provide implementation support and oversight based on its own extensive experience as a financial agent in World Bank financed projects\. 47\. World Bank supervision of the project’s FM aspects was satisfactory overall\. The FM arrangements within SENER were closely supervised and the FM rating for most of the supervision period was Satisfactory\. However, toward the end of project implementation, some of the concerns that had been raised in the 2014 external audit with regard to strengthening internal controls within SENER during the procurement planning and budgeting process had still not been addressed ,and the FM rating was downgraded to ‘Moderately Satisfactory’ in the final ISR as a result\. (b) Procurement 48\. There were two main procurement activities under the project: (a) the selection of the IPP to construct the wind plant, which was undertaken using CFE international bidding procedures acceptable to the Bank (under paragraph 3\.13(a) of the World Bank’s ‘Guidelines: Procurement of Goods, Works, and Non-Consulting Services Under IBRD Loans and IDA Credits and Grants by World Bank Borrowers’ dated January 2011); (b) the acquisition of wind measuring systems and other specialized equipment, specialized software, and studies and consultancy services, which were to be procured using either International Competitive Bidding (ICB) and National Competitive Bidding (NCB) procedures or in accordance with the World Bank’s ‘Guidelines: Selection and Employment of Consultants Under IBRD Loans and IDA Credits & Grants by World Bank Borrowers’ dated January 2011\. 12 49\. As already noted in section 2\.2, the selection of the IPP required two bidding processes, the second of which resulted in the selection of a qualified and experienced international company\. However, when the procedures followed by CFE were later reviewed by the World Bank’s Operations Procurement Review Committee (OPRC), it was found that they were not fully in agreement with World Bank requirements and a waiver had to be granted in May 2009\. The waiver was granted on the basis of several considerations, which included: (a) the reasonableness of the price offered; (b) the strong likelihood that a further rebidding would result in a higher price; and (c) the strategic importance of developing wind power for the energy\. 50\. Overall, procurement issues were carefully supervised by the World Bank\. As was the case for FM, the procurement supervision benefitted from the presence of specialists in the country office during the later years\. The procurement rating was maintained as ‘Satisfactory’ throughout implementation until the final few months when a procurement ex-post review, carried out in March 2016, showed there were some irregularities in the final few months of implementation, which included contracts still in process, some of which lacked a signed contract\. As a result, the project’s procurement rating was downgraded to ‘Moderately Satisfactory’\. 2\.5 Post-completion Operation/Next Phase 51\. The original GEF operation envisaged a two-phase approach to address the policy and tariff issues impeding the development of renewable energy in Mexico\. A US $45 million Phase II had been planned to support further cost reduction steps that might still be needed to continue supporting the development of wind and other renewable energy technologies\. However, with the success of Phase I in supporting the development of the first commercial, grid-based wind energy plant in Mexico, Phase II became unnecessary\. 52\. The 101 MW wind energy IPP started operating in October 2012, supported by a tariff subsidy financed under Phase I\. As discussed in paragraph 21, the tariff subsidy was an important element of the project design in attracting private investment\. In effect, Phase I served as a ‘demonstration’ project, which has since helped catalyze a remarkable development of the region’s wind energy potential; it has also helped spur similar wind energy developments in other regional areas of the country\. Over the period 2008-2015, the installed capacity in wind energy commercial plants in the Isthmus region of Mexico increased more than ten-fold - from less than 200 MW to over 2,350 MW- as a result of more than US$9 billion in private investment\. By 2018, the region’s installed capacity in wind energy is forecast to increase further -to over 5,000 MW\. The Mexican Wind Power Association (AMDEE) estimates that additional 12,000 MW could be installed throughout the country between 2020 and 2022\. 3\. Assessment of Outcomes 3\.1 Relevance of Objectives, Design and Implementation Rating: High 53\. Relevance of the project objectives\. The main PDO directly supported the Government’s policy goal of developing its renewable energy potential\. The GEO was also closely aligned with the Government’s commitment to reduce the country’s overall emissions of GHGs\. Government commitment to these objectives strengthened considerably during implementation\. First, a renewable energy law was approved in 2008 (Law for the Use of Renewable Energy and Energy Transition Financing, LAERFTE), which was a major policy commitment underpinning the rapid 13 development of the country’s wind energy potential during implementation, mainly because it promoted the creation of financing instruments (such as the Fund for the Energy Transition and the Sustainable Use of Energy, FOTEASE) to support renewable energy research and promotion\. Second, in the area of climate change, the Government published in 2012 the Climate Change Law (Ley General de Cambio Climático, LGCC) and has committed itself to a National Climate Change Strategy (Estrategia Nacional de Cambio Climático, ENACC), which is now an integral component of its national development policy\. In addition, it set a number of emission reduction targets, including an electricity-related emissions reduction goal of 14 to 28 MtCO2 by 2012\. Finally, as a longer term goal, it set the formal objective of reducing GHGs by 50 percent by 2050 against a baseline of 2000\. With regard to the World Bank’s ongoing partnership with Mexico, the project remains aligned with the 2014-2018 CPS, specifically to Theme 4, Promoting Green and Inclusive Growth, by supporting efforts to (a) reduce the footprint of growth, (b) promote a low- carbon economy, (c) contribute to the reduction of GHG emissions, and (d) contribute to energy security by diversifying the energy matrix composition\. 54\. Relevance of project design\. The specific project design was fully in line with the ongoing World Bank’s CPS at appraisal (April 2004), and it remains aligned with the World Bank’s recent country strategy for Mexico10, where the Bank’s main value added was in ‘helping Mexico achieve better development effectiveness …\.through improved policy and project design’\. The project design incorporated lessons from the experience of other countries in developing wind energy\. The design was also innovative in the sense that the main component focused on providing a single, key incentive, that is, tariff support during the initial years of operation, to help overcome the entry risks to private investment in renewable energy development\. The second project component complemented the main component, providing funding for TA and project management to address particular policy barriers impeding further development of renewable energy; it also provided project management support to the sector ministry, SENER, to strengthen its administrative and monitoring capacity in renewable energy development\. Overall, the project design was highly relevant, well targeted, and provided an essential incentive, namely tariff support, while, in parallel, building up a basic institutional capacity to monitor the development of Mexico’s wind energy potential\. 55\. The overall project implementation arrangements were sound\. Four Government entities were involved in these arrangements: (a) SHCP was the official recipient of the GEF grant; (b) NAFIN was the financial agent for the project and provided overall FM of the project; (c) CFE, the national power company, had the main responsibility for the bidding of the IPP for the La Venta III wind farm, evaluating the proposals received, and executing the power purchase agreement with the winning bidder; and (d) SENER as the main sector ministry responsible for project monitoring, evaluation and reporting\. The institutional arrangements balanced effectively two Government entities, that is, SHCP and NAFIN, having extensive experience with World Bank operations, with two sector entities, CFE and SENER, which were essential for the implementation of the project but which lacked prior experience with World Bank- or GEF- financed operations\. Finally, the three project restructurings made an important contribution to retaining the relevance of the project objectives and the realism of the target indicators, given the 10 County Partnership Strategy, April 2014 14  limited operational knowledge at the time of preparation regarding the wind potential of this region of Mexico\. 3\.2 Achievement of Global Environmental Objectives Rating: Substantial 56\. The main GEO- namely, to reduce GHG emissions and remove barriers to the development of renewable energy technologies–were achieved\. The project met all the targets for its global environmental objective indicators as summarized in table 1\. The project also played a key role in catalyzing a major expansion of wind power in Mexico, and in particular, in the Isthmus of Tehuantepec, since it was the first IPP on a commercial scale\. It has also helped build up significant institutional capacity within CFE and SENER to monitor, evaluate, and further promote the development of wind power, in line with the project development objective\. Subsequently, following the energy reform in 2013, the Government addressed barriers impeding the development of other renewable energy sources such as geothermal, biomass and other clean technologies\. Based on the above considerations, the achievement of the global environmental objectives is rated ‘Substantial’\. 57\. Table 1 summarizes progress made toward the most important GEOs and PDOs\. Table 1\. Achievement of the GEO and the PDO Project Outcome End Project % Achieved Indicator Baseline 2013 2014 2015 Target GEO 1\. Increased electricity supplied 7\.36 254\.53 282\.41 287\.84 270\.3 106\.5 in 2015 to national system from renewable energy sources (GWh/year) GEO 2\. Increased total installed 2 (wind) n\.a\. n\.a\. 102\.85 101 101\.83 renewable capacity (MW)11 GEO 3\. Emissions reduced (tons 0 157,044 174,248 177,594 166,769 106\.5 in 2015 CO2e/year) GEO 4\. Barriers to wind energy Establish - - - Barriers removed Barriers greatly development removed reference price; reduced issue bid tenders PDO 1\. CFE system short run No reference price - - - CFE Reference CFE Reference marginal cost based reference price is in place Price System Price System sufficient to attract bids\. established operating PDO 2\. Subsequent POISE includes None - - - Greater than one Exceeded plans for additional IPP wind wind plant 8 new wind procurement\. plants will start by 2019 58\. As a result of the revisions made to the end project target values during the second restructuring in May 2014, a split-evaluation methodology was carried out\. The project outcomes 11 Commissioning of the La Venta III wind farm contributes to achieving, or exceeding, targets for GEO indicators 2, 5 and 6, as well as PDO indicator 1 and numerous intermediate outcome indicators (which comprise PDO indicator 3)\. Other intermediate outcome indicators are achieved through the set of TA activities whose detail can be found in annex 2\. Details for achievement of every GEO and PDO indicator can be found in section F\. 15 were assessed against two phases of the operation: (a) project effectiveness in April 2007 to the May 2014 restructuring, which included changes to two GEO indicators, and (b) from May 2014 to project closing in April 2016\. The results are shown in table 2\. Based on these results, the overall achievement of the GEO is rated ‘Satisfactory’\. Table 2: Results of the split evaluation12 Pre-May 2014 Restructuring May 2014 Restructuring - closing Overall GEO Rating Moderately Satisfactory Satisfactory Satisfactory Rating value 4 5 5 Weight13 23\.30 percent 76\.70 percent 100 percent Weighted value 0\.93 3\.84 4\.77 3\.3 Efficiency Rating: Substantial 59\. An ex-post economic and financial analysis of the project was carried out to evaluate the efficiency of the project and verify its financial and economic viability as presented in the PAD\. The economic analysis looked at the costs and benefits accruing to Mexico, including not only the actual values related to capital equipment and operating costs but also the monetized environmental benefits\. The financial analysis compares the costs and benefits from the perspective of the IPP\. 60\. Economic analysis\. For the purposes of this analysis, the economic benefits of electricity generation are calculated as the avoided cost of generating electricity using other options, in particular fossil fuels\. During appraisal, the estimated avoided cost of generation was US$0\.05 per kWh, based on an estimated crude oil price of US$46 per barrel\. Although the oil price dropped to as low as US$43 per barrel in 2016, the average oil price since the plant came into operation in 2012 has been US$80 per barrel\. The analysis also takes into account World Bank forecasts of a steady oil price increase in the coming years of minimum 5 percent a year\.14 61\. The main economic costs of the wind energy project are: (a) investment cost of the plant (US$184 million compared to the estimated cost during appraisal of US$120 million); and (b) an operation and maintenance (O&M) cost of 20 percent of the energy payments as assumed by CFE\. 12 The team carried out the split evaluation using the rating of ‘Satisfactory’ for progress towards achievement of GEO in the final ISR, that is, Sequence no\. 21\. In this regard, progress towards achievement of GEO could have been upgraded to ‘Satisfactory several months earlier, based on results already achieved in terms of progress made towards the project indicators -which had been exceeded\. However, the supervision team decided to maintain the GEO as ‘Moderately Satisfactory’ until project closing on April 30, 2016, to be sure that energy generation from the inherently intermittent wind resources continued to be sustained\. 13 Based on the actual disbursements in each of these two phases: Phase 1 (project effectiveness to May 2014 restructuring: US$5\.74 million (23\.30 percent); Phase II (May 2014 to project closing): US$18\.89 million (76\.70 percent)\. 14 http://pubdocs\.worldbank\.org/en/732571470253390411/CMO-Pink-Sheet-August-2016\.pdf 16 62\. The cost-benefit analysis for the La Venta III wind farm shows that the project has a positive net present value (NPV) at a discount rate of 7 percent or less\. The economic internal rate of return (EIRR) of the project is estimated to be 6\.22 percent; if the environmental benefits derived from the CO2 emissions savings are included, the EIRR increases to 7\.05 percent\. The results of the ex-post NPV and EIRR calculations do not significantly deviate from the results estimated at the time of appraisal (that is, NPV of negative US$26\.89 million with EIRR of 8\.83 percent)\. Despite the project’s moderate but positive economic results, the project has had a much wider impact due to its demonstration effect as the first wind IPP in Mexico and has paved the way for large scale development wind power in Mexico over the past five years\. 63\. Financial analysis\. The NPVs of the project were calculated for a range of discount rates\. The project has a positive NPV for discount rates of up to 17 percent (a negative NPV when discount rates of 18 percent or more are applied)\. The project's return on equity (ROE) is about 15 percent, lower than the originally assumed ROE of 18 percent\. A financial rate of return was not calculated at the time of appraisal\. However, applying the original assumptions, the financial internal rate of return (FIRR) at appraisal would have been 19\.49 percent - while the ex-post analysis results in a FIRR of 17\.75 percent\. The lower rate of return can be explained as a result of the significantly higher investment costs for the company though partially offset by the higher energy payments received from CFE\. Without the subsidy, the NPV of the project would still be positive (US$14,054,001), but with an FIRR of only 9 percent (annex 3)\. 64\. Due to an acceptable economic outcome, a strong financial outcome as well as the catalytic impact of the La Venta III wind farm in preparing the way for a major expansion of large-scale private sector wind development in the country, the efficiency of the project is rated ‘Substantial’\. 3\.4 Justification of Overall Outcome Rating Rating: Satisfactory 65\. The overall outcome rating is ‘Satisfactory’\. This rating is based on the following considerations: (a) the continuing high relevance of the project objectives for the Government as well as for the Bank\. As noted earlier, Government commitment to the project objectives strengthened during implementation, reflected in the passing of a renewable energy law and a national commitment to specific climate change goals; for the World Bank, providing support to the Government’s ‘green growth’ strategy is an integral component of the latest Country Partnership Framework; (b) the GEOs were achieved by project closing as reflected in table 1 and section F; and (c) the efficiency of the investment is also rated ‘Substantial’, a rating that considers the important catalytic impact of the first commercial IPP investment, which has helped pave the way for a major increase in private sector investment in developing wind power in Mexico\. As a result, the main barriers that had been impeding the development of Mexico’s considerable renewable energy potential have now been overcome and private investor interest in developing wind energy has expanded to other regions of the country\. Overall, the main global and project development target indicators have been met while the economic and social benefits of the investment have been considerable\. 17 3\.5 Overarching Themes, Other Outcomes and Impacts (a) Poverty Impacts, Gender Aspects, and Social Development 66\. Poverty Impacts, Gender Aspects and Social Development\. The wind energy development took place in one of the poorest regional areas of Mexico\. The region has also a high proportion of indigenous peoples, employed mainly in agriculture, livestock, and in construction work\. The La Venta III wind farm was located close to the small town of La Ventosa, which has a population of about 4,000 people\. The main beneficiaries have been small landowners (ejidatarios) in the immediate vicinity of the wind farm, who have leased their land for the development of the wind energy plant\. In addition, the private company, that is, IPP, which developed the wind farm has invested over US $1 million in small infrastructure works in the community such as water towers, drainage works, paved streets, and playgrounds for children, which have brought tangible benefits to this community\. This is an annual program, with the municipality agreeing each year with the IPP to the financing of a facility or civil works up to MXN$1\.5 million (US$100,000)\. However, across this entire region of Mexico, where the wind energy development is taking place, the benefits have been uneven: a number of individual landowners who own land have benefitted, and some communities close to the wind farms now have improved water and sewerage infrastructure, which has had an important, if localized, poverty impact\. A strategic social and environmental study has been undertaken to assess the social and environmental impacts of the wind industry in the region and a set of recommendations has been prepared\. Consideration now needs to be given to redistribute the rent from wind energy produced in the region to help ensure a more equitable distribution of the benefits in these communities (see section 6)\. (b) Institutional Change/Strengthening 67\. Institutional and other impacts\. Mexico already had a well-developed and experienced institutional framework in place at the time of project preparation to monitor the environmental and social impacts of the first commercial wind energy development\. Also, the national power company, CFE, has several decades of experience in developing Mexico’s electricity network\. Nevertheless, there were a number of beneficial institutional impacts as a result of this project, especially at the state and local levels\. The need to monitor closely compliance with the project’s environmental and social safeguards benefitted the Ministry of Environment and Natural Resources (Secretaría de Medio Ambiente y Recursos Naturales, SEMARNAT), Ministry of Social Development (Secretaría de Desarrollo Social, SEDESOL), and Indigenous Peoples Development Commission (Comisión de Desarrollo de Pueblos Indígenas, CDI)\. Also, INECOL’s direct involvement in monitoring bird and bat migratory patterns and mortalities enhanced its institutional capacity and experience\. Given the significant wind energy development that has taken place in the aftermath of the La Venta III wind farm, this has resulted in more knowledgeable and better prepared institutions to be able to monitor compliance with the environmental and social safeguards associated with this major expansion of wind capacity in this region of the country\. (c) Other Unintended Outcomes and Impacts 68\. One unintended outcome of income improvement among land owners who rent their land has been deforestation, due to an increase in the amount of land being devoted to agriculture and cattle raising\. This, in turn, is having an adverse impact on nesting areas of local birds\. Thus, a positive social impact is having some adverse environmental impacts\. Even though this impact is 18 currently limited, with the growing number of wind farms being installed in the Isthmus region, these impacts could become more significant\. 3\.6 Summary of Findings of Beneficiary Survey and/or Stakeholder Workshops 69\. No beneficiary surveys or stakeholder workshops were carried out\. 4\. Assessment of Risk to Development Outcome Rating: Low to Negligible 70\. The main risks to the development outcome are considered to be ‘Low or Negligible’\. At the time of project appraisal in 2006, the critical risks to the development objective that had been identified were (a) a loss, or change, in Government commitment to reducing GHG emissions and to further developing the country’s renewable energy potential; (b) a failure to attract private capital to invest in developing the country’s considerable wind potential through IPPs; and (c) the possible impact of high levels of bird mortality on the economics of wind energy development and the related reputational risk for the World Bank\. A further risk, not noted in the PAD, was the possibility of significant social unrest occurring in this regional area of Mexico, which had a long history of social conflict\. 71\. While all these risks posed a threat to achieving the development outcome, none of them materialized\. The main reasons have been a strengthened policy commitment of the Government since 2006 to reduce GHG emissions and develop more fully its renewable energy potential, which has been sustained through two changes of Government\. The private sector response has also exceeded initial expectations in terms of investment levels, reflecting a growing confidence in the Government’s policy commitment to develop the country’s renewable energy potential as well as a favorable renewable energy resource base for further expansion\. The potential for high levels of bird –and bat –mortality have also not materialized because of careful monitoring of bird migration patterns in this region of the country\. Careful attention was given to monitoring this potential safeguard concern on a year round from the outset and the collaboration between the IPP operator and Government institutions has been very close\. Finally, the potential for social conflict has been adeptly handled by the IPP operator and closely monitored by the World Bank in one of Mexico’s poorest regional areas, which has had a long history of social conflict related to land issues\. Based on the above considerations as well as the rapid expansion of electrical power capacity based on renewable energy which has taken place since 2006, the risk to the development outcomes in the future is considered ‘Low to Negligible’\. 5\. Assessment of Bank and Borrower Performance 5\.1 Bank Performance (a) Bank Performance in Ensuring Quality at Entry Rating: Satisfactory 72\. The World Bank made two strategic decisions during project preparation, based on a careful review of lessons from other countries in developing wind energy, which had an important influence on achieving the development outcome: (a) the project design, by focusing on the need to provide a single incentive- namely, tariff support- to help overcome the barriers impeding development of Mexico’s sizeable renewable energy potential; and (b) the timing of the GEF 19 operation in that it followed recent policy initiatives taken by the Government, aimed at improving the investment climate for renewable energy development\. As a result, the World Bank was able to make effective use of a GEF grant, using only a modest funding amount, to attract private investment, for the first time, to support the development of the country’s wind energy potential\. 73\. Based on the above considerations, World Bank performance in project preparation is considered ‘Satisfactory’\. (b) Quality of Supervision Rating: Satisfactory 74\. World Bank supervision of the GEF grant covered a 10-year period from Board approval in end-June 2006 until the extended GEF grant closing date of April 30, 2016; final disbursements were completed two months later at the end of June, 2016\. The focus of World Bank supervision during the early years was in supporting the bidding process for the first IPP wind plant, the project’s main component\. The overall bidding process took almost three years because the first bidding procedure did not result in any responsive bid\. Despite the lengthy bidding process, World Bank supervision teams made regular visits to Mexico to provide support to CFE and the Government to help ensure that the bidding process was successful\. Task teams were staffed with the needed expertise and skills at this stage of implementation\. 75\. Following contract signing in October 2012, World Bank supervision missions began to focus on the safeguard aspects of the project, in particular on environmental and social safeguards\. Over a period of almost five years, the World Bank gave sustained attention to the supervision of these safeguards, which was a commendable feature of the overall supervision effort\. A close and effective working relationship was established with both CFE and the IPP, which enabled a year round monitoring of bird and bat migratory patterns to be put in place to help reduce mortality levels due to collisions with the wind towers\. The supervision of the social safeguards was also effective\. A continuous dialogue was established between (a) landowners (ejidatarios) affected by wind plant construction; (b) local community leaders; (c) IPP field managers; and (d) CFE regional staff which helped minimize land compensation disputes and gradually helped build up local ‘ownership’ in the benefits being provided by the construction of the wind plant\. In a region known for decades of social conflict, this was a significant achievement\. 76\. Over the 10-year period, more than 20 World Bank supervision missions were undertaken, the final supervision mission taking place in November 2015 and focusing on the remaining GEF funded activities under Components 2 and 3\. Despite four changes in task team leaders during the supervision of the project, continuity was maintained\. The presence of procurement and FM specialists as well as environmental specialists in the Mexico Country Office provided continuity and additional support for the World Bank supervision effort\. 77\. Disbursements did not begin in any significant amount until 2013\. The very low disbursement levels during the first 6-7 years reflected (a) the lengthy bidding process for the IPP (the overall bidding process took almost three years because the first bidding procedure did not result in any responsive bid); (b) the specific design of the project which linked disbursements to a tariff support subsidy and which could not begin until the IPP was operational; and (c) implementation delays in the TA component\. Despite these delays, the intensive supervision effort 20 of the final 2-3 years enabled all the GEF funds to be fully used in line with the original development objective\. (c) Justification of Rating for Overall Bank Performance Rating: Satisfactory 78\. Based on satisfactory ratings during both preparation and supervision, the rating for overall World Bank performance is also considered ‘Satisfactory’\. 5\.2 Borrower (a) Government Performance Rating: Satisfactory 79\. The US$25 million GEF Grant Agreement was signed with the Government of Mexico\. SHCP was the official recipient of the GEF grant while NAFIN acted as the financial agent for the project\. SENER was responsible for energy policy and planning in the sector\. SENER also had the responsibility for implementation of the TA and project management components of the GEF grant as well as for M&E of the overall project\. 80\. Government performance throughout preparation and implementation of the GEF grant was ‘Fully Satisfactory’\. First, its strong commitment to the development objective of the project was maintained throughout the 10-year implementation period\. A measure of the Government’s commitment over this period was the rapid growth in Mexico’s IPP-based power generation capacity from renewable energy sources, especially from wind energy sources\. Second, the Government -through SHCP and NAFIN- played a constructive role in finding solutions to internal administrative problems that were either impeding implementation of the TA components or which needed to be streamlined during implementation- for example, the small size of SENER’s administrative budget initially limited the amount of funding that could be reimbursed for TA activities from the GEF grant and slowed down implementation of these activities\. Finally, the Government acted as a supportive partner to help ensure compliance with the environmental and social safeguards requirements of the project, through the involvement of Government institutions such as INECOL\. Overall, and despite some delays affecting each of the project components, the Government’s sustained commitment to developing commercially-based, grid-connected electricity based on wind energy was the main factor in bringing about a successful outcome\. (b) Implementing Agency or Agencies Performance Rating: Satisfactory 81\. The main responsibilities for implementation were as follows: (a) Component 1, Financial Mechanism: CFE, in coordination with SENER; (b) Component 2, Technical Assistance: SENER had the main responsibility for contracting services; and (c) Component 3, Project Management: SENER was responsible to help carry out project M&E, and reporting responsibilities under the project\. 82\. CFE had overall responsibility for the management of the international bidding process for the La Venta III wind farm\. The bidding process began in January, 2007 but had to be re-launched in July, 2008 because of the lack of a responsive bid\. Despite the extended duration of the bidding 21 process, CFE managed the process capably and with flexibility, recognizing that high demand for wind turbines in international markets at the time limited the number of bidders\. Its role in bringing about a successful conclusion of the bidding process was critical to achieving the development objective\. 83\. During plant construction, CFE also gave priority attention to resolving a number of conflicts that had arisen between ejidatarios and the IPP operators with regard to the payment of benefits to local communities\. CFE’s prior experience with similar issues during the construction of the La Venta II Plant was extremely helpful in resolving potential social conflicts; it also helped update the Indigenous Peoples Plan\. Overall, CFE gave high priority to the different safeguards issues associated with the La Venta III wind energy development, which has helped provide a framework for social safeguards for future wind energy developments in this region\. 84\. The implementation of the smaller TA and project management components started slowly due to (a) the lack of an internal budget mechanism to enable SENER to access the GEF grant funds; (b) the inexperience of SENER’s own staff with World Bank operations; and (c) the priority focus given to main component, namely the bidding process for the La Venta III wind farm\. However, once these constraints were overcome, SENER made effective use of the funds allocated for TA\. It proposed a number of specific TA activities which had been fully implemented by project closing and which included (a) a strategic environmental and social assessment of the region to measure the cumulative environmental and social impacts of wind power development; (b) a long-term wind development plan for the region; (c) the acquisition of wind equipment to expand wind data information; and (d) the purchase of specialized software-to support the further development of the wind potential in this region (See annex 2 for a detailed list of completed TA activities)\. 85\. Despite delays in implementing the TA and Institutional Strengthening component, SENER had completed a series of studies and activities by project closing which has had a significant impact on the public policy and regulatory framework, and with significant potential for contributing to further renewable energy development not only in the Oaxaca region but throughout the country\. 86\. Overall, based on the progress made in implementing the three components of the project, the implementation performance of the different implementing agencies is considered ‘Satisfactory’\. (c) Justification of Rating for Overall Borrower Performance Rating: Satisfactory 87\. Based on satisfactory ratings of the Government and the different implementing agencies, the overall performance of the borrower in preparing and implementing the project is also considered ‘Satisfactory’\. 6\. Lessons Learned 88\. Importance of strong Government policy commitment in developing renewable energy\. The Government’s sustained commitment to develop Mexico’s wind energy potential was the key factor in achieving the project’s development objective\. The Government’s decision to 22 seek private investment capital in a grid-based IPP had to overcome a number of setbacks - a lack of response to the first bidding process; social unrest in the regional area where the first commercial plant was to be developed; and domestic pressures to develop the country’s wind potential using public resources rather than private resources\. The Government also had to build up its own institutional capacity in a short time to be able to support and monitor the country’s wind energy developments\. The progress made over the last 10 years in developing Mexico’s wind energy power generation capacity- through grid-connected IPPs as well as self-supply- is a measure of the strength of the Government’s policy commitment to this objective, which has now been sustained through two changes of Government\. 89\. Undertaking a review of other countries’ experience in developing their renewable energy potential highly benefits the project design\. The reviews undertaken of European country experiences as well as those in California in promoting wind energy had an important influence on the design of this GEF operation\. The main finding from these reviews was the importance of incentive mechanisms, which influenced the decision to include a ‘Financial Mechanism’ as the main component of the GEF through tariff-based support for the first five years of wind plant’s operation\. As a result, and using only a modest amount of GEF funding, the design of the GEF grant was able to provide the needed incentive to support the first commercial development of Mexico’s wind energy\. While a number of alternative approaches to developing Mexico’s renewable energy potential were considered, the project design opted in the end to provide a financial incentive\. 90\. Need for regional taxation instruments on wind energy production to support broader and more equitable regional development\. An important social finding of this wind energy development- and relevant to wind energy developments more generally- is the uneven distribution of the benefits, which can give rise to serious social unrest as well as opposition to further investment in wind energy\. Some small landowners, who lease their land to the IPP investor in the area where the wind turbines are located, benefit considerably; others, however, do not benefit at all though they continue to live in the nearby communities\. Even though some investment in community infrastructure has taken place, improvements tend to be unevenly distributed\. As a result, the common perception is that wind energy development has benefitted only a few individual families and not the broader communities in the region\. To offset this perception, the Government should consider redistributing the rent generated by the industry to ensure that it goes back to benefit the region\. These funds would be earmarked and used exclusively for community and regional infrastructure works that benefit a broader cross-section of the population\. Such a fiscal redistribution mechanism has been used effectively for mining production as well as oil and gas activities in a number of Latin American countries, which are often located in remote, low- income regional areas\. The main lesson emerging from this wind energy development in the state of Oaxaca is that the Government should consider the redistribution of tax revenue to help ensure a broader and more equitable distribution of the benefits within the communities where the wind development has taken place\. 91\. Good practices in the supervision of safeguards contribute to enabling a favorable environment for investors\. The project was an example of best practices in terms of observance of World Bank’s social and environmental safeguards\. Specifically, the performance of the IPP was an example of best practice in regard to the application of OP 4\.10 and social issues in general\. IPP personnel responsible for community relations maintained close relations with the local 23 ejidatarios throughout visiting and meeting with them several times per week and discussing their concerns\. They also maintained an office in the local municipality of Juchitán, where people could go to discuss individual concerns, complains, or ask questions\. There were written agreements to support the local municipality as part of the IPP’s corporate social responsibility\. These agreements enabled the IPP to become involved in the entire decision-making process - from priority setting by the local council to actual implementation of the community works - which, in turn, helped ensure that the investments were properly carried out and reached their expected outcomes\. The La Venta III wind farm became a reference in regard to social practices for the other wind developers\. 92\. In regard to environmental safeguards supervision, the project not only met local requirements for avian mortality monitoring (twice a year during migration periods), but also promoted an enhanced protocol by expanding the monitoring periods to each season of the year for the purpose of accounting not only for the mortality of migration species but also the mortality of local species\. Limited data existed at the project outset on bird migratory patterns in the Isthmus of Tehuantepec\. By the end of the project, the accumulated data enabled the wind energy plant to better anticipate periods of the year when the plant would not be able to operate because of such migration\. Also, the involvement of INECOL in the monitoring of bird (and bat) migratory patterns, not only strengthened ‘safeguard ownership’ but also added local, professional expertise, which has served to enhance the quality of information on bird migratory patterns in this regional area of Mexico, and which can now be extended to other regional areas of the country (in Baja California and the Yucatan Peninsula) where new wind energy developments are taking place\. In particular, it was noted that migrating birds were flying above the turbine-span of La Venta III wind farm, and the most affected species were those considered as ‘local’ ones\. This finding could be useful for future wind developments as the height of wind turbines is increasing and could eventually affect migratory birds\. Finally strong collaboration of all stakeholders (the World Bank, CFE, and the IPP) resulted in an improved mortality estimation algorithm to also account for those bats/birds remains that were not directly observed during the regular monitoring process (i\.e\. the so-called sub-conteo effect)\. All of these safeguard enforcement initiatives are good practices that contributed to enable a favorable environment for investors, and are worth replicating in similar projects\. 93\. Flexibility in the provision of TA support\. TA support for the development of renewable energy needs to be tailored to specific country situations; for this reason, such support must be both flexible and pragmatic\. In the case of Mexico, the Government looked to the World Bank as a ‘partner’ in the development of its renewable energy potential, able to share country experiences in developing wind energy while it proceeded without external financial support to establish the needed tariff incentives, renewable energy law, and broader policy framework to encourage the development of Mexico’s renewable energy potential\. For this reason, the TA component of the GEF operation focused primarily on strengthening the technical and monitoring capacity of the sector ministry, that is, SENER, which had no prior experience in developing wind or renewable energy on a significant scale\. As a result, the specific content of the TA needs to be decided on a country by country basis and should be flexible enough to adapt to sector reform developments- as occurred in Mexico which took place (in 2008, and again in 2013) during the course of implementation\. 24 94\. Assessing longer term environmental and social impacts of wind energy development\. One unintended impact of the project was that beneficiaries of the payments for land use started engaging in new economic activities, which involved changes in the local environment as ejidatarios capitalized on these new opportunities to use their land for agricultural purposes (as noted in section 3\.5)\. Such activity implied some degree of deforestation, which was not foreseen at the start of the project and which is currently having an impact on the nesting patterns of some bird species\. An important lesson for future operations is therefore (a) to expand the scope of project’s environmental and social impact until after the project is closed (for example by using grants to evaluate these longer term impacts); and (b) include in the TA component the financing of activities through which beneficiaries can engage in sustainable productive uses to improve their quality of life\. 7\. Comments on Issues Raised by Borrower/Implementing Agencies/Partners (a) Borrower/implementing agencies The Government (SHCP, SENER, CFE, UREP-SENER and NAFIN) sent the draft ICR document with edits, which are reflected in the final ICR\. (b) Cofinanciers Not applicable (c) Other partners and stakeholders Not applicable 25 Annex 1\. Project Costs and Financing (a) Project Cost by Component (in US$ million equivalent) Actual/Latest Appraisal Estimate Percentage of Components Estimate (US$ millions) Appraisal (US$ millions) 1\. Financial Mechanism 20\.4 20\.37 99\.85 2\. Technical Assistance 3\.9 3\.41 87\.44 3\. Project Management 0\.7 0\.85 121\.43 Total Baseline Cost 25\.0 24\.63 98\.53 Physical Contingencies 0\.00 0\.00 n\.a\. Price Contingencies * * * Total Project Costs Project Preparation Facility (PPF) n\.a\. n\.a\. n\.a\. Front-end fee IBRD n\.a\. n\.a\. n\.a\. Total Financing Required 25\.0 24\.63 98\.53 *Note: Price contingencies were included in project cost estimates\. (b) Financing Appraisal Actual/Latest Type of Percentage of Source of Funds Estimate Estimate Cofinancing Appraisal (US$ millions) (US$ millions) Borrower* 5\.00 10\.20 204\.00 GEF 25\.00 24\.63 98\.53 Local Sources of Borrowing Country** 35\.00 200\.38 572\.41 Foreign Private Commercial Sources 85\.00 0\.00 0\.00 (unidentified) Note*: Estimated by the Government of Mexico (this amount includes staff costs from SENER and CFE during the implementation of the project, as well as oceanographic measurement instruments whose procurement process was completed after the grant closing date)\. **Private IPP firm reported that total investment was US$200 million, all of which was equity financed without a need for debt financing\. 26 Annex 2\. Outputs by Component 1\. Table 2\.1 shows monthly energy production (including the plant capacity factor) and emission reductions of La Venta III wind farm since commissioning in October 2012 through to July 2016\. tables 2\.2 and 2\.3 show a summary of yearly energy production and avoided emissions, respectively (including percentage achievement with respect to the revised targets); only full calendar years (that is, 2013, 2014, and 2015) are reported\. However, it can be seen that monthly production in 2016 is in line with production in 2015, and, therefore, on track to achieving the yearly target of 270\.3 GWh per year, and consequently the corresponding target for avoided emissions (assuming the same emission factor of 0\.617 tCO2e/MWh)\. 2\. Table 2\.4 shows all the TA activities supported by the project\. Table 2\.1 Monthly energy production and emission reductions of La Venta III wind farm since commissioning\. Month Energy Avoided Capacity (GWh) Emissions Factor (tCO2e) (%) October 2012 25\.55 15,765\.47 33\.39 November 2012 39\.62 24,445\.64 53\.50 December 2012 19\.05 11,755\.55 24\.90 January 2013 36\.40 22,460\.80 47\.57 February 2013 21\.12 13,031\.06 30\.56 March 2013 34\.10 21,042\.57 44\.57 April 2013 14\.37 8,865\.12 19\.40 May 2013 14\.73 9,089\.08 19\.25 June 2013 8\.39 5,175\.93 11\.33 July 2013 18\.15 11,196\.86 23\.72 August 2013 21\.33 13,163\.35 27\.88 September 2013 1\.36 837\.37 1\.83 October 2013 18\.53 11,430\.45 24\.21 November 2013 31\.89 19,676\.89 43\.07 December 2013 34\.16 21,074\.57 44\.64 January 2014 41\.91 25,858\.85 54\.77 February 2014 28\.27 17,444\.81 40\.91 March 2014 22\.01 13,581\.27 28\.77 April 2014 20\.41 12,592\.66 27\.56 May 2014 22\.25 13,728\.95 29\.08 June 2014 5\.90 3,637\.98 7\.96 July 2014 33\.11 20,427\.66 43\.27 August 2014 17\.35 10,706\.38 22\.68 September 2014 9\.54 5,888\.47 12\.89 October 2014 19\.95 12,306\.18 26\.07 November 2014 32\.13 19,825\.78 43\.39 27  December 2014 29\.58 18,249\.21 38\.65 January 2015 43\.40 26,777\.30 56\.72 February 2015 31\.16 19,226\.98 45\.09 March 2015 29\.08 17,939\.44 38\.00 April 2015 12\.04 7,429\.14 16\.26 May 2015 13\.51 8,335\.42 17\.65 June 2015 20\.89 12,889\.17 28\.21 July 2015 20\.59 12,705\.21 26\.91 August 2015 22\.22 13,711\.72 29\.04 September 2015 11\.39 7,027\.53 15\.38 October 2015 20\.70 12,770\.18 27\.05 November 2015 36\.20 22,333\.31 48\.88 December 2015 26\.66 16,449\.04 34\.84 January 2016 38\.98 24,051\.52 50\.94 February 2016 40\.61 25,057\.19 58\.76 March 2016 17\.63 10,878\.20 23\.04 April 2016 20\.24 12,490\.57 27\.34 May 2016 10\.83 6,679\.64 14\.15 June 2016 11\.33 6,988\.76 15\.30 July 2016 20\.48 12,634\.93 26\.76 Table 2\.2 Annual Energy Production of La Venta III Wind Farm since commissioning\. Year Energy Period Target % (GWh) (GWh/year) Achievement 2012 84\.22 October – December 2012 270\.3 2013 254\.53 January – December 2013 270\.3 94\.17 2014 282\.41 January – December 2014 270\.3 104\.48 2015 287\.84 January – December 2015 270\.3 106\.49 2016 160\.10 January - July 2016 270\.3 Accumulated 1,069\.10 GWh Average Capacity 31\.00 percent Factor 28  Table 2\.3 Yearly avoided emissions of La Venta III wind farm since commissioning\. Year Emissions Period Target (tCO2e/year) % Achievement (tCO2e) 2012 51,966\.66 October – December 2012 166,769\.00 2013 157,044\.06 January – December 2013 166,769\.00 94\.17 2014 174,248\.22 January – December 2014 166,769\.00 104\.48 2015 177,594\.45 January – December 2015 166,769\.00 106\.49 2016 98,780\.81 January – July 2016 166,769\.00 Accumulated* 659,634\.20 tonCO2e *Note: a 0\.617 tCO2e/MWh factor was calculated by CFE at project restructuring in May 2014 using the CDM’s ACM0002 methodology\. Table 2\.4 TA activities Id\. Activity Cost (US$) 1 Purchase and installation of six wind measurement stations (vertical profile) 1,934,362\.07 2 Study on integration of renewable energy into the grid 81,349\.27 3 SESA for the south of the Tehuantepec Isthmus 302,909\.72 4 Study to assess environmental and social Externalities on hydropower facilities 104,207\.10 5 Design of ‘one-stop shop’ for facilitating development of renewable energy projects (Phase I) 148,554\.79 6 Design of ‘one-stop shop’ for facilitating development of renewable energy projects (Phase II) 387,510\.66 7 Long-term development plan for the Tehuantepec Isthmus 184,977\.40 8 Study to identify and develop value chains 38,184\.93 9 Revision and update of data base of self-supply permit holders (1996-2014) 60,376\.29 10 Identification and analysis of competitiveness for local small- and medium-scale solar PV industry\. 51,609\.31 11 First draft of regulation for granting biofuel permits 57,551\.45 Diagnosis on the status and viability of the Mexican energy system information under the new 12 9,850\.64 regulatory framework for the Mexican energy sector Development of technical specifications and environmental protection guidelines for the 13 45,450\.78 production, transportation and distribution of biofuels Total 3,406,894\.41 29 Annex 3\. Economic and Financial Analysis Overview 1\. An ex-post economic and financial analysis was carried out to evaluate the efficiency of the project and verify its financial and economic viability as presented in the PAD\. The economic analysis looked at the costs and benefits accruing to Mexico, including not only the actual values related to capital equipment and operating costs, but also the monetized environmental benefits\. The financial analysis compares the costs and benefits from the perspective of the international IPP\. Economic analysis 2\. Economic benefits\. The main economic benefits of the La Venta III wind farm are: (a) the production of electricity; and (b) the reduction of GHG emissions in the global atmosphere\. Other economic benefits, not quantified for the purposes of this analysis but useful in evaluating the project in a qualitative manner include, among other: (a) demonstration effect for future IPPs; (b) local economic benefits of increased employment during construction and O&M of the wind power plant; (c) increased income from land where the turbines are located and (iv) better access to agricultural land due to improved local infrastructure (for example, roads)\. 3\. The economic benefits of electricity generation are set, for the purposes of this analysis, at the level of the avoided cost of generating electricity using other options, especially fossil fuels\. During appraisal, the estimated avoided costs of generation was US$0\.05 per kWh based on an estimated crude oil price of US$46 per barrel\. Although the oil price dropped significantly in recent years to as low as US$43 per barrel in 2016, due to the increase of the oil price between 2012 and 2014 (above US$100 in these three years), the average actual oil price since the plant began operation in 2012 has been US$80 per barrel\. The analysis also takes into account the World Bank forecasts of a steady price increase in the coming years of minimum 5 percent a year\.15 4\. Project economic costs\. The main economic costs of the wind energy project are: (a) the investment necessary for the construction of the project (US$184 million 16 compared to the estimated cost during appraisal of US$120 million); and (b) the costs of O&M of 20 percent of the annual energy payments as assumed by CFE\. For the economic analysis, all taxes and transfer payments are ignored\. The capital costs occurred over a four year timeframe with the following schedule: 8\.73 percent in Year 1, 58\.80 percent in Year 2, 26\.56 percent in Year 3 and 5\.89 percent in Year 4 of the construction and operation of the power plant\. 5\. Results\. The cost-benefit analysis for the La Venta III wind farm shows that the project has a positive NPV for a discount rate of less than 7 percent\. The analysis also shows that with the benefits deriving from emissions reductions the project would have a much higher NPV\. Table 3\.1 summarizes the results of the sensitivity analysis, with and without the contribution of benefits from carbon emissions reductions for a range of discount rates\. 15 http://pubdocs\.worldbank\.org/en/732571470253390411/CMO-Pink-Sheet-August-2016\.pdf 16 Excluding tax and freight costs 30  Table 3\.1: La Venta III NPV at US$0\.09per kWh Discount Rate NPV (in US$) NPV Including (in %) Environmental Benefits (in US$) 6 3,771,767 18,800,814 7 (12,528,185) 771,763 8 (26,030,937) (14,218,603) 9 (37,222,401) (26,694,872) 10 (46,498,087) (37,084,388) 6\. If the environmental benefits derived from the 177,595 tCO2 emissions savings by the project are included, the project achieves an EIRR of 7\.05 percent\. Without taking into account these benefits, the EIRR is 6\.22 percent\. The results of the ex-post NPV and EIRR do not significantly deviate from the results estimated at the time of appraisal (NPV of Negative US$26\.89 with an EIRR of 8\.83 percent)\. The PAD originally noted that “the EIRR results for this proposed project are generally negative unless both world and domestic oil prices rise to a crude oil price level of US$55 per barrel” (which according to the ex-ante analysis resulted in an NPV of US$12\.35 million with an EIRR of 13\.36 percent)\. Although the oil prices have increased between 2012 and 2014, the modest but positive results of the ex-post analysis can be explained by the much higher investment costs than anticipated during appraisal\. Without the investment cost increase of over 50 percent, the project would have yielded a high NPV of US$66\.98-2\.26 million (with discount rates from 6 percent to 10 percent) as well as an EIRR of 10\.20 percent (including environmental benefits)\. 7\. Finally, the EIRR of the La Venta III project is highly sensitive to the estimates regarding the future costs of electricity generation in the system\. Given the significant dependence of the Mexican electricity generation on fossil fuels and uncertainties surrounding the future costs for oil and its related products, the optimal (least-cost) system expansion solution could vary\. Without the forecasted increase of oil price as stated above, the economic results will be much lower\. 8\. Despite these results, the project had a much wider impact than captured in this analysis due to the experience accumulated and demonstration effect through this operation as the first wind IPP in Mexico that paved the way for large-scale wind power in Mexico\. At the time of the preparation of this project, the installed and operational wind capacity was only 87 MW consisting of the CFE's La Venta I and La Venta II Projects in Oaxaca\.17 After the successful demonstration of la Venta III, more IPPs and self-suppliers entered the market expanding the overall wind capacity close to 3000 MW by the end of 2015\. Due to the additional benefits derived from the significant IPP investment that followed La Venta III, the project’s impact (and efficiency) is rated Substantial\. 17 https://hub\.globalccsinstitute\.com/publications/global-wind-2008-report/mexico 31 Financial analysis 9\. The analysis uses the same financial spreadsheet model that was used during appraisal valued in real US dollars\. The project’s income is comes from two sources: electricity payments over the project’s lifetime of 20 years and the subsidy payments (the GEF’s project contribution for a total of about US$20\.4 million over the first five years)\. Financial outflows are operating expenses, royalty payments for land use, insurance costs, and taxes\. The model also accounts for the potential of using accelerated depreciation provisions available in the Mexican tax system for such investments\. Unlike the original analysis, which assumed a standard 70 percent debt financing, the investment costs of the project were completely financed through the company’s own resources\. Original and actual figures and other general assumptions used for the financial model are summarized in table 3\.2 below\. Table 3\.2: Key Assumptions Original Actual Energy payments (US$/kwh) Year 1 0\.095 Year 2 0\.0988 0\.047 Year 3 0\.1028 Year 4 onwards 0\.1198 Subsidy (US$/kwh) 2012 - 2015 0\.011 0\.011 June 2015 – close 0\.039 Subsidy disbursement Year 1 4,080,000 939,686 Year 2 4,080,000 2,803,735 Year 3 4,080,000 3,108,644 Year 4 4,080,000 7,198,450 Year 5 4,080,000 6,324,485 Total 20,400,000 20,375,000 Expenses Fixed O&M (US$/kw) 12\.063 20% (of energy payments) Variable O&M (US$/kwh) 0\.0011 - Site owner royalty 2009-2011 US$414,114 2012 US$472,505 1\.50% (of revenues) 2013 US$563,655 2014 US$607,049 2015 US$633,520 Tax rate (% of net income) 28% 19% Insurance (% of equipment and balance of station costs) 0\.10% 0\.10% Depreciation Percentage that can be depreciated 70% 70% Depreciation base (years) 5 5 32 10\. As in the original analysis and to evaluate the financial viability of the project, NPVs of the project's (financial) rate of return figures are calculated for a range of discount rates\. The project has a positive NPV for discount rates of up to 17 percent (or a negative NPV when discount rates of 18 percent or more are applied)\. Table 3\.3: NPV of the Project for various discount rates Original Actual Discount Rate NPV Discount Rate NPV (%) (US$) (%) (US$) 8 99,887,213 8 146,799,802 9 85,411,198 9 121,925,212 10 72,516,842 10 100,159,849 11 61,003,865 11 81,077,380 12 50,700,689 12 64,316,986 13 41,459,910 13 49,572,223 14 33,154,534 14 36,581,934 15 25,674,859 15 25,122,830 16 18,925,864 16 15,003,388 17 12,825,033 17 6,058,834 18 7,300,523 18 (1,853,010) 19 2,289,630 19 (8,855,174) 20 (2,262,510) 20 (15,054,403) FIRR 19\.49% FIRR 17\.75% ROE 18% ROE 14\.89% 11\. The project's ROE is about 15 percent, slightly lower than the originally assumed ROE of 18 percent\. A FIRR was not calculated at the time of appraisal - but applying original assumptions, the original FIRR would have been 19\.49 percent - while the ex-post analysis results in an FIRR of 17\.75 percent\. The slight deviation can be explained due to the significantly higher investment costs for the company, though partially offset by the higher energy payments received from CFE\. Without the subsidy, the NPV of the project would still be positive (US$14,054,001), but with an FIRR of only 9 percent\. The revised cash-flow analysis for the project is presented in the table 3\.4\. 33  Table 3\.4: Cash Flow Analysis 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 Revenues Energy Payment $0 $0 $0 $0 $8,000,900 $25,147,564 $29,031,748$34,483,232 $34,482,633 $34,482,633 $34,482,633 $34,482,633 $34,482,633 $34,482,633 $34,482,633 $34,482,633 $34,482,633 $34,482,633 $34,482,633 $34,482,633 $34,482,633 $34,482,633 $34,482,633 $34,482,633 Tariff Subsidy Payment $926,420 $2,799,830 $3,106,510 $7,196,000 $6,346,240 - - - - - - - - - - - - - - - Interest on Reserves - - - - - - - - - - - - - - - - - - - - Total Revenues $0 $0 $0 $0 $8,927,320 $27,947,394 $32,138,258 $41,679,232 $40,828,873 $34,482,633 $34,482,633 $34,482,633 $34,482,633 $34,482,633 $34,482,633 $34,482,633 $34,482,633 $34,482,633 $34,482,633 $34,482,633 $34,482,633 $34,482,633 $34,482,633 $34,482,633 Capital Costs $17,492,740 $117,820,514 $53,219,606 $11,802,089 Operating Costs Fixed O&M $0 $0 $0 $0 $1,600,180\.00 $5,029,512\.80 $5,806,349\.60 $6,896,646\.40 $6,896,526\.60 $6,896,526\.60 $6,896,526\.60 $6,896,526\.60 $6,896,526\.60 $6,896,526\.60 $6,896,526\.60 $6,896,526\.60 $6,896,526\.60 $6,896,526\.60 $6,896,526\.60 $6,896,526\.60 $6,896,526\.60 $6,896,526\.60 $6,896,526\.60 $6,896,526\.60 Variable O&M $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Site Owner Royalty $0 $414,114 $414,114 $414,114 $472,505 $563,655 $607,049 $633,520 $633,520 $633,520 $633,520 $633,520 $633,520 $633,520 $633,520 $633,520 $633,520 $633,520 $633,520 $633,520 $633,520 $633,520 $633,520 $633,520 Insurance $0 $0 $0 $0 $152,925 $152,925 $152,925 $152,925 $152,925 $152,925 $152,925 $152,925 $152,925 $152,925 $152,925 $152,925 $152,925 $152,925 $152,925 $152,925 $152,925 $152,925 $152,925 $152,925 Other Costs - - - - - - - - - - - - - - - - - - - - - - - - Total Operating Costs $0 $414,114 $414,114 $414,114 $2,225,610 $5,746,093 $6,566,324 $7,683,092 $7,682,972 $7,682,972 $7,682,972 $7,682,972 $7,682,972 $7,682,972 $7,682,972 $7,682,972 $7,682,972 $7,682,972 $7,682,972 $7,682,972 $7,682,972 $7,682,972 $7,682,972 $7,682,972 Operating income ($17,492,740) ($118,234,628) ($53,633,721) ($12,216,203) $6,701,710 $22,201,301 $25,571,934 $33,996,140 $33,145,901 $26,799,661 $26,799,661 $26,799,661 $26,799,661 $26,799,661 $26,799,661 $26,799,661 $26,799,661 $26,799,661 $26,799,661 $26,799,661 $26,799,661 $26,799,661 $26,799,661 $26,799,661 Other expenses Interest on Loans $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Depreciation Percentage 100% 100% 100% 100% 20% 20% 20% 20% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% Maximum possible depreciation $0 $0 $0 $140,262,516 $161,613,309 $167,464,511 $169,945,080 $164,001,443 $130,855,542 $104,055,881 $77,256,220 $50,456,559 $23,656,898 -$3,142,763 -$29,942,424 -$56,742,085 -$83,541,746 $0 $0 $0 $0 $0 $0 $0 Maximum depreciation without compensation against other activties $0 $0 $6,701,710 $22,201,301 $25,571,934 $33,996,140 $33,145,901 $26,799,661 $26,799,661 $26,799,661 $26,799,661 $26,799,661 $26,799,661 $26,799,661 $26,799,661 -$83,541,746 $0 $0 $0 $0 $0 $0 Actual depreciation $0 $0 $0 $6,701,710 $22,201,301 $25,571,934 $33,996,140 $33,145,901 $26,799,661 $26,799,661 $26,799,661 $26,799,661 $26,799,661 $26,799,661 $26,799,661 $26,799,661 -$83,541,746 $0 $0 $0 $0 $0 $0 Pending depreciation $0 $0 $0 $133,560,806 $139,412,008 $141,892,577 $135,948,940 $130,855,542 $104,055,881 $77,256,220 $50,456,559 $23,656,898 -$3,142,763 -$29,942,424 -$56,742,085 -$83,541,746 $0 $0 $0 $0 $0 $0 $0 Total other expenses $0 $0 $0 $6,701,710 $22,201,301 $25,571,934 $33,996,140 $33,145,901 $26,799,661 $26,799,661 $26,799,661 $26,799,661 $26,799,661 $26,799,661 $26,799,661 $26,799,661 -$83,541,746 $0 $0 $0 $0 $0 $0 Before-Tax Profit ($118,234,628) ($53,633,721) ($12,216,203) $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $110,341,407 $26,799,661 $26,799,661 $26,799,661 $26,799,661 $26,799,661 $26,799,661 Profit x tax rate $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $21,135,764 $5,133,443 $5,133,443 $5,133,443 $5,133,443 $5,133,443 $5,133,443 Income Tax Paid ($22,647,701) $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $21,135,764 $5,133,443 $5,133,443 $5,133,443 $5,133,443 $5,133,443 $5,133,443 After-Tax Profit ($95,586,927) ($53,633,721) ($12,216,203) $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $89,205,643 $21,666,218 $21,666,218 $21,666,218 $21,666,218 $21,666,218 $21,666,218 Additions Depreciation $0 $0 $0 $6,701,710 $22,201,301 $25,571,934 $33,996,140 $33,145,901 $26,799,661 $26,799,661 $26,799,661 $26,799,661 $26,799,661 $26,799,661 $26,799,661 $26,799,661 -$83,541,746 $0 $0 $0 $0 $0 $0 Released from Reserve $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Total additions $0 $0 $0 $6,701,710 $22,201,301 $25,571,934 $33,996,140 $33,145,901 $26,799,661 $26,799,661 $26,799,661 $26,799,661 $26,799,661 $26,799,661 $26,799,661 $26,799,661 -$83,541,746 $0 $0 $0 $0 $0 $0 Total subtractions Before-Tax Cash Flow ($17,492,740) ($118,234,628) ($53,633,721) ($12,216,203) $6,701,710 $22,201,301 $25,571,934 $33,996,140 $33,145,901 $26,799,661 $26,799,661 $26,799,661 $26,799,661 $26,799,661 $26,799,661 $26,799,661 $26,799,661 $26,799,661 $26,799,661 $26,799,661 $26,799,661 $26,799,661 $26,799,661 $26,799,661 Taxes Payable (Benefit Received) ($22,647,701) $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $21,135,764 $5,133,443 $5,133,443 $5,133,443 $5,133,443 $5,133,443 $5,133,443 Tariff subsidy payment if not taxable $778,193 $2,351,857 146368\.488 $11,375,482 After Tax Cash Flow ($17,492,740) ($140,882,329) ($53,633,721) ($12,216,203) $6,701,710 $22,979,494 $27,923,791 $34,142,509 $44,521,383 $26,799,661 $26,799,661 $26,799,661 $26,799,661 $26,799,661 $26,799,661 $26,799,661 $26,799,661 $47,935,425 $31,933,104 $31,933,104 $31,933,104 $31,933,104 $31,933,104 $31,933,104 Cumulative after tax cash flow ($140,882,329) ($53,633,721) ($12,216,203) $6,701,710 $29,681,204 $57,604,995 $91,747,504 $136,268,887 $163,068,548 $189,868,209 $216,667,870 $243,467,531 $270,267,192 $297,066,853 $323,866,514 $350,666,175 $398,601,600 $430,534,704 $462,467,807 $494,400,911 $526,334,015 $558,267,119 $590,200,223 Project Cash Flow ($17,492,740) ($95,586,927) ($53,633,721) ($12,216,203) $13,403,420 $44,402,603 $51,143,868 $67,992,280 $66,291,802 $53,599,322 $53,599,322 $53,599,322 $53,599,322 $53,599,322 $53,599,322 $53,599,322 $53,599,322 -$77,877,849 $21,666,218 $21,666,218 $21,666,218 $21,666,218 $21,666,218 $21,666,218 34 Annex 4\. Bank Lending and Implementation Support/Supervision Processes (a) Task Team members Responsibility/ Names Title Unit Specialty Lending Charles Feinstein Team Leader LCSFP Demetrios Papathanasiou Energy Economist LCSFE Gabriela Elizondo Azuela Energy Specialist LCSFE Victor Manuel Ordonez Senior Finance Officer LCSFM Conde Efraim Jimenez Procurement Specialist LCSFM Anna Marti-Kiemann Counsel Consultant LEGLA Daniel Farchy Environmental Specialist LCSFE Tania Carrasco Social Specialist Consultant LCSES Ted Kennedy Renewable Energy Specialist Consultant ENVCC Donald Hertzmark Energy Economist Consultant Fabio Arjona Environmental Specialist Consultant Carl Thelander Environmental Specialist Consultant Smriti Goyal Junior Professional Associate LCSFE Supervision/ICR Guillermo Hernandez Team Leader GEE04 Gabriel Penaloza Procurement Specialist GGO04 Luis Barajas Gonzalez Financial Management Specialist GGO22 Alonso Zarzar Casis Safeguards Specialist GSU04 Jose Luis Calderon Environmental Specialist GEN04 Karla Olguin Hernandez Consultant GEEDR Luis M\. Vaca-Soto Consultant GEE04 Karen Bazex Senior Energy Specialist GEE01 Lara Born Jr Professional Officer GEE01 Eugene McCarthy Consultant GEE04 Farah Mohammadzadeh Consultant GEE08 Alexandra Ortiz Program Leader LCC1C Daniel J\. Farchy Industry Specialist CFGCC Karina M\. Kashiwamoto Language Program Assistant LCC1C Victor Manuel Ordonez Senior Finance Officer WFALN Conde Felix Prieto Arbelaez Senior Procurement Specialist LCSPT - HIS Kennan W\. Rapp Senior Social Development Spec GSU04 35  Zayra Luz Gabriela Romo Senior Energy Specialist GEE01 Mercado Tomas Socias Senior Procurement Specialist GGODR Nancy Montes de Oca Team Assistant LCC1C Allende Oscar Avalle Manager SECPO Don Hertzmark Consultant Lea Braslavsky Consultant Daniel Boyve Practice Manager GG022 Juan Carlos Serrano Sr Financial Management Specialist GG022 Gabriela Vidals Operations Officer LCC1C Karim Omar Lara Ayub Operations Analyst LCC1C (b) Staff Time and Cost Staff Time and Cost (Bank Budget Only) Stage of Project Cycle No\. of Staff Weeks US$ thousands (Including Travel and Consultant Cost) Lending FY05 21\.45 61\.93 FY06 14\.28 39\.44 FY07 17\.77 49\.00 FY08 21\.83 50\.31 Total 75\.33 200\.68 Supervision FY08 7\.83 26\.91 FY09 9\.39 36\.05 FY10 36\.38 117\.71 FY11 18\.52 67\.13 FY12 8\.85 37\.37 FY13 27\.38 62\.06 FY14 20\.61 71\.12 FY15 16\.01 61\.81 FY16 12\.04 29\.37 157\.01 509\.53 36 Annex 5\. Beneficiary Survey Results 1\. The project did not carry out a ‘formal’ beneficiary survey\. However, during several field missions the team’s social specialist as well as other team members had the opportunity to meet with stakeholders and local authorities\. The team’s social specialists also visited some of the stakeholders’ houses during the preparation of a dissemination video on the social impacts of the project\. 2\. During these meetings, land owners shared their views on the project, the history of their relationships with the IPP, and the way the project had improved their income and the well-being of their families\. They also expressed their wishes to increase local employment and local skilled labor\. They stated that the benefits they were receiving were being invested mainly in improving their houses and in their children’s and grandchildren’s education\. 3\. The local authorities also participated in some of the meetings during field missions and shared with the team their satisfaction with the support that the IPP was providing to the local municipality\. They also emphasized that more financial support is needed from the federal budget due to the limited income sources that local rural municipalities have\. 37 Annex 6\. Stakeholder Workshop Report and Results Not applicable\. 38 Annex 7\. Summary of Borrower's ICR and/or Comments on Draft ICR The Government (SHCP, SENER, CFE, UREP-SENER and NAFIN) sent the draft ICR document with edits, which are reflected in the final ICR\. 39 Annex 8\. Comments of Cofinanciers and Other Partners/Stakeholders Not applicable\. 40 Annex 9\. List of Supporting Documents World Bank (2006) Grant Agreement\. Large-Scale Renewable Energy Development Project; Washington, D\.C\. World Bank (2006) Project Appraisal Document, Report No: 35075-MX, Washington D\.C\. World Bank (2006) Environmental Assessment (Vol\. 1)\. Manual de cumplimiento de las normas ambientales\. Large-Scale Renewable Energy Development Project; Report No\. E1398; Washington, D\.C\. World Bank (2006) Environmental Assessment (Vol\. 2)\. Manual de cumplimiento de las normas ambientales\. Large-Scale Renewable Energy Development Project; Report No\. E1398; Washington, D\.C\. World Bank (2012) Indigenous People Plan: Plan de desarrollo de poblaciones indígenas\. Large- Scale Renewable Energy Development Project; Report No\. IPP179, Washington, D\.C\. World Bank (2008) Procurement Plan: Plan de contrataciones específico (PAC) No\. 46250\. Large- Scale Renewable Energy Development Project\. Washington, D\.C\. World Bank (2011) Greening the Wind: Environmental and Social Considerations for Wind Power Development No\. 66233\. World Bank (2012) Indigenous People Plan: Plan de desarrollo de poblaciones indígenas\. Large Scale Renewable Energy Development Project; Report No\. IPP581, Washington, D\.C\. World Bank (2012) Amendment to the Disbursement Letter, Washington, D\.C\. World Bank (2013) Restructuring No\. RES12574 May 14, 2014, Washington, D\.C\. World Bank (2013) Restructuring Project Paper No\. 78770, Washington, D\.C\. World Bank (2013) Amendment to the Project Agreement for GEF TF056781 World Bank (2012 – 2016) Supervision Aide Memories and Implementation Status and Results Reports\. Large-Scale Renewable Energy Development Project; Washington, D\.C\. World Bank (2016 – 2006) Implementation Status reports 41 MAP (provided by the GSD map design unit) 42

REVIEW

P086525

Document of The World Bank Report No: ICR0000717 IMPLEMENTATION COMPLETION AND RESULTS REPORT (IBRD-72990) ON A PROGRAMMATIC FISCAL REFORM LOAN ­ SOCIAL SECURITY REFORM IN THE AMOUNT OF US$658\.3 MILLION TO THE FEDERATIVE REPUBLIC OF BRAZIL December 19, 2007 Poverty Reduction and Economic Management Brazil Country Management Unit Latin America and the Caribbean Region  CURRENCY EQUIVALENTS (Exchange Rate Effective December 18, 2007) Currency Unit = Brazilian Real (BRL) 1\.00 = US$ 0\.56 US$ 1\.00 = BRL 1\.79 FISCAL YEAR January 1 ­ December 31 ABBREVIATIONS AND ACRONYMS CGPC Conselho de Gestao de Previdência Complementar ­ Council for the Management of Complementary Pensions DPL Development Policy Loan EET Tax Regime that Exempts Contributions, Exempts Investment Income, Taxes Benefits ESW Economic and Sector Work GDP Gross Domestic Product ICR Implementation Completion Report LCR Latin American and the Caribbean Region MPS Ministério da Previdência Social ­ Ministry of Social Security OECD Organization for Economic Cooperation and Development PGBL Plano Gerador de Benefícios Livres ­ Free Benefit Generator Plan RGPS Regime Geral a Previdência Social - Pension System of Private Sector Workers RPPS Regime Próprio de Previdência Social - Pension System of Public Sector Workers QAG Quality Assurance Group SPC Secretaria de Previdência Complementar ­ Secretariat for Complimentary Pensions SUSEP Superintendência de Seguros Privados - Superintendence of Private Insurance TA Technical Assistance TAL Technical Assistance Loan TEE Tax Regime that Taxes Contributions, Exempts Investment Income, Exempts Benefits US United States VGBL Vida Gerador de Beneficios Livres ­ Free Benefit Generator Life Vice President: Pamela Cox Country Director: John Briscoe Sector Manager: Nick Manning Task Team Leader: Roberto Rocha ICR Team Leader: Asta Zviniene  BRAZIL PROGRAMMATIC FISCAL REFORM LOAN ­ SOCIAL SECURITY REFORM CONTENTS Data Sheet A\. Basic Information B\. Key Dates C\. Ratings Summary D\. Sector and Theme Codes E\. Bank Staff F\. Results Framework Analysis G\. Ratings of Program Performance in ISRs H\. Restructuring 1\. Program Context, Development Objectives and Design \. 1 2\. Key Factors Affecting Implementation and Outcomes \. 3 3\. Assessment of Outcomes\. 4 4\. Assessment of Risk to Development Outcome\. 16 5\. Assessment of Bank and Borrower Performance \. 16 6\. Lessons Learned\. 17 7\. Comments on Issues Raised by Borrower/Implementing Agencies/Partners\. 17 Annex 1 Bank Lending and Implementation Support/Supervision Processes\. 18 Annex 3\. Stakeholder Workshop Report and Results\. 20 Annex 4\. Summary of Borrower's ICR and/or Comments on Draft ICR\. 20 Annex 5\. Comments of Cofinanciers and Other Partners/Stakeholders\. 20 Annex 6\. List of Supporting Documents \. 20 MAP  A\. Basic Information BR PROGRAMMATIC Country: Brazil Program Name: FISCAL REFORM - SOCIAL SECURITY REFORM Program ID: P086525 L/C/TF Number(s): IBRD-72990 ICR Date: 12/19/2007 ICR Type: Core ICR GOVERNMENT OF Lending Instrument: DPL Borrower: BRAZIL Original Total USD 658\.3M Disbursed Amount: USD 658\.3M Commitment: Implementing Agencies: Ministry of Social Security Cofinanciers and Other External Partners: B\. Key Dates Process Date Process Original Date Revised / Actual Date(s) Concept Review: 12/17/2004 Effectiveness: 05/10/2006 05/10/2006 Appraisal: 05/03/2005 Restructuring(s): Approval: 06/02/2005 Mid-term Review: Closing: 06/30/2006 06/30/2006 C\. Ratings Summary C\.1 Performance Rating by ICR Outcomes: Satisfactory Risk to Development Outcome: Low or Negligible Bank Performance: Satisfactory Borrower Performance: Satisfactory C\.2 Detailed Ratings of Bank and Borrower Performance (by ICR) Bank Ratings Borrower Ratings Quality at Entry: Satisfactory Government: Not Applicable Quality of Supervision: Satisfactory Implementing Agency/Agencies: Not Applicable Overall Bank Overall Borrower Performance: Satisfactory Performance: Satisfactory i  C\.3 Quality at Entry and Implementation Performance Indicators Implementation QAG Assessments Performance Indicators (if any) Rating: Potential Problem Quality at Entry Program at any time Yes Satisfactory (QEA): (Yes/No): Problem Program at any Quality of No None time (Yes/No): Supervision (QSA): DO rating before Satisfactory Closing/Inactive status: D\. Sector and Theme Codes Original Actual Sector Code (as % of total Bank financing) Central government administration 40 40 Compulsory pension and unemployment insurance 40 40 Non-compulsory pensions, insurance and contractual 20 20 savings Theme Code (Primary/Secondary) Administrative and civil service reform Secondary Secondary Debt management and fiscal sustainability Primary Primary Improving labor markets Primary Primary Regulation and competition policy Secondary Secondary Social risk mitigation Primary Primary E\. Bank Staff Positions At ICR At Approval Vice President: Pamela Cox Pamela Cox Country Director: John Briscoe Vinod Thomas Sector Manager: Nicholas Paul Manning Ronald E\. Myers Program Team Leader: Asta Zviniene Roberto R\. Rocha ICR Team Leader: Asta Zviniene ICR Primary Author: Asta Zviniene F\. Results Framework Analysis Program Development Objectives (from Project Appraisal Document) Provide adequate and sustainable pension benefits ii  Stabilize and if possible reduce pension expenditures and deficits Harmonize pension systems for civil servants and private workers to improve labor mobility Revised Program Development Objectives (if any, as approved by original approving authority) (a) PDO Indicator(s) Original Target Formally Actual Value Indicator Baseline Value Values (from Revised Achieved at approval Target Completion or documents) Values Target Years Indicator 1 : Pension deficit in civil servant pension scheme Due to the change in official GDP calculation Pension deficit of 3\.9% Revised projected methodology Value of GDP in 2003; pension deficits civil servant (quantitative or projected pension not larger than scheme 3\.2% in 2006 Qualitative) deficit of 8\.5% of GDP post-reform pension deficit in 2073 projections for 2003 was revised to 3\.5% and projected values for 2006 to 3\.2%\. Date achieved 12/31/2003 12/31/2006 12/31/2006 12/31/2006 Comments (incl\. % Target for 2006 was achieved 100%\. achievement) (b) Intermediate Outcome Indicator(s) Original Target Formally Actual Value Indicator Baseline Value Values (from Achieved at approval Revised Completion or documents) Target Values Target Years Indicator 1 : Actual pension expenditures and deficits Pension expenditure of Due to the Pension Value 4\.36% of GDP in 2003 Stabilized or change in expenditure in 2006 (quantitative or Pension deficit of reduced ratios official GDP was 3\.8% and Qualitative) 3\.89% of GDP in 2003 relative to 2003 calculation pension deficit was (pre-reform values) methodology civil servant 3\.2% of GDP iii  scheme pension expenditure for 2003 was revised to 4\.0% and 2003 deficit to 3\.2% of GDP Date achieved 12/31/2003 12/31/2006 12/31/2006 12/31/2006 Comments (incl\. % This constitutes reduced ratios relative to 2003 values\. Therefore, target was achievement) achieved 100% G\. Ratings of Program Performance in ISRs Actual No\. Date ISR Archived DO IP Disbursements (USD millions) 1 11/22/2005 Satisfactory Satisfactory 0\.00 H\. Restructuring (if any) Not Applicable iv  1\. Program Context, Development Objectives and Design 1\.1 Context at Appraisal The loan was appraised between October 2004 and April 2005, during the first half of the first Lula Administration (2003-2006)\. At the time, the Government was making concerted efforts to demonstrate its commitment to fiscal and macroeconomic stability and gain credibility internationally\. The credibility problem was reflected in a depreciated exchange rate, large borrowing spreads and low ratings of sovereign debt issues\. The Government's fiscal program included large primary surpluses and improvements in debt management designed to reduce the high and rising ratio of public debt to GDP and ensure debt sustainability\. The most important structural reform entailed a reform to the pension system for civil servants at the federal, state and municipal levels of government ­ the RPPS\. Although the number of participants in the RPPS (5 million) was smaller than the number of participants in the national pension scheme for private sector workers, or the RGPS (43 million), the expenditures in the civil servant schemes were almost as large, reflecting loose eligibility criteria and much higher average pension benefits\. The RPPS reform proposal was submitted to the Brazilian Congress in April 2003 and approved in December 2003\. One element of the reform (the special 11 percent contribution imposed on all public sector pensioners) was challenged on constitutional grounds in early 2004, but in September 2004 the Brazilian Supreme Court ruled that this measure did not violate the Constitution\. The Bank waited for the Supreme Court ruling and proceeded with loan appraisal after the favorable ruling was issued\. 1\.2 Original Program Development Objectives (PDO) and Key Indicators On June 6, 2005, the Bank Board approved the Programmatic Fiscal Reform Loan ­ Social Security Reform to Brazil (Loan 7299-BR), which became effective on April 11, 2006\. Although two previous special adjustment loans supported pension reform efforts in 1998 and 1999, the loan was the first programmatic development policy loan (DPL) supporting pension reform in Brazil, and initiated a separate programmatic series under the broader umbrella of programmatic fiscal reform loans\. This programmatic social security reform loan series was launched with three main objectives\. They were: 1) to stabilize, and if possible, reduce pension expenditures and deficits to open fiscal space for other development programs; 2) to move towards harmonization of national and civil servant pension schemes in order to improve labor mobility between public and private sectors of the economy, and 3) to continue to provide adequate pension benefits for the Brazilian population, while improving their sustainability\. The first loan in the series focused on the reform of the federal, state and municipal civil servant pension schemes but has also supported some administrative improvements in the RGPS as well as some measures designed to strengthen the voluntary and complementary 1  private pension system\. The first loan was expected to be followed by the second loan which would mainly focus on the reform of the RGPS\. At the time of ICR writing, the RGPS reform was still under debate in a forum created by President Lula in January of 2007\. There is no indication that a major reform to the RGPS will take place in the second Lula administration\. Moreover, even if a reform proposal is submitted to Congress, the Government is unlikely to borrow, given the sharp improvement in Brazil's external accounts, the high levels of foreign reserves, and the strong appreciation of the Brazilian Real\. Given the significantly diminished prospects of the second loan, the regional VPU has decided to complete the ICR for the first operation only\. Therefore, for the purpose of loan evaluation, this ICR will focus only on the subset of key indicators of program outcomes which could be attributed to the first loan rather than on those of the entire program as envisaged at the time of its approval\. Namely, the key indicators of the achievement of the three main program objectives examined in this ICR are: (1) evidence of improved performance of the RPPS after the December 2003 reform, including financial performance, continued adequacy of benefits and a movement towards harmonization with RGPS; (2) evidence of improved financial performance of the RGPS, in those specific areas supported by the loan; (3) evidence of the increasing role of voluntary and complementary private pensions in providing adequate retirement income, measured in terms of higher coverage, increasing pension assets and improvements in safety of private voluntary pension arrangements\. Finally, the ICR will also provide an overview of the improvement in Brazil's overall fiscal and macroeconomic performance, as the pension reform supported by the loan was taking place in the context of broader fiscal reforms which were supported in the Bank's assistance program, as reflected in the 2004-2007 Country Assistance Strategy\. 1\.3 Revised PDO: N/A 1\.4 Original Policy Areas Supported by the Program This loan primarily supported the December 2003 reform to the civil service pension schemes (federal, state and municipal) encompassing over 5 million people\. The main reform measures included stricter retirement eligibility rules, less generous old age benefit formula and indexation rules, reduction of net pensions for higher income recipients, and a possibility of limiting income insured by RPPS by creating complementary pension funds for high earners\. The loan also supported overall fiscal and macroeconomic stabilization achievements; administrative measures in the RGPS scheme geared to improve revenue collection, eliminate irregular payments and to restrain the growth of sickness and disability expenditures with emphasis on disability related to work injuries; and improvements to the regulation and supervision of the voluntary private pension system\. 2  1\.5 Revised Policy Areas: N/A 1\.6 Other significant changes: N/A 2\. Key Factors Affecting Implementation and Outcomes 2\.1 Program Performance As mentioned earlier, this ICR does not attempt to evaluate the whole programmatic loan series\. Rather, it is aimed at evaluating one single tranche loan, which was approved on June 02, 2005 for the amount of US$658\.3 million and became effective on April 16, 2006\. 2\.2 Major Factors Affecting Implementation: The main component of the loan supported the approval of Constitutional Amendment Nº41 and related Supreme Court ruling, both of which had already occurred before signing of this loan\. The implementation of most of the new constitutional provisions was relatively clear-cut as it did not require major changes in institutional structures or procedures\. The only important measure of the 2003 reform that had not been implemented at the time of loan approval and remains to be fully implemented at drafting of this ICR, is the introduction of a ceiling on civil servant contributions and benefits\. Constitutional Amendment Nº41 of December 2003 has given federal and sub-national governments the option to introduce such a ceiling, if they also offer a complementary pension fund, providing a possibility to insure the wage above the ceiling through such a mechanism\. This will require that additional laws on complementary funds are passed at the federal, state and municipal levels\. The Federal Government took some time to finalize the draft law, due to the need to build consensus across government agencies, and sub-national governments were not prepared to draft this legislature before the Federal Government did so\. However, at drafting of this ICR, the Federal Government had already submitted a draft law to the national Congress, and a similar draft law had also been submitted by the state of Rio Grande do Sul to the state's legislature\. The implementation of remaining policy actions supported by the loan was of an administrative and supervisory nature and remained mostly under Government control\. It proceeded smoothly as planned\. 2\.3\. Monitoring and Evaluation (M&E) Design, Implementation and Utilization: The implementation of the loan was monitored and evaluated in a variety of ways\. Both the Social Insurance and Planning Ministries periodically issue electronic bulletins that allow close monitoring of pension system performance\. This reporting has grown even more detailed and timely over the period of loan implementation\. 3  The Bank also sent a team of senior experts in June of 2006 to discuss the outcomes of the reform with Government officials\. Although not required by Bank procedures, the mission produced a detailed midterm review report documenting the progress towards achievement of program outcomes and meeting of the triggers for the next operation\. Finally, loan supervision also benefited from additional analytical work on the Brazilian pension system which was undertaken during the loan implementation period, as well as from the preparation and supervision of three TA loans designed to improve the administration of state and municipal pension systems1\. 2\.4 Expected Next Phase/Follow-up Operation: As mentioned earlier, although options to reform the RGPS are still being debated, a major reform is not expected to take place during the remainder of the second Lula administration (2007-2010)\. Moreover, even if a reform eventually takes place, the Federal Government is unlikely to borrow from the Bank due to the sharp improvement in Brazil's external accounts, the increase in the level of foreign reserves to more than US$170 billion, and the reduction in the net external debt to negligible levels\.2 3\. Assessment of Outcomes 3\.1 Relevance of Objectives, Design and Implementation The main objectives of the loan remain extremely relevant to the country's current development agenda and the Bank's assistance strategy\. Moreover, while Brazil's macroeconomic situation has improved dramatically since the loan was approved by the Board, the country is still struggling to improve its growth performance and to address a history of social inequities\. Success in achieving these objectives will require further efforts to restructure fiscal expenditures and allocate more resources to well-targeted social programs and other necessary public expenditures such as education, health, and infrastructure\. The objectives of the loan also remain relevant for the achievement of the Bank's strategic objectives, as the three pillars identified in the 2004-2007 Brazil Country Assistance Strategy (equity, competitiveness and sustainability), rest on a sound fiscal 1Pension Reform LIL (approved 06/30/1998, closed 12/01/2005); Municipal Pension Reform TAL (approved 07/25/2002, active at the time of writing); State Pension Reform TAL II (approved 02/13/2007, awaiting signing at the time of writing)\. 2At the same time, the Bank has been providing assistance to individual Brazilian states, and the assistance program may include DPLs providing support to fiscal and pension reform at the state level\. 4  and macroeconomic framework, and the reforms supported by the loan contribute to this objective\. 3\.2 Achievement of Program Development Objectives This section assesses the outcomes of the policy actions supported by the loan\. It starts by presenting the indicators of overall improvement in the country's fiscal and macroeconomic performance\. The outcomes of the reform of civil servant pension schemes (the RPPS) are examined next, as this was the main component of the loan\. This is followed by an assessment of the outcomes of the specific policy actions designed to improve the national pension scheme (the RGPS) and the outcomes of measures designed to strengthen the voluntary and complementary private pension system\. Improvement in Brazil's overall fiscal and macroeconomic performance During the period of loan implementation, the administration demonstrated a strong commitment to fiscal and macroeconomic stability, as indicated by the average primary fiscal surpluses of 4\.1% in 2003-06, above the original target of 3\.25% of GDP (see Table 1)\. The net public debt fell in the same period from 52\.4% to 44\.9% of GDP, and the share of the FX-denominated debt declined, reducing the government's exposure to currency risk\. The improvements in the external accounts were even more impressive, as indicated by the generation of successive trade and current account surpluses and the sharp decline in the ratio of gross external debt to GDP, from 39 percent in 2003 to 16 percent in 2006, and the decline in the ratio of external debt to exports, from 294 percent to 126 percent in the same period\. The improvement in the credibility of Brazil's macroeconomic policies is reflected in the dramatic decline in borrowing spreads to about 190 basis points and the increase in ratings on sovereign issues to one notch below investment grade\. Table 1\. Indicators of Vulnerability 2002-2006 2002 2003 2004 2005 2006 Primary Balance of the Public Sector (% of GDP) 3\.6 3\.9 4\.2 4\.2 3\.9 Net Public Sector Debt, unadjusted (%of GDP) 50\.5 52\.4 47 46\.5 44\.9 Share of Public Debt in Foreign Currency (%) 22\.4 10\.8 5\.2 2\.7 1\.3 Average Maturity of Federal Debt (in months) 35\.3 32\.0 28\.3 27\.5 31\.1 Current Account Balance (% of GDP) -1\.7 0\.8 1\.9 1\.8 1\.4 Net Direct Investment (% of GDP) 3\.3 1\.8 2\.7 1\.7 1\.8 Gross External Debt (% of GDP) 41\.8 38\.8 30\.3 19\.2 16\.2 Net External Debt (% of GDP) 32\.7 27\.3 20\.4 11\.5 7\.0 Gross External Debt (% of Exports) 349\.1 294\.1 208\.7 143\.2 125\.5 Net External Debt (% of Exports) 273\.4 206\.6 140\.7 85\.4 54\.3 Debt Service (% of Exports) 82\.7 72\.5 53\.7 55\.8 41\.4 Sovereign Borrowing Spreads year end (in %) 1460 459 376 308 190 Sovereign Borrowing Spreads year average (in %) 1418 813 538 390 230 Sovereign Debt Ratings: Standard and Poor's B+ B+ BB- BB- BB 5  Sovereign Debt Ratings: Moody's B2 B2 B1 Ba3 Ba2 Sources: IPEA, Central Bank, Ministry of Finance, Rating agencies The combination of strong fiscal policy, the Central Bank's commitment to lower inflation targets, and the appreciation of the Real contributed to a reduction in consumer price inflation from 9\.3 percent in 2003 to 3\.1 percent in 2006, its lowest level since the exchange-rate crisis of 1999 as shown in Table 2\. GDP growth picked up recently, as indicated by the 3\.7 percent growth in 2006 and 4\.5 percent growth expected for 2007\. Recent data also indicate a significant improvement in poverty and inequality ratios ­ the poverty ratio declined from 38 percent in 2002 to 29 percent in 2006 and the Gini coefficient declined from 0\.587 in 2002 to 0\.566 in 2005\. Overall, all indicators show a stable macroeconomic environment, conducive to more growth and improvements in social outcomes\. Table 2\. Main Economic Indicators, 2002-2006 2002 2003 2004 2005 2006 Output (real growth rates, in % p\.a\.) GDP 2\.7 1\.2 5\.7 2\.9 3\.7 Private Consumption 1\.8 -0\.7 3\.8 4\.7 4\.3 Gross Investment -5\.2 -4\.6 9\.1 3\.6 8\.7 Exports (Volume) 7\.4 10\.4 15\.3 10\.1 4\.6 Composition of GDP (in %) Private Consumption 61\.7 61\.9 59\.8 60\.4 60\.4 Gross Investment 16\.4 15\.3 16\.1 16\.3 16\.8 Exports 14\.1 15\.0 16\.4 15\.1 14\.7 Prices (growth rates, in % p\.a\.) Consumer Prices (end year) 12\.5 9\.3 7\.6 5\.7 3\.1 Real Effective Exchange Rate (2000=100) 125\.4 125\.0 123\.8 105\.4 96\.7 Public Financies (in % of GDP) Primary Balance 3\.6 3\.9 4\.2 4\.2 3\.9 Overall Balance -4\.2 -4\.6 -2\.4 -3\.0 -3\.0 Net Public Debt (unadjusted) 50\.5 52\.4 47\.0 46\.5 44\.9 External Accounts (in % of GDP) Trade Account 2\.6 4\.5 5\.1 5\.1 4\.4 Current Account -1\.7 0\.8 1\.9 1\.8 1\.4 External Debt 45\.1 42\.5 33\.2 21\.3 18\.0 Poverty and Inequality Poverty Ratio 38\.2 34\.1 29\.6 Gini Coefficient 0\.587 0\.581 0\.569 0\.566 Sources: IBGE, IPEA, Central Bank Assessment of the Outcomes of the RPPS Reform Pension systems typically respond very slowly to reform measures, because changes in pension rules and parameters need to respect acquired rights\. For this reason, it is difficult to assess the outcomes of a pension reform after only a few years have passed\. However, available indicators for the first three years of implementation (2004-2006) 6  suggest that the 2003 reform is already having a positive impact, and that the civil servant pension system is moving in a positive direction\. This section assesses the impact of the 2003 reform by examining a number of key indicators, including: (i) the revenues, expenditures, and balances of the federal and state schemes; (ii) intermediate indicators such as the average retirement age, the average length of the contribution period, the flows of new civil servant retirees, and changes in benefit levels and their distribution as well as survivor pension spending\. As shown in Table 3, the financial performance of the RPPS is improving, both relative to the counterfactual (of no reform) and to the base year (2003)\. Throughout the three years following the reform, the combined federal and state RRPS pension expenditures have decreased and revenue has increased by similar amounts resulting in cash deficit decreasing from 3\.52% of GDP in 2003 to 3\.22% of GDP in 20063\. This is in line with actuarial projections performed during the loan preparation4\. Table 3\. Financial Performance of Federal and State RPPS5 (as percentage of GDP) 2002 2003 2004 2005 2006 Federal Government Employee Contributions 0\.21% 0\.18% 0\.19% 0\.21% 0\.23% Total Pension Expenditures 2\.15% 2\.13% 2\.05% 1\.97% 2\.00% Cash Balance 1\.94% 1\.95% 1\.86% 1\.76% 1\.77% State Governments Employee Contributions 0\.28% 0\.26% 0\.31% 0\.31% 0\.35% Total Pension Expenditures 2\.06% 1\.84% 1\.76% 1\.73% 1\.80% Cash Balance 1\.77% 1\.57% 1\.45% 1\.42% 1\.46% Federal Government and States Combined Employee Contributions 0\.49% 0\.45% 0\.49% 0\.52% 0\.58% Total Pension Expenditures 4\.20% 3\.96% 3\.81% 3\.70% 3\.81% Cash Deficit 3\.71% 3\.52% 3\.32% 3\.18% 3\.22% Memo items: Projected total deficit with no reform 3\.71% 3\.41% 3\.35% 3\.36% 3\.40% Projected total deficit with reform 3\.71% 3\.28% 3\.23% 3\.19% 3\.16% Source: MPS Figure 1 shows that the deficit in 2005 and 2006 was about 0\.2% of GDP below the estimate for no-reform scenario and right on target for the reform scenario\. The slight increase in expenditures in 2006 was due to accelerated wage growth in the public sector 3Under this definition of cash deficit the notional employer contribution is not taken into account\. 4A new methodology for GDP calculations has been introduced in Brazil in 2007, raising GDP estimates for the last few years by around 10%\. The discrepancies in the projection numbers quoted in loan documents and ICR are due to this fact\. 5Municipalities are excluded due to the absence of current data\. Together they constitute around 7% to 9% of total RRPS expenditures and deficits\. 7  in an election year, which was transmitted to increases in pension spending through still prevalent wage indexation of pensions\. Figure 1\. Financial Flows for Federal and State RPPS 4\.50% RPPS Expenditures 4\.25% 4\.00% RPPS Balance 3\.75% 3\.50% Projected 3\.25% Deficit with no reform 3\.00% Projected 1997199819992000200120022003200420052006 Deficit with reform This marked improvement in RRPS financial flows can be explained by examining some intermediate indicators6, the most important of which seem to be related to delayed retirement\. As shown in Figure 2, the average retirement age of federal civil servants has increased by about 3 years, due to the stricter retirement conditions, and has stabilized at this higher level\. The average career length has also increased, with the proportion of federal civil servants retiring under the regular retirement conditions aposentadoria integral increasing from 30%-50% before the reform to 75% in the first eight months of 2007 as shown in Figure 3\. This increase has occurred at the expense of disability and "proportional" retirement, both of which imply shorter careers\. Finally, the decision to delay retirement is also manifesting itself in lower numbers of new retirees\. Table 4 shows that the average annual flow of new retirees from federal RPPS has declined after the reform\. 6These more detailed indicators discussed below are only available for the federal government employees through Boletim Estatístico de Pessoal prepared monthly by the Ministry of Planning\. 8  Figure 2\. Retirement Age in the Executive Branch of Federal Civil Service 62 61 tne 60 mertieRfo )segareva 59 58 gnil 57 egA rol 56 e h ag ont 55 verA m-6(54 53 Men Women Total 52 Jun- Oct- Feb- Jun- Oct- Feb- Jun- Oct- Feb- Jun- Oct- Feb- Jun- Oct- Feb- Jun- 02 02 03 03 03 04 04 04 05 05 05 06 06 06 07 07 Figure 3\. Proportion of Federal Civil Servants retiring under aposentadoria integral 80% 70% 60% 50% 40% 30% 20% 10% 0% 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 Table 4\. Number of New Retirees from the Federal Executive Branch7 Period Average number of new retirees 1999-2002 7105 2003 17453 2004-2006 6311 Changes in benefit levels of old age and disability pensions are harder to attribute to a specific cause as indexation rules, wage growth and demographic effects all intermingle in these statistics\. However, there is a clearly discernable downward trend in the ratio of average benefit to average wage as shown in Figure 4\. A more pronounced temporary decrease in benefits in 2002-2004 is most likely attributable to many premature retirements resulting in lower pensions, which tends to occur with any significant pension reform\. 7Excludes military 9  Figure 4\. The Ratio of Average Benefit to Average Wage in Federal RPPS 130% 110% 90% 70% 50% 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 Even though the benefits are declining, their levels remain adequate for all income groups as demonstrated in Figure 5\. The gross income distribution of pensioners remains very close to that of active employees\. Moreover, even for the lowest paid civil servants both wages and pensions remain comfortably above the minimum wage of 380 Brazilian reais\. As expected, the reform has affected the richest segment of pensioner population the most with the net spending share on 25% civil servants with highest pension income in federal executive branch falling from around 57% to 49% in five years to September 2007\. Figure 5\. Gross Income Distribution of Federal Civil Servants of Executive Branch 30% 25% Active civil servants Inactive civil servants 20% 15% 10% 5% 0% 493 600 700 800 900 1000 1100 1200 1300 1400 1500 2000 2500 3000 3500 4500 5500 6500 7500 8500 The benefits of RPPS are still more generous compared to those in RGPS but the system has markedly moved towards the goal of harmonization between the two pension regimes\. Some important RPPS parameters have been brought in line with those of RGPS including definition of wage base and indexation rules\. Even though subsidies, calculated as pension deficit per pensioner, are still 15 times higher in RPPS the difference has decreased remarkably over the last few years8\. 8Notional employer contribution is taken into account for the purpose of calculating subsidy per pensioner in RPPS\. 10  Finally, the overall net spending on survivor pensions (gross pensions minus newly introduced pension contributions) also has likely declined although the amount of the decline is hard to measure as survivor contributions are not reported separately in pension statistics\. However, gross expenditures on survivor pensions in 2006 in the federal RPPS remained at 0\.7% of GDP which is the level comparable to the level observed before the 2003 reform\. This suggests that net survivor spending has likely declined in proportion to GDP\. Assessment of the Outcomes of Specific Policy Actions in the RGPS Contrary to the positive trends in the RPPS, the overall financial performance of the RGPS has continued to deteriorate as shown in Table 5\. Total spending has increased from 6\.5% of GDP in 2003 to 7\.8% of GDP in 2006, while deficits have increased from 1\.8% to 2\.5% in the same period\. These numbers indicate that the RGPS will need a major reform in the future, as discussed and acknowledged in the loan document\. At the same time, it is also important to highlight the fact that the specific policy areas supported by this loan are performing satisfactorily\. Table 5\. Financial performance of RGPS9 2002 2003 2004 2005 2006 Employee Contributions 4\.8% 4\.7% 4\.8% 5\.0% 5\.3% Total Pension Expenditures 6\.1% 6\.5% 7\.0% 7\.4% 7\.8% Cash Balance 1\.3% 1\.8% 2\.2% 2\.4% 2\.5% Source: MPS The specific policy actions in the RGPS supported by the loan included: (i) improvements in the institutional framework for contribution collection, aimed at increasing revenues; (ii) full implementation of a re-certification program designed to eliminate irregular benefits; (iii) several policy and administrative measures designed to curb the growth of disability-related benefits, especially those linked to work injuries\. Revenue Collection\. Contribution revenues have increased dramatically from a relatively stable level of 4\.8% of GDP until 2004 to 5\.0% of GDP in 2005 and 5\.3% of GDP in 2006\. Doubtless, this is at least partially due to the overall positive performance of the economy, but the sharp increase in revenues also corresponds in timing to the creation in 2005 of a new Secretariat for Social Security Revenues in the Ministry of Social Security, which was further strengthened in 2007 by its merger with the Secretariat for Tax Collection in the Ministry of Finance (the new Secretariat has been labeled the Super Secretariat)\. Recertification Program\. Another policy area supported by the loan was the re- certification program that has aimed to audit all RGPS benefits in payment\. The program has already been completed with a total of 17\.2 million records checked\. It has resulted in 9The numbers include social assistance payments for elderly and disabled\. 11  0\.5% of benefits being discontinued due to irregularities, with another 0\.25% of benefits pending further investigation\. The number of regular termination of benefits due to death has also increased slightly suggesting that the overall effect of the program might have been higher due to fraud deterrence\. The estimated savings amount to 0\.5 ­ 1 billion Reais annually, which is equivalent to about 0\.02-0\.04% of GDP\. The savings generated by the program may not be significant relative to the overall size of the deficit, but the program has had an important demonstration effect, showing the Brazilian public that administrative improvements have a limited scope in ensuring the financial health of RGPS and that further parametric reforms may be needed\. Containment of Disability-related Benefits\. Finally, the last set of policy actions supported by the loan aimed to arrest the explosive growth of disability and sickness expenditures observed until 2004\. The loan has supported the approval of the National Program of Health and Safety at the Workplace; the introduction of a system of risk- related contributions to occupational hazard insurance; other policy measures designed to reduce excessive sickness benefits; and administrative measures designed to improve the concession of these benefits\. Since loan approval, the Government has made substantial progress in introducing new legislation in this area, as indicated by the Congressional approval of Law Nº11\.430 in 2007 that introduces a system of risk-based contributions for employers, and the introduction of Medida Provisória Nº1\.291 that changes the formula for sickness benefits\. The government has also implemented important administrative reforms designed to change sickness and disability certification criteria\. This includes the hiring of 3,000 new social security doctors to replace part time private doctors, and the introduction of stricter benefit concession procedures\. These actions have contributed to a marked improvement in the sickness benefit program\. Figure 6 shows that the number of sickness benefits has stopped growing and even decreased compared to the peak of November 2005\. The benefit numbers initially dropped sharply followed by a bounce in the second half of 2006\. This was expected as the clogging of the system has been reduced making the process of applying for benefits much easier and drawing in new applications\. However, the first nine months of 2007 show that the number of benefits has stabilized at the lower level\. The disability program has also experienced a marked improvement\. Given the long term nature of the benefit the inertia of the system compared to sickness program is much greater\. Therefore, the growth in the number of benefits is analyzed here instead of the absolute number of benefits\. Figure 7 clearly demonstrates that the growth in number of benefits has been halted both in general disability program as well as that of the disability related to work injuries\. 12  Figure 6\. Number of sickness benefits in RGPS 1,800,000 1,600,000 1,400,000 1,200,000 1,000,000 800,000 Jan-03Ma y-03Sep-03 Jan-04Ma y-04Sep-04 Jan-05Ma y-05Sep-05 n-06May-06Sep-06 n-07May-07 p-07 Ja Ja Se Figure 7\. Monthly growth rate of the number of permanent disability benefits (six month moving average) 0\.6% 0\.5% 0\.4% 0\.3% 0\.2% 0\.1% General disability 0\.0% Work injury disability -0\.1% 30-l 30-t 04 4 05 5 06 6 07 7 Ju Oc n-aJ r-0pA 40-l 40-t Ju Oc n-aJ r-0pA 50-l 50-t Ju Oc n-aJ r-0pA 60-l 60-t Ju Oc n-aJ r-0pA 70-l Ju Assessment of Outcomes of Policy Actions in the Voluntary System As indicated in the loan document, the pension reforms implemented since the late 1990s are slowly reducing pension benefits in both national and civil servant pension schemes and increasing the importance of the voluntary private system\. The loan supported a 13  number of policy measures designed to expand the coverage of voluntary schemes, both closed and open, through the introduction of the EET or TEE tax treatments adopted in most OECD countries, the introduction of plans sponsored by associations, and stricter funding rules for defined benefit schemes to continue with overall adequate benefits\. As shown in Tables 6 and 7, the number of participants in open and closed schemes has increased by about 3 million since 2003, and the volume of pension assets has grown as well\. Coverage in the voluntary system in Brazil is still low (compared to a labor force of about 90 million people), but the trends in this area look promising\. Table 6\. Number of Participants in Private Voluntary Pension Schemes (thousands) 2002 2003 2004 2005 2006 Closed Plans 1,789 1,781 1,779 1,729 1,906 Open Plans1 4,697 6,015 7,863 8,086 8,703 Total 6,486 7,796 9,642 9,815 10,609 Note: 1/ Traditional plans (excluding peculios), PGBL and VGBL Sources: SPC, SUSEP Table 7\. Assets of Private Voluntary Pension Schemes (% of GDP) 2002 2003 2004 2005 2006 Closed Plans 12\.7 14\.1 14\.5 15\.0 16\.2 Open Plans1 2\.0 2\.6 2\.7 3\.5 4\.2 Total 14\.7 16\.7 17\.3 18\.5 20\.4 Note: 1/ Traditional plans (excluding peculios), PGBL and VGBL Sources: SPC, SUSEP Most of the open plans operate on a defined contribution basis and the new participants in closed schemes have also been shifted to defined contribution plans\. However, most of the assets in the closed system relate to defined benefit plans, and several of these plans seemed to be under-funded during loan appraisal\. For this reason, the loan supported the pension supervision's plan to draft new and stricter funding rules for defined benefit plans, which effectively occurred through the issue of Resolution 18 of the Committee for Complementary Pensions (CGPC) in March 2006\. Finally, in July 2007 the Government submitted a draft Law to Congress laying out the legal structure and operating rules underlying new complementary funds for new civil servants affected by the 2003 reform (draft law of Sept 6, 2007)\. The model proposed by the draft Law is based on the Thrift Savings Plan for federal civil servants in the US\. It is a solid construction that insulates asset management from political pressures and protects the savings of plan participants\. One state (Rio Grande do Sul) has already submitted a very similar draft to its legislature, suggesting that other states may follow a similar model\. 3\.3 Justification of Overall Outcome Rating Rating: Satisfactory The overall outcome of the loan is rated satisfactory\. The quality at entry was rated satisfactory by the QAG report with areas of "Strategic relevance and approach" and 14  "Structural, financial and macroeconomic aspects" earning highly satisfactory ratings\. The objectives of the loan set at the time of its approval still remain extremely relevant\. The program was largely implemented as planned and the foreseen program outcomes are being achieved\. 3\.4 Overarching Themes, Other Outcomes and Impacts (a) Poverty Impacts, Gender Aspects, and Social Development Policy actions supported by the loan had a positive social impact by reducing inequality and increasing a perception of fairness in the pension system\. Reduction in inequality resulted from aiming to achieve fiscal savings by targeting civil servants in general (e\.g\. federal RPPS employees earn 5 times more than RGPS average) and high earning civil servants in particular\. As was mentioned before, the share of net spending for 25% civil servants with highest pension income in federal executive branch has decreased from 57% to 49% during the last five years, in part due to the newly introduced 11% contribution rate for higher income pensioners\. Also, one of the measures supported by the loan, was to start utilizing the life-time average wage rather than last wage in calculating benefit amounts for civil servants\. This measure tends to substantially favor civil servants with relatively flat wage histories, who disproportionately tend to be lower paid employees in general and women in particular\. In the RGPS, some savings were also achieved by eliminating many fraudulent payments widely perceived to be the main cause of fiscal imbalances in the pension system\. Although the savings from the elimination of such payments were relatively small, the program strongly increased the perception of pension system fairness\. More generally, the measures supported by the loan have already started contributing to better macroeconomic and fiscal outcomes that are essential to the fight against poverty\. (b) Institutional Change/Strengthening The Bank's assistance in pensions has not only included this DPL but also TA loans specifically geared towards improving the administration of state and municipal pension systems\. These loans have had a more direct impact on institutional development than the DPL\. However, the technical work undertaken during the appraisal and supervision of this DPL also contributed to capacity building by stimulating pension policy discussions with Government officials\. For example, the Bank brought in the former head of pension supervision of the Netherlands who provided important insights in the formulation of risk-based funding rules for defined benefit schemes\. Another well-known Dutch expert on disability pensions provided a report on the Brazilian disability and sickness benefit programs that constituted the basis for a fruitful dialogue with the Government\. Finally, the Bank team also brought a top official of the Thrift Savings Plan for federal employees in the US that explained details of the TSP model to Government officials\. The policy 15  dialogue during loan supervision contributed to the drafting of new legislation on complementary funds for new civil servants\. (c) Other Unintended Outcomes and Impacts: N/A 3\.6 Summary of Findings of Beneficiary Survey and/or Stakeholder Workshops: N/A 4\. Assessment of Risk to Development Outcome Rating: Low The loan document discussed six potential risks to the development outcome including a) low wage and GDP growth negatively affecting projected savings; b) continued high growth of disability benefits; c) high government contributions to the complementary fund; d) risk retention by the government in complementary funds; e) persistent actuarial imbalances in the pension funds of public sector companies; f) retroactive changes to 2003 reform\. This risk assessment was rated satisfactory by QAG\. The developments between the approval of the loan and the time of writing this ICR have not increased and in many cases significantly diminished these risks\. No additional risks have become apparent during this period\. 5\. Assessment of Bank and Borrower Performance 5\.1 Bank Performance (a) Bank Performance in Ensuring Quality at Entry Rating: Satisfactory The loan was underpinned by strong analytical work containing actuarial simulations presented in Annex 2 of the main loan document\. The expectations of these projections have been confirmed by recent data as demonstrated in section 3\.2 of this document\. The Bank took further steps to ensure quality and tried to minimize the risk of a reform reversal by only initiating preparation of the loan after the December 2003 reform was upheld by the Supreme Court ruling in September 2004\. During the appraisal of the loan the Bank also exhibited sensitivity to the Government's request to avoid excessive visibility that could have undermined the reform effort\. (b) Quality of Supervision Rating: Satisfactory The implementation of the loan was well monitored\. The Bank continued the policy dialogue in July 2005 (right after Board approval) and brought two experts to Brasília on that occasion ­ a Dutch expert on disability and a US expert on complementary pension funds, responding to request from the authorities, and addressing critical technical issues relevant to the reform supported by the loan\. 16  In June 2006 a Bank team visited Brazil to discuss preliminary reform outcomes with the authorities\. Although not required by Bank procedures, the mission has produced a midterm review report (attached)\. During the period of implementation the ESW report on pensions was initiated at Government's request which have further investigated the state of both national and civil servant pension systems\. After sharing the draft report with the Government the Bank received a letter from the Minister of Finance praising the report\. (c) Justification of Rating for Overall Bank Performance Rating: Satisfactory Overall Bank Performance is rated satisfactory as the loan had a satisfactory rating at entry (confirmed by QAG) and was adequately supervised\. Moreover, the supervision of the loan generated a comprehensive mid-term review, was accompanied by the provision of technical assistance in key areas, and was also complemented by a report providing extensive benchmarking exercises elaborated in response to a Government request\. 5\.2 Borrower Performance (a) Government Performance Rating: Satisfactory Government performance is rated satisfactory as it displayed strong ownership of the program by instituting major policy changes through Constitutional Amendments requiring three fifths majority and obtaining favorable Supreme Court ruling, both of which ensure extremely low prospects for the reversal of reforms\. Moreover, the Government has continued implementing policy actions foreseen as triggers for the second programmatic loan including: commitment to fiscal and macroeconomic stability; the creation of the Super-secretariat for joint tax and contribution revenue collection; submission to Parliament of the law on complementary funds; and the carrying out of further legal and administrative reforms in the area of disability pensions\. Additional reforms in RGPS also continue to be debated in the forum\. Finally, the Government has also remained open to dialogue and is extremely helpful in providing data and insights to help in the monitoring and evaluation of this loan\. (b) Implementing Agency or Agencies Performance: N/A (c) Justification of Rating for Overall Borrower Performance Rating: Satisfactory, discussed in 5\.2 (a) 6\. Lessons Learned Pension reform is a complex technical and political process and needs a strong local ownership as well as appropriate respect of outsiders to the country's political sensitivities\. Over the last decade of World Bank involvement in Brazil's pension policy 17  dialogue the Government requested technical support but asked the Bank to maintain a discrete public role\. The Bank has done this during the preparation of this loan and the elaboration of the ESW prepared on the Government's request\. Acknowledging this, the ESW received an award from the LCR region as best practice in dealing with sensitive topics\. Follow-up pension reforms may not take place within the expected timeframe due to political resistance\. The second reform in the program is still under discussion in the Government but may not take place during this administration\. The Bank must be prepared to accept this reality\. In this regard, doing the ICR for the first loan only was an appropriate decision\. 7\. Comments on Issues Raised by Borrower/Implementing Agencies/Partners: N/A Annex 1\. Bank Lending and Implementation Support/Supervision Processes (a) Task Team members Names Title Unit Responsibility/ Specialty Lending Roberto Rocha Mission leader OPD Gustavo Demarco Sr\. Economist MNSHD Richard Paul Hinz Adviser HDNSP Gregorio Impavido Sr\. Financial Economist LCSPF Craig W\. Thorburn Sr\. Financial Sector Spec\. FPDFS Asta Zviniene Sr\. Social Protection Specialist HDNSP Supervision Roberto Rocha Mission leader OPD Gregorio Impavido Sr Financial Economist LCSPF Asta Zviniene Sr Social Protection Specialist HDNSP (b) Staff Time and Cost Staff Time and Cost (Bank Budget Only) Stage No\. of staff weeks USD Thousands (including travel and consultant costs) Lending FY04 2 22\.03 FY05 56 394\.05 FY06 0\.00 FY07 0\.00 Total: 58 416\.08 18  Supervision/ICR FY04 0\.00 FY05 0\.00 FY06 9 82\.65 FY07 2 32\.33 Total: 11 114\.98 19  Annex 2\. Beneficiary Survey Results: N/A Annex 3\. Stakeholder Workshop Report and Results: N/A Annex 4\. Summary of Borrower's ICR and/or Comments on Draft ICR We consider the reform supported by the loan has brought positive outcomes, since the deficit of the public servant pension schemes remained stable along the period 2003-2006\. This is a result of incentives created to postpone retirement (increase of retirement ages according to evidence above), changes in the RPPS financing structures (with alignment of contribution rates between public servants and private sector workers), as well as institutional changes (streamlining executive agencies in States and municipalities and introducing the possibility of supplementary pension scheme)\. Hence, we think the report above documents adequately the recent experience and the results of the policies supported by the structural loan\. We also think that the cooperation with the Bank was positive, with an additional mention to the technical support provided regarding disability benefits\. That assistance allowed us to acquire a global view and redesign some policies and administrative procedures in the light of good international practices\. Helmut Schwarzer Secretary of Social Protection Policy Ministry of Social Protection Annex 5\. Comments of Cofinanciers and Other Partners/Stakeholders: N/A Annex 6\. List of Supporting Documents Seventh Quality at Entry Assessment, Development Policy Lending Questionnaire, Brazil Mid-term Loan Supervision Report 20

REVIEW

P003291

 Second highway project Report No: ; Type: Report/Evaluation Memorandum ; Country: Zimbabwe; Region: Africa; Sector: Highways; Major Sector: Transportation; ProjectID: P003291 The Implementation Completion Report (ICR) on the Zimbabwe Second Highway Project (Loan 2939-ZIM, approved in FY89), was prepared by the Southern Africa Regional Office, with Appendix B contributed by the Borrower\. The loan for US$32\.7 million was approved on May 10, 1989, and closed on June 30, 1995, as planned\. US$7\.6 million was canceled\. The project's objective was to strengthen the road network in commercial farming areas as well as in communal lands by reducing the backlog of periodic maintenance of primary, secondary and feeder roads\. The aim was to preserve the capital invested in the road network, facilitate road transport, lower vehicle operating costs and help improve trucking services\. The project consisted of: (i) the rehabilitation and resealing of paved roads; (ii) the re-gravelling and low-cost improvement of secondary and feeder roads; and (iii) related consulting services\. In addition, policy changes were to be made to free market entry for truck transport service providers and to increase the private sector's share in road construction and maintenance\. The project achieved most of its objectives in that the road network was improved and policy changes were carried out\. The quantity of work completed was less than planned due to lack of counterpart funds, but the quality of work was good\. Inadequacy of counterpart funds also extended the implementation period from four to five years and three road sections were deleted from the improvement program\. The economic rate of return of components, which ranged from 22 to 236 percent vs\. 24 to 58 percent at appraisal is highly satisfactory\. In agreement with the ICR, the Operations Evaluation Department rates the project outcome as satisfactory, its institutional development as moderate, sustainability as uncertain because a mechanism to provide adequate funding for maintenance is not in place, and Bank performance as satisfactory\. The main lesson learned is that the Government's commitment to the project objective, as demonstrated by past actions, is alone insufficient to guarantee the allocation of adequate funds for project completion\. Institutional measures need to be taken to have funding continuity\. A future operation aims to address this issue\. The ICR is satisfactory and no audit is planned\.

REVIEW

P061214

Document of The World Bank FOR OFFICIAL USE ONLY Report No\. 22!1Si IMPLEMENTATION COMPLETION REPORT SOLOMON ISLANDS STRUCTURAL ADJUSTMENT CREDIT (Credit No\. 32520-SOL) June 27, 2001 Poverty Reduction and Economic Management Unit East Asia and Pacific Region This document has a restricted distribution and may be used by recipients only in the performance of their official duties\. Its content may not otherwise be disclosed without World Bank authorization\.  CURRENCY EQUIVALENTS (as of June 2001 ) Currency Unit = Solomon Islands Dollar (SBD) 1 SBD = US$ 0\.21 US$1\.00 = SBD$ 4\.82 WEIGHTS AND MEASURES: Metric System FISCAL YEAR: January - December ABBREVIATIONS AND ACRONYMS ADB - Asian Development Bank AusAID - Australian Agency for International Development CBSI - Central bank of Solomon Islands CHS - Community High Schools CNURP - Coalition for National Unity, Reconciliation, and Peace DBSI - Development Bank of Solomon Islands DNPD - Department of National Planning and Development DOF - Department of Finance ESAF - Enhanced Structural Adjustment Facility ESCAP - Economic and Social Commission for Asia and the Pacific EU - European Union FIAS - Foreign Investment Advisory Service IB - Investment Board MAF - Ministry of Agriculture and Fisheries MHMS - Ministry of Health and Medical Services MLAR - Minimum Liquid Asset Ratio MTBF - Medium-Term Budget Framework MTWCA - Ministry of Transport, Works, Communication and Aviation NBSI - National Bank of Solomon Islands NGO - Non-government Organizations NPF - National Provident Fund PSIP - Public Sector Investment Program PSRC - Policy and Structural Reform Committee PSRP - Policy and Structural Reform Program SIAC - Solomon Islands Alliance for Change SIEA - Solomon Islands Electricity Authority SIF - Social Investment Funds SIG - Solomon Islands Government SOE - State-owned Enterprise Vice President : Jemal-ud-din Kassum, EAPVP Country Director : Klaus Rohland, EACNF Sector Director : Homi Kharas, EASPR Task Team Leader at ICR : Vivek Suri, EACNF ICR Primary Author : Thang-Long Ton, EASPR  FOR OFFICIAL USE ONLY IMPLEMENTATION COMPLETION REPORT SOLOMON ISLANDS STRUCTURAL ADJUSTMENT CREDIT (Credit No\. 3252-SOL) CONTENTS 1\. Project Data \.1 2\. Principal Performance Ratings \. \.2 3\. Assessment of Development Objectives and Design, and of Quality at Entry \.2 4\. Achievement of Objectives and Outputs \.6 5\. Major Factors Affecting Implementation and Outcome \.15 6\. Sustainability \.17 7\. Bank and Borrower Performance \.17 8\. Lessons Leared \.19 9\. Partner Comments \.19 Annex 1\. Key Performance Indicators \. 32 Annex 2\. Project Costs and Financing \. 32 Annex 3\. Economic Costs and Benefits \. 33 Annex 4\. Bank Inputs \. 33 Annex 5\. Ratings for Achievement of Objectives/Outputs of Components \. 34 Annex 6\. Ratings of Bank and Borrower Performance \. \. 35 Annex 7\. List of Supporting Document -- Policy Matrix \. 36 This document has a restricted distribution and may be used by recipients only in the performance of their official duties\. Its contents may not otherwise be disclosed without World Bank authorization\.   IMPLEMENTATION COMPLETION REPORT SOLOMON ISLANDS STRUCTURAL ADJUSTMENT CREDIT (CREDIT No\. 3252-SOL) Project ID: P061214 Project Name: Structural Adjustment Credit Team Leader: Hilarian Codippily/Vivek Suri TL Unit: EASPR ICR Type: Core ICR Report Date: June 27, 2001 1\. Project Data Name: Structural Adjustment Credit L/C/TFNumber: 3252-SOL Country/ Solomon Islands/EASPR Region: East Asia and Department: Pacific Region Sector/subsector: KN - Macro/Non-Trade Key Dates Original Revised/Actual Project Concept Document 7/30/1998 Effectiveness 7/15/1999 7/15/1999 Appraisal 2/25/1999 Approval 6/17/1999 Closin 12/31/2000 12/31/2000 Borrower/Implementing Solomon Islands/The Policy and Structural Reform Committee Agency: (PSRC) under the Prime Minister Other Partners: None Staff At ICR preparation At Appraisal Vice President: Jemal-ud-din Kassum Jean-Michel Severino Country Director: Klaus Rohland Klaus Rohland Sector Director: Homi Kharas Tamar Manuelyan Atinc (acting) Team Leader at ICR: Vivek Suri Hilarian Codippily ICR Primary Writer: Thang-Long Ton None Country Team Reviewers Sanjay Dhar and Vivek Suri None for the ICR:  - 2 - 2\. Principal Performance Ratings (HS = Highly Satisfactory, S = Satisfactory; U = Unsatisfactory; HL = Highly Likely; UN = Unlikely, HUN = Highly Unlikely, HU = Highly Unsatisfactory, H = High, SU = Substantial, M = Modest, N = Negligible) 2\.1\. The principal performance ratings are as follows: Outcome: U Sustainability: UN Institutional Development Impact: M Bank Performance: S Borrower Performance: U ICR QAG (if available) Quality at entry S not available Project at Risk at any time yes not available 3\. Assessment of Development Obiectives\. Design and Quality at Entry 3\.1 Original Objective: Background 3\.1\.1\. In 1997-98, the Solomon Islands experienced an economic crisis\. The cumulative effects of many years of poor economic management and weak fiscal discipline (budget deficit averaged about 4\.5 percent of GDP during 1995-98) were exacerbated by the East Asian financial crisis\. The mid-1990s logging boom boosted export receipts and government revenues, but concealed structural weaknesses in the economy and was environmentally damaging\. Prior to the crisis, timber exports accounted for about 60 percent of export receipts and provided 25 percent of tax revenues\. Consequently, the collapse of the log markets in Japan and Korea following the East Asian crisis was a major setback to the economy, with logging activity falling by over 30 percent\. Due to the financing of large budget deficits, the financial sector had become seriously over- exposed to the government which was unable to service its debt: external and domestic debt arrears mounted, threatening the financial stability of the country\. 3\.1\.2\. Against this backdrop, the reform-minded Solomon Islands Alliance for Change (SIAC) government was elected in August 1997\. The new government embarked on a comprehensive Policy and Structural Reform Program which was supported by the Bank\. During 1999, the Solomon Islands economy was slowly recovering from the adverse effects of the fiscal and East Asian crises of 1997-98\. There were also signs that the reform program introduced by the SIAC government was beginning to produce results with growing optimism for a strong economic performance\. 3\.1\.3\. However, the SIAC government's committed and promising start on its reform agenda was cut short by an ethnic crisis\. The social unrest, that erupted in mid-1999 and intensified in  - 3 - 2000, led to a coup that resulted in the removal of the Prime Minister in June 2000\. The hostilities, which involved two armed groups, the Isatabu Freedom Movement (IFM, from the island of Guadalcanal) and the Malaitan Eagle Forces (MEF, from the island of Malaita), disrupted key economic activities and the country's GDP is estimated to have fallen 14 per cent in 2000\. 3\.1\.4\. It is against this changing political background that the Bank's Structural Adjustment Credit was carried out and its implementation and outcome were clearly impacted by the difficult political circumstances of the country\. Objectives 3\.1\.5\. The Structural Adjustment Credit (SAC) was an integral part of the package designed to help the SIAC government elected in 1997 to carry out its Policy and Structural Reform Program\. The program aimed to restore macroeconomic stability and to move the economy to a growth path that could be sustained\. To fulfill this overall objective, an integrated set of policy actions were to be implemented: (1) Achieving and maintaining macroeconomic stability; (2) Structural reforns in public finances, financial sector, and forestry resources management, (3) private sector development and stimulation for a supply response, and (4) active efforts toward poverty alleviation through efficient and equitable delivery of social services and poverty assessment\. 3\.1\.6\. Macroeconomic stabilization: The principal objective of the SAC was to support the government in guiding the economy toward stabilization with low inflation, a sustainable position in the balance of payments, through a more proactive use of fiscal and monetary instruments\. 3\.1\.7 Structural reforms\. The SAC would focus on a four-fold objective within the framework for structural adjustment in the fiscal-forestry-financial sector triangle\. First, the restoration of order in the fiscal sector was the centerpiece of macroeconomic stabilization, combining structural improvements and short-term fiscal measures to restrain expenditure and raise revenue\. It focused on the quality of public expenditures and ways for these to be restructured to promote economic growth and equity; the SAC would also support shift in public expenditures to basic infrastructure and to basic public functions to help stimulate the overall supply response\. Secondly, the SAC would assist the financial sector to ensure adequate support for private sector development, including microfinance\. Third, the management of forestry resources would need to be improved and enhanced so as to promote economically and environmentally sustainable growth\. 3\.1\.8\. Private sector development and supply response\. The SAC would contribute to creating favorable conditions for a supply response via the promotion of important elements in the incentive framework, essentially microeconomic and regulatory in nature\. These would encourage and strengthen private sector development, reinforced by fiscal and monetary policies pursued by the government to stabilize the economy\.  - 4 - 3\.1\.9\. Poverty alleviation\. In order to help the government meet the challenges to progressively improve living standards of the general population and to design a strategically sound human development policy and specific social programs, the SAC proposed a poverty assessment for the Solomon Islands as part of the program to help identify accurately the actual situation with respect to social service delivery, level and distribution of poverty, and the extent and nature of gender inequalities\. Pending the completion of the poverty assessment, the SAC would also support effort to improve public services in the health and education sectors\. 3\.2 Revised Objective: 3\.2\.1\. No revisions were made to the above-mentioned objectives\. 3\.3 Original Components: 3\.3\.1\. In accordance with the main objectives presented in 3\.1 above, the key policy and institutional changes supported by the SAC were as follows: Maintaining macroeconomic policy: 3\.3\.2\. The credit supported a proactive use of fiscal and monetary instruments to help restore macroeconomic stability following a period of serious imbalances in several key economic sectors: large budget deficit, high inflation rate, and balance of payments' deficit\. 3\.3\.3\. The restoration of fiscal sustainability began with the management of the 1999 budget\. The government continued a tight overall fiscal policy stance for 1999 and adhered to the 1999 fiscal targets by relying on a combination of structural improvements and short-term measures to restrain expenditure and raise revenue\. These included maintaining near fiscal balance, no provision for domestic financing of the budget, arrears reduction, and restructuring of the government's domestic debt\. These reforms aimed at lowering borrowing costs to commercial banks, restoring the central bank's ability to conduct active monetary policy, and provide affordability in meeting higher interest payments from the national budget\. Measures to conserve and restore revenues were encouraged and those to reduce expenditures where possible would be implemented\. Fiscal discipline was to be strictly maintained in 1999 and a minimum of supplementary budgets would be kept\. 3\.3\.4\. Tight fiscal policies were complemented with a market-oriented monetary policy\. Monetary policy aimed to safeguard the external position and the domestic price level and to provide adequate credit to support the private sector through the reduction of the minimum liquid-asset ratio (MLAR) and the resumption of treasury bills auctions for monetary liquidity management and government debt service payments\. Structural reforms\. 3\.3\.5\. The SAC was formulated to assist the government in its efforts to create the conditions necessary to set the economy on the path for sustainable growth in the medium and long run\. Key structural changes supported by the SAC included:  3\.3\.6\. Fiscal sector restructuring: To assure quality and efficiency of public expenditures, the SAC supported the restructuring of the budget by allocating expenditures towards operations and maintenance with the aim to help support private sector activities and growth objectives\. The SAC also supported measures to insure adequate budgetary allocation towards public health services and basic education to help alleviate these dimensions of poverty\. 3\.3\.7\. The government also planned to eliminate arrears in domestic debts and exemptions from export duty on logs\. The SAC supported shifts in public expenditures toward basic infrastructure (mainly road, water supply, electricity, and telecommunications) and toward catalytic functions such as agriculture research and extension to aid in the creation of favorable conditions for a supply response\. 3\.3\.8\. Financial sector\. The SAC focused on helping restore financial health and stability to this sector which had been subject to mismanagement in the 1990s\. This included undertaking measures to prevent the crowding out effect in the credit market for the private sector by government domestic borrowing, targeting a balanced government budget for 1999-2000, resuming domestic debt service payments and restructuring its domestic debt portfolio, payments of arrears, resuscitating the market for domestic securities, and appropriate interest rate policy to be pursued by the central bank\. In addition, the SAC supported a number of reforms that would broaden and deepen the market, improving competition and access to credit and financial services, and enhancing the regulatory and supervisory system for a sound and safe financial system\. 3\.3\.9\. Forestrg Resources Management\. The measures supported by the SAC in the forestry sector sought to ensure sustainability in the exploitation of renewable forestry resources, and minimizing negative environmental impacts to benefit the development of Solomon Islands\. Measures undertaken included new forestry legislation, regulations and guidelines on logging\. Logging licenses were expected to be reviewed under more stringent standards and the Code of Practice for Logging was implemented\. Overall, the SAC supported the management of forestry resources in order to promote economically and environmentally sustainable growth for the country\. Private Sector Development and Supply response\. 3\.3\.10\. The SAC sought to help create conditions enabling a supply response\. First, by restoring macroeconomic stability and the expected result of lowering uncertainty and risk premiums and of bringing back both price stability and competitive pricing of domestic resources, the government would create an enabling environment for investors and producers\. Second, to enhance the supply response, the SAC focused on important elements of the incentive framework, essentially microeconomic and regulatory in nature\. Steps included reviews of tax and tariff policies, price deregulation, streamlining of investment approval procedures, and promotion of greater consultation between the government and other stakeholders\.  -6 - Poverty alleviation\. 3\.3\.11\. The SAC sought to insure that the government met the challenge of maintaining previous levels of expenditures in social services, especially those that benefit the poor and the disadvantaged, in the health and education sectors\. A poverty assessment was to be initiated, to design a strategically sound human development policy and appropriate programs for employment creation for the Solomon Islands\. 3\.4 Revised Components: 3\.4\.1\. No revisions were made to the above components\. 3\.5 Quality at Entry 3\.5\.1 The SAC is rated satisfactory for quality at entry by the ICR\. The SAC was consistent with the statement of the Bank's assistance strategy that called for the development of a market- oriented economy and a private sector-based approach\. This included pursuing a strategy for macroeconomic stabilization and structural reform\. The SAC was an instrument that would support the SIAC government's Policy and Structural Reform Program (PSRP)\. It is worth noting here that it was one of the first adjustment operations in the Pacific islands, with the exception of that in Papua New Guinea\. 3\.5\.2\. The project's design for the restoration and maintenance of macroeconomic stability led to improvements in the economy during the reform period\. There was strong ownership from the government as the program effectively supported the agenda of the government\. Based on several years of dialogue with the authorities, the SAC was designed to cover both macro and structural issues\. It addressed key issues relating to public finances, the financial sector, forestry, private sector development, and the social sector\. There was extensive collaboration with the IMF on macroeconomic issues\. Performance under the first tranche conditions surpassed the targets and benchmarks allowing the disbursement of $7 million\. 3\.5\.3\. Major risks to the operation were accurately assessed and clearly highlighted in the preparation of the program\. The country was faced with political instability and ethnic tensions, deteriorating public infrastructure, a narrowly based private sector, low capacity levels in the civil service, and limited donor engagement\. The risk created by ethnic tension came to the fore during program implementation and led to the closing of the Credit without disbursement of the second tranche\. 4\. Achievement of Obiectives 4\.1 Outcome/achievement of objective 4\.1\.1\. Given the chain of events in the Solomon Islands during the implementation of the SAC, there is a need to separate the reform period and the ethnic crisis period in the assessment exercise\. The achievements of the objectives of this Credit prior to the social unrest were substantial, meeting all pre-Board conditions and progressing toward the fulfillment of second tranche conditions\. The project contributed effectively toward the stabilization of the economy  - 7 - and helped initiate the necessary steps toward redressing serious imbalances in many economic sectors\. But these achievements were subsequently undermined by the onset of ethnic violence and political upheaval (Box 1), leading to the overall unsatisfactory rating for the outcome\. The unsatisfactory rating is not a reflection of problems with the design of the SAC but that the operation was simply overtaken by the chain of events during the ethnic crisis\. Box 1\. Ethnic Crisis of 1999-2000 in Solomon Islands\. The recent tensions started towards the end of 1998 when armed militants from Guadalcanal started forcing settlers of Malaitan origin to leave\. Tensions worsened in mid-1999, and at their height, over 20,000 people, mostly from Malaita, were forced to leave their homes in Guadalcanal\. In retaliation a militant group from Malaita was established and started counterattacking by the end of 1999\. In addition to the 20,000 people displaced to Malaita, estimates of people displaced within Guadalcanal range between 12,000-18,000\. While the conflict directly involves inhabitants of two islands, the impact has been felt throughout the Solomon Islands\. Indeed there has been a growing resentment among inhabitants of other islands against what they see as disproportionate government attention being given to Guadalcanal and Malaita at their cost, and some islands have threatened to secede\. In late- 1999, peace efforts through a Commonwealth Special Representative and an international police force failed to secure peace\. The Royal Solomon Islands Police Force and Solomon Islands Prison Service were deeply divided along provincial lines and were largely unable to deal with the law and order situation\. The MEF took control of the capital city in June 2000, and carried out a joint military operation, detaining the Prime Minister on June 5\. After two days, the Prime Minister was released following his agreement to resign\. The National Parliament was then called to elect a new Prime Minister\. The first Parliament session was adjourned due to a boycott by the majority of the Parliament Members\. During the second session the Parliament elected the new Prime Minister, Sogavare, on June 30, 2000\. The Sogavare government saw the establishment of peace as its key goal\. It made compensation payments to the two militias amounting to US$ 2 million to bring them together to negotiate a cease fire in August\. On October 15, a peace agreement was signed in Townsville, Australia\. The agreement envisages government action to sustain peace and promote reconciliation\. 4\.1\.2\. The project began with a solid record from the government\. Performance under the first tranche conditions even surpassed the targets and benchmarks\. Considerable progress was also achieved toward the fulfillment of the conditions for the second tranche release through the first quarter of 2000\. There was strong ownership of the program\. However, the ethnic crisis resulted in a change in government and the new government's attention was diverted from the management of the economy to securing a sustainable peace\. With its focus on peace and given the fragile economic and social environment, the Coalition for National Unity, Reconciliation, and Peace (CNURP) government considered it unrealistic under these circumstances to attempt significant economic reforms\. However, it believed that its efforts towards peace and economic recovery would lay the ground work to embark on a structural reform program with the objective of promoting private sector led economic growth and poverty reduction\. 4\.1\.3\. With the intensification of the crisis, policy priorities necessarily changed (for both old and new governments) and two key conditions of the second tranche remained unmet\. The collapse of government revenues and recourse to central bank financing of the government deficit also undermined the prior progress towards fiscal discipline and macroeconomic stability\. Arrears with trade creditors and suppliers started to build once again\. Some of the progress  - 8 - towards better forestry practices was also reversed as the conflict made it difficult to monitor logging activities\. In view of the significantly changed economic, political and social environment in the country, and in agreement with the authorities, the SAC was allowed to close on December 31, 2000 without disbursement of the second tranche\. 4\.1\.4\. The new government views the unfinished financial sector and private sector development reforms as medium-term priorities\. It justifiably wishes to focus on peace building as its immediate priority and supported the closure of the SAC\. In addition, the conflict and its causes have raised new issues (especially regarding regional inequities in development) that it intends to address\. In light of the changed circumstances, the authorities envisaged restructuring and reprioritizing the unfinished reform program once the peace process showed promise of consolidating\. 4\.1\.5\. The following section outlines the achievements of the program supported by this credit\. 4\.2 Outputs by components: 4\.2\.1\. Table 4\.21 summarizes the results of key actions to fulfill the conditions of the SAC at Board presentation and at the Second Tranche Release\. Objectives and Strategies Actions Taken Prior to Board Progress on Actions for the _________________________________ Presentation Second Tranche Release Macroeconomic stabilization No net borrowing by the government Government salaries and wages bill from the domestic financial system for FY 1999 exceeded the stipulated Fiscal deficit funded by concessional SBD 150 million (actual SBD 152 finance million) due to police costs related to the ethnic crisis Repaying arrears and reducing debt No net borrowing from the domestic Rescheduling of domestic debt financial system in FY 1999 and FY 2000 Budget\. Met for FY 1999 and although FY 2000 budget was formulated on this basis as required, there was in fact borrowing from the central bank in FY 2000 to meet I expenditures\.  -\.9- Public Finances Restoration of fiscal balance\. FY1999 budget outturns were within Increase in budget allocation for budget appropriation operations and maintenance by 10 Improvement of budget management per cent in nominal terms for FY \. \. \. \. ~~~~Completion of Phase l of public pe eti oinltrsfrF Enhancing efficiency and equity in \. \.ticPaIn 2000 soia exediue service restructuring social expenditures 1999 phase of action plan to rebuild lmprovement in Customs duty teacutn rmwr collections by 10 percent over implemented FY1999 Public sector employer and Action plans prepared for audits of employee contribution commitments government accounts by the Auditor empoytheNPFwre ontrib n commiments General and review of such audits by to the NPF were met in April 1999 thPulcAontCmie\. the Public Account Committee\. Domestic interest cost arrears Time frames established for repayment schedule met expenditures and payment No net increase in arrears after reconciliation between ministries and allowing for privatization proceeds the Treasury\. A number of to reduce such arrears\. ministries fully reconciled their accounts\. Action plan for the rebuilding of a comprehensive accounting system, The allocation of the privatization including plan to re-introduce proceeds was for repaying arrears, reconciliation between ministry reduction in public debts, and spending records and Treasury financing of the public sector payment records investment program The Auditor General prepared the Strategic Plan (1999-2005), including plans for audits of government accounts to be reviewed by the Public Accounts Committee Financial Sector Reform To restore financial sector's Public announcement of Treasury Completion of the external review of confidence, ensure a sound and safe Bills auction allowing the market to the Development Bank and the financial system set prices and treasury bill rediscount National Provident Fund (NPF) facility introduced Treasury Bills auction conducted Minimum liquid assets ratio reduced inline with the debt restructuring Action plan for the implementation of the recommendations of the Monthly Monetary Monitoring reviewers on the Development Bank Meetings held and the NPF has not yet been adopted  - 10- Sustainable Forest Management Promote economically and Ensure that the issue of new timber Continuation of the actions under the environmentally sustainable growth licenses and renewal of existing condition of Board Presentation by enhancing the management of licenses was made in strict forestry resources compliance with existing regulations until the current Forest Division's review of all existing logging licenses and their allowable cut was completed, a process to revoke those in violation was established, and a consultative process of reducing the annual allowable cut to a sustainable level is initiated Establishment of external funding Established the Forest Management for the Forest Management Unit, and Unit under the Forestry Division of necessary counterpart funding in the the Department of Forestry, budget, training in the application of Environment and Conservation the Logging Code of Practices, and improvement of log export Allocated fund for the Federal monitoring capabilities Management Unit in FY2000 recurrent budget not less than FY 1999\. However, actual funding fell below budgeted amount and adversely affected the Forestry Department's operations Submitted to Parliament a Forest Bill acceptable to IDA but is now being reviewed by new government Remissions were largely phased out in the previous government, but the new authorities have restarted the practice, justifying them as assistance to economic activities disrupted during the crisis Policy established on community forestry to support and coordinate with socially and economically viable Eco-forestry and other small- scale saw milling operations  Private Sector Development and Supply Response To stimulate private sector Identified tracts of underutilized Reasonable time established for development so as to help achieve government land for the purpose of investment approvals (4 weeks) by sustainable economic growth and leasing to private investors the Investment Board and for more rapid employment creation; investment registration by the improve the investment climate for Registrar General local and foreign investment\. The following action was not completed: The Investment Board was not converted into an investment promotion authority including adoption of required legislation and procedures within the Department of Commerce, Industry, Employment, and Tourism for simplified investment approval Social Sector - Poverty Alleviation Paid in full to all provinces the Increase in nominal terms the approved allocation for January to FY2000 recurrent budget allocation To ensure equitable, efficient, and April 1999 in the FY1999 budget for for preventive health services by 10 quality basic health services; provincial health services, wages, percent and malaria control To ensure improved education Allocation of funds for education in quality, efficiency, access and the FY2000 recurrent budget for the utilization of services respective schools should be based on a unit cost formula acceptable to To ensure specific human IDA\. But it was not fulfilled development and programs are Terms of Reference acceptable to because the unit-cost formula was established IDA for a Poverty Assessment that rendered inoperable due to the crisis helped to design appropriate social as school enrollment data were policies and programs to deal with unavailable for the derivation of this poverty alleviation formula Poverty assessment initiated Macroeconomic Stabilization\. 4\.2\.2\. Up to the first quarter of 2000, the government made good progress toward stabilizing the economy and maintaining a sound macroeconomic framework, as reported by the Bank supervision mission in February 2000 and the IMF mission in March/April 2000\. It met all the conditions for Board presentation established under the macroeconomic stabilization objective (Table 4\.21)\. The Bank supervision mission found that the government complied with the second tranche condition on salary expenditures for FY 2000 budget not to exceed by more than 7 percent the amount allocated for such expenditures in FY 1999 budget\. Although the actual amount of SBD 152 million for FY 1999 exceeded the SBD 150 million set in the matrix, the 1\.3  - 12- percent excess was on account of "danger allowances" paid to the police force\. The govermment financed its expenditures in FY 1999 without recourse to net borrowing from the domestic financial system and the budget for FY2000 was similarly set on this basis\. The proceeds from the privatization of Solomon Telecom at SBD 48\.9 million were used to clear arrears of SBD 3\.7 million, to repay SBD 12\.2 million of govermment debts to the NPF, and SBD 18\.1 million of ICSI debts to the NPF\. The allocation of the rest of the privatization proceeds was in line with the requirements for the second tranche release, i\.e\., repaying arrears, reduction of public debt and the financing of the public sector investment program\. 4\.2\.3\. However, with the escalation of the crisis in June 2000, the solid gains made could not be sustained as considerable violence led to major losses in the economy, public finances, and employment, and created uncertainty in the maintenance of a sound macroeconomic framework\. GDP is estimated to have declined 14 percent in 2000\. With revenues contracting sharply by over 30 percent, the government started to borrow from the central bank to meet expenditures, thus overlooking the original plan for the FY2000 budget\. Persistent borrowing from the central bank since mid-2000, in fact, led to a breach in the central bank lending limit to government\. International reserves have fallen from about US$ 45 million at end-March 2000 to about US$ 21 million at end-March 2001\. Arrears to suppliers have started to accumulate once again\. In addition, the government is unlikely to redeem a large amount of government bonds falling due in mid-2001\. The gains from the macroeconomic measures thus appear to have dissolved\. Structural Reforms: Public Finances\. 4\.2\.4\. The conditions on public finance for Board presentation were met\. FY1999 expenditures were within budget appropriations on a pro-rata basis\. The government completed Phase I of the public service restructuring, improved customs duty collections by 10 percent over FY1999\. Public sector employer and employee contribution commitments were met in April 1999\. The government completed the schedule for interest arrears payments\. There were no net arrears increases after the proceeds from privatization were used to reduce such arrears\. However, with the crisis, revenues fell and expenditures had to be met with additional borrowing and increase in arrears, threatening the gains realized earlier\. 4\.2\.5\. Prior to the Board presentation, an action plan was initiated for the rebuilding of a comprehensive national accounting system for the Department of Finance to establish firm data on actual expenditures and to prevent unauthorized uses of funds with basic controls in place\. The action plan also included a plan to reintroduce reconciliation between ministry spending records and Treasury payments records\. Subsequently, timeframes were established for expenditures and payments reconciliation records between ministries and the Treasury\. The supervision mission in 2000 found that a number of ministries were fully reconciling their accounts and urged the speedy action to accomplish these exercises within the established timeframe\. 4\.2\.6\. The government adopted a recurrent FY2000 budget that allocated amounts for operation and maintenance activities of the Ministry of Transport, Works, Communication and Aviation exceeding at least 10 percent such allocations in FYI 999 budget\.  - 13 - 4\.2\.7\. Finally, the Office of the Auditor General had prepared a Strategic Plan (1999-2005), which included plans for the audits of government accounts to be reviewed by the Public Accounts Committee as required under the second tranche conditions\. 4\.2\.8\. The previous government had made substantial progress towards discontinuing tax remissions: by the end of its tenure, the practice had largely been phased out, and for any remissions still granted, their details were published in the local paper\. The new government, however, restarted the granting of remissions on a large scale as it felt that these were necessary to help economic activities disrupted by the crisis\. In addition, the selection criteria and process for granting exemptions made it difficult to distinguish those in genuine need of tax breaks\. 4\.2\.9\. Earlier progress toward non-bank budget financing and more transparency in this area as called for in the SAC has been undermined\. Structural Reforms: Financial Sector 4\.2\.10\. To restore confidence in the financial sector and ensure its soundness and safety, a series of actions were undertaken by the government at Board presentation\. Public announcements of Treasury bill auctions were made and the market was allowed to set the price\. The Bokolo bills (central bank securities) were phased out\. In line with debt restructuring, the minimum liquid assets were reduced\. The government held monthly monetary meetings to review the measures and steps\. Other actions covered financial reforms for the two important financial institutions, the National Provident Fund and the Development Bank and included the agreement by the central bank to strengthen its supervision over these two institutions, the establishment of a phased compliance plan for prudential standards, and steps by the central bank to divest its interests in the Development Bank\. The central bank issued terms of reference for an external review of the financial records for the Development Bank and approved an external review of the NPF\. 4\.2\.11\. Subsequently, Treasury bill auctions were regularly conducted and the monetary policy was made operational\. The external reviews of the Development Bank and the NPF were completed as part of the conditions of the Second Tranche release\. However, action plans for the implementation of the recommendations of the reviews were not adopted, as specified by this condition\. Reforming these two key financial institutions on the basis of these recommendations is crucial for the health and stability of the financial sector\. These and the current uncertain situation in the country further undermined the plan to restore the financial sector to health\. Structural Reforms: Sustainable Forest Management 4\.2\.12\. The government committed itself to managing forestry resources to promote economically and environmentally sustainable growth\. This included the introduction of a Code of Practice for Logging, and more stringent scrutiny of logging licenses\. The government fulfilled the conditions for Board presentation by ensuring strict compliance with existing regulations in the issuance of new licenses and the renewal of existing licenses, the establishment of a process to revoke those in violation, and the initiation of a process to reduce the annual allowable cut to a sustainable level\. The government fulfilled the second tranche condition with  - 14 - the establishment of the Forest Management Unit under the Forestry Division of the Department of Forestry, Environment and Conservation with competent staff in adequate numbers\. It allocated an amount of funds for the Unit in FY 2000 equal to that in FY1999, however actuals fell below the budgeted amount and adversely impacted the Forestry Department's operations\. Finally the government had submitted to Parliament a Forest Bill acceptable to IDA, but the Bill is currently being reviewed by the new government\. The new Forest Bill was designed to bring the best practices in sustainable management of forests to the Solomon Islands and delays in reaching a decision on its implementation have been a major setback\. Before the SAC, harvest rates were 2\.5 to 3 times the sustainable level, but these had begun to come down due to lower foreign demand and improving forestry practices\. Recently, however, harvest rates have started to rise rapidly, and owing to a lack of budgetary resources, monitoring of forestry activity has weakened considerably\. 4\.2\.13\. The SIAC government removed all remissions associated with the timber industry and discontinued the granting of any remissions as called for by the SAC\. However, as discussed earlier, the new government has started the practice once again with less transparency in the granting process, justifying it with the crisis circumstance\. Private Sector Development\. 4\.2\.14\. The SAC supported the stimulation of private sector development and created conditions favorable for a supply response\. The Investment Board established a reasonable time for investment approvals (no more than 4 weeks); so did the Registrar General for the time required for investment registration\. As part of the condition for Board presentation, the government identified tracts of underutilized government land for leasing to private interests\. 4\.2\.15\. For a very small open economy with a pressing need for private capital, a key ingredient of the reform program was the removal of a cumbersome investment approval mechanism that creates considerable uncertainty for the potential investor\. The SAC thus required the conversion of the Investment Board into an Investment Promotion Authority, including adoption of required legislation and procedures within the Department of Commerce, Industry, Employment, and Tourism for simplified investment approvals\. However, this condition was not complied with, as reported by the supervision mission, jeopardizing the road map toward privatization and encouragement for private investors to participate\. Poverty Alleviation and Social Sectors 4\.2\.16\. Under the overall action for the social sector, the government aims to ensure equitable, efficient and quality basic health services, and to ensure improved education quality, efficiency, access and utilization of services\. In the health sector, the government effected full payments to all provinces the approved allocations for January to April 1999 in the FY1999 budget for provincial health services, wages, and malaria control, fulfilling the condition for Board presentation\. Subsequently, the government increased the allocation for preventive health services by 10 percent relative to the FY1999 budget, complying with the condition for the second tranche release, according to the last supervision mission\.  - 15 - 4\.2\.17\. In education, the government fulfilled the Board presentation condition with the preparation of a proposal for a unit-cost formula including methodologies for updating and reviewing it on a systematic basis for the allocation of public funds for primary and secondary education\. However, the second tranche condition for the allocation of funds for the education program based on this unit-cost formula in the FY2000 budget was not fulfilled\. The objective of the unit-cost formula was to shift budget funding to basic education, mainly primary education\. However, this formula was rendered inoperable due to the ethnic crisis as school enrollment numbers were unavailable for the derivation of the unit-cost formula\. 4\.2\.18\. Finally, the SAC supported the preparation of a Poverty Assessment and the issuance of the terms of reference of this assessment that was a condition for Board presentation\. The assessment was initiated and is ongoing\. However, the ethnic crisis has created some uncertainty in the implementation of this assessment as the focus of the government has been shifted elsewhere\. 4\.3 Net Present Value/Economic rate of return\.- 4\.3\.1\. Not applicable\. 4\.4 Financial rate of return: 4\.4\.1\. Not applicable\. 4\.5 Institutional development impact: 4\.5\.1\. The SAC aimed to assist the government in building (and strengthening) sound and efficient public institutions that were needed to support sustained recovery and economic growth, private sector development, and sustainable exploitation of the country's forestry resources\. This operation helped to strengthen the central bank's supervision unit and the Department of Forestry, Environment and Conservation in the management of forestry resources\. The SAC also supported the plan to rebuild the country's comprehensive accounting system which included the plan to re-introduce reconciliation between ministry spending records and Treasury payments records\. Some ministries had speedily completed the reconciliation of their records with those of the Treasury during the implementation of the SAC, thus contributing to the fulfillment of this action plan and strengthening further the control and monitoring of public funds\. 4\.5\.2\. However, the political upheaval has negatively affected the development of sound and efficient public institutions, especially in the Department of Forestry, Environment, and Conservation that oversees the management of forestry resources\. The negative impact on institutional development is still unfolding and it is difficult for any accurate assessment\. 5\. Maior Factors Affecting Implementation and Outcome 5\.1 Factors outside the control of government or implementing agency: 5\.1\.1\. The SAC highlighted that ethnic tension was one of the risk factors in the implementation of the program\. As it turned out, the ethnic crisis was the key factor outside the control of the  - 16 - government toward the end of the program\. The security situation and the changed political, social and economic environment complicated the implementation of the reform program, especially when the new government viewed the reform priorities to have been altered by the crisis\. This crisis has negatively affected the sustainability of the program and the economic recovery supported by the SAC and led to the closure of the credit without the disbursement of the second tranche\. 5\.2 Factors generally subject to government control: 5\.2\.1\. Measures within the government control were laid out in the Letter of Development Policy\. Satisfactory progress was made with respect to the key actions that the government had committed to undertake under this Credit during the first part of the program\. The policy dialogue between the Bank and the authorities on the key components of the SAC continued during supervision missions to Solomon Islands\. 5\.2\.2\. On the negative side, the government did not complete the two major second tranche conditions: the completion of the reviews of the NPF and the Development Bank and adoption of action plans to implement the recommendations of these reviews; the government has not carried the conversion of the Investment Board into an Investment Promotion Authority and the adoption of required legislation and procedures\. 5\.2\.3\. Further, with the ethnic crisis, there have been some reversals of pre-Board conditions, such as borrowing from the central bank to finance the budget deficit under the new government\. Remissions which were discontinued were granted again, with the crisis as the justification\. 5\.3 Factors generally subject to implementing agency control: 5\.3\.1\. The implementation of the SAC was overseen by the Policy and Structural Reform Committee (PSRC) under the Prime Minister with four major technical task forces of officials\. The PSRC coordinated and monitored the implementation of the reform program and received reports on accomplishments, problems, and adjustments from the four task forces\. The four task forces worked with Bank staff during the implementation of the program and carried out the specified conditions for the SAC for the Board Presentation and subsequent measures to fulfill the conditions for the second tranche release\. 5\.3\.2\. However, as the crisis took away the attention of the government and especially the Prime Minister, the lack of leadership negatively affected the work of the Committee and its task forces and led to the closure of the credit without the disbursement of the second tranche\. 5\.4 Costs and financing: 5\.4\.1\. The credit was US$12 million, $7 million of which was disbursed as the first tranche at effectiveness\. The second tranche of $5 million was not disbursed as the project closed\. The interest rate on the credit was the standard IDA rate of 0\.75 percent\. The loan term is 40 years with a grace period of 10 years\.  - 17 - 6\. Sustainabilitv 6\.1 Rationale for sustainability rating: 6\.1\.1\. The program supported by the SAC had a good beginning with the implementation of the conditions for Board presentation and the government also made good progress toward fulfilling the conditions called for in the second tranche release\. Several years of dialogue with the government contributed to a well-designed program supported by this Credit\. The program was strongly owned by the SIAC government, as proven by the solid performance under the first tranche that surpassed the established targets and benchmarks\. 6\.1\.2\. However, the ethnic crisis, highlighted as one of the major risks of the program, has negatively affected the overall implementation of the project\. The overall reform program therefore became unsustainable as the attention of the managers of the reform program was diverted and in the new government's view the crisis had altered reform priorities\. The costs of the ethnic crisis and its aftermath have also contributed negatively to the sustainability of the program despite good beginnings\. 6\.2 Transition arrangement to regular operations\. 6\.2\.1\. The current ethnic crisis has created uncertainty for the next step in the assistance of the Bank to Solomon Islands' reform agenda\. The Bank, however, stands ready to provide assistance to the country once the government of the day has articulated its reform and expenditure priorities and the peace is consolidated\. In order to meet expenditures in health and education made more urgent as a result of the conflict the Bank redirected some resources from existing health and education projects to cover these requirements\. 7\. Bank and Borrower Performance Bank 7\.1 Lending: 7\.1\.1\. The Bank has maintained its long relationship with its counterparts in Solomon Islands and played an important supporting role in the implementation of the reform program of the client country\. It has carried out an economic dialogue with the authorities for several years and the SAC was the first structural adjustment operation carried out in the Pacific Islands other than Papua New Guinea\. 7\.2 Supervision: 7\.2\.1\. The Bank supervised the project with supervision missions led by staff from headquarters\. Bank staff helped the officials responsible for the program to implement the conditions called for in the SAC, both prior to Board presentation and those for the second tranche release\.  -18- 7\.3 Overall Bank performance: 7\.3\.1\. The Bank has satisfactorily played a supportive role to the country through its continuing economic dialogue with the authorities and responded to their request for help to implement the country's reform program, along with other donor agencies\. The Bank provided timely assistance to the country following the economic crisis that was the result of many years of poor economic management and poor discipline in public finance, exacerbated by the East Asian crisis of 1997\. 7\.3\.2\. The nature and magnitude of the reform program called for support from several development partners\. Given the thin capacity in the government agencies it was crucial for the Bank to coordinate its activities closely with other development partners\. This aspect of program implementation was handled well by Bank staff and this helped minimize overlap and prevented competing demands from straining the authorities' capacity\. Borrower 7\.4 Preparation: 7\.4\.1\. The government of the Solomon Islands played an active role in the preparation of the Credit through the Policy and Structural Reform Committee under the direct supervision of the Prime Minister and the sense of program ownership was very strong among the government officials\. 7\.5 Government implementation performance: 7\.5\.1\. The government implementation of the program was satisfactory until the intensification of the ethnic crisis\. A number of conditions for the second tranche release were met during the reform period before the crisis\. The supervision mission in February 2000 found that the compliance with the SAC second tranche was largely on track despite the difficult situation created by the ethnic crisis\. With the escalation of the crisis in June 2000, the attention of the CNURP govermment that took over from the previous SIAC government was diverted from the program and reversed some of the policy measures already implemented, resulting in the closure of the credit in December 2000 without the disbursement of the second tranche\. 7\.6 Implementing Agency: 7\.6\.1\. The Policy and Structural Reform Committee maintained a continuing economic dialogue with Bank staff\. It coordinated and monitored the program under the direction of the Primre Minister, and helped carry out most of the policy actions called for in the SAC, at the Board presentation and also for the second tranche release\. 7\. 7 Overall Borrower performance\. 7\.7\.1\. The government performnance was considered satisfactory in the implementation of the SAC, especially at the preparation and implementation of the program up to the ethnic crisis\. However, once the crisis happened, it faced pressures and difficulties with the prevailing security  - 19 - situation which eventually diverted the attention of the responsible officials, resulting in the non- compliance of two conditions for the second tranche release\. 8\. Lessons Learned 8\.1\. The major lessons from the SAC are: * A stable political environment is essential for macroeconomic and structural reforms\. This has been clearly demonstrated within the time frame of the SAC\. The government of Solomon Islands had made good progress in its economic reform program during the initial period of relative political stability, but its attention was diverted once the political environment deteriorated with the intensification of the ethnic crisis\. * Effective donor coordination is crucial in small island states with limited capacity\. Capacity to implement structural reforms is extremely thin in small states and can easily be overwhelmed by the relatively large number of donors\. It is therefore critical that donors coordinate their activities closely and minimize duplication of efforts that over stretches government capacity\. This issue was handled well in both the design and implementation of the SAC in the Solomon Islands\. * Assessing the degree of risk in a country with diverse ethnic groups is critical but extremely difficult\. Even though the Bank knew and highlighted the risk due to ethnic tensions in the appraisal report, it was not possible to gauge the depth of these tensions and the intensity of the crisis surprised everyone\. In the Solomon Islands, these risks have set back progress made by reform and stabilization efforts\. Future reform efforts could include measures that help address the root causes of the crisis, i\.e\., uneven regional development in a multi-ethnic country\. * Counterpart quality and commitment are key to success\. The presence of capable and committed policymakers and implementers is a prerequisite to a successful program\. In the Solomon Islands, the commitment of the Prime Minister was key to the preparation and initial implementation of the structural reforn program\. * Close working relations between the Bank and government counterparts improve the quality of Bank assistance\. Continuity of Bank staff working on Solomon Islands contributed to a fruitful policy dialogue between the Bank and the authorities\. 9\. Partner Comments 9\.1 Borrower/implementing agency: 9\.1\.1 Two contributions were received from the government, both of which are presented below\. The Ministry of Finance was the Bank's main counterpart ministry for the SAC\. However, the key counterpart official (from the Ministry of Finance) from the preparation stage of the SAC, through its implementation and closure, was subsequently assigned to the newly formed Ministry of Economic Reform and Structural Adjustment in early 2001\. The first contribution is from this new Ministry\. The second contribution was received from the Department of Development Planning\. No contribution was received from the Ministry of Finance\.  - 20 - Attachment I: Government Comments - Part 1 SOLOMON ISLANDS GOVERNMENT Minity of Economic Reform & Structural Adjustment P\.O\. Box 1S50\. Honiara, Solomoin Islands Ptifm<ie: (67 27752 Tekqbon\.; (677) 2753 Lev184ii, cmL zua14o Rep MERMA/4 14 MapUWeV Pat 1S161200l\. "MNEY NSW 2000, AUST?RALIA Pta*- Vooe4 I wCtkn 7- refew ttr-yow leiw rardzthe CIC1 fow SAC Credit (3252 -SOL) date&ddJ, 14 2001 t w a4#i4S4 WG ,iF*48powt +tc4{*afo*,9* i*-' Oame ppiruowIfLr a"acaww* aW40VWftt J'*tCreAi WWOVi\.t pPFYdOUA4, i A49 ~W0VthCM&CvsX\.J m\.*ey of csiwirfowd nAarAdWnut Cc4 PC-rIMA\.W,t S"retay, 4ivrt of oa~~\. Ccc,S Mi*4tay of p 4uwxef  - 21 - World Bank Structural Adjustment Credit to Solomon Islands The World Bank/international Development Association Credit to the Solomon Islands was arranged for a purpose\. This was to enable the Solomon Islands Government to restore macroeconomic stability, and to put the economy back on to a viable and sustainable path to growth and development through a series of policy actions that the Government had agreed with the World Bank\. The policy actions formed an integral part of the Government's Policy and Structural Reform Program\. This brief report outlines the Government's assessment of the Credit the first tranche of which was redeemed in July 1999\. It also provides some views on the role of the World Bank and the administration of the loan from the conception phase to the implementation phase\. Assessment of the Credit The Credit was most appropriate\. It was arranged against a background of serious imbalances in the economy\. Government was unable to pay its bills or service its debts and was accumulating huge debt arrears\. Also, the financial system was stressed with the securities market having collapsed\. Inflation was double digit and the balance of payments position weak\. Consequently business and public confidence in the economy was low\. Furthermore, the Credit enabled the Government to achieve the purpose for which the Credit was negotiated\. By the end of 1999, though the economy had contracted following on from the effects of the East Asian crisis and the simmering effects of the ethnic conflict, the Government's reform program was impacting positively on the important economic indicators\. Inflation had declined to 8 percent, the balance of payments position showed an overall surplus, and the external reserves were at more than three months of import cover\. Also, Government finances were brought under control: with arrears drastically reduced, Government's debts normalized, and the overall deficit was reduced to less than 3 per cent of GDP\. The tragedy is that the ethnic conflict and the consequent policy focus of the current Government on the peace process had the unfortunate consequence of reversing some of the positive developments\. Role of the World Bank The prerequisites of a successful reform program to which the Credit was linked were there: strong ownership by the Government of the reform program\. But without donor assistance, the reform program would not have made the achievements noted above\. The role of the World Bank was useful not only as far as the Credit and the design of the reforms and policy actions are concerned, but also in influencing the donor community and the private sector to support the program\.  - 22 - Administration of the Credit It is quite noticeable that despite the distance from Washington D\.C\., and the time differences, the effort by the World Bank to try to understand and to be responsive to the needs of the country\. This responsiveness and understanding is reflected in the form of excellent World Bank staff who worked with the Solomon Islands Government on the reform program, and on the coordination of the Credit in conjunction with IMF and other donors\. Was it possible for the World Bank to anticipate the magnitude of the conflict and the turn of events over the last few months, and so may be stop the release of the first tranche or re-design the reform program? The answer to this question is in the negative: the events took everyone by surprise including the Solomon Islands Government\.  - 23 - Attachment II: Government Comments - Part 2 SOLOMON ISLANDS GOVERNMENT DEPARTMENT OF DEIVELOPMEIVTPLANNING P\.O\. BOX G30, HONIARA Tel\. (677) 38255/56/57/58, Fax no: (677) 38259; email: kudu(mnpd\.gov\.sb STRUCTURAL ADJUSTMENT CREDIT IMPLEMENTATION COMPLETION REPORT SOLOMON ISLANDS CONTRIBUTION OF THE GOVERNMENT OF SOLOMON ISLANDS Introduction 1\. The Government of Solomon Islands is in agreement with the Bank's judgment that the structural adjustment program 1997-2000 had a good beginning with the implementation of the conditions for Board presentation and of those covering the first half-period of the agreed upon programme, when Government surpassed the established benchmarks and targets under the first tranche\. The Bank also rightly concluded that Government had made good progress towards meeting the conditions called for in the second tranche release ( but which, in the end, were not fully met, and the second tranche was cancelled)\. Your positive judgement, if put in a longer- term perspective, reveals remarkably good Government performance with the implementation of the structural reform agenda in Solomon Islands (recognising that this was only the- second Structural Adjustment operation of the Bank in the Pacific, and the first in the Pacific Island countries with their particularities)\. The Bank is also right in saying that several years of intensive dialogue between Bank staff and Government had contributed towards a well-designed programme which was strongly owned here\. 2\. While the Government also agrees with the Bank's judgment that the ethnic crisis negatively affected the implementation of the second half of the project - as the attention of Government and reform managers had to shift to the pursuit of peace, political reconciliation and  - 24 - re-integration of displaced citizens - Government does not agree with the Bank's judgment that "therefore, the overall reform programme became unsustainable"\. It was this judgment - which Government believes not to have been correct, taken hastily and having been reflective of short- term views only - which led to th\. decision not to release the Second Tranche\. Government believes that a more appropriate judgment by the Bank would have been that the programme had been temporarily interrupted and that indeed there had been setbacks with the programme, but that the Government's basic approach to long-term economic reform was unchanged and that therefore, while there was no case for Government for Government to request the disbursement of the Second Tranche, there was no case either for the Bank to cancel the outstanding balance of Credit 3252-SOL)\. This would have left the Bank and the Government with the means to resume the Economic Reform Programme when progress had been made with political reconciliation, peace building and re-integration\. Reconstruction and Economic Reform 3\. On 5th June 2000 a longer-term but fast growing internal ethnic conflict culminated in the outbreak of severe violence in Solomon Islands which had a deep and far-reaching impact on the economic, social and political situation in the country\. In short, the violence caused extensive damage to transport infrastructure, schools, water supply and sanitation systems, central and provincial government buildings, and health centers on the island of Guadalcanal and in nearby provinces\. The damage inflicted on the country's economic and social infrastructure - estimated at US$30-35 million, equivalent to 10-15 percent of GDP - disrupted economic activity in several areas of the country and placed a severe strain on the delivery of government services\. But equally - if not more serious - was the effect of the crisis on the productive operations of the private sector which in key areas of Solomon Islands came to a total halt as a result of assets destruction, which contributed to a massive decline in formal employment, a halving of exports and a fall in GDP in the year 2000 which is estimated at over 20 percent for that year\. Not surprisingly, as the productive base of the Solomon Islands eroded, the Government's revenue base was severely affected as well, so that it became impossible for Government to maintain its economic and social service levels, let alone to meet the financial urgencies which the economic and political crises generated\. Neither was the Government able - as it is not now - to service its debt obligations, whether external or domestic\. The financial position of several key public undertakings such as SIWA and SIAE also deteriorated alarmingly, to the point where the uninterrupted supply of their services can no longer be assured\. This is particularly so for the supply of electricity which puts the Solomon Islands economy at extremely high risk\. 4\. In short, instead of being able to raise investment and accelerate economic growth in Solomon Islands, the Government's strategy for the remainder of 2000 and for the year 2001 had, and will in future, have to be redirected towards the achievement of peace and political reconciliation, the restoration of social sector delivery, infrastructure repair and towards revitalising production and export activity\. This redirection of strategy has now been completed and inter alia finds expression in the Peace Budget for 2001, most particularly in the developmental portion of that Budget and in the Government's decision to relaunch the Economic and Structural Reform Programme\. To support the Government in implementing its revised strategy, external assistance to Solomon Islands is now being redirected as well, so as to  - 25 - make it more fully congruent with the Government's new challenges of political reconciliation, infrastructure reconstruction and economic and social revitalisation\. Several key development partners of Solomon Islands have already responded to the Govemment's revised priorities, including the European Union and several major bilateral partners\. 5\. The attached Tables 1 and 2 illustrate that the crisis which has afflicted Solomon Islands in the past 18 months constitutes a dramatic setback which wiped out all the progress which the country has made in economic development over the past ten years, and which - unless that setback is reversed as a matter of urgency - threatens to also undermine the progress that was made with human development in that period: per capita income in the country has fallen by more than one half, and is currently below US $500, less than the income levels that were attained in Solomon Islands more than ten years ago; Solomon Islands is now included in the group of Least-Developed Countries whereas it was a Middle-Income Country before; * exports have fallen by more than one-half and reached only US $69 million in 2000, down from US $150 million in 1999; also, last year's exports were lower than the value of Solomon Islands' exports ten years ago; it is not unlikely that 2001 exports may turn out even lower than those recorded in the year 2000; * the fall in national production, income, exports and, inevitably, in employment has not as yet been arrested, and it may well be that GDP this year will be another 10 percent smaller than what it was in the year 2000\. TABLE 1\. Solomon Islands - Key National Accounts and External Financing Data, 1990-2001 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 Bdgt Req\. GDPatCurrentMarket 500 590 715 829 973 1,250 1,461 1,612 1,728 1,739 1,412 1,130 Prices (SBD Min) ExtemalFinancing 132 88 117 139 198 151 200 158 360 3\.19 213 699 (SBD Min) of which: Grants (inc\. TA) 119 78 103 121 180 126 191 149 271 272 136 480 of which: External Loans 13 10 14 18 18 25 9 9 89 47 77 219 Disbursements (Gross) External Financing 26 15 20 17 20 12 14 10\.0 21 18 15 62 as % of GDP AverageExchangeRate 2\.37 2\.62 2\.86 3\.18 3\.29 3\.41 3\.55 3\.73 4\.82 5\.06 5\.10 5\.30 (SBD/US$) GDP at Current Market 211 225 250 261 296 367 412 432 359 344 277 213 Prices (US$ Mln) Extemal Financing 56 34 41 43 60 44 56 42 75 63 42 132 in US$ Min Population (thousands) 313 323 333 343 353 364 375 386 398 409 420 432 GDPperCapita 670 700 750 760 840 1,010 1,100 1,120 900 840 660 490 External Financing per 179 105 123 125 170 121 136 109 188 154 100 305 Capita Growth in Real GDP (%) 0\.9 2\.7 10\.6 2\.4 5\.3 10\.0 3\.5 -2\.4 1\.2 -1\.4 -10\.0 -10\.0 GrowthinNominalGDP 9\.5 17\.9 21\.3 11\.6 17\.4 28\.5 16\.9 10\.3 7\.2 0\.6 -18\.8 -20\.0 (%) RealGDPatMarketPrices 697 716 793 812 855 941 974 951 962 949 854 683 (SBD Mln) Source: Government of Solomon Islands; including data published in: IMF-Solomon Islands- Recent Economic Developments, 5th January, 2001\. Data for 1990-1992 and for 2000 and 2001 from: Budget for 2001; Population Data from 1999 Census\.  - 26 - TABLE 2: Solomon Islands - Key External Financing Data, 1990-2001 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 Bdgt Reqg ValueofExports(US$Mln) 73 86 105 129 144 168 162 174 141 150 69 External Financing (US$ Mn) 56 34 41 43 60 44 56 42 75 63 42 132 Total Extemal Resources 129 120 146 172 204 212 218 216 216 213 111 ExtemralFinancingas%ofTotal 43 28 28 25 29 21 26 19 35 60 61 Extemal Resources Valueof Inports(US$Mln) 97 116 114 137 142 154 151 209 147 140 92 Extemal Financing (US$ Mln) 56 34 41 43 60 44 56 42 75 63 42 132 PercentageofinIports Financed 58 29 36 31 42 29 37 20 51 45 46 by External Financing (%) Source: Ministry of Finance, CBSI\. 6\. The task of rebuilding Solomon Islands' fractured economy is immense\. Thus, the objectives of the Peace Budget for 2001 go beyond the maintenance of peace and restoration of law and order, and include rebuilding the country's destroyed social and economic infrastructure, restoring its productive base by bringing the export-focused private sector back to life, resettling those families that were forced to relocate inside the country and bringing the country's internal and external finances back in balance\. For the coming two years, the full restoration of peace and economic reconstruction is the Government's key objective\. If that can be achieved, and if the economic decline of Solomon Islands can be arrested in this period, Solomon Islands could thereafter regain the success which the Government had with economic growth in the 1980-1997 period\. In these circumstances, two years from now Solomon Islands could regain economic growth of some 5-6 percent per annum, a rate that would eventually lead to sustained improvements in per capita incomes and in the human condition in the country\. This requires, of course, putting progressively in place stronger macro-economic and sector policies, improving the management and administration of the Government's finances and investment programmes, developing merchandise exports, and mobilising additional domestic resources\. Government recognises this and has recently approved the Inception Report of the new Ministry of Ministry of Economic Reform and Structural Adjustment which outlines a revised Action Programme for the Economic and Structural Reform Programme\. 7\. Clearly, the year 2001 is the key year in which Government has to concentrate on furthering political reconciliation, initiation of infrastructure reconstruction, restoration of social services, the revitalisation of the private sector and, thus, economic growth and the normalisation of its external debt position\. At the same time, Government has launched the preparations for the General Elections of late 2001 which will demand much management attention of Government, while reducing its political ability to take difficult and controversial economic policy reform measures\. Put together, these are immense economic and political management tasks which can only be accomplished successfully if the Government can be assured of the fullest possible support of the external donor community\.  - 27 - 8\. On 26h February, 2001 the Government of Solomon Islands held a High-Level Consultative Meeting with its development partners and clarified its position with respect to its development strategy and the external support that would be needed for its implementation\. At that Meeting it was agreed that donors would review their assistance programnmes in the light of the new challenges facing the Government of Solomon Islands\. Since the High Level Consultative Meeting of February 2001, the Government took a number of steps designed to put its revised strategy into effect\. These include the following actions: - Government presented to Parliament the Peace Budget for 2001, and obtained its approval; - vigorous measures were taken to mobilise resources domestically: as a result, and despite the economic turndown in the country, during the first quarter of 2001 Government revenue reached $59 million, as compared to $47 million that was budgeted; it is expected that these measures would permit Government revenues to reach their budgeted level, despite the lag in the collection of non-tax revenues; - recognising that public expenditure growth needed to be curtailed, special measures were taken to stabilise the payroll costs, reduce the number of special constables, scale down the size of overseas missions, suspend overtime pay and allowances of civil servants, and freeze new commitments for the construction and repair of Government buildings; however, the effect of these measures is limited which explains the earlier mentioned emergence of massive payment arrears; - Government made preparations for relaunching its Economic and Structural Reformn Program, including the Public Service Reform Programme, by endorsing the recently- distributed Inception Report of the Ministry of Economic Reform and Structural Adjustment; - despite the existing difficult unemployment situation, Government took the decision to continue with its retrenchment programme; - Government allowed Telekom to introduce a temporary service restoration surcharge; - contrary to wide expectations, with financial help of the European Union SIWA succeeded in restoring the supply of drinking water to the 25,000 residents of Honiara that had been without service since June 2000 when the treatment plant had been destroyed by militants; - Government embarked on a minor programme of road rehabilitation in Honiara; - Govermment took the final steps that permitted the launching of the ADB-supported US $10 million Post-Conflict Emergency Rehabilitation Project; - Government initiated the preparations for the General Elections of 2001\.  - 28 - 9\. Since the High-Level Consultation of February 2001, the international donor community also began to respond to the new challenges that were discussed at that Meeting\. Several important emergency responses include: - the ADB declared its US $10 million Post-Conflict Emergency Rehabilitation Loan effective on a 100% cost-sharing basis; - AusAID agreed to provide $4 million in special support of the health sector; - the UNDP finalised its discussions with Government on the key Reconciliation and Re-integration Project; - the Government of New Zealand - as well as other donors - indicated their readiness to assist in financing the full cost of the General Elections; and - the European tentatively agreed to re-allocate a significant portion of its Stabex 1998 Programme towards urgent infrastructure reconstruction needs, social sector restoration and governance strengthening and political reconciliation; - the World Bank also reviewed its projects in Solomon Islands which led to increased emphasis given to meeting immediate needs\. 10\. While these are all very welcome indications of support, they need to be seen in the context of the Peace Budget 2001 which has been based on a projection of revenues that are 40 percent below those which the economy would normally generate, while recurrent expenditures - in particular those in the social sectors - have had to be restored to the levels of 1999, so as to enable Government to resume minimally adequate social service delivery\. To deal with an otherwise unmanageable fiscal deficit, the financing plan for the Peace Budget thus included an amount for external financing for 2001 that was double the external financing inflows received in 2000\. The adequacy of the external financing contribution by donors is also to be seen in the light of the relentless decline of the foreign exchange reserves of the Central Bank of Solomon Islands which continue their fall to virtually unsustainable levels of less than one-month of import coverage, and in the light of the Government's current difficulties to service its external debt, including to the Asian Development Bank and the World Bank, as well as to domestic commercial banks\. Conclusion 11\. If the World Bank had not taken its regretful decision to cancel the US $5 million Second Tranche of the Structural Adjustment Credit by the end of 2000, it would now have been in a position to join other development partners of Solomon Islands and could have contributed much more meaningfully than it is doing now to the financing of economic and political reconstruction in Solomon Islands, as well as to facilitate the meeting of external debt service obligations\. This could have enabled Government to pursue its objectives of economic and political reform with  - 29 - more vigour and with more success and could, in conjunction with further financial support being provided by other donors, have more effectively helped Government in the pursuit of its programmes for the year 2001\. It would also have helped to avoid the emergence of significant external debt service arrears which is complicating the attraction of new external financing at a time when our external reserves are at a dangerously low level and when exports are only sufficient to finance one-half of the country's import bill\. Ratings 12\. In the light of the above, it should come as no surprise that Government is not in agreement with Bank's ratings of the Borrower's and the Bank's performance\.  - 30 - 9\.2 Cofinanciers: There were no cofinanciers\. 9\.3 Other partners (NGO/private sector): There were no other partners\.  - 31 - IMPLEMENTATION COMPLETION REPORT SOLOMON ISLANDS STRUCTURAL ADJUSTMENT CREDIT (CREDIT No\. 3252-SOL) Annex Tables Annex 1: Key Performance Indicators \. 32 Annex 2: Project Costs and Financing \. 32 Annex 3: Economic Costs and Benefits \. 33 Annex 4: Bank Inputs \. 33 Annex 5: Ratings for Achievement of Objectives/Outputs of Components \. 34 Annex 6: Ratings of Bank and Borrower Performance \. \. 35 Annex 7: Policy Matrix \. 36  - 32 - ANNEX 1: KEY PERFORMANCE INDICATORS PLEASE SEE ANNEX 7 FOR THE COMPLETE POLICY MATRIX ANNEX 2: PROJECT COSTS AND FINANCING (US$ million) Project Cost by Component (in US$ million equivalent) Appraisal Actual/Latest Percentage of Estimate Estimate Appraisal Project Cost by Component Total Project Costs 12\.00 12\.00 100 Total Financing Required 12\.00 12\.00 100 Project Financing by Component (in US$ million equivalent) Component Appraisal Estimate Actual/Latest Estimate Percentage of Appraisal Bank Govt\. CoF\. Bank Govt\. CoF\. Bank Govt\. CoF\. BOP 12\.00 12\.00 100\.00 0\.00 0\.00  - 33 - ANNEX 3: ECONOMIC COSTS AND BENEFITS Costs Benefits NPV ERR (%) Not Applicable N/A ANNEX 4: BANK INPUTS a) Missions Stage of Project Cycle No\. of Persons and Specialty Performance Rating (e\.g\., 2 Economics, 1 FMS, Implementation Development etc\.) Progress Objective Month/Year Count Specialty Identification/Preparation S S November 1998 6 2 Economists, I Public Sector Specialist, I Financial Specialist, I Forestry Specialist, I Private Sector Specialist Appraisal/Negotiation S S February 1999 3 2 Economists, I Financial Specialist Supervision February 2000 3 3 economists S S April 2000 1 1 finance analyst S U November 2000 3 3 economists U U ICR 2 2 economists U U No mission b) Staff Actual Stage of Project Cycle No\. Staff Weeks $ ('000) Identification/Preparation 18\.4 50\.3 Appraisal/Negotiation 14\.1 37\.7 Supervision 11\.3 69\.8 Sub Total 43\.8 157\.8 ICR (est\.) 5\.0 12\.5 TOTAL 48\.8 170\.3 Note: 1\. Figures do not include Trust Funds\.  - 34 - ANNEX 5: RATINGS FOR ACHIEVEMENT OF OBJECTIVES/OUTPUTS OF COMPONENTS (H - High; SU = Substantial, M = Modest, N = Negligible, NA = Not Applicable) Note: Given the situation in the Solomon Islands during the implementation of the SAC, this table shows the ratings based on the outcome after the outbreak of the crisis\. Please see Section 4 for a complete discussion and the rational for the rating and the distinction between the pre-crisis period and the post- crisis period\. Policy High Substantial Modest Negligible Not Macro policies X Sector Policies X Physical X Financial X Institutional Development X Environment X Social - Poverty Reduction X - Gender X - Other (Please specify) Private sector development X Public sector management X Other (Please specify)  - 35 - ANNEX 6\. RATINGS OF BANK AND BORROWER PERFORMANCE (HS=Highly Satisfactory, S=Satisfactory, U=Unsatisfactory, HU=Highly Unsatisfactory 6\.1 Bank Hiehlv satisfactory Satisfactorv Unsatisfactorv HiLIv ierformance Unsaisfactorv Lending El Z Supervision ElI 3 1 [ Overall L L LI 6\.2 Borrower HighIy satisfactory Satisfactory Unsatisfactory HighIy performance Unsatisfactory Preparation LI L [II Government implementation ] performance Implementation agency X performIance OveralJ)|  ANNEX 7: SOLOMON ISLANDS - MATRIX OF POLICYACTIONS Objectives/ Actions Taken Before end 1998 Actions Taken Before Board Presentation Status of Actions at the Closing of Strategies I I the Credit OMNIBUS CONDITION: MAINTENANCE OF A SOUND MACROECONOMIC FRAMEWORK, CONSISTENT WITH THE OBJECTIVES OF THE PROGRAM, DETERMINED ON THE BASIS OF INDICATORS AGREED TO BY THE BORROWER AND THE ASSOCIATION A\. MACROECONOMIC STABILIZATION Objective: No net borrowing by Government from the domestic financial system\. The To restore and Devalued Si dollar by 20 percent in December 1997 fiscal deficit funded by concessional finance only\. Privatization proceeds The Government salaries and wage bill for maintain a sound and a further 6 percent in 1998\. directed to repaying arrears or reducing debt\. FY1999 exceeded SBD 150 million\. (actual macroeconomic SBD 152 million due to police costs related to environment by Reversal of tightened limits on automatic foreign the ethnic crisis\. sharply lowering the a xchange transactions\. Domestic debt rescheduling program established with the commercial banks and iscad n reIcie ant the National Provident Fund(NPF) with a conversion of at least 50 per cent of prices to enhance the Achieved budget balance in 1998 (excluding arrears the treasury bills outstanding into longer-term bonds\. First tranche of the Central prices to enhance the reduction) and utilized a substantial portion of the Bank advance to the Government securitized by end May 1999\. Maintenance of The cost of retrenchment of public servants not Solomon Islands' ADB loanfundsfor arrears reduction\. debt service payments on interest arrears as formulated in January 1998\. to exceed SBD10 million\. intemational Domestic debt rescheduling program initiated in Furnishing to the Association monthly reports for January through April 1999 competitivencss\. January 1998 and domestic debt service payment showing domestic debt service payments\. commitments fulfilled in 1998\. National Provident Fund arrears securitized thTough issue of longer- No net borrowing by Government from the term bonds\. rrowina Monthly Monetary Monitoring Committee formed domeste financial system in FY19e (actual) and TCSPOnSibiC for economic, monetary and debt ~~~and the FY2000 Budget-ovwver ther-e was and i esponsible for economic, monetary and debt borrowing from the central bank in FY2000 to issues\. meet expenditures\. Privatization proceeds in FY19ff were used for repaying arrears, and following the clearance of public arrears, to further reduce debt, or finance the public sector investment program\. Monthly report for the period May through October 1999 to show that Government met all domestic debt service commitments under the new plan and meeting all external debt service commitments (excluding those in dispute or under discussion)\. 36  ANNEX 7: SOLOMON ISLANDS -MATRIX OF POLICYACTIONS Objectives/ Actions Taken Before end 1998 | Actions Taken Before Board Presentation Status of Actions at the Closing of Strategies T the Credit B\. PUBLIC FINANCES Objective: To improve the fiscal balance as well as Establishment of a three year Medium Term FY1999 Budget expenditure outturns within Budget appropriations on a pro- Increased budgetary allocationsfor operations service delivery by Development Strategy and Public Sector Investment rata basis, and Phase I of the public service restructuring involving 430 and maintenance in Head 211 (Transport, concentrating Program\. retrenchments is completed\. Improvement in customs duty collections by lOper Works, Communication, and Aviation) by 10 government cent above the FY1999 Budget estimate on a pro rata basis (SBD48\.million by per cent in nominal terms in the FY2000 expenditure in core end April 1999)\. Public sector employer and employee contribution Recurrent Budget, relative to the FY1999 areas, directing donor commitments to the NPF met as of end April 1999\. Domestic interest cost Recurrent Budget funds also to these arrears repayment schedule met\. No net increase in arrears after allowing for core areas; and Reduction in payroll charges achieved in 1998\. privatization proceedsfor reducing such arrears\. enhancing the The 1999 phase of the action plan to rebuild the expcency of government accounting framework, expenditure by reconcciiations between program ministry improving the Establishment of 4 Taskforces for (i) public Action plan commenced for the rebuilding of a comprehensive government spending records and Treasury payment accounting and finance and rehabilitation; (ii) public service accounting system so that the Department of Finance can establishfirm data on records achieved was prepared; and prepared budget framework reform; (iii) medium-term development strategy; actual expenditure by budget head together with basic controls to prevent action plans acceptable to the Association for and the economic and (iv) private sector development\. unauthorized use of funds, including a plan to re-introduce reconciliations audits of government accounts by the Auditor composition of clain expenditure\. between program ministry spending records and Treasury payment records\. General's Office andfor review ofsuch audits expenditure\. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~by the Public Accounts Committee\. Secured extemal technical assistance to begin public service reform, including the downsizing of the service and redundancy package and customs capacity building\. ADB US$25 million loan NOTE: ONLY THE CONDITIONS IN BOLD ITALICS IN ALL PAGES confirmed with US$15 million first tranche due for ARE THE BINDING CONDITIONS FOR TRANCHE RELEASE\. release in late 1998\. NOTE: ONLY THE CONDITIONS IN BOLD ITALICS IN ALL PAGES ARE THE BINDING CONDITIONS FOR TRANCHE Met domestic interest debt service commitments RELEASE\. established in the January 1998 plan\. Initiated actions for a review of fisheries revenues\. Delivered FY1999 budget showing higher allocations to education and health, development expenditures and debt service, and with no recourse for financing from the domestic banking system\. 37  ANNEX 7: SOLOMONISLANDS -MATRIXOFPOLICYACTIONS Objectives/ Actions Taken Before end 1998 Actions Taken Before Board Presentation | Status of Actions at the Closing of Strategies l J | the Credit l C\. FINANCIAL SECTOR REFORM Objective: To restore financial Bokolo bill yields increased to 5-8 percent, an open Public announcement of:(i) Treasury bill auctions allowing the market to set Treasury bill auctions regularly conducted and sector confidence, tap system introduced and bill maturities increased the price, and treasury bill rediscountfacility introduced with a penalty margin; monetary policy operational\. ensure a sound and to 12 months\. Central Bank call account rate and (ii) phasing out of Bokolo bills\. Minimum liquid assets ratio reduced in safe financial system, increased to 3 percent\. line with the debt restructuring\. Monthly Monetary Monitoring Meetings held Completed external review of the Development and enhance the role Bank and the National Provident Fund; but of the sector in Financial Institutions Bill (1998) enacted\. Ministerial directive issued in April 1999 under the Financial Institutions Act action plans for the implementation of the supporting sustained (1998) to the Central Bank to apply prudential standards to the Development recommendations of the reviews were yet to be economic growth\. Central Bank press releases on risks of pyramid Bank, and Central Bank to establish a phased compliance plan for the adopted Restore market financial schemes\. Development Bank\. driven interest rates\. Quarterly liquidity forecasts of the banking To avoid conflict as a shareholder and supervisor, the Central Bank has taken steps system produced by the Central Bank\. for the disposal of its shares in the Development Bank\. Terms of reference acceptable to the Association have been issued for an extemal review of the loan portfolio, risk management systems and corporate govemance framework of the Development Bank\. Specific actions put in place to deal with any possible re-emergence of pyramid financial Ministerial directive issued under the Financial Institutions Act (1998) to bring the schemes through the implementation of the NPF under the supervision of the Central Bank Central Bank approval for an Financial Institutions Act, or amnendnents to the external portfolio and actuarial review of the NPF obtained with terms of reference Act or new legislation, as necessary\. acceptable to the Association\. Central Bank agreed to upgrade and restructure the Banking Supervision and Extension Unit to provide supervision for NPF and Development Bank, to establish an on-site inspection capability for the non-bank financial institutions particularly the larger credit unions, and to improve off-site analysis and surveillance systems\. 38  ANNEX 7: SOLOMONISLANDS - MATRIX OFPOLICYACTIONS Objectives/ Actions Taken Before end 1998 | Actions Taken Before Board Presentation 7Status of Actions at the Closing of Strategies l the Credit D\. SUSTAINABLE FOREST MANAGEMENT Promote Introduced a Code of Practice for Logging\. Issue of new timber harvesting licenses and renewal of existing licenses was Government has worked on (a) the economically and made in strict compliance with existing regulations until: (a) the current Forest implementation of the current Forest Division's environmentally Introduction in late 1997 of more stringent scrutiny Division's review of all existing logging licenses and their allowable cut is review of all existing logging licenses and their sustainable growth in of new logging licenses, while existing logging complete; (b) a process to revoke those in violation of license conditions is allowable cut; (b) the establishment of a process the Solomon Islands licenses and technology agreements arc reviewed\. established; and (c) a consultative process of reducing the annual allowable cut to revoke those in violation of license conditions; by enhancing the to a sustainable level is initiated and (c) initiate a consultative process of reducing management of its the annual allowable cut to a sustainable level\. forest resources\. An outline of forest legislation prepared and Presented to Cabinet the new draft Forest Bill which fully incorporates and Established a government policy regarding presented to Cabinet\. Cabinet has already approved addresses sustainable forest management, promotes resource protection and community forestry, that provides support and the outline\. conservation, provides for equity of development benefits through improved in- coordination with socially and economically country resource rent capture, and makes adjustments to log licensing policies and viable eco-forestry and other small-scale procedures\. sawmilling operations\. Removed all remissions associated with the timber industry and discontinue Completed the review of the taxation and revenue granting of remissions - in effect prior to the crisis\. regime in the forestry industry, and formulated an \._____________________________________________ ________________________________________________________________________ action plan\. Have begun to implement improved forest industry Had in place: (i) externalfundingfor the Forest Management Unit, training in (a) Forest Management Unit established under monitoring by reactivating the Forest Management the application of the Logging Code of Practice, and improvement of log export the Forestry Division of the Department of Project\. monitoring capabilities; and(ii) the necessary counterpart funding in the Forestry, Environment and Conservation with budget\. competent staff in adequate numbers; (b) Funds allocated for the Forest Management Unit in the FY2000 Recurrent Budget not less than the amount allocated in the FY1999 Recurrent Budget; and (c) Forest Bill acceptable to the Association submitted to the Parliament\. 39  ANNEX 7: SOLOMONISLANDS -MATRIXOFPOLICYACTIONS Objectives/ Actions Taken Before end 1998 Actions Taken Before Board Presentation Status of Actions at the Closing of Strategies the Credit E\. PRIVATE SECTOR DEVELOPMENT Objective: To stimulate private The frequency of holding investment approval The average time for foreign investment approvals for projects not located in outer No conversion of the Investment Board into an sector development meetings has been increased to two per month\. provinces does not exceed four weeks by the Investment Board during January to investment promotion authority including so as to help achieve April 1999 and that registration by the Registrar General does not exceed four adoption of required legislation and procedures sustainable economic Initiatives have been taken to reorganize the weeks on average during the same period\. within the Department of Commerce, Industry, growth and more functions of the Foreign Investment Board in favor Employment, and Tourism for simplified rapid employment of promoting investment\. Tracts of underutilized government land were identified for the purpose of investment approvals, subject to compliance creation for the leasing to private investors\. with given criteria growing labor force\. Private Sector 'I'ask Force established and a report Improve the on reform initiatives submitted to Government\. Establish a suitable policy framework for the investment climate mining industry to ensure accountability in the for local and foreign allocation of concessions to mining companies, investment\. limit investor uncertainty and, therefore, risk premiums, and to avoid a piece-meal approach\. 40  ANNEX 7: SOLOMONISLANDS - MATRIXOFPOLICYACTIONS Objectives/ Actions Taken Before end 1998 Actions Taken Before Board Presentation Status of Actions at the Closing of Strategies | the Credit F\. SOCIAL SECTOR - POVERTY ALLEVIATION Objective: Health-To ensure A comprehensive review of the health services\. Completed an initial draft of the structure of the reorganized Ministry of Health Document and approve the new organizational equitable, efficient and Medical Services (MHMS) consistent with the public service reform program, structure of the MHMS\. and quality basic Development of a National Health Development and present it for review by the Association\. health services\. Plan 1997-2001\. Increase in nominal terms the FY2000 Paid infull to all provinces the approved allocationfor January to April 1999 in Recurrent Budget allocation for preventive Case incidence rates for TB and Leprosy reduced to the FY1999 budgetfor provincial health services, wages, and malaria control health services* by 10 percent relative to the less than I per 10,000 population\. FY1999 Recurrent Budget\. Access to health service improved with 70% of rural The allocation for the National Referral Hospital communities within one hour walking distance of a does not exceed 40 percent of the allocation for health facility\. health in the FY2000 budget\. Incidence of malaria reduced to 160 per 1000 in *Consists of (i) health education; (ii) malaria 1997 compared to over 400 per 1000 in 1992\. control; (iii) provincial health services; and (iv) environmental health\. Education-To ensure improved A brief outline of proposals and priorities of the Completed an initial draft of an education sector plan that clearly indicates the The allocation of funds for education in the education quality, Department of Education and Human Resource needs, priorities, strategies and long term investment programs (over the next 10 FY2000 recurrent budget for the respective efficiency, access Development for the education sector are specified years)\. The sector plan should in particular focus on curriculum reform, teacher schools based on a unit-costformula acceptable and utilization of in the Statement of Policies, 1997-2001\. training, and development of leaming materials\. to the Association has not been done due to the services\. unavailability of the school enrollment The need for rationalizing the funding flows for the Prepared a proposal for a unit-cost formula, including methodologies for numbers as inputsfor the unit-costformula\. education sector has been agreed and a consultant updating and reviewing it on a systematic basis, for the allocation of public identified for the proposed financing study\. funds for primary and secondary education, taking into account the current policies and range of quality standards in the schools\. The rapid unplanned expansion of Community High Issued a directive that further construction of CHS would be strictly controlled, Schools (CHS), without regard for recurrent costs until all existing schools have been provided with adequate recurrent budgets, and quality aspects, is slowing down\. teachers and learning materials\. Social Services-To Terms of reference acceptable to the Association issued for a Poverty Poverty Assessment initiated\. ensure that specific Assessment, that wiUl help design appropriate social policies and programs to human development deal with poverty alleviation\. policies and programs are put in place\. 41

REVIEW

P000974

 ICRR 12688 Report Number : ICRR12688 IEG ICR Review Independent Evaluation Group 1\. Project Data: Date Posted : 08/13/2007 PROJ ID : P000974 Appraisal Actual Project Name : National Functional US$M ): Project Costs (US$M): 46 44\.9 Literacy Program Project Country : Ghana Loan/ US$M): Loan /Credit (US$M): 32 33\.9 Sector Board : ED Cofinancing (US$M): US$M ): Sector (s): Adult literacy/non-formal education (91%) Media (6%) Central government administration (3%) Theme (s): Gender (29% - P) Improving labor markets (29% - P) Education for all (28% - P) Social analysis and monitoring (14% - S) L/C Number : C3246 Board Approval Date : 06/17/1999 Partners involved : Closing Date : 12/31/2004 08/31/2006 Evaluator : Panel Reviewer : Group Manager : Group : Helen Abadzi Howard Nial White Alain A\. Barbu IEGSG 2\. Project Objectives and Components: a\. Objectives: The objective was to increase the number of Ghanaian adults (15-45 years), particularly among women and the rural poor, who would acquire literary and other functional skills \. To support the objective the project also aimed to (a) create enabling literate environment by improving access to reading materials; (b) improve existing radio broadcasting literacy classes; (c) cover four more national radio stations, and enhance English language interactive radio; and (d) improve institutional capacity by way of improving human resource development and staff decentralization\. b\.Were the project objectives/key associated outcome targets revised during implementation? No c\. Components (or Key Conditions in the case of DPLs, as appropriate): The project aimed to enroll one million adult illiterates in five yearly cycles in functional literacy programs by working with 200,000 learners per five yearly cycles \. Components were: (a) Basic Literacy and Development Activity Component (US$22\.7m at appraisal, US$25\.3m actual) to develop basic literacy, numeracy, and functional skills for adults in 15 Ghanaian languages, through the acquisition of classroom inputs, reading and other materials, working tools and training for facilitators and supervisors \. Included were literacy curriculum development, piloting of post -literacy development activities to improve English language literacy for adults, increased mobilization and sensitization of community participation activities \. (b) Expanded English Pilot (US$0\.8m at appraisal, US$2m actual) for post-literacy development activities to improve English language literacy for adults \. (c) Literate Environment (US$1\.0m at appraisal, US$0\.8m actual) to develop a literate environment to sustain the literacy skills of newly trained adults through the introduction and acquisition of reading materials (easy to read books, entertaining story books, community news papers, comic books and literacy board games, anthology ), and provision of technical advisory services \. (d) Monitoring, Evaluation and Research Project Component (US$1\.2m at appraisal, US$1\.8m actual) to strengthen the capacity of the government to monitor and evaluate functional literacy activities through supervisions, learner assessments, tracer studies, staff training, and research \. improvement of management information systems (MIS), provision of technical advisory services and acquisition of materials, vehicles, and equipment \. (e) Radio Broadcasting (US$1\.8m at appraisal, US$0\.9m actual) to develop a literate environment, to sustain the literacy skills of newly trained adults through the introduction and acquisition of reading materials (easy to read books, entertaining story books, community news papers, comic books and literacy board games, anthology ), and the provision of technical advisory services \. (f) Management and Institutional Enhancement (US$5\.4m at appraisal, US$7m actual) to develop human resources for adult literacy management and supervision at the central and district levels \. d\. Comments on Project Cost, Financing, Borrower Contribution, and Dates: After two extensions totaling 20 months (due to implementation delays) the project closed on August 31 2006 and disbursed 94% of Credit proceeds\. Approximately US$138,296\.11 were canceled\. 3\. Relevance of Objectives & Design: The project development objective was highly relevant to the Millennium Development Goals given that literate mothers are more likely to enroll their children, including girls, in school \. The objective was also in line with the overall Country Assistant Strategy (CAS) that focused on improving the productivity and welfare of Ghanaians, and with the government's 2003 Education Strategic Plan, which focused on the key policies of mid -term budgetary frameworks\. A high literacy rate among the population continues to be an objective of the Bank's and government's human development strategy, given the need for literacy to obtain information that may facilitate poverty alleviation \. 4\. Achievement of Objectives (Efficacy): Overall, the development objective was achieved (substantial)\. The project enrolled 1\.2 million learners, surpassing the target of 1 million\. Performance targets were met in reading and numeracy, but not in writing \. (i) Reading skills : 70% of learners were to read and comprehend a short essay of 3 paragraphs in one of the 15 selected local languages\. During the baseline stage, 38\.1% of the tested learners scored above the 50% (at least 15 out of 30 marks) pass mark\. At mid-point, the proportion of learners who scored above 50% increased to 68\.3%, and at project completion 85\.4% achieved the 50% or above\. Non-learners who were tested at midpoint and at completion, had scores of 7\.4 % and 19\.9% respectively\. ii) Writing skills : 70% of adults were expected to write a simple one -page letter in one of the 15 selected local (ii) languages\. During the baseline stage, 10% of the learners scored above 50%\. 28% at mid-point, and 45% at project completion\. Of the non-learners, 4\.7% scored above 4\.4%\. iii ) Numeracy skills : 70% of the learners were executed to perform simple calculations in 4 arithmetical operations (iii) with numbers of up to one million\. During the baseline stage 17\.8% scored above 50%, at mid-point 48\.6% and at completion 69\.4%\. Among non-learners the respective proportions were 7\.2% at mid-point and 12\.6% at project completion\. The regional and gender targets were not achieved as envisaged \. The proportion of female graduates from the three regions of the North was 49%, falling short of the 60% target, partly because demand for literacy classes among women in the North was low\. The information in the ICR was not sufficient to determine whether the rural poor had been reached in sufficient numbers \. The activities of most components were carried out as expected \. About 79% of learners reported receiving textbooks at the appropriate time\. Training was provide to broadcast literacy classes by radio, though classes were broadcast in 10 rather than 15 languages\. An English language pilot was executed, but radio activities in English were not \. Many income generation skills were taught, rewards were offered to facilitators to encourage better student performance\. 5\. Efficiency (not applicable to DPLs): Efficiency was substantial\. The PAD used unit costs estimated from cost per participant as US$ 38, adjusted for expected completion rates and benefits estimated from the incremental earnings -literacy relationship (based upon household survey data from Ghana \.) The social rate of return was estimated to be about 18 % for males and 14 % for females\. The unit cost estimates at project completion were slightly smaller US$ 35 per graduate, while literacy achievements are close to what was assumed at appraisal \. ERR )/Financial Rate of Return (FRR) a\. If available, enter the Economic Rate of Return (ERR) FRR ) at appraisal and the re- re -estimated value at evaluation : Rate Available? Point Value Coverage/Scope* Appraisal No ICR estimate No * Refers to percent of total project cost for which ERR/FRR was calculated\. 6\. Outcome: In addition to literacy skills acquisition, the project had significant impact on behavioral issues, civic awareness, community participation and use of social services \. Learners were more inclined to send their children to school; at baseline, 58% of learners had at least one child in school compared with 62% at mid-point and at project completion; 50% of non-learners sent children to school, (54% at project completion)\. Learners were more likely to exhibit hygienic skills, and better maternal and child health care; 91\.6% of learners washed their hands with soap as opposed to 82% at baseline, compared to 66% among non-learners (who improved at 76%)\. The percentages of those washing utensils after use improved from 72% to 87% among learners and from 59 to 69% among non-learners\. The ICR did not clarify whether the targets for reaching the rural poor had been met \. a\. Outcome Rating : Satisfactory 7\. Rationale for Risk to Development Outcome Rating: Risk is rated moderate\. It is unclear whether the government will continue to support adult literacy activities \. It is also unclear whether the neoliterates will sustain literacy acquisition for the long term \. a\. Risk to Development Outcome Rating : Moderate 8\. Assessment of Bank Performance: The Bank agreed to finance a second adult literacy project despite the modest learning outcomes of the first \. For its design, the Bank relied extensively on the lessons of the first adult literacy project of Ghana \. It also maintained flexibility and cooperated with the government during times of limited disbursements and political turmoil\. at -Entry :Satisfactory a\. Ensuring Quality -at- b\. Quality of Supervision :Satisfactory c\. Overall Bank Performance :Satisfactory 9\. Assessment of Borrower Performance: Borrower performance was moderately satisfactory \. The government had limited commitment early on and delayed release of counterpart financing \. Significant implementation delays affected the first half of the project \. The signature of an official on the Development Credit Agreement was not recognized by the government, and this caused a delay of 14 months in project effectiveness \. Subsequently a new government made extensive personnel changes and further delayed implementation \. At mid-term (December 2003), implementation progress was rated unsatisfactory because the disbursement rate was only 29%\. Nevertheless, the implementing agency showed high commitment in the achievement of literacy goals, and staff worked tirelessly to exceed the enrollment target of 1 million and carry out project activities \. Its performance was satisfactory\. a\. Government Performance :Moderately Satisfactory b\. Implementing Agency Performance :Satisfactory c\. Overall Borrower Performance :Moderately Satisfactory  10\. M&E Design, Implementation, & Utilization: The project redesigned the existing M&E system, enhanced the quality of learner assessments and introduced self-assessments of learners and facilitators \. Tracer studies were conducted at the baseline stage, at midpoint, and at the completion stage which assessed reading, writing, and numeracy skills \. The performance of enrolled learners was compared to that of non-learners\. The revamped M&E operations helped improve the implementation of a number of areas including the efficiency of training activities, primer production, and income generation \. a\. M&E Quality Rating : Substantial 11\. Other Issues (Safeguards, Fiduciary, Unintended Positive and Negative Impacts): - About 27% of the people who signed up for literacy classes had attended primary school and 7% had attended junior secondary school (Information available from a beneficiary assessment \.) ICR data show that many were already marginally literate; 38\.1% of learners met the 50% scoring criterion compared to only 7\.4% of non-literates who were assessed\. The self-selection into the program of those who were more knowledgeable may have made the program appear more effective than it was \. - Many non-governmental organizations showed a limited interest in working with the government to promote adult literacy classes and to keep learners from dropping out \. 12\. 12\. Ratings : ICR IEG Review Reason for Disagreement /Comments Outcome : Satisfactory Satisfactory Risk to Development Moderate Moderate Outcome : Bank Performance : Satisfactory Satisfactory Borrower Performance : Moderately Moderately Satisfactory Satisfactory Quality of ICR : Satisfactory NOTES: NOTES - When insufficient information is provided by the Bank for IEG to arrive at a clear rating, IEG will downgrade the relevant ratings as warranted beginning July 1, 2006\. - The "Reason for Disagreement/Comments" column could cross-reference other sections of the ICR Review, as appropriate \. 13\. Lessons: - Government commitment and flexibility are needed to promote adult literacy activities \. Non-governmental organizations may be unable or unwilling to carry out literacy activities when governments show limited leadership in this area\. - Agreed parameters and indicators of quality are necessary to deliver, monitor, and evaluate adult literacy \. Systematic data collection, establishment of baselines, and clear site and beneficiary selection criteria are important for the success of programs catering to the very poor \. - Offering rewards to facilitators to encourage better performance may significantly increase the probability that they will focus on providing basic skills to learners \. 14\. Assessment Recommended? Yes No Why? This is an innovative project in a critical area with outcomes that should be verified \. 15\. Comments on Quality of ICR: Quality is satisfactory overall, but the ICR could have discussed more extensively the rationale, criteria, and achievements of neoliterates \. It also has some errors\. Under Basic Information, "disbursed amount' seems to refer to the amount canceled (US$138,296\.11)\. Component 1 and 2 have the same wording (p\. 12)\. The amounts shown in components do not agree with the amounts shown in Annex 1, possibly because contingencies are not shown \. Table 2 has data points missing and does not clearly explain whether the figures refer to percentages of learners or to scores\. The ICR could have also provided clearer data on pass rates and criteria \. Ghanaian neoliterates should be able to read and understand three paragraphs in one of 15 languages\. The ICR states that the pass score was 50% but offers no explanations for the choice of this criterion and the level of practical skill associated with a 50% criterion\. Also, fluency and comprehension were not analyzed separately \. A 2004 beneficiary assessment and tracer study (provided by the region) showed that 65-82% of the graduates could read at least one complete sentence but not entire paragraphs without difficulty \. It is unclear, however, whether the ICR refers to these or to later data \. a\.Quality of ICR Rating : Satisfactory

REVIEW

P001756

 ICRR 10542 Report Number : ICRR10542 ICR Review Operations Evaluation Department 1\. Project Data : Date Posted : 04/18/2000 PROJ ID : P001756 OEDID:OEDID : C2390 Appraisal Actual Project Name : Mining capacity US$M ) Project Costs (US$M) 6\.5 6\.61 project Country : Mali Loan/ US$M ) Loan /Credit (US$M) 6\.0 6\.1 Sector, Major Sect \.: Mining & Other US$M ) Cofinancing (US$M) 0 0 Extractive , Mining L/C Number : C2390 FY ) Board Approval (FY) 92 Partners involved : Closing Date 06/30/1997 06/30/1999 Prepared by : Reviewed by : Group Manager : Group : Elliott Hurwitz John H\. Johnson Ruben Lamdany OEDCR 2\. Project Objectives and Components a\. Objectives (1) Strengthen capacity of the government to attract investment to the mining sector; (2) Develop a vibrant mining sector composed of large, medium, and small firms financed with both foreign and local capital\. b\. Components (1) Strengthen capacity: components (a) to perform studies to develop options in formulation of mining policy; (b) deliberations and preparation of mining policy and strategy; (c) implementation of institutional and legal reforms; (d) training; (e) managerial assistance to the Ministry of Mines\. (2) Develop sector: (a) develop adequate geological data base; (b) rehabilitate government’s Documentation Center—the repository of geological data and maps; (c) organize investment promotion campaign\. c\. Comments on Project Cost, Financing and Dates Project costs were US$6\.61 million, of which US$2\.82 million, or 43%, was expended on the first objective (strengthen capacity and policy), and US$3\.79, or 57%, was expended on the second component (develop vibrant mining sector)\. While the project had originally been scheduled to close on June 30, 1997, closing was delayed until June 30, 1999 to allow completion of several tasks\. 3\. Achievement of Relevant Objectives : While as noted below, mining investment and output increased significantly during the course of the project, most structural goals set for the project were not fully achieved: restructuring of sectoral agencies was less than envisioned; policy, institutional and legal reforms were below project goals; and institutional development was disappointing\. However, the project was successful in the construction and operation of the Documentation Center--a principal agency to facilitate provision of information to potential investors\. 4\. Significant Outcomes /Impacts : Mining investment and mining output increased substantially during the term of the project\. Gold production increased from around 4 mt in 1990 to 22 mt in 1998\. During the same period, investment in mineral exploration amounted to around US$20 million per year\. This increased activity significantly bolstered Mali’s exports and overall economic performance\. 5\. Significant Shortcomings (including non -compliance with safeguard policies ): Most policy measures and institutional reforms fell short of project goals, including fiscal provisions of the new mining law\. While the Council of Ministers endorsed project recommendations to downsize and streamline sectoral agencies, no actions had yet been taken when the project closed\. Environmental goals were not achieved, including recommendations on the types of environmental health, and safety regulations that should be effected, and how to monitor them\. 6\. Ratings : ICR OED Review Reason for Disagreement /Comments Outcome : Satisfactory Marginally Satisfactory As noted, nearly all structural changes and policy and institutional reforms envisioned in the project were not fully achieved\. However, balancing this, the project was successful in the construction and operation of the Documentation Center, and mining investment and output increased substantially during the term of the project\. Institutional Dev \.: Partial Modest There is no evidence of improvement in the institutional and legal environment or in the skills of sectoral officials, as envisioned in the SAR\. However, the project was successful in the construction and operation of the Documentation Center--a principal agency to facilitate provision of information to potential investors\. Sustainability : Likely Uncertain Many restructuring actions and reforms have not yet been taken, so their sustainability is at best unknown\. Also, as acknowledged in the ICR, sustainability of the Documentation Center is unclear due to uncertain budgetary support\. Bank Performance : Satisfactory Satisfactory Borrower Perf \.: Satisfactory Satisfactory Quality of ICR : Satisfactory 7\. Lessons of Broad Applicability : If an ambitious reform agenda is included in a project, there needs to be a realistic assessment of the time and resources necessary to achieve it, as well as a strong commitment from government If a project is intended to achieve improvements in the artisanal mining sector, and a parallel reduction in poverty, explicit attention needs to be placed on these in a project, and the issue of mining titles addressed \. For a project that involves a multi -agency initiative to improve the enabling environment, the Bank should place more emphasis on achieving up -front consensus among agencies \. 8\. Audit Recommended? Yes No 9\. Comments on Quality of ICR : The ICR provides little data on key variables, such as the increase in foreign investment attracted to mining, as well as number of jobs created, value-added, etc\. It also does not address progress, if any, on artisanal mining, which was a major emphasis of the SAR\. The ICR also does not report on progress, if any, in ensuring adequate health, safety, or environmental measures for the mining sector, despite the emphasis on these critical areas in the SAR\. Finally, the ICR rates sustainability as likely, but does not present any evidence to substantiate this claim\.

REVIEW

P127143

Document of The World Bank FOR OFFICIAL USE ONLY Report No: ICR00005401 IMPLEMENTATION COMPLETION AND RESULTS REPORT IDA-52620, TF014757, TF014765 ON A IDA CREDIT IN THE AMOUNT OF SDR4 MILLION (US$6 MILLION EQUIVALENT) AND A GRANT FROM THE GLOBAL ENVIRONMENT FACILITY TRUST FUND IN THE AMOUNT OF US$6\.04 MILLION AND A GRANT FROM ESMAP IN THE AMOUNT OF US$1\.10 MILLION TO THE MINISTRY OF FINANCE FOR THE DJIBOUTI GEOTHERMAL POWER GENERATION PROJECT March 2021 Energy and Extractives Global Practice Middle East and North Africa Region  CURRENCY EQUIVALENTS (Exchange Rate Effective December 31, 2020) Currency Unit = SDR 1 = US$1\.44 US$1 = SDR 0\.69 FISCAL YEAR July 1 - June 30 Regional Vice President: Ferid Belhaj Country Director: Marina Wes Regional Director: Paul Noumba Um Practice Manager: Erik Magnus Fernstrom Task Team Leader(s): Lucine Flor Lominy ICR Main Contributor: Michel E\. Layec  ABBREVIATIONS AND ACRONYMS AFD French Development Agency (Agence Française de Développement) AfDB African Development Bank Bbl Barrel CAS Country Assistance Strategy CERD Djibouti Research Center (Centre d’Etudes et de Recherche de Djibouti) CO2e Carbon Dioxide Equivalent CPF Country Partnership Framework CPS Country Partnership Strategy EDD Djibouti Electricity Company (Electricité De Djibouti) ESIAF Environmental and Social Impact Assessment Framework ESMAP Energy Sector Management Assistance Program FDI Foreign Direct Investment GDP Gross Domestic Product GEF Global Environmental Facility GoDJ Government of Djibouti GWH Gigawatt Hour HFO Heavy Fuel Oil ICR Implementation Completion and Results Report ICT Information and Communication Technology IDA International Development Association IFC International Finance Corporation IPP Independent Power Producer ISR Implementation Status and Results Report MENA Middle East and North Africa MERN Ministry of Energy and Natural Resources MIGA Multilateral Investment Guaranty Agency MTR Mid-Term Review MW Megawatt M&E Monitoring and Evaluation NDC Nationally Defined Contribution NPV Net Present Value ODDEG Djibouti Office for Geothermal Development (Office Djiboutien de Développement de l’Energie Géothermique) OFID OPEC Fund for International Development ORAF Operational Risk Assessment Framework PAD Project Appraisal Document PDO Project Development Objective PIU Project Implementation Unit (“Unité de Gestion de Projet ‘’) PPA Power Purchase Agreement PPP Public Private Partnership PV Photovoltaic REI Reykjavik Energy International SCD Systematic Country Diagnostic SEFA Sustainable Energy Fund For Africa SMEs Small and Medium Enterprises TTL Task Team Leader UNFCCC United Nations Framework Convention on Climate Change WBG World Bank Group  TABLE OF CONTENTS DATA SHEET \. 1 I\. PROJECT CONTEXT AND DEVELOPMENT OBJECTIVES \. 5 A\. CONTEXT AT APPRAISAL \.6 Context \. 6 Sectoral and Institutional Context \. 6 Theory of Change (Results Chain) \. 7 Project Development Objectives (PDOs) \. 8 Key Expected Outcomes and Outcome Indicators \. 9 Components\. 9 B\. SIGNIFICANT CHANGES DURING IMPLEMENTATION \.9 Revised PDOs and Outcome Targets \. 9 Revised PDO Indicators \. 9 Rationale for Changes and Their Implication on the Original Theory of Change \. 9 II\. OUTCOME \. 10 A\. RELEVANCE OF PDOs \. 10 Assessment of Relevance of PDOs and Rating \. 10 B\. ACHIEVEMENT OF PDOs (EFFICACY) \. 11 Assessment of Achievement of Each Objective/Outcome \. 11 Greenhouse Gas Emissions Avoided: Not yet completed\. \. 11 Development of a fully-fledged power generation feasibility study: Not yet completed\. \. 11 Geothermal well test protocol developed and in place: Fully completed\. \. 11 Well test results independently reviewed and certified: Met partially\. \. 12 Justification of Overall Efficacy Rating \. 12 C\. EFFICIENCY \. 13 Assessment of Efficacity and Rating \. 13 Efficiency \. 13 Project Design and Implementation \. 13 Project Costs \. 13 Economic Analysis \. 14 D\. JUSTIFICATION OF OVERALL OUTCOME RATING \. 16 E\. OTHER OUTCOMES AND IMPACTS \. 16 Body of Information on Geothermal Drilling in Djibouti \. 16 Institutional Strengthening \. 16 Mobilizing Private Sector Financing\. 17 Poverty Reduction and Shared Prosperity \. 17  Other Outcomes and Impacts\. 17 A\. KEY FACTORS DURING PREPARATION \. 18 Project Objective\. 18 Result Framework \. 18 Project Design \. 18 Monitoring Plan (M&E) \. 19 Risks \. 19 Readiness for Implementation \. 19 B\. KEY FACTORS DURING IMPLEMENTATION \. 19 Factors subject to the control of government and/or implementing entities \. 19 Factors subject to the World Bank Control \. 21 Factors outside the control of government and/or implementing entities \. 22 IV\. BANK PERFORMANCE, COMPLIANCE ISSUES, AND RISK TO DEVELOPMENT OUTCOME \. 22 A\. QUALITY OF MONITORING AND EVALUATION (M&E) \. 22 M&E Design \. 22 M&E Implementation and Utilization\. 22 Justification of Overall Rating of Quality of M&E \. 23 B\. ENVIRONMENTAL, SOCIAL, AND FIDUCIARY COMPLIANCE \. 23 Environmental and Social Safeguards \. 23 Financial Management \. 23 Procurement \. 23 C\. BANK PERFORMANCE \. 24 Quality at Entry \. 24 Quality of Supervision \. 25 Justification of Overall Rating of Bank Performance\. 26 D\. RISK TO DEVELOPMENT OUTCOME \. 26 V\. LESSONS AND RECOMMENDATIONS \. 26 ANNEX 1\. RESULTS FRAMEWORK AND KEY OUTPUTS \. 29 ANNEX 2\. BANK LENDING AND IMPLEMENTATION SUPPORT/SUPERVISION \. 34 ANNEX 3\. PROJECT COST\. 36 ANNEX 4\. BORROWER AND CO-FINANCIERS COMMENTS \. 37 ANNEX 5\. PROJECT MAP AND SITE LAYOUT \. 54 ANNEX 6\. PROJECT COST\. 56 ANNEX 7\. PROJECT IMPLEMENTATION \. 57 ANNEX 8\. SUPPORTING DOCUMENTS \. 59  The World Bank DJ Geothermal Power Generation Project (P127143) DATA SHEET BASIC INFORMATION Product Information Project ID Project Name P127143 DJ Geothermal Power Generation Project Country Financing Instrument Djibouti Investment Project Financing Original EA Category Revised EA Category Partial Assessment (B) Partial Assessment (B) Related Projects Relationship Project Approval Product Line Supplement P127144-DJ (GEF) 05-Jun-2013 Global Environment Project Geothermal Power Generation Program Organizations Borrower Implementing Agency Ministry of Economy and Finance EDD, EDD/PIU Project Development Objective (PDO) Original PDO The objective of the Project is to assist the Recipient in assessing the commercial viability of the geothermal resource in Fiale Caldera within the Lake Assal region\. Page 1  The World Bank DJ Geothermal Power Generation Project (P127143) FINANCING Original Amount (US$) Revised Amount (US$) Actual Disbursed (US$) World Bank Financing P127143 IDA-52620 6,000,000 5,980,194 5,569,945 P127143 TF-14757 6,036,364 6,031,166 6,031,166 P127143 TF-14765 1,100,000 1,001,482 1,001,482 Total 13,136,364 13,012,842 12,602,593 Non-World Bank Financing 0 0 0 Borrower/Recipient 500,000 0 0 African Development Bank 2,340,000 0 0 African Development Fund 5,000,000 0 0 FRANCE: French Agency for 3,250,000 0 0 Development OPEC FUND 7,000,000 0 0 Total 18,090,000 0 0 Total Project Cost 31,226,364 13,012,841 12,602,592 KEY DATES Project Approval Effectiveness MTR Review Original Closing Actual Closing P127143 05-Jun-2013 02-Jul-2014 11-Dec-2017 31-Dec-2018 31-Dec-2019 RESTRUCTURING AND/OR ADDITIONAL FINANCING Date(s) Amount Disbursed (US$M) Key Revisions 20-Oct-2014 0 Reallocation between Disbursement Categories 22-Sep-2015 \.01 Reallocation between Disbursement Categories 26-Jun-2018 7\.78 Change in Loan Closing Date(s) 20-Dec-2018 11\.43 Change in Results Framework Change in Loan Closing Date(s) Page 2  The World Bank DJ Geothermal Power Generation Project (P127143) KEY RATINGS Outcome Bank Performance M&E Quality Moderately Unsatisfactory Moderately Satisfactory Substantial RATINGS OF PROJECT PERFORMANCE IN ISRs Actual No\. Date ISR Archived DO Rating IP Rating Disbursements (US$M) 01 07-Dec-2013 Moderately Satisfactory Moderately Unsatisfactory 0 Moderately 02 06-Jun-2014 Moderately Unsatisfactory 0 Unsatisfactory Moderately 03 13-Dec-2014 Moderately Unsatisfactory 0 Unsatisfactory Moderately 04 09-Jun-2015 Moderately Unsatisfactory 0 Unsatisfactory Moderately 05 20-Jan-2016 Moderately Unsatisfactory \.05 Unsatisfactory 06 29-Jun-2016 Moderately Satisfactory Moderately Satisfactory \.13 07 12-Jan-2017 Moderately Satisfactory Moderately Satisfactory \.20 Moderately 08 18-Jun-2017 Moderately Unsatisfactory \.26 Unsatisfactory 09 15-Nov-2017 Moderately Satisfactory Moderately Satisfactory 4\.23 10 05-Jun-2018 Moderately Satisfactory Moderately Satisfactory 7\.08 11 28-Dec-2018 Moderately Satisfactory Moderately Satisfactory 11\.43 12 09-Jun-2019 Satisfactory Satisfactory 12\.50 13 02-Jan-2020 Moderately Satisfactory Moderately Satisfactory 12\.59 SECTORS AND THEMES Sectors Major Sector/Sector (%) Energy and Extractives 100 Renewable Energy Geothermal 100 Page 3  The World Bank DJ Geothermal Power Generation Project (P127143) Themes Major Theme/ Theme (Level 2)/ Theme (Level 3) (%) Private Sector Development 10 Public Private Partnerships 10 Environment and Natural Resource Management 100 Climate change 100 Mitigation 100 ADM STAFF Role At Approval At ICR Regional Vice President: Inger Andersen Ferid Belhaj Country Director: A\. David Craig Marina Wes Director: Junaid Kamal Ahmad Paul Noumba Um Practice Manager: Charles Joseph Cormier Erik Magnus Fernstrom Task Team Leader(s): Ilhem Salamon Lucine Flor Lominy ICR Contributing Author: Michel E\. Layec Page 4  The World Bank DJ Geothermal Power Generation Project (P127143) I\. PROJECT CONTEXT AND DEVELOPMENT OBJECTIVES Overview 1\. As a project focused on deep exploratory drilling to confirm energy resources, the Djibouti Geothermal Power Generation Project is a high-risk high-reward project\. It seeks to assist Djibouti in assessing the commercial viability of the geothermal resources located in Fiale Caldera within Djibouti Lake Assal region (Annex 6 locates the project site and shows the site layout)\. The commercial assessment was to lay out the basis for the development, in a subsequent operation, of a geothermal base load electricity generation capacity using this local renewable resource, which would replace EDD’s ageing thermal base load generation capacity running\. The project’s main component finances the drilling of geothermal exploration wells and the technical, economic, and financial assessment of a future geothermal power generation project\. 2\. As of end December 2020, a significant part of the agreed drilling program has been completed\. The three exploratory wells have been drilled at depths of up to 2,500 meters, and the related information collected and analyzed, with some preliminary tests conducted\. In view of the initial results however, to increase the chances of a commercially viable power project, additional testing and stimulation was considered necessary before the feasibility study is initiated\. In March 2020, Covid 19 led to a suspension of this additional work\. 3\. The World Bank Board of Executive Directors approved the project in June 2013\. This is a multi-donors project in which the World Bank financial participation included a Credit of US$6 million from the International Development Association (IDA), a grant of US$6\.04 million from the Global Environmental Facility (GEF), and a grant of US$1\.1 million from the Energy Sector Management Assistance Program (ESMAP)\. Other donors were the African Development Bank (AfDB) (US$5\.0 equivalent), AfDB Trust Funds (US$2\.34 million equivalent), AFD (US$3\.25 million equivalent), OFID/OPEC Fund (US$7\.0 million) and the Government of Djibouti (US$\.5 million)\. 4\. As the World Bank financial contribution of US$13 million fully disbursed (about 99% disbursement at project close), the World Bank project closed in December 2019\. The financing required to complete the project is now being provided by the African Development Bank (AfDB) and by the Republic of Djibouti\. 5\. The initial project cost was US$31\.32 million, and the financing plan included other partners\. However, the most recent estimate expects the project costs to be US$56\.82 million\. To finance the additional costs, additional financing has been provided by AfDB and the Government of Djibouti\. Because of the expected financing shortfall due to cost increases, the number of exploration wells to be drilled was reduced from four in the initial project design to three, when the bids from the drilling contractors were assessed\. As of December 2020, two wells have been fully completed and one well needs additional work to resolve some technical issues (clogging due to debris which requires further cleaning of the well to ensure proper production tests and some wells stimulation)\. 6\. Project implementation has been impacted by delays in mobilizing the project implementation unit, procurement problems due in part to financing sources with different procurement policies and procedures and by delays in issuance of no-objections, drilling problems, the need to secure additional financing, and since March 2020, by Covid-19\. 7\. It is now expected that the project will be completed in early-mid 2022\. While this timetable appears feasible, it is conditioned by the impact of the Covid-19 pandemic on remobilizing contractors, by the Project Implementation Unit (PIU) obtaining some key no-objections from AfDB in early 2021, and the completion of the drilling work\. Page 5  The World Bank DJ Geothermal Power Generation Project (P127143) A\. CONTEXT AT APPRAISAL Context Country Context 8\. At the beginning of project preparation (in 2011), Djibouti had a population of about 900,000, was poorly endowed with natural resources that could be commercially harnessed and had limited arable land, rainfall, and potable water\. Over the 2011-2015 period, the country leveraged its strategic geographic location between the Red Sea and the Gulf of Aden and became a maritime and international business hub in Eastern Africa\. The economy was largely based on the commercial activities of Djibouti harbor\. Landlocked Ethiopia, with a population of about 75 million, was the primary user of Djibouti’s port, generating about 85 percent of the trade transiting through the container terminal\. 9\. Since 2005, Djibouti experienced a fiscal expansion and a surge in Foreign Direct Investments (FDI) that helped transform the economy and generate a rapid economic growth of 5\.2 percent per year\. The port benefited from investments that contributed to a marked increase in activity\. The creation of the Djibouti Free Zone in 2004 for instance, enabled the import, storage, transformation, and re-export of goods without being subject to tariff or non-tariff barriers\. 10\. Djibouti’s high growth and infrastructure expansion did not however significantly reduce poverty or unemployment as economic activity was largely confined to the free trade zone and port; positive spillover to the rest of the economy was minimal\. The development of domestic companies and benefits of foreign investments have been hampered by high production costs stemming in part from high energy costs\. A survey of Small and Medium Enterprises (SMEs) conducted in 2008 by the World Bank revealed that the lack of reliable, secure, and low-cost energy supply was considered by more than half of the interviewees as the single most important constraint to doing business in Djibouti\. Harnessing the national geothermal resources could address this issue\. Sectoral and Institutional Context 11\. At project appraisal, Djibouti’s electricity sub-sector was regulated by the Ministry of Energy, Water, and Natural Resources (MERN)\. In this capacity, the MERN oversaw the state-owned utility, Electricité de Djibouti (EDD), which had a monopoly over generation, transmission, and distribution of electricity\. 12\. EDD electricity tariffs were very high at an average of US$0\.32/kWh, mainly as a result of high oil prices and technical and non-technical inefficiencies\. EDD’s 2012 tariffs ranged from a social price of US$0\.153/kWh (life-line tariff), to US$0\.426/kWh paid by construction sites\. Shops and government buildings were charged US$0\.397/kWh\. 13\. Electricity demand\. In 2012-2013, only around 50 percent of the population had access to electricity, as electricity consumption was constrained by high tariffs, high connection costs, and an electricity grid covering only Djibouti City and its outskirts\. Load data from 2009 showed that the national grid demand ranged from a low of 15 MW in the cool season to a high of 63 MW in the hot season\. 54 percent of the demand originated from large consumers\. The first Ethiopian interconnection completed in 2011 helped meet part of the increased demand\. A Parsons Brinckerhoff feasibility study of the electricity interconnection with Ethiopia foresaw a 5\.2 percent annual increase in electricity demand till 2025\. These forecasts were more conservative than those of EDD as the utility also considered the additional demand from the large projects planned for Djibouti\. 14\. Electricity supply\. At Appraisal electricity supply consisted of EDD’s thermal generating capacities and hydroelectricity-based imports from Ethiopia\. EDD relied primarily on ageing diesel generation capacity running on expensive imported fuel oil to produce base load electricity\. The utility had 18 generating units running on imported Heavy Fuel Oil (HFO) in the Boulaos and Marabout power stations of Djibouti\. 14 generators - equivalent to 78 MW- were between Page 6  The World Bank DJ Geothermal Power Generation Project (P127143) 5 and 15 years old and the remaining capacity (but for one generator) was 20 years and older\. Owing to the unreliability of older generators, EDD’s effective generation capacity was limited to 57 MW out of the 119 MW installed\. 15\. Electricity Imports from Ethiopia\. Since 2011, a new high voltage interconnector between Addis Ababa (Ethiopia) and Djibouti City provided the country with low cost energy supply when Ethiopia’s hydroelectric resource is available\. Under the terms of the Power Purchase Agreement (PPA), 180 to 300 GWh were to be sold to Djibouti annually\. The PPA, which excludes energy sales during Ethiopia’s dry season peak hours, represents 22\.35 to 37\.24 MW of continuous generation\. 16\. The energy supply from Ethiopia was not however provided under a firm capacity agreement, meaning that electricity was not necessarily to be available when needed most by Djibouti\. A firm capacity agreement with Ethiopia would have created a better level of security of supply\. At the time of project appraisal, based on the existing information available, only generating capacity installed in the country, such as based on domestic geothermal resource, was expected to truly ensure a secure supply of electricity\. 17\. Least cost option for future electricity supply\. In 2009, the Bank commissioned a Least Cost Electricity Master Plan for Djibouti to determine the best option to bridge the growing gap between electricity demand and supply\. According to this Master Plan, “the difference in cost between the fossil fuel fired generation in Djibouti and the hydroelectric generation in Ethiopia is so large that Djibouti is likely to import most if not all the energy that is available\. This situation would continue until Djibouti installs some form of low-cost generation utilizing indigenous resources, most probably geothermal …”\. 18\. The Geothermal Project aimed therefore at supporting the development of a least cost geothermal base load electricity generation capacity, relying on this clean national resource (substituting from imported fossil fuels)\. 19\. Given that high electricity prices and electricity unreliability were considered major impediments to business development in Djibouti, the electricity cost reduction potentially achieved through the use of domestic geothermal resources would likely play a key role in bolstering the business environment and the role of the private sector, in line with the pillar, “accelerating sustainable growth,” of the Bank’s MENA Regional Strategy\. Theory of Change (Results Chain) 20\. The project supports a geothermal exploratory well drilling program\. Provided that the geothermal resource is proven to be commercially viable, and that a follow-on power generation project is undertaken, electricity costs and electricity tariff could be significantly reduced, addressing one key issue constraining Djibouti economic and social development\. 21\. The PAD at appraisal did not include a specific section on Theory of Change\. The satisfactory implementation of four geothermal exploration wells drilled in Fiale Caldera within the Lake Assal region (See Annex 6 - project site layout) followed by the preparation of a feasibility study on power generation using the geothermal resource identified through the drilling program, were expected to assist Djibouti in deciding the technical and commercial viability of the geothermal resource in Fiale Caldera for power generation\. Unlocking this geothermal potential would reduce domestic electricity generation costs, increase the country’s energy security of supply, foster private sector participation in the energy sector particularly in generation, and contribute to Djibouti mitigation plan against climate change\. Page 7  The World Bank DJ Geothermal Power Generation Project (P127143) 22\. The Results Chain could then be as shown as below: THEORY OF CHANGE: DJIBOUTI GEOTHERMAL POWER GENERATION PROJECT ACTIVITIES OUTPUTS EXPECTED OUTCOMES MEDIUM TERM OUTCOMES LONG TERM OUTCOMES Undertaking of the Drilling Program Incl\. Civil eng\. preparatory work, design Positive impacts on Climate Change and execution of the drilling program, Access to the drilling site constructed (Greenhouse Gases Reduced) inspection and testing of the reservoir flow rates Fully-fledged power generation feasibility study Geothermal and financial resources confirmed; Decrease in Electricity Generation Investment in Geothermal Costs and Electricity tariffs Power Generation commissioned Technical assistance for the drilling program, incl\. design of the drilling program, execution of the well test Number of wells Drilled (4); well test protocol and 3rd party certification of protocol in place; tests results tests results, preparation of a technical certified; technical and financial and financial feasibility study for a feasibillity compled for power plant geothermal power plant (provided the geothermal resource is suitable for power generation) Increase in energy independence and electricity reliability Project Management, incl\.consultants services, financing of operationals costs and monitoring and evaluation Well test results independently reviewed and certified (source: PAD: Project components) Critical Assumptions A\. Competent project management and contractors to carry out the civil works, drilling program and well testing protocol B\. Planned Drilling Program completed; test protocols and certification completed; feasibility study completed C\. Adequate and low cost geothermal resources identified D\. Investment in Geothermal Power Plant commissioned Project Development Objectives (PDOs) 23\. The World Bank Group’s FY09-12 Country Assistance Strategy (CAS) stated that “the World Bank will support the Government of Djibouti’s (GoDj) efforts to strengthen the business environment, with a focus on reducing constraints and costs to private sector development, especially in the power, telecommunications and financial sectors” \. The proposed geothermal power generation project was incorporated in the 2013-2017 Country Partnership Strategy (CPS) which itself built on the results of the “New Growth Model for Djibouti” that underlined that electricity was considered by the majority of companies operating in Djibouti as the main impediment to private sector development and economic diversification\. 24\. As per the Legal Agreements the Project Development Objective (PDO) was to “assist the Recipient in assessing the commercial viability of the geothermal resource in Fiale Caldera within the Lake Assal region”\. The PAD stated the same PDO formulation\. 25\. The PDO, as stated, considered activities financed by not only the WB (IDA and ESMAP; and GEF and OFID as their financing were managed by the WBG), but also activities financed by AfDB and AFD\. Throughout project implementation, this PDO remained unchanged despite a project restructuring in December 2018 (See Section Revised PDOs below)\. Page 8  The World Bank DJ Geothermal Power Generation Project (P127143) Key Expected Outcomes and Outcome Indicators 26\. As per the PAD, the Outcomes Indicators were as follows: The expected outcome was the assessment of the commercial viability of the geothermal resource; and the outcome indicators were (a) Greenhouse Gas Emission Avoided as a clean energy resource would substitute to a polluting fossil fuel; (b) Develop a fully-fledged power generation feasibility study; (c) Publish periodic updates of project implementation; (d) Geothermal well test protocol developed and in place; and (e) Well test results independently reviewed and certified\. Components 27\. The project had three components: (i) Drilling Program (US$ 27\.18 million, of which SDR equivalent to 6 million IDA 1, US$ 6\.04 million GEF and US$ 1\.1 million ESMAP); (ii) Technical Assistance for the Drilling Program (US$ 1\.75 million financed by AfDB through its Trust Funds); and (iii) Project Management (US$ 1\.6 million financed by AfDB and GoDJ)\. The table of Project Financing Plan at Appraisal can be found in Annex 3\. B\. SIGNIFICANT CHANGES DURING IMPLEMENTATION Revised PDOs and Outcome Targets 28\. The PDO was not changed during project implementation\. 29\. Following the Project Restructuring in December 2018, among the outcome targets, only the initial target of “Number of wells drilled” was revised from four to three to adjust to the target of the drilling contract, due to insufficient funding\. Revised PDO Indicators Following the Project Restructuring in December 2018, the indicator “Grievances registered related to delivery of project benefits addressed” was added in response to new World Bank corporate requirements\. Owing to changes in the operations portal system, the Bank team was requested to align the PDO indicators with the project’s outcome and the intermediate indicators with the project’s components\. Rationale for Changes and Their Implication on the Original Theory of Change 30\. The Project underwent multiple Level 2 restructurings during the course of its implementation\. The changes for each of these restructurings are listed below\. 31\. On October 7th, 2014, the project was restructured to: (a) create a new category for consultant services to support project management; and (b) reallocate funds (US$600,000) from the ‘Goods, works, non-consulting services, and consultants' services under Part A (ii) of the Project’ category to the newly created ‘Consultant services for project management under Part C of the Project’\. The restructuring also aimed at addressing a correction in reflecting the actual amount of the GEF grant allocated for the project\. While the GEF Grant was approved for US$6,036,364, the amount was rounded up to US$6,040,000 in the Project Appraisal Document and in the GEF Grant Agreement\. 32\. On June 2015, the project was restructured to (a) increase the IDA Credit disbursement percentage for expenditures under Part A (ii) of the Project (i\.e\. Drilling Service Company contract) from 32% to 34\.1%; (b) increase the GEF Grant disbursement percentage for expenditures under Part A (ii) of the Project (i\.e\. Drilling Service Company contract) from 32% to 38\.3%; and (b) increase the IDA Credit disbursement percentage for expenditures under Part C of the Project (i\.e\. Consultants’ services for Project management) from 40% to 100%\. These changes would allow to finance (a) 100% of 1 The IDA Credit was 4 million SDRs\. Because of the exchange rates fluctuations this has been equivalent to US$5\.027 millions\. Page 9  The World Bank DJ Geothermal Power Generation Project (P127143) the cost of the Drilling Service Company with the current available co-financiers: 38\.3% GEF, 27\.6% OFID and 34\.1% IDA, and (b) 100% of consultant’s costs to support the Project Implementation Unit (PIU)\. 33\. On December 2018, the project was restructured to: (i) extend the closing date of the IDA credit (IDA-52620) and the GEF grant (TF-14757) from December 2018 until December 2019\. The extension was to allow the project to complete: (i) the final production tests (expected, at that time, by March 18, 2019), (ii) the feasibility study on a geothermal power plant (expected, at that time, by June 26, 2019), (iii) the tender package for the selection of a private geothermal power plant developer (expected, at that time, by August 21, 2019), and (iv) the final PIU project activity report (expected by September 30, 2019)\. The Bank team was requested to align the PDO indicators with the project’s outcome and the intermediate indicators with the project’s components\. 34\. All these changes did not impact the Original Theory of Change, and the PDO remained unchanged\. II\. OUTCOME A\. RELEVANCE OF PDOs Assessment of Relevance of PDOs and Rating 35\. The relevance of PDO is rated High\. During Project Implementation and at Project Closing 36\. CPS covering FY2014-2017\. This first CPS assumed an indicative IDA envelope of US$25 million\. It was anchored in the GoDJ’s Vision 2035, a long-term development plan focused on economic integration, governance, and human development\. The overarching objective of the CPS was to support the government’s vision, work to reduce extreme poverty and build the foundations for shared growth by harnessing the country’s human and economic potential\. The CPS rested on two pillars: reducing vulnerability and strengthening the business environment while focusing on institutional strengthening and gender as cross-cutting themes\. To address key development challenges regarding the exploration of investment opportunities in growth sectors, the CPS included a joint strategy for the World Bank, IFC and MIGA\. 37\. In addition to implementing on-going energy projects (the Geothermal Power Generation Project and the Power Access and Diversification project) the CPS 2014-2017 program included a Rural Electrification Study, a Governance for Private Sector Development and support to the legal and institutional PPP framework\. 38\. The Systematic Country Diagnostic (SCD) of October 2018 of the World Bank Group (WBG) and the Country Partnership Framework for Djibouti (CPF) for 2020-2025\. The SCD noted that in its Nationally Defined Contribution (NDC), submitted to the UNFCCC in August 2015, Djibouti stated that it has a “green economy strategy, the aims of which are to encourage the use of low carbon technologies that are resilient to climate change, and to promote green jobs”\. Djibouti has significant renewable energy resources, particularly solar, wind, and geothermal, relative to the size of its population and scale of its economy\. Renewable energy could play a central and multi-dimensional role in economic growth\. By investing in renewable energy, Djibouti could reduce the burden on its budget and on consumers\. Reliable access to power would also help the development of Djibouti’s ICT sector and assist the country in taking advantage of the fact that Djibouti is the landing site for two major underwater fiber optic cable\. The proposed 2020-2025 CPF aims also at “reducing the cost of doing business”\. Djibouti’s competitiveness is still hindered by high input costs and low connectivity of utilities\. The cost of electricity remains among the highest in the MENA and Sub-Saharan Africa regions at 31 US cents per kWh for Page 10  The World Bank DJ Geothermal Power Generation Project (P127143) businesses\. By providing a low-cost option for base load electricity generation, the project is expected to contribute to the WBG’s twin goals of eliminating absolute poverty and increasing shared prosperity\. 39\. Reducing the high cost of electricity and developing base load generation using domestic clean renewable energy resources in particular through tapping into Djibouti geothermal potential is still today an important objective pursued by the GoDJ\. The relevance of the PDO to the 2014-2017 CPS and the 2020-2025 CPF is therefore rated as high\. B\. ACHIEVEMENT OF PDOs (EFFICACY) Assessment of Achievement of Each Objective/Outcome 40\. Efficacy is rated as Modest\. For the purpose of the ICR, Efficacy is defined as the extent to which the PDO was achieved at the time of project closing or is expected to be achieved due to the activities supported by the operation\. As mentioned, the PDO was to assess the commercial viability of the geothermal resource in Fiale Caldera in the Lake Assal region, through the drilling of geothermal production wells and the preparation of a technical and commercial feasibility study\. The efficacy analysis of the project to achieve that outcome focused on the following: • Greenhouse Gas Emissions Avoided (expected with the commissioning of a geothermal power plant) • Fully-fledged power generation feasibility study developed • Geothermal well test protocol developed and in place • Well test results independently reviewed and certified 41\. As stated earlier as of end CY2020, some of the key activities such as drilling of the three wells (at depth of up to 2,500 meters) and the power generation feasibility study are not yet completed\. Project closing is now expected in early- mid 2022, with some risks of additional slippages\. The status of expected outcome is discussed below\. Greenhouse Gas Emissions Avoided: Not yet completed\. 42\. The PAD indicated that 11,710,750 tons of CO2e emissions will be offset assuming a 50MW geothermal generation facility operating over a 30-year life cycle (and corresponding to 390,358 tons of CO2e avoided per year)\. As the feasibility study – which will inter alia propose the installed power generation capacity and the power plant operating regime – has not yet been carried out, it is therefore not possible at this stage to ascertain if this objective will be met \. Development of a fully-fledged power generation feasibility study: Not yet completed\. 43\. As of end December 2020, the power generation feasibility study had not been initiated because the drilling program has not been completed\. This study will include an assessment of the geothermal resources of the Fiale Caldera site, the resource development costs, the size of the power plant, whether a commercially viable geothermal plant could be developed and under which conditions the private sector could invest in and operate the facility\. The feasibility study is now expected to be completed by early 2022\. Geothermal well test protocol developed and in place: Fully completed\. 44\. Well testing includes water-loss (injection) testing during or after drilling, short-term flow testing after completion of one or more wells (1 or more tests), and one long-term test of one or more well(s) with interference testing\. The objective of testing during drilling is to characterize a permeable zone that may be put behind casing before the short-term test or to provide information to guide decisions about the next step in drilling, the potential capacity of the reservoir and hence, confirm the viability of the geothermal resources for future use\. Page 11  The World Bank DJ Geothermal Power Generation Project (P127143) 45\. Well test protocols have been developed by the contractor (Geologica) and applied to each of the three wells drilled\. This expected outcome has been met\. Well test results independently reviewed and certified: Met partially\. 46\. The reviews and certifications of the well test results for the 3 wells were carried out by the independent expert financed through ESMAP\. In order to unclog the Fiale 2 well, additional work was proposed but has not yet been completed\. Wells stimulation has also been proposed to increase output\. This expected outcome has been partially met\. Justification of Overall Efficacy Rating 47\. Overall Project Efficacy i\.e\. the extent of achievement of the PDO is rated as Modest\. The rationale for this rating is as follows: 48\. The activities expected to be financed by the IDA Credit have been completed\. The three wells have been drilled, which represent not only the lengthiest activity of the project, but also the most costly and challenging part due to the geological diversity, the depth and the inherent exploration risks, and initial tests conducted showed potential resource viability for 2 wells\. Preliminary stimulation tests conducted on the three wells confirmed availability of the geothermal resource\. 49\. According the report from the Independent Evaluator on July 31, 2019, the current status of the project regarding the information required for the execution of a feasibility study for its commercial exploitation can be summarized as follows: (i) The 3 deep wells have confirmed the existence of a deep, hot reservoir of potentially commercial interest\. They have consistently confirmed the existence of a high temperature (>290°C) geothermal resource at depths below about 2000 meters; (ii) Fiale-1 initial production tests confirmed rather low results, high enthalpy (high steam fraction), with partly unreliable measurements; (iii) Fiale-2, still undergoing production testing, confirmed a rather low productivity, with high enthalpy (similar to Fiale-1)\. However, there is evidence of an existing obstruction in the well, that probably limits the production potential of the well in a significant way; and, (iv) Fiale-3 exhibited low injectivity, and no discharge attempts have been carried out, therefore the well was considered as non-producing\. However, the well appears a good candidate for an attempt of long-term stimulation\. 50\. The evaluation concluded that in view of a better definition of the well deliverability characteristics, which would represent a sound basis for the feasibility study, it is recommended to perform the following additional activities: (i) Carry out a cleaning of the obstruction in Fiale-2, through the use of a coil-tubing unit, and repeat the production testing of the well; (ii) Perform an additional attempt to discharge Fiale-1, to confirm the productivity of the well: this would demonstrate that the well can still be produced, and potentially with a better deliverability induced by the short-term stimulation; (iii) If possible, perform a long-term stimulation of Fiale-3, in order to evaluate the potential impact this procedure might have on the deliverability characteristics of this and other (existing and future) wells\. 51\. Of course, such interventions and testing require additional expenditures, beyond the original project budget already very limited due to substantial cost overruns incurred during project implementation (mainly because of the market responses to the different bids launched)\. Such investment is necessary, justified, and is a necessary step to obtain crucial information required for the further development of the project, mainly to carry out the expected feasibility studies\. However, the Counterpart, very committed to the development of the geothermal resource, and with the WB support, has secured additional AfDB financing to clean Fiale 2 and therefore complete the feasibility studies\. Those remaining activities financed by other donors have not been carried-out by WB Financing close date due to delays not necessarily attributable to the Counterpart\. The project objective of assessing the commercial viability of the geothermal resource in Fiale Caldera through exploration drilling is very likely to be achieved in the near future (early/mid 2022)\. This conclusion is Page 12  The World Bank DJ Geothermal Power Generation Project (P127143) based on the facts that: i) a significant part of the drilling work – by far the most complex and challenging part of the project - has been completed and geothermal resource has been confirmed at high temperature; (ii) additional financing has been provided by AfDB and GoDj to fully complete the assessment work (cleaning of Fiale 2 and feasibility study); (iii) the project infrastructure and in particular the drilling equipment necessary for the cleaning is already available on the project site, and importantly; the (iv) very high level of commitment from GoDj to the geothermal development (other exploration activities are on-going and, in February 2021, a contract of US$ 6\.45 million was signed between the Kenya Electricity Generating Company (KenGen) and ODDEG to drill additional wells) in addition to its much increased financial contribution to this project\. As indicated in the project documentation, in particular the PAD, this is a high risk-high reward geothermal resources exploration project, with possibilities of positive or negative outcomes, and a 50% estimated probability of a successful outcome for the project 2\. C\. EFFICIENCY Assessment of Efficacity and Rating Efficiency 52\. The Efficiency is rated Negligible\. Efficiency measures how economically resources and inputs are converted or are expected to be converted into the expected results\. The following section reviews whether: (i) the costs involved in achieving the operation’s objectives are reasonable in comparison with standards for this type of operation; and (ii) the expected benefits will outweigh the costs (Project Economic Analysis)\. Project Design and Implementation 53\. Project design and implementation, particularly with respect to the most important component – the drilling component – was reviewed by a well-qualified and experienced geothermal firm and modified accordingly\. Project Costs 54\. At appraisal, total project cost for 4 wells was estimated to be US$31\.23 million\. Drilling and site preparation accounted for US$28 million, about 90 percent of the project costs\. The drilling costs were estimated based on previous experiences and industry benchmarks, with however no specific market sounding during project preparation and analysis of the potential for higher costs in undertaking such activities in the Djibouti setting, taking into account of the limited successful geothermal drilling experience of Djibouti, its geographic location, the potential security risks within the region and the size of the drilling program\. This could have led to increasing the contingencies\. Despite a reduction from 4 wells to 3 wells drilled, the latest estimates (and the revised financing plan) expect total project costs for 3 wells to be in the order of US$57\.7 million, indicating that the costs were substantially underestimated\. 55\. By industry standards, these drilling costs are very high\. Even though competitive bidding was undertaken in compliance with the WB and AfDB prequalification and bidding procurement guidelines, only 2 offers were received in July 2016 out of the 9 candidate firms that in April 2016 received the bidding documentation\. The draft bidding documentation and the draft contract reflected industry practice and was prepared by a competent consultant\. The main reasons for receiving only 2 bids appears to be the concerns related to the costs estimates and the funding available, the small size of the activity (2 wells, possibly three) and the perceived country risks\. 56\. Only one of the 2 firms that bid met the bidding documents requirements\. While the financial proposal was way above the PAD budget, following extensive discussions and consultations amongst the key project stakeholders, a 2Annex 7 para 232 Economic Analysis of the PAD describe the methodology for estimating the probability of project success building up from assumptions of each well success values\. - Page 13  The World Bank DJ Geothermal Power Generation Project (P127143) consensus decision was taken not to reject the offer and negotiate\. Negotiations started in August 2016 and a contract was signed in May 2017\. The rationale for the decision was that the (only) offer was from a reputable and experienced firm in geothermal drilling, that in the Djibouti context rebidding was unlikely to lead to a better outcome, and that additional time would have been lost for a project already significantly behind schedule\. The alternative was to abandon the project\. 57\. The strategy adopted by the Government, the Bank and the other project stakeholders was to scale down the activities (from 4 wells to 2 wells firm and one or two optional wells as financing was not secured at that time for drilling 3 or 4 wells), and to negotiate the costs down with the only responsive bidder\. Negotiations led to some design changes as it was considered that some aspects were overdesigned leading to costs reductions, but costs remained substantially above the initial budget\. 58\. The decision made by the WB in August 2016 to negotiate with the only compliant bidder appears the right one considering that: (i) the bidding process and the bidder was complying with the Bank procurement guidelines; (ii) the proposed contract had been vetted in February 2016 (following the pre-qualification process launched since April 2014) by an experienced geothermal consulting firm and by the Bank own advisors; (iii) the only responsive bidder was considered one of the world best in the geothermal business; and (iv) rebidding would only entail additional delays (in July 2016, at the time of the bids assessment, the project was significantly behind schedule, and some potential bidders have desisted upon reception of the RFP document) and additional costs, with better outcome quite uncertain\. Subsequently, additional financing was provided by AfDB allowing the drilling of a third well, as a third well was considered important for assessing the Fiale Caldera resource potential\. 59\. As highlighted in previous geothermal projects, the drilling component can face a certain cost increase depending on the nature of geological region where the projects are being implemented\. In this specific project, the cost increase is due to a series of interdependent factors, such as: (i) foremost the higher than expected drilling cost, even though the number of wells to be drilled was reduced, reflecting unforeseen challenges encountered on the site selected due to: geology components founded up to a depth of 2,500 meters, additional work required to unblock the Fiale 2 well, the additional stimulation proposed by the technical advisor, and the well tests; (ii) implementation delays related to the slippages in mobilizing the PIU project director, advisors, and contractors; (iii) delays in mobilizing additional financings required to complete the project, specifically the drilling component based on the recommendations of the Independent Evaluator recruited, during which time the project still had to pay for the mobilization of the equipment on site as they were being rented, compared to a much higher cost that would have incurred if such foreign equipment (as they were not available locally in Djibouti) were to be demobilized and then remobilized subsequently; iv) worldwide restrictions caused by the COVID 19 and still impacting project implementation; and (v) the lack of harmony among Donors procedures with different response timeframes, which further impacts project timeline and caused delays and additional costs\. Annexes 4 and 7 present comparisons between the initial budget and project schedule at appraisal and at project closing\. Economic Analysis Project Expected Economic Benefits at Appraisal 60\. At appraisal, the net economic benefits of the project were assessed by estimating the expected reduction in the net present value (NPV) of the costs of the electricity generation expansion plan made possible by the insertion of a 50MW geothermal plant in Djibouti generation expansion program, assuming a successful drilling program in Fiale Cadera\. This expected cost reduction was estimated by comparing the NPVs of a generation expansion program with and without a geothermal power plant made possible by the information obtained from the drilling program and the feasibility study\. The costs of undertaking the exploratory drilling program was weighted by the probability that the drilling program would identify geothermal resources adequate for a 50MW base load power supply\. Page 14  The World Bank DJ Geothermal Power Generation Project (P127143) 61\. The NPV for the least cost generation expansion plan without a geothermal plant was based on the study undertaken in 2009 by Parsons Brinckerhoff for the World Bank\. In the with-the-project case i\.e a successful drilling project, it was assumed that a 50MW geothermal plant would be part of Djibouti generation expansion plan\. In the without-the-project case i\.e\. no project undertaken or -an unsuccessful drilling scenario, it was assumed that generation expansion would take place using diesels units fueled by imported and expensive Heavy Fuel Oil (HFO)\. Probabilities were assigned to individual well and drilling program success as well as for an unsuccessful drilling\. 62\. Key assumptions of the Economic Analysis\. For the economic analysis, the PAD assumed that: (i) the cost of the program was to be the Appraisal cost of US$31 million; (ii) to reach a generation level of 50MW about 15 production wells each producing about 3\.35MW would be needed; (iii) world prices for crude oil would rise steadily between from 2009 to 2020 to reach US$119/barrel and more slowly thereafter, reaching US$130/barrel by 2025; and that (iv) the long run electricity generation cost in Djibouti would about US$0\.20/kWh\. 63\. Results of the Economic Analysis at Appraisal\. The Economic Analysis concluded that if the success criterion was taken as requiring at least 2 successful wells, then the exploratory drilling project (followed by a 50MW geothermal power plant) would make a substantial positive net benefit to the economy over a wide range of probabilities of well drilling outcome\. Only with a project drilling success probability of as low as 0\.18 (considered unlikely), the net economic benefit would be zero\. When the criterion of project success was assumed to be three well successes out of the four planned, net economic benefits were substantially smaller at the same well success probabilities, and the breakeven project success probability corresponded to a well success probability of 0\.4\. Overall, it was considered that the economic benefits from the project exceeded its costs\. 64\. Sensitivity to Oil Prices\. Because the geothermal power plant was then the only viable alternative to diesel and HFO base-load electricity generation, a crucial assumption in the estimation of the project net present values was the outlook expected for world oil prices\. Project Economic Benefits at Project Close 65\. As mentioned earlier, as of end December 2020, the project is yet to be completed with further drilling work (with the cleaning of Fiale 2) and stimulation and the feasibility study using the results of the drilling program has not yet been carried out\. 66\. Furthermore, some key facts and assumptions impacting the revised estimate of the project NPV significantly changed since 2012-2013\. These key assumptions are: (i) the costs of the drilling program are significantly higher; (ii) the oil prices are significantly lower (in the order of US$50-60/bbl\. of crude oil); and (iii) a significantly different generation plan for Djibouti is under implementation, as a second interconnection with Ethiopia is currently appraised, and expected to be submitted to the World Bank Board within the first part of CY2021, a wind IPP contract has been signed and is expected to be commissioned by 2021, and discussions are ongoing regarding solar PV generation\. Importantly the size of a geothermal power plant has not yet been assessed (at Appraisal it was assumed to be an installed capacity of 50MW) as the technical and economic/financial feasibility study taking into account the geothermal resources available based on the conclusion of the drilling program has not yet been initiated\. 67\. A revised project economic analysis should however include a detailed and comprehensive technical and economic analysis of two generation programs: i) without a geothermal power project; and ii) with a geothermal project using the Fiale resource\. Such analysis should also include the benefits of increased security of electricity supply in a context factoring: i) the availability of a second interconnector with Ethiopia; ii) the complementarity between geothermal base load power and intermittent wind and solar generation, as a geothermal power project may increase penetration of abundant renewable resources; ii) the benefits of a clean renewable resource substituting for fossil fuels; and iv) other difficult to quantify benefits \. Page 15  The World Bank DJ Geothermal Power Generation Project (P127143) 68\. Based on the initial - somewhat lower-than expected results of the drilling program, the substantial cost overrun, the facts that the planned drilling of the three wells is not yet completed considering the need to clean the Fiale 2 well, that key parameters impacting on the project economics (such as new and cheaper power generation alternatives, lower- cost of alternative fossil fuels generation), a revised project efficiency rating at project close is Negligible\. D\. JUSTIFICATION OF OVERALL OUTCOME RATING 69\. As some key activities of the project are not yet completed and for all the previous justifications, the Overall Outcome Rating is Moderately Unsatisfactory\. The following table 4 summarized the Project Overall Outcome rating\. Table 4: Summary of Project Overall Outcome Rating AREA RATING Relevance High Efficacy Modest Efficiency Negligible Project Overall Outcome Rating Moderately Unsatisfactory E\. OTHER OUTCOMES AND IMPACTS 70\. In the PAD, the estimates of project benefits reflected only the economic benefits of using the geothermal resources of the Fiale Caldera site for power generation (an installed capacity of 50MW was assumed)\. However in the case of Djibouti and for the purpose of assessing the economic impact of the project, other benefits should be assigned to the project even if there are there are difficult to quantify, such as development of information on geothermal drilling in Diibouti, capacity strengthening in geothermal exploration for Djibouti staff, development of regulations and best practices regarding geothermal exploration\. Body of Information on Geothermal Drilling in Djibouti 71\. The project has accumulated valuable data that could be accessed and will be useful for the development of other geothermal sites and implementation of other exploration projects, as well as for the management of similar projects\. Institutional Strengthening 72\. Djibouti created the Office for Geothermal Development (“Office Djiboutien de Développement de l’Energie Géothermique” – ODDEG) whose main objective is to carry out research, studies and development required for Djibouti to take advantage of the country geothermal resources\. ODDEG currently works on other promising sites, at Artam, Lac Abbé and Hanlé-Garrabyis\. The Fiale Caldera project provided a vehicle for the Djibouti Research Center (“ Centre d’Etudes et de Recherche de Djibouti” – CERD) and ODDEG staff to develop their technical and project management capacities\. Three CERD and ODDEG staff are on the Fiale Caldera drilling site\. 73\. Drilling experience\. Drilling on the Fiale Caldera project is providing direct specific experiences for the other geothermal exploration and production projects underway or planned areas in Djibouti, including private sector projects, thereby reducing costs and risks\. The IFC ‘’Success of Geothermal Wells: A Global Study” states that there appears to be a strong learning-curve effect\. While the rate of success for the first well drilled in a field averages 50 percent, for the first five wells it is 59 percent and 74 percent in the development phase\. Unit cost per well also tend to decrease with the number of wells drilled\. For Djibouti, drilling costs for Fiale 2 and Fiale 3 were lower than for Fiale 1\. Page 16  The World Bank DJ Geothermal Power Generation Project (P127143) Mobilizing Private Sector Financing 74\. A key rationale for the project public investment in geothermal exploration in the drilling program and in the preparation of a full-fledged feasibility study (including the preparation of the bidding document) was for Djibouti to improve the likelihood and the terms of mobilizing private sector expertise and financing through a geothermal IPP, by providing potential investors with site specific and drilling information, by reducing investment risks in geothermal projects\. The assessment of the prospect for private sector investment in power generation using the Fiale Caldera geothermal resources is expected to be carried out by the feasibility study included in the project\. The GoDJ is committed to carry out this study upon completion of the on-going drilling program\. (The feasibility study is now expected to be initiated in the second part of CY2021 and completed early CY2022)\. Poverty Reduction and Shared Prosperity 75\. The proposed project seeks to mobilize geothermal resources for electricity generation, leading to a decrease in the high electricity tariffs still prevalent in Djibouti\. Electricity tariffs are considered a major impediment to economic activities development and a drain on household budgets, especially the poor households\. If the conclusions from the feasibility study confirm that commercially extractable geothermal resources are available in Fiale Caldera, the project would impact poverty reduction and shared prosperity Other Outcomes and Impacts 76\. Environmental and Social Management\. The Fiale Caldera geothermal project constitutes a reference/best practice project regarding the management of the environmental and social issues pertaining to geothermal development as well as other energy projects in Djibouti\. Best practices have been developed in particular with respect to site management and drilling operation and also regarding consultations and activities with local communities\. A series of community projects have been/are implemented with the participation of the communities: health consultations and basic care for neighboring villages residents, support to women associations including on local handicrafts, purchase of fishing equipment for young fishermen, and employment preference given to local communities resident\. 77\. Geothermal Development Regulations\. The project contributed to the development of specific geothermal development regulations regarding geothermal development in other areas of Djibouti (Geothermal Law/Decrees)\. The GoDJ, through ODDEG, is working on new legislation to attract private geothermal developers and regulate the use of such resources\. III\. KEY FACTORS THAT AFFECTED IMPLEMENTATION AND OUTCOME Page 17  The World Bank DJ Geothermal Power Generation Project (P127143) A\. KEY FACTORS DURING PREPARATION Project Objective 78\. The PDO was realistic, clear, and at the right level of ambition given this is a resource exploration project and the current institutional capacity and experience in Djibouti in implementing such a high-risk high-reward project\. Results/Outcomes Indicators were appropriately selected to reflect the key actions that would lead to the achievement of the main outcome: the undertaking by the private sector of a geothermal power generation investment that would significantly reduce the costs of electricity in Djibouti\. The targets were also realistic given that many baselines were non- existent at the time of project appraisal\. Result Framework 79\. Two of the five PDO indicators were not aligned with the project operational objectives\. The “Greenhouse Gas Emissions Avoided” and “Publish Periodic Updates of Project Implementation” should have been listed as “intermediate indicators”\. The results targets were appropriate\. Project Design 80\. During preparation, lessons learned from the two previously IDA financed geothermal projects in Djibouti, approved respectively in 1984 and 1989, were incorporated into the project’s design\. These lessons were mainly the following: i) Responsibilities must be clearly defined and agreed early on in project implementation; ii) In situations with many different participants, the project implementation unit must take the central role of coordination and communication; iii) a clear consultation process needs to be defined and fully utilized to take appropriate and timely decisions and resolve disputes; iv) the risks should be clearly identified including the possibility of a failure in the institutional arrangements; v) IDA should provide funding services for consultancy services in the critical areas it finances\. 81\. Project design was structured logically with three complementary components: (i) The drilling program, the most important in terms of complexity and financial resources requirements; (ii) Technical Assistance to the drilling program including preparation of the bidding documents, review/agreement on the drilling protocol and confirmation and certification of the drilling test results; and (iii) Project management, encompassing support to the PIU, compliance with the environmental and social safeguards, and with the fiduciary requirements\. At this specific stage, responsibilities were clearly identified among all stakeholders, with specific set of activities being financed by each donor\. Responsibilities of the Counterpart were clearly highlighted, with the project design insisting on the set up of a capable PIU, including an international project director based in Djibouti and geothermal experts from Djibouti involved in previous geothermal drilling, under the supervision of EDD general manager\. Project risks based on previous experiences in Djibouti as well as best practices were well identified at this stage\. 82\. Due to financing constrains and in particular Djibouti small IDA 2013 allocation, the implementation of the WB key component - drilling of the wells- was however contingent upon the implementation of other components financed by other agencies such as AFD and AfDB\. However, no memorandums of understanding were signed with these two co- financiers to align the procedures and procurement processes to be used during project implementation, as well as project timeline, which could have eased project implementation and facilitated on-time decision making processes\. 83\. As a result, the project faced some delays in project’s effectiveness, as Components 2 and 3 were to be fully financed by AfDB, and furthermore in the procurement process for the drilling contract\. However, based on the previous lessons learned from the 1894 and 1989 WB financed projects, as previously highlighted by the previous geothermal lessons learned (IDA should provide funding services for consultancy services in the critical areas it finances), the Project was restructured on October 2014 to allow provisions for necessary consultancy works (see para 31) and accelerate project Page 18  The World Bank DJ Geothermal Power Generation Project (P127143) implementation\. The late contracting of the geothermal consultant (only in September 2015) delayed the development of the bidding documentation and the launch of the bids for the selection of the drilling contractor\. This delay ultimately led the Bank requesting a one-year project extension (till end CY2019) even though the number of wells to be drilled was reduced from 4 to 2 with an option for a 3rd well (if additional financing could be mobilized)\. Monitoring Plan (M&E) 84\. An appropriate M&E plan and the human expertise was put in place to collect, assess the information collected, monitor project implementation, act and adjust as needed\. Risks 85\. This is a drilling exploration project with inherent exploration risks, and relatively little drilling experience in Djibouti\. The documentation, in particular the PAD, described the project as a high risk-high reward undertaking\. The project site was selected based on previous projects, studies and drilling carried out in project areas where previous work and data collected in 2008 by a well-known firm in geothermal development\. Djibouti negotiated the release of the REI drilling information to the project\. Resources were also included in the project financing plan to recruit geothermal advisors and an independent consultant to review and certify the test results\. 86\. Regarding project management, during project preparation the risks were appropriately identified\. The Bank insisted on the appointment as head of the PIU of an international expert\. This expert was recruited albeit with some delays\. As mentioned in the PAD, most of the identified risks were manageable due to the team experience and the contracting of firms experienced with geothermal exploration\. 87\. However, the risks related to the number of financiers involved in the project with their specific requirements particularly regarding procurement may, in retrospect, have been underestimated\. The requirement of separate procurement rules and the lack of adequate procurement experience by the PIU, at least in the early stage of project implementation, led to implementation delays\. An early agreement among donors on the procurement rules to be used would have potentially eased some procurement processes and reduce delays\. 88\. Similarly, the project would have benefited from (i) an early market assessment to analyze the markets dynamics and the interests of potential international firms to work in Djibouti, which could have potentially identified some procurement related risks and reduce some delays in contracting those firms; and (ii) early procurement processes of the main contracts (PIU arrangements and the geothermal advisor) during project preparation and before appraisal, also suggested within previous lessons learned, which could have reduced the delay in project’s effectiveness\. Readiness for Implementation 89\. Annex 8 provides the Project Implementation schedule provided in the PAD\. Despite commitments from all the parties involved, the project suffered from start-up delays in setting-up the PIU and initiating the activities\. Project Effectiveness took about one year (July 2, 2014)\. The international project director arrived in Djibouti only in December 2015 as the initial procurement was not successful and was relaunched, and due to disagreements amongst Donors on procurement processes\. The geological consultant was only contracted in September 2015 in spite of its critical role in the preparation of the bidding document for the drilling contract\. Twelve to eighteen months were lost in this project inception phase\. B\. KEY FACTORS DURING IMPLEMENTATION Factors subject to the control of government and/or implementing entities Page 19  The World Bank DJ Geothermal Power Generation Project (P127143) 90\. Despite commitments from all the parties involved, the project suffered from significant start-up delays, mainly in setting-up the PIU and hiring drilling contractors and consultants\. Project Effectiveness took about one year (July 2, 2014)\. ESMAP, GEF and IDA financing agreements were signed on October 13th, 2013, and effectiveness was scheduled 180 days after to allow the recipient to fulfill the following effectiveness conditions: (i) Execution and delivery of all joint co-financiers financial agreements; (ii) Execution of the MoU with OFID; and (iii) Execution of the Subsidiary agreements on behalf of the recipient\. AfDB was in charge of financing the first steps of activities (such as civil engineering for the preparatory works and the recruitment of the firm in charge of designing the drilling program based on existing studies), and by June 2014, AfDB had not yet confirmed that the Government of Djibouti has satisfied all conditions for disbursement\. Moreover, during the first year of project execution, EDD was supposed to have recruited a Project Director and a Project Team, who would, in turn, appoint a geothermal consulting company and a civil engineering contractor\. The limited capacity of the Counterpart during the first year led to the first restructuring of the WB\. Thus, the international project director arrived in Djibouti only in December 2015 as the initial procurement was not successful and was relaunched, and due to disagreements amongst Donors on procurement processes\. The geological consultant was only contracted in September 2015 in spite of its critical role in the preparation of the bidding document for the drilling contract\. Twelve to eighteen months were lost in this project inception phase\. 91\. External Actors\. Geothermal projects involve a number of actors (internal and external) during project design and during implementation\. Each actor often has different policies, guidelines, and processes\. However, the PIU has the central role in planning, communicating and coordinating the stakeholders\. During implementation and supervision missions, the WB has encouraged the PIU to monitor closely the contractor’s activities on the field and to report any challenges issues on time\. As a result, some contracts were negotiated with a reduced scope, with the Donors’ approval, to take into consideration the limited project financing\. 92\. Government Commitment: During implementation, the project benefited from a very high level of Government commitment and proactivity from EDD senior management\. Djibouti’s commitment has also been demonstrated by (i) the substantially increased financial contribution from the Djibouti entities, notably EDD; and (ii) his active support in resolving implementation issues\. The PIU staff (based in Djibouti-City and at the project site) performed adequately after initial adjustments\. 93\. Similarly, the project donors showed flexibility in resolving project financing issues\. AfDB provided two additional financing (the first one of US$15 million allowing the drilling of a third well and the resolution of the drilling issue on the Fiale 2 well), and a second additional financing of US$3\.26 million\. 94\. Delays in procurement: Procurement delays, outside the implementing agency, have been encountered due to no- objections delays from donors (mainly from AfDB)\. Currently, the schedule for the remobilization dates of the drilling contractor and some other contractors cannot be confirmed since the no-objection on the extended drilling contract is still pending from AfDB\. During the implementation and supervision missions, the WB encouraged AfDB to reduce as much as possible their response time in order to complete the project’s activities by the closing date\. 95\. Technical Aspect: During project drilling, the project benefitted from competent technical advisors and contractors based on the site, and necessary adjustments were made in coordination with the PIU when needed (the original drilling angle has been reassessed and modified to comply with the geological nature of the area)\. Furthermore, to check the viability of technical procedures, tests and analysis, an Independent Evaluator was recruited\. A recommendation report was produced highlighting areas of improvement for the drilling component\. However, due to limited financing resources, and due to the delay already faced by the project regarding the recruitment of the geothermal advisor, the most plausible option of cleaning Fiale 2, even when additional financing would be required, was considered\. Page 20  The World Bank DJ Geothermal Power Generation Project (P127143) 96\. Social and Environmental Safeguards\. OP 4\.12 was not triggered as the project, situated in a desert un-populated area of Djibouti (see Annex 6), was not expected to involve any involuntary land leading to involuntary displacement of communities and/or loss of income sources, habitat and other resources\. The project was rated by the World Bank as Category B and OP 4\.01 was triggered\. No large scale or irreversible negative impacts on the environment was foreseen, but the exact nature of the impacts could not then be determined until a detailed design of the drilling program was known\. Throughout project implementation the individual safeguards were rated as satisfactory\. 97\. Monitoring and Evaluation (M&E)\. An adequate monitoring and evaluation framework were designed and put in place and operationalized through the PIU and the contractors, in particularly those involved in the drilling program\. The M&E framework includes: • a state-of-the art data gathering, information sharing and analysis on the drilling operations conceived and monitored by the geological consultant (GCC) and the geothermal independent expert\. Data are collected and analyzed daily on the drilling operations, with information shared with the PIU and with EDD General Manager\. • a monitoring and reporting mechanism for the project environmental and social aspects, including reporting on grievance and proactive actions (no substantive grievances have been registered so far)\. • a monitoring and reporting mechanism for the fiduciary aspects\. • all aspects are recorded with regular reports prepared and shared by the PIU\. Factors subject to the World Bank Control 98\. Adequacy of supervision: The WB implemented its planned supervision program, filing 13 ISRs, and participating in 7 Joint Donors Missions\. The WB was also very proactive during project implementation, acting as the Lead Donor, particularly during the early implementation phase when the PIU needed to strengthen its implementation capacities, replace personnel and contract the international project director\. The WB improved Donor Coordination through very frequent and direct consultations with the PIU Director and with the Donors, particularly on procurement matters\. This led to an upgrade in the initial ratings\. 99\. Supervision Missions and ISRs\. Supervision missions were undertaken every 6 months\. Restructurings and extension of the closing date to complete activities were processed in a timely manner\. No serious management issue was raised\. The project benefitted from the presence in the PIU of a procurement specialist, an environmental, a social safeguards specialist and a financial Management Specialist\. An official representing the PIU director was also assigned to the project site\. 100\. The Project’s Mid-Term Review (MTR) was carried out in December 2017\. As a result of the MTR, the mission confirmed the strong engagement of the GoDJ with the Project, removed procurement-related obstacles on the supply of equipment and materials, and agreed on a short-term plan to accelerate project implementation by increasing discussions and meetings with both donors and the counterpart\. However, the team did not use that opportunity to realign the project’s indicators and PDO, to focus mainly on the WB financed activities\. 101\. In May 2020, the WB team, requested a 9-month extension of the ICR deadline to be able to capture the results of the final drilling tests and of the feasibility study, in light of the delays and the impacts of the COVID-19 in Djibouti and worldwide (the main contractors are foreigners and were demobilized to their country of origin during the complete lockdown)\. During this period, the WB continued to conduct remote discussions with AfDB and the PIU on project’s progress\. Page 21  The World Bank DJ Geothermal Power Generation Project (P127143) 102\. Continuity of Task Team Leaders (TTLs)\. Three World Bank Task Team Leaders (TTLs) were involved during project preparation and implementation\. Responsibilities were transferred through the participation of the designated TTL in the Bank supervision missions\. Hand over was done appropriately and there was no continuity issue\. The number of TTL was adequate considering that WB financed activities were successfully completed\. The remaining activities were financed by AfDB and the role of the WB TTL was then to ensure proper coordination among donors and counterpart (i-e, to follow-up closely on AfDB’s approval of the second additional financing, among others), and project’s M&E\. Factors outside the control of government and/or implementing entities 103\. The negative factors outside the control of the government or the implementing entities have been: • the inherent challenges and delays related to deep exploratory drillings (at depth that could exceed 2,500 meters) where unexpected geological structures are encountered, requiring adjustment in drilling strategies\. • the procurement issues and delays due to the need to have agreement on the Donors’ procurement guideline as well as the lengthy approval process of procurement activities financed by other donors\. • the challenges and delays regarding importation and repairs of special equipment and spares, as few Djibouti facilities can repair the specialized drilling and testing equipment\. • the impact of Covid-19\. In March 2020, the international contractors departed Djibouti due to Covid-19 leaving however all the equipment on the project site\. Their return date has not yet been programmed and depends in large part on the evolution of the Covid-19 pandemic and on obtaining the financiers’ no-objection for signing contracts or contractual amendments\. IV\. BANK PERFORMANCE, COMPLIANCE ISSUES, AND RISK TO DEVELOPMENT OUTCOME A\. QUALITY OF MONITORING AND EVALUATION (M&E) M&E Design 104\. The PDO and the Intermediate Results Indicators used for tracking progress towards the achievement of the desired outcomes were sufficient\. With respect to the project site and the drilling activities a state-of-the art/best practices system has been put in place based on the recommendations of the geological consultant and the independent advisor, producing, recording, analyzing and sharing daily data\. Staff from Djibouti has been trained by the geological consultant\. Health and Safety issues, as well as environmental and social issues, activities with the local communities and interactions with the local authorities are very carefully monitored and recorded\. Fiduciary aspects are adequately managed and monitored by the PIU\. M&E Implementation and Utilization 105\. The selected set of indicators were tracked regularly, and updates provided by the PIU on every supervision mission\. On site and in Djibouti, they are recorded and monitored daily by the geothermal consultant, by the drilling contractor and by the PIU team\. The Bank regularly carried out semi-annual supervision missions during which project progress, outputs and work plan updates were reviewed\. Joint-Donors supervision missions were also carried out\. The PIU team also produced semi-annual progress reports including procurement, financial management, and environmental aspects among others\. As a result of M&E implementation and utilization, communication among donors and counterpart increased significantly, and project restructuring was completed to adjust the project throughout implementation\. Page 22  The World Bank DJ Geothermal Power Generation Project (P127143) Justification of Overall Rating of Quality of M&E 106\. Based on the information above, the Overall rating on M&E quality is Substantial\. While in the first stages of project implementation M&E quality was judged modest with respect in particular to financial management (low disbursement rate, reflecting the delays in procurement processes and implementation), it improved with the presence of the geothermal consultant and with the monitoring mechanisms and data analysis put in place, and also with the experienced gained by the PIU staff\. B\. ENVIRONMENTAL, SOCIAL, AND FIDUCIARY COMPLIANCE Environmental and Social Safeguards 107\. Environmental and Social Safeguards compliance was Moderately Satisfactory throughout project implementation\. No major safeguards-related issues or deficiencies in the implementation of the EMPs were reported during project implementation\. No complain was also registered\. 108\. The project was classified as environmental Category B\. Environmental Assessment (OP 4\.01) was triggered\. A site-specific Environmental Management Plan (EMP) was prepared in accordance with the published Environmental and Social Management Framework (ESMF) document\. The ESMP was duly consulted and disclosed\. The Bank’s Environmental and Social Safeguards Specialist was located in the country office during the entire implementation period\. Safeguards field visits to the sites were regular to assess the project’s effects related to noise, dust, waste, chance finds, reporting, complaints, potable water and sewage, fire protection, and familiarity with the project EMP and monitoring\. Mission findings were reported in the Aide Memoires of the sites visited\. No complaint was registered by the (limited) inhabitants living in the project vicinity\. Financial Management 109\. Financial Management: The Financial Management rating, rated Moderately Satisfactory during the first years of the Project, has then been Satisfactory until Project Close, with appropriate financial management control procedures in place\. The project has been always in compliance with the audit covenants and there were no overdue audits, except the 2018 audit that was delayed due to the hiring process of a new firm financed by AfDB\. 110\. A Financial Management Specialist based in Djibouti regularly carried out the financial management (FM) implementation support missions to review project accounting and reporting arrangements, organization and staffing, internal control procedures, planning and budgeting, counterpart funding, funds flow and disbursement, and external audits\. The quarterly Interim Unaudited Financial Reports were submitted to the Bank for review in the agreed time frame and there were no inconsistencies for follow up\. The audits, conducted by a private audit firm (Ernst and Young), were acceptable to the Bank\. The auditors provided an unqualified (clean) opinion on the project financial statements during project implementation\. The auditor stated that there were no internal control deficiencies or accounting issues to report on\. Procurement 111\. Procurement: Procurement by the Bank was also rated Moderately Satisfactory during the first years of the Project, and then has been Satisfactory until Project Close\. A Procurement Specialist was present in Djibouti and this arrangement allowed for direct and regular interaction with the PIU staff, notably with the Procurement Consultant\. Procurement delays were however experienced mainly due to delays in obtaining no-objections\. 112\. Procurement was carried out in accordance with the applicable WB procurement guidelines (for the WB financed activities), the provisions of the Credit Agreement and the project procurement plan which was duly updated, Page 23  The World Bank DJ Geothermal Power Generation Project (P127143) reviewed by the Bank, and disclosed\. Regular supervision missions were carried out\. The last post review was conducted in October 2019 with a Satisfactory rating and a positive feedback on the PIU procurement performance capacity and professional procurement practice\. The rating on procurement was maintained as Satisfactory throughout the implementation of the project\. C\. BANK PERFORMANCE World Bank performance is rated Moderately Satisfactory\. Quality at Entry 113\. The Bank was the lead agency during project preparation\. It had regular consultations with the Government and the Donors during project preparation\. 114\. Project Strategic Relevance and Project Approach\. The project had, and still has, a very high strategic relevance for the Government\. It should be noted that very recently a contract has been awarded to development geothermal resources from another site\. As mentioned earlier, electricity costs and poor reliability has repeatedly been cited as a major constraint to economic development and diversification\. Over many years, Djibouti had been focused on the development of its geothermal resources as a strategic way to reduce the cost of electricity, the dependence on imported hydrocarbons for producing electricity, and on harnessing its renewable energies\. The project benefitted from continued Government support and resources, and the data accumulated over years of geothermal exploration including in the Fiale Caldera area has been used in other geothermal projects\. 115\. Project Technical, Financial, and Economic Aspects\. As mentioned, project design benefitted from the geothermal exploration data accumulated in Djibouti over many years, notably from previous geothermal drilling programs in Lake Assal region and Global Geothermal Development Plan by ESMAP\. While the drilling cost estimates were based on cost standards, they have (in retrospect) been significantly underestimated\. The main reasons appear to have been: (i) the lack of contractors’ interest (as illustrated by the fact that only 2 offers were received and only one was responsive); (ii) the risk perception about Djibouti; (iii) over-design at least during the initial drilling phase; and (iv) unforeseen additional drilling work on Fiale 2, wells stimulation, and site specific issues\. The economic and financial assessments presented in the PAD reflected the cost standards, and the then prevailing assumptions regarding some critical parameters such as the oil prices outlook\. 116\. Poverty, Gender, and Social Development Aspects\. Geothermal development in Djibouti was, and is seen as an important way to bring down the cost of supplying electricity and electricity tariffs through the provision of expected cheaper base-load generation\. This would decrease the share of household and firm budgets allocated to essential electricity supply\. 117\. Environmental Aspects\. As the Fiale drilling site was located in a desert and unsettled area, the project was assessed as a Category B project with low expected impacts that could be readily mitigated\. An ESMF was however prepared and published in accordance with World Bank Safeguards\. No environmental and social issues have been registered so far\. 118\. Other Aspects (Fiduciary Aspects, Implementation Arrangements, M&E Arrangements)\. Other aspects were adequately considered at entry, including the need for coordination mechanisms among the Donors\. Though, two of the five PDO indicators should have been part of the “intermediate indicators” during the Design and the Project Appraisal phases\. Page 24  The World Bank DJ Geothermal Power Generation Project (P127143) 119\. Risk Assessment\. The Bank team identified the main risks and corresponding mitigation measures\. The predominant risks and the corresponding mitigation measures were listed as: • Technical Risk\. Technical risk is defined in the PAD as the risk that the resource would not be of sufficient quantity and quality for large-scale (50 MW) power generation\. This risk was partially mitigated through the reviews of the geologic testing and through independent reengineering reviews, including an analysis of the work) carried out over 40 years by Reykjavik Energy International (REI) which handed over all the geologic testing and information it developed in 2008\. This led to assessing (in the PAD) the chances of success of the exploration phase at 80 percent\. However, the WB Team assessment of the inherent risks of doing geothermal business in Djibouti were underestimated which lead to implementation delays and associated costs overruns\. • Implementing Agency Risk\. The initial lack of capacity in the PIU was mitigated by the hiring of an international PIU Director, reporting directly to the Head of EDD\. The PIU was also to include an accountant, a procurement specialist, a social safeguard specialist, and an environmental safeguard specialist\. A representative of the PIU Director was also present on the project site\. There were however delays in reaching project effectiveness and in the initial mobilization of some experts, requiring the extension of the Bank financing by one year (till December 2019)\. • Project Risk\. At Appraisal the main identified Project Risk was Donor Coordination, due to the participation of multiple donors, requiring higher level of coordination and harmonization of processes\. Risks related to drilling, mobilization of drilling equipment, maintenance and repairs and staff were not mentioned as a predominant risk\. While substantial coordination resources were applied, the differences in procurement processes created implementation delays\. Quality of Supervision 120\. Implementation support missions were undertaken twice a year to review progress and identify any issues\. Quality of supervision was enhanced by having the participation of not only WB fiduciary and E&S specialists, but as well as vis-à-vis located in the PIU, which enabled quick responses\. Additionally, the unchanged PIU Director since December 2015 facilitated project implementation\. 121\. ISRs provided a candid review of the progress made since the last mission and assessed whether the Project was achieving the PDO’s objective\. All ISR’s were archived on time and any management issues raised were addressed promptly by the team and in a candid manner\. Safeguards compliance was reviewed regularly and found to be satisfactory throughout implementation\. The Mid-Term Review (MTR) was carried out in December 2017, relatively late\. In addition to confirming with the Government the PDO and the importance of mobilizing additional financing to drill at least a 3rd well, the MTR took note that the PIU had been strengthened with 2 senior positions not considered in the initial project design\. The MTR highlighted the delays related to procurement and the key role of the PIU in coordinating and resolving the issues, and the importance for the PIU to manage the implementation schedule to prevent further delays\. A 1-year extension was also provided for the project’s closing date\. The MTR did not consider any adjustment to the project’s PDO’s indicators notably moving them as intermediate indicators and did not propose a re-focus on the activities financed only by the WB\. Page 25  The World Bank DJ Geothermal Power Generation Project (P127143) Justification of Overall Rating of Bank Performance 122\. Based on the Quality at Entry, the Quality of Supervision assessments and the Bank’s role in leading project implementation, overall Bank Performance is rated as Moderately Satisfactory\. Recognizing that this type of project is a high risk/high reward endeavor, the main shortcomings in quality at entry and quality of supervision were the following: • Drilling program costs estimates, which were significantly underestimated, even though only 3 wells (rather than 4) were drilled\. Resource exploration is however inherently prone to unforeseeable challenges\. • Delays in Project effectiveness and Operationalization of the PIU, which took one year (achieved in July 2014)\. Operationalization of the PIU was also delayed and the mobilization of the international project director only occurred in December 2015, in part because of disagreements on the PIU essential requirements for effective implementation\. • Lack of proactivity at the early stage of project implementation to realign project’s indicators, and implementing rules such as procurement processes\. • Coordination difficulties\. The number of Donors involved, which reflected the limited IDA resources available to Djibouti at the time of project preparation, made project implementation inherently challenging and prone to delays\. The Bank however played an essential role in proposing solutions and coordinating\. D\. RISK TO DEVELOPMENT OUTCOME 123\. The risk to development outcomes is rated as Modest\. This rating reflects the following facts: (i) the Government’s more than 40 years continued commitment on geothermal development and the activities it implemented and financed to develop Djibouti geothermal resources; (ii) the recent contract signing for geothermal development projects in other sites of Djibouti; (ii) the creation of ODDEG as the primary national institution coordinating the development of the national geothermal resources; and (iv) the Government significantly increased financial contribution to the project (initially US$500,000 and likely increased to about US$10 million, bringing Djibouti as the second project financier after AfDB)\. V\. LESSONS AND RECOMMENDATIONS 124\. The main lessons from this geothermal resource exploration project are the following • Availability of pre-assessment of sufficiently accurate geothermal resource data can be a determining factor in project design\. The project design reflected this requirement, as it obtained and used the relevant information from previous geothermal exploration surveys and previous drillings in the project area\. This pre-assessment should also present preliminary cost analysis which will inform the design of future projects\. • Pre-feasibility Study\. A pre-feasibility study carried out by a reputable geothermal consultant would be useful to better design the project, assess potential technical aspects that could impact the project, provide realistic budgets, and importantly propose a country specific implementation strategy, a Page 26  The World Bank DJ Geothermal Power Generation Project (P127143) realistic implementation schedule and critical points to assess at the Appraisal stage\. It would also likely provide comfort to potential bidders\. • The strength and capacity of the counterpart’s institutions involved in the geothermal development can critically impact project implementation and timeline\. As there was no such geothermal organization during project preparation and the initial implementation phase, the project design included a PIU located at EDD to be managed by an international expert based in Djibouti and by outside geothermal technical advisors\. As the recruitment of these experts took a long time, as an interim solution, national staff experienced on previous Djibouti geothermal activities were brought on board\. In 2013, ODDEG was created and is now coordinating and carrying geothermal activities in other geothermal sites in Djibouti\. • The drilling phase being a major risk particularly for potential private sector developer, public funding can be the key mitigation measure for distant countries and the ones located in high security risk areas\. The project sought to mitigate this risk by using public funding (from Djibouti and the Donors) to carry out exploration drilling, assess and certify the results using state-of-the art protocols, commission a technical, economic and financial feasibility study, and assist in the preparation of the prequalification and bidding documents by a reputable geothermal firm\. This appears to be the right approach\. • Drilling costs are very country specific\. International norms may not always apply in countries with little geothermal experience or considered relatively risky such as Djibouti\. Market sounding conducted with drilling companies may provide some important insights on costs and risk perceptions\. 125\. Resource exploration is inherently risky, and this should be reflected in project design, implementation requirements and funding\. The most significant lessons and recommendations from the Geothermal Power Generation project (now expected to be completed in early-mid 2022) are the following: • The lack of specific geothermal skills at the early stage of project can impact decision making process and further delay implementation\. As geothermal drilling projects demand very specific skills and quick decision making as equipment mobilization costs are high, an experienced PIU director is needed from the start of project implementation, supported by a high-level decision maker representing the Government and by advisors and contractors with proven experience in geothermal drilling\. • Any delay in decision making process or in project management activities can impact the project’s finances negatively\. Donors coordination mechanisms elaborated during project preparation and agreed upon with the Counterpart during Appraisal can improve project implementation and increase success rate\. Multi-Donor financing should be excluded if full alignment of procurement processes is not feasible\. A properly delineated Coordination Protocol or Memorandum of Understanding needs to be agreed amongst the key stakeholders during project preparation\. One set of rules will limit delays and facilitate management of the project by a weak PIU\. This would also ensure contract continuity if any addendum is necessary\. • Donors coordination can be more challenging when using parallel or co-financing instruments\. This project, as written, is a program itself\. The drilling program being complex and very risky by nature, due to structure of each areas geologically and probable cost overrun linked to the findings, the possibility Page 27  The World Bank DJ Geothermal Power Generation Project (P127143) of using a programmatic approach with different specific phases, all of them contributing to the same program objective, could be further analyzed for potential consideration\. • Early preparation of bidding documents and detailed project’s schedule and cost during project preparation can reduce or decrease delays within project implementation\. A very detailed and well thought implementation schedule needs to be developed to ensuring careful and adequate sequencing of project activities, including all preparatory works such as elaboration of TORs or bidding documents prior to Board approval, taking into account the challenges with site mobilization of the drilling equipment and repair and maintenance requirements\. The proposed implementation schedule should also allow for unforeseen events (most likely expected to be related to drilling activities) leading to implementation delays and additional project costs\. • As geothermal exploration is a high-risk operation, lack of proper contingencies (on costs and implementation duration) can significantly impact project’s success rate\. Being different from World Bank standard operations, higher contingencies should be factored in the costs estimate and the financing plan of resource exploration projects to address issues as they arise and allow flexibility in project design or adjustments\. \. \. Page 28  The World Bank DJ Geothermal Power Generation Project (P127143) ANNEX 1\. Results Framework and Key Outputs A\. RESULTS INDICATORS A\.1 PDO Indicators Objective/Outcome: Assist Djibouti in assessing the commercial viability of the geothermal resource in Fiale Caldera Unit of Formally Revised Actual Achieved at Indicator Name Baseline Original Target Measure Target Completion Greenhouse Gas Emissions Metric ton 0\.00 390,358\.00 0\.00 Avoided 05-Jun-2013 31-Dec-2019 31-Dec-2019 Comments (achievements against targets): Unit of Formally Revised Actual Achieved at Indicator Name Baseline Original Target Measure Target Completion Develop a fully-fledged power Text No study has been Study completed No study has been generation feasibility study done done 05-Jun-2013 31-Dec-2019 31-Dec-2019 Comments (achievements against targets): Page 29  The World Bank DJ Geothermal Power Generation Project (P127143) Unit of Formally Revised Actual Achieved at Indicator Name Baseline Original Target Measure Target Completion Publish periodic updates of Text None All periodic updates All periodic updates project implementation published published 05-Jun-2013 31-Dec-2019 31-Dec-2019 Comments (achievements against targets): Unit of Formally Revised Actual Achieved at Indicator Name Baseline Original Target Measure Target Completion Geothermal well test protocol Text No Yes Yes developed and in place 05-Jun-2013 31-Dec-2019 31-Dec-2019 Comments (achievements against targets): Unit of Formally Revised Actual Achieved at Indicator Name Baseline Original Target Measure Target Completion Well test results independently Text No Yes No reviewed and certified 05-Jun-2013 31-Dec-2019 31-Dec-2019 Comments (achievements against targets): Page 30  The World Bank DJ Geothermal Power Generation Project (P127143) A\.2 Intermediate Results Indicators Component: Component 1 - Drilling Program Unit of Formally Revised Actual Achieved at Indicator Name Baseline Original Target Measure Target Completion Number of wells drilled Number 0\.00 4\.00 3\.00 3\.00 26-Apr-2013 31-Dec-2019 31-Dec-2019 31-Dec-2019 Comments (achievements against targets): Component: Component 2 - Technical Assistance Unit of Formally Revised Actual Achieved at Indicator Name Baseline Original Target Measure Target Completion Joint missions by donors Number 0\.00 4\.00 7\.00 26-Apr-2013 31-Dec-2019 31-Dec-2019 Comments (achievements against targets): Component: Component 3 - Operating Costs of the Program Management Unit Indicator Name Unit of Baseline Original Target Formally Revised Actual Achieved at Page 31  The World Bank DJ Geothermal Power Generation Project (P127143) Measure Target Completion Access to the site is Text No Yes Yes constructed 26-Apr-2013 31-Dec-2019 31-Dec-2019 Comments (achievements against targets): Page 32  The World Bank DJ Geothermal Power Generation Project (P127143) B\. KEY OUTPUTS BY COMPONENT Objective: Assist the Recipient in assessing the commercial viability of the geothermal resource in Fiale Caldera within the Lake Assal region 1\. Greenhouse Gas Emissions avoided 2\. Fully-fledged power generation feasibility study developed Outcome Indicators 3\. Geothermal well test protocol developed and in place 4\. Well test results independently reviewed and certified 1\. Access to the site is constructed Intermediate Results Indicators 2\. Number of wells drilled 3\. Joint missions by donors 1\. 3 wells drilled Key Outputs by Component 2\. Test protocol developed, reviewed, and certified (linked to the achievement of the Objective) Page 33  The World Bank DJ Geothermal Power Generation Project (P127143) ANNEX 2\. Bank Lending and Implementation Support/Supervision A\. TASK TEAM MEMBERS Name Role Preparation Ilhem Salamon Task Team Leader(s) Walid Dhouibi Procurement Specialist(s) Rock Jabbour Financial Management Specialist Fatou Fall Social Specialist Gael Gregoire Social Specialist Andrew Michael Losos Social Specialist Supervision/ICR Lucine Flor Lominy Task Team Leader(s) Melance Ndikumasabo, Abdoulaye Keita Procurement Specialist(s) Rock Jabbour Financial Management Specialist Antoine V\. Lema Social Specialist Mark M\. Njore Operations Support Khaled Mohamed Ben Brahim Team Member Mohamed Adnene Bezzaouia Environmental Specialist Thrainn Fridriksson Team Member Page 34  The World Bank DJ Geothermal Power Generation Project (P127143) B\. STAFF TIME AND COST Staff Time and Cost Stage of Project Cycle No\. of staff weeks US$ (including travel and consultant costs) Preparation FY12 34\.652 298,808\.90 FY13 24\.483 171,834\.60 FY14 0 1,612\.21 Total 59\.14 472,255\.71 Supervision/ICR FY14 12\.089 127,473\.96 FY15 15\.035 129,572\.05 FY16 17\.682 132,208\.38 FY17 12\.210 108,592\.82 FY18 16\.232 117,898\.72 FY19 18\.737 150,214\.44 FY20 15\.752 114,297\.38 Total 107\.74 880,257\.75 Page 35  ANNEX 3\. Project Cost Project Financing Plan at Appraisal (US$) Component IDA AfDB AFD ESMAP AfDB Trust GoDJ GEF OFID TOTAL Fund Component 1: Drilling Program 5,035,550 3,729,000 2,727,590 923,184 5,069,121 5,874,809 23,359,254 \. Contingency 964,450 737,800 422,410 176,816 970,879 1,125,191 4,497,546 Total Component 1 6,000,000 4,466,800 3,250,000 1,000,000 6,040,000 7,000,000 27,856,800 Component 2: Technical Assistance 1,591,100 1,591,100 \. Contingency 173,900 173,900 Total Component 2 1,765,000 1,765,000 Component 3 462,000 500,000 450,000 1,412,000 Project Management Unit \. Contingency 71,200 75,000 50,000 196,200 Total Component 3 533,200 575,000 500,000 1,608,200 TOTAL PROJECT COST 5,035,550 4,191,00 2,727,590 923,184 2,091,100 450,000 5,069,121 5,874,809 26,362,354 TOTAL CONTINGENCY 964,450 809,000 422,410 176,816 248,900 50,000 970,879 1,125,191 4,867,646 TOTAL COST 6,000,000 5,000,000 3,250,000 1,000,000 2,340\.000 500,000 6,040,000 7,000,000 31,230,000 Comparison of Project Budget at Appraisal and at WB Financing Project Close (December 31, 2020) (US$) Budget at Appraisal Budget at Project Close IDA 6,000,000 6,000,000 ESMAP 1,000,000 1,000,000 GEF 6,040,000 6,040,000 OFID 7,000,000 7,000,000 AFD 3,250,000 3,250,000 AfDB 7,340,000 25,325,000 GoDJ 500,000 9,075,000 TOTAL 31,230,000 57,690,000 Page 36  ANNEX 4\. Borrower and Co-Financiers Comments RÉPUBLIQUE DE DJIBOUTI Unité – Égalité - Paix ………\. ÉLECTRICTÉ DE DJIBOUTI PROJET D’EXPLORATION GÉOTHERMIQUE DE LA REGION D’ASSAL RAPPORT DES ACTIVITES Rapport sur la Passation des Marchés FINANCES PAR LA BANQUE \. MONDIALE Page 37 INTRODUCTION Le Projet de production de l’énergie géothermique de la République de Djibouti représente un élément essentiel pour le secteur de l’énergie verte ainsi que pour le développement économique et social du pays\. Basé sur la réalisation de quatre forages déviés profonds dans la région du rift d’Assal et financé par un groupe de bailleurs de fonds internationaux il a effectivement été lancé depuis la fin de 2015\. Le projet est réalisé par l’Électricité de Djibouti, EDD, avec l’assistance de l’Unité de Gestion du Projet, UGP\. A l’issue de l’appel d’offres pour les services de forage, il s’est avéré que le financement alloué à ce projet est insuffisant pour la réalisation de quatre forages comme il était prévu initialement\. Il est donc apparu nécessaire de (i) revoir la conception des forages, (ii) prévoir la réalisation de deux forages en tranche ferme selon la conception ainsi révisée dans le cadre du financement disponible, (iii) annuler les appels d’offres de matériaux aciers et les relancer pour tenir compte des besoins découlant de la révision de la conception des forages\. Les deux autres forages, à savoir le 3ème e le 4ème, seront réalisés selon la disponibilité de leur éventuel financement\. Les activités du projet en cours portent sur la mise en œuvre de ces révisions, à savoir (i) la conception des forages et l’identification des besoins en fournitures correspondants, (ii) la finalisation de la négociation du contrat de forage, (iii) la préparation de DAO révisés et la relance des appels d’offres pour les fournitures de matériaux acier\. Le présent rapport d’avancement décrit de manière détaillée cette situation de développement du projet à travers l’état et le niveau des passations des divers marchés ainsi que les décaissements\. Néanmoins, il rappelle aussi en synthèse la situation du gap financier en particulier au niveau des matériels en acier, des services de la compagnie conseillère en géothermie et de la réalisation des forages\. PARTIE I : RESUME DESCRIPTIF 1\. Description Le Projet d’exploration Géothermique dans la région du Lac Assal comprend les composantes suivantes : ▪ Composante 1 – Programme de forage\. Cette composante prévoit (i) des travaux préparatoires de génie civil nécessaires à l’exécution du programme de forage (financés par la BAD) ; (ii) l’exécution du programme de forage conçu par l’Entreprise de consultance en géothermie (cofinancé conjointement par le FEM, la BM et l’OFID) ; (iii) l’achat de matériaux en acier nécessaires à l’exécution du programme de forage (financés par l’AFD); et (iv) l’inspection et les tests de flux des réservoirs (financé par l’ESMAP)\. ▪ Composante 2 – Assistance technique pour le programme de forage\. Cette composante inclut la fourniture d’équipement et de services de consultants pour (i) concevoir le programme de forage et le protocole de test de puits ; (ii) exécuter le protocole de test et garantir la certification des résultats par une tierce partie et (iii) préparer une étude de faisabilité technique pour la centrale géothermique au cas où les ressources géothermiques permettent la production d’électricité à grande échelle\. Ce volet sera financé par le SEFA\. ▪ Composante 3 – Gestion du projet\. Cette composante couvre les coûts du Directeur international de Projet (financés par le SEFA), de l’expert international en passation de marché, du comptable, des spécialistes en sauvegarde, des auditeurs, du manuel des procédures du projet et du logiciel Page 38  comptable (financés par la BAD), ainsi que d’autres coûts de fonctionnement (financés par le Gouvernement de Djibouti)\. ▪ Composante 4 – Gestion Environnementale et sociale\. Cette composante couvre l’exécution du plan de gestion environnementale et sociale du projet\. Le projet consiste en la réalisation d’un programme de 4 forages d’exploration géothermique\. La zone des forages est non habitée et dépourvue de végétation du fait de la composition volcanique de ses terrains\. Le projet est susceptible de générer des impacts environnementaux (fluides géothermiques pollués, déchets solides issus des boues de forage, risques d’éruption, etc\.) et sociaux (perte provisoire d’un parcours de pâturage et d’une piste touristique essentiellement) qui peuvent être atténués par des mesures de compensation adéquates\. Compte tenu notamment du fait que la zone du projet est non habitée et dépourvue de végétation, le projet a été classé en catégorie 2 selon les procédures de la Banque Africaine de Développement sur l'évaluation environnementale et sociale et a été classé en catégorie B selon les procédures de la Banque mondiale\. Tableau des financements Organigramme du projet Page 39  2\. Personnel L’équipe Passation des Marchés (PDM) du Projet est composée de deux agents : (i) Un expert international en passation des marchés a été recruté en avril 2014\. Il a travaillé sur le Projet depuis cette date de son bureau en France l’équivalent de 131 jours (42 jours dans le cadre d’un contrat financé par le Projet Accès et Diversification dans le secteur de l’énergie -contrat financé par la Banque mondiale (IDA), et 69 jours dans le cadre d’un contrat financé par le Projet d’Exploration géothermique -contrat financé par le FAD, signé en mai 2014 et 20 jours dans le cadre d’un avenant pour une extension correspondant à 20,5 jours de travail additionnel signé le 27 octobre 2016)\. Le contrat de l’expert international s’est achevé depuis décembre 2018 et l’expert national a continué les activités de passation jusqu’à ce jour\. (ii) Une spécialiste nationale a été recrutée en octobre 2015 sur financement IDA3\. L’équipe PDM a reçu l’appui des autres membres de l’UGP, de l’expert international en géothermie et de l’équipe du Consultant en Géothermie (GCC) notamment sur les aspects techniques4\. L’équipe de passation des marchés (PDM), ainsi appuyée par les autres membres de l’UGP, est en mesure de faire face à la charge de travail qui a connu une pointe au cours de la dernière année y compris la réalisation de deux premiers forages\. L’UGP a participé dans un atelier de communication sur les Nouvelle Politiques de la Passation des Marchés\. Suivi d’une formation de l’experte en passation en deux sessions sur le STEP)\. Cet outil est un outil informatique conçu pour les projets financés par la Banque mondiale et qui servira à planifier les activités et la gestion des contrats d’un projet donné\. 3\. Plaintes déposées par les soumissionnaires, les consultants et les utilisateurs finaux Aucune plainte n’a été recensée à la date du présent rapport\. 4\. Amendements aux contrats Des avenants ont été engagés pour l’expert en géothermie, l’experte nationale en passation et l’expert en environnement sur le financement ESMAP ainsi que sur l’IDA\. 5\. Prestations insuffisantes des entreprises, fournisseurs et consultants Les consultants suivants ont abandonné leur poste ou démissionné : • Il s’agit du spécialiste en acquisition initialement recruté, qui effectuait un double travail et ne pouvait réaliser ses tâches définies dans les TDR, et qui a démissionné\. Une nouvelle Experte en passation des marchés a été recrutée le 18 Octobre 2015\. • La secrétaire bilingue a pris des congés et n’a pas rejoint son poste\. Son contrat a été résilié de plein droit et a été remplacé par une nouvelle secrétaire (agent EDD) le 02 janvier 2016\. 3Un premier spécialiste national en passation des marchés avait été recruté sur financement IDA en mars 2015, mais il a démissionné en juillet 2015\. 4L’équipe locale de l’UGP a reçu une formation locale en passation des marchés donnée par des spécialistes de la BAD et de la BM les 19 et 20 octobre 2015\. Page 40 • La comptable initialement recrutée en avril 2015 a démissionné de son poste en octobre 2015\. L’actuelle comptable est un agent de l’EDD qui a été détachée pour le projet sur financement de la BAD le 24 Février 2016\. Page 41 PARTIE II : TABLEAUX SUR LA PASSATION DES MARCHES 1\. Rapport sur la passation des marchés de fournitures et travaux financés par la Banque Mondiale, l’OFID Suivi/Observations Actions accomplies / à prévoir Marché Services de forage Préqualification lancée fin avril 2014 ; 10 dossiers de candidatures reçus ; Evaluation des candidatures finalisée le 29 juin 2014 ; et ANO de la BM obtenu le 23/09/14 - 9 sociétés de forages pré-qualifiées Notification des résultats de la pré-qualification en novembre 2014 Préparation du DAO avec le concours technique de GCC (Geologica) finalisée le 18/02/16 ; Demande de Non-Objection adressé à la BM le 23/02/16 ; ANO reçu le 31/03/2016 DAO envoyé aux 9 sociétés de forages pré-qualifiées à la date 10 avril 2016 par Fedex et par Email le 05 avril 2016 pour une remise des offres initialement le 25 mai 2016 ; date reportée par additif au 8 juin 2016\. Désistement de la société TPIC annoncé en juillet 2015 et confirmé par l’absence de réponse aux envois du DAO\. Désistement de la société EXALO de 26 avril 2016 et Désistement de la société COFOR le 06 mai 2016 Visite du site et réunion préalable au dépôt des offres le 11 mai 2016\. Ouverture des plis reportée au jeudi 09 juin 2016 ; Réception de deux offres (Marriott Drilling et Iceland Drilling) ; Evaluation des offres achevée le 30 juin 2016\. La commission nationale des marchés publics décide de retenir l’offre IDC qui a été jugée la seule recevable techniquement et financièrement\. Cependant la commission note que le cout des forages est très élevé et par conséquent autorise la négociation sur la base du budget alloué d’un montant de 19 000 000 USD avec une tranche ferme de deux forages et une tranche conditionnelle à la mise en place du financement requis pour les travaux de deux autres forages\. Budget Insuffisant : une négociation est envisagée avec la société attributaire pour réaliser 2 forages en tranche ferme et le 3ème et 4ème forages en tranche conditionnelle, sous réserve de l’obtention du financement complémentaire\. Rapport d’attribution validé par la Commission Nationale des MP le 27 juillet 2016\. Réception du PV de la CNMP le 25/08/2016 à la Banque pour non-objection ; Demande d’ANO envoyé à la BM le 27/08/2016 L’expertise d’un cabinet tiers (CAPUANO) a été demandée pour la BM et le travail de M\. Capuano a permis d’identifier des élém ents dans la conception globale du projet pour réduire les couts\. Certains aspects ont été adoptés par la GCC pour réduire les couts après l’attribution du marché\. Ce qui a permis de faire rentrer l’offre d’Iceland Drilling dans l’enveloppe budgétaire et la partition en 2 forages en tranche ferme et 2 optionnelle\. La BM a donné sa NOB sur le rapport d’attribution le 21/09/2016 et le principe de négocier le contrat avec IcelandDrillingCompany (IDC)\. Des négociations ont abouti avec la société IDC retenue le 19/04/2017 pour seulement 2 forages\. Négociation finalisée pour entrer dans l’enveloppe budgétaire disponible de la BM, GEF et OFID\. Les activités « installation de pompage, construction de campement,travaux de caves etc » sont des activités initialement financées par la BAD mais ils ont été incorporés dans le DAO des forages\. Nous avons lancé l’appel d’offres « services de Forages » y compris les activités de la BAD\. Dans la phase négociation, il a été décidé de retirer ces activités en les imputant sur la contrepartie nationale et sur la BAD\. Envoi des commentaires sur le contrat aux remarques de la BM sur le contrat IDC le 23/04/2017 La Banque mondiale a donné l’ANO le 25/04/2017 sur l’adjudication du contrat à Iceland Drilling pour le forage de 2 puits de pro duction avec une option de deux Page 42  forages additionnels\. Contrat signé le 21/05/2017 ; Mobilisation de la foreuse en avril 2018 ; Arrivée de la machine le 08 juin 2018\. Etablissement des exonérations et Suivi du transport de la machine jusqu’au Lac Assal\. Inauguration des installations des travaux de forage par le président le 11/07/2018\. Début des travaux de forage en juillet 2018 ; Exécution de deux forages prévus par la BM\. Demande d’un financement supplémentaire pour exécuter le 3 ème forage à la BAD\. Finalisation des 3 puits de forages\. Demande d’un nouveau financement à la BAD et à l’EDD\. Approbation d’un montant par EDD pour effectuer la stimulation\. En cours de validation du financement de la BAD\. Tests, échantillons Les fournitures d’équipements de test sont prévues dans le marché DSC et sont financés dans le cadre du financement ESMAP\. Spécifications établis pour l’acquisition des équipements de test et le recrutement d’un cabinet pour réaliser l’inspection t ierce\. 1er consultation : 2 ème consultation : Nous avons lancé sur STEP une consultation pour l’acquisition des équipements Nous avons lancé sur STEP une consultation pour l’acquisition des équipements de test\. de test\. Les spécifications ont été élaborées par GCC et la consultation se fera sous six Les spécifications ont été élaborées par GCC et la consultation a été adressée aux (6) lots\. six cabinets le 17 juin pour une remise des offres le 03 juillet 2018 reporté au 08 L’estimation par lot est comme suit : juillet 2018\. A la remise des offres, nous n’avons reçu que 4 offres\. Lot 1 : Flow Testing Equipment: $100,000 Ouverture des plis le 08 juillet\. Lot 2 : Downhole pressure monitoring: $40,000 Analyse des offres\. Attribution à Mauro Parini\. Lot 3: PT/PTS: $373,000\. Contrat signé le 15/10/2018\. Lot 4 : Generator and Lighting: $89,000 Paiement de la facture 1 sur ESMAP\. Lot 5: Injection Equipment: $163,000\. Clôture des fonds ESMAP\. Lot 6 : Laboratory Analysis: $110,000 Contrat Imputé sur la contrepartie après clôture de l’ESMAP\. ANO reçu le 13/05/2018 Demande de prix adressée aux 9 fournisseurs le 17/05/2018 pour une remise des offres le 05/06/2018, reportée au 12/06/2018\. A la remise des offres, nous n’avons reçu que 3 offres\. Ouverture des plis le 20 juin\. Analyse des offres sur les six lots\. Le lot 4 a été annulé car la contrepartie nationale a pris en charge l’activité d’acquérir des groupes électrogènes\. Le lot 5 a été déclaré infructueux\. Sur les 6 lots, 2 lots ont été attribués à JRG et 2 lots ont été attribués à Pars Drilling\. ANO reçu sur le rapport d’évaluation en novembre 2018 Contrat JRG signé le 11/12/2018\. Contrat Pars Drilling signé le 18/12/2018\. Page 43  Réception des matériels du lot 2 (JRG) le 09/06/2019 et le lot 3 19/02/2019\. Vu que les financements sont clôturés alors les derniers paiements seront imputés sur la contrepartie\. Réception des équipements du lot 1 par PARS\. Problème de conformité sur les équipements\. Paiement de 20% en instance\. Lot 6 de PARS en cours de traitement\. Bits, Stabilizers, reamers & Besoins à définir par GCC Hole Openers Equipements incorporés dans le marché DSC\. Il n’est pas prévu de lancer un AO\. 2\. Rapport sur la passation des contrats de services de consultants financés par la Banque mondiale Suivi/Observations Marché Actions accomplies/ à prévoir Directeur intérimaire de l’UGP, Nomination au 26/11/14 devenu Expert en conseil Engagement du directeur intérimaire/expert géothermie\. ANO reçu\. Contrat signé le 01/09/15\. géothermie Avenant soumis à la banque\. Prolongation du contrat de l’expert fait jusqu’à la fin du projet au 31/12/2018\. Suivi d’un second avenant pour un période de 4 mois imputé sur ESMAP\. Puis un avenant de 5 mois sur IDA\. Et un autre avenant au contrat pour une durée de 3 mois sur l’IDA\. Imputation sur la contrepartie un avenant de 3 mois dont un mois Ferme et deux mois conditionnelle en attendant le financement de la BAD\. L’expert a été reconduit sur le financement additionnel 2 pour une période 9 mois\. Coordinateur du Projet Nomination du coordinateur\. Contrat signé en juillet 2015 pour une durée de 2 ans\. Un projet d’avenant a été soumis à la banque mondiale pour une prolongation de 18 mois\. Prolongation du contrat de l’expert fait jusqu’à la fin du projet au 31/12/2018\. Ce contrat a été cloturé\. Expert international en Contrat initial financé par le Projet Power Access annulé géothermie Nouveau contrat négocié soumis à la BM pour ANO en 02/15\.ANO de la BM le 12/03/15 et Contrat achevé fin 2015\. Spécialiste national en AMI publié en octobre 2014 ; 20 Candidatures reçues acquisitions Demande d’ANO envoyée à la BM le 04/01/2015 ; ANO reçu le 13/01/15 Contrat négocié envoyé à la BM pour ANO le 13/01/15, puis signé le 21 /03/15 Le Consultant a démissionné le 21 juillet 2015 Prise de fonction d’un nouveau spécialiste national le 18 octobre 2015\. ANO reçu le 03 décembre 2015 ; Contrat signé le 18 décembre 2016\. Avenant soumis à la banque ; ANO reçu le 18 Octobre 2017\. Prolongation du contrat de l’expert fait jusqu’à la fin du projet au 31/12/2018\. Page 44  Suivi d’un second avenant pour un période de 4 mois imputé sur ESMAP\. Puis un avenant de 5 mois sur IDA\. Pour des raisons d’un gap sur le financement IDA, il a été décidé d’imputer un contrat de 6 mois dont quatre mois Ferme et deux mois conditionnels en attendant le financement de la BAD sur la contrepartie\. L’expert a été reconduit sur le financement additionnel 2 pour une période de 9 mois\. Secrétaire bilingue AMI publié en octobre 2014 ; 45 Candidatures reçues anglais/français) Demande d’ANO envoyée à la BM le 04/01/2015 ; ANO reçu le 13/01/15 Contrat négocié envoyé à la BM pour ANO le 01/02/15 ; ANO reçu le 22/02/15 ; Secrétaire en poste le 02/03/15\. Licenciement de la secrétaire après abandon de poste le 30/11/2015\. Mise en place d’une nouvelle secrétaire le 02 janvier 2016, agent de l’EDD détaché pour le projet\. Expert environnementaliste AMI envoyé pour non-objection à la BM le 04/04/2016 ; ANO reçu sur l’AMI le 08/04/16 Publication faite le 13 avril 2016 et pour des raisons techniques, la nation a publié le 20 avril 2016 pour une remise le 04 mai 2016\. Trois (3) CV reçus\. L’UGP a décidé de republier pour avoir plus de candidats le 16 mai pour une remise le 25 mai 2016\. Cinq (5) CV reçus à la date limite\. Ouverture des plis fait le 28 mai 2016\. Rapport d’évaluation des CV des candidats finalisé\. Demande d’ANO sur le rapport d’évaluation adressé à la BM le 14 juin 2016 ; ANO reçu sur le rapport sous réserve de vérifier que la fonction de l’expert\. Note de service du ministère de l’habitat pour une mise à disponibilité de 20 mois sans soldes ANO sur le projet de contrat reçu le 03/09/2016 ; Contrat signé le 01 septembre 2016\. Prolongation du contrat de l’expert fait jusqu’à la fin du projet au 31/12/2018\. Ensuite un second avenant a été imputé sur ESMAP pour une période de 4 mois suivie de deux autres avenants de deux mois chacun sur IDA\. L’expert a un nouveau contrat sur le financement additionnel 2 qui s’activera dès les débuts des travaux de forages en 2021\. PARTIE III : SITUATION FINANCIERE DU PROJET Le projet fait l’objet d’un co-financement et bénéficiera de dons et de prêts de la banque africaine de Développement, du Groupe de la Banque Mondiale (BM), du Fonds OPEP pour le Développement International (OFID), de l’Agence Française de Développement (AFD), du Fonds pour l'Environnement Mondial (FEM) ainsi que du fonds ESMAP\. Le budget de la banque mondiale s’élevait à 12\.595 millions US\. PARTENAIRES FINANCIERS Sources Montant (million d’USD) Instrument Banque Mondiale (IDA) 5\.459 Prêt Page 45  Fonds pour l'Environnement Mondial (FEM) 6\.036 Don ESMAP 1\.100 Don Financement Total 12\.595 A mis parcours du projet, les financements se sont avérés insuffisant pour réaliser trois forages\. Cependant pour combler ce gap, la Banque Africaine de Développement a accordé un financement additionnel de l’ordre 10\.74 million UC soit environ 15 millions US afin d’optimiser les chances de réussite de cette phase d’exploration\. La contrepartie nationale a suivi avec une enveloppe additionnelle portant le total à 8,128 millions US\. Dans la phase finale du projet, et pour améliorer la productivité des puits de forage, il a été nécessaire d’entreprendre des activités de nettoyage de Fialé 2, de faire des tests des trois forages, ainsi que l’assistance technique pour la supervision des travaux et des tests\. Encore une fois, la Banque Africaine de Développement a contribué un deuxième Don Additionnel de l’ordre de 2\.36 UC, ce qui porte le total BAD à 18,1 million UC\. Page 46 Difficultés rencontrées et leçons apprises 1- Difficultés rencontrées et défis - Approbation et mises en place des financements des bailleurs nécessitant beaucoup d’effort et engendrant beaucoup de retards\. - Retard important dans la mise en place de l’UGP et notamment le directeur international - Recrutement des consultants nationaux à temps partiel qui ne sont pas toujours disponibles pour le projet - Recrutement des sociétés prestataires et des consultants internationaux nécessitant beaucoup de consultation et de coordination entre les bailleurs et l’UGP\. - Procédures d’acquisition chez les bailleurs notamment la BAD sont assez sévères et compliquées et engendrant beaucoup de retard\. - Multitude des bailleurs nécessitant des efforts de coordination et engendrant des difficultés de gestion\. - Difficultés à avoir plusieurs soumissionnaires pour les appels d’offres pour le recrutement des consultants et des sociétés prestataires vu qu’il s’agit d’une nouvelle expérience à Djibou ti, sans antécédent et à risques\. - Difficultés et retard dus aux négociations avec le seul soumissionnaire pour le forage afin de rentrer dans le budget de la banque mondiale qui ne couvraient pas deux forages alors qu’il était destiné à quatre forages\. - Difficultés et retard dus aux appels d’offres du matériel acier que l’agence française de développement a exigé de refaire suite au changement à la baisse des dimensions du design du projet pour rentrer dans le budget initial\. - Sous-estimation des budgets disponibles pour les différentes composantes du projet et les aléas mettant parfois le projet en difficulté\. L’extension du budget nécessaire prend du retard et n’est pas toujours disponible\. - Difficultés rencontrées dans les forages dues à la nature du sol engendrant du retard et un dépassement budgétaire\. - Nettoyage des forages bouchés et difficultés rencontrés lors des tests de production engendrant du retard et nécessitant des extensions budgétaires\. 2- Leçons apprises - Prévoir le recrutement de l’UGP dès le démarrage du projet - Prévoir un budget adéquat pour toutes les composantes du projet - Limiter le nombre de bailleurs intervenants par la procédure de délégation (comme avec ESMAP, GEF et OFID) et unifier les procédures d’acquisition\. - Regrouper les appels d’offres pour délimiter et cadrer les responsabilités ce qui permettra de décharger l’UGP\. - Améliorer les contacts avec les prétendants potentiels pour une meilleure participation aux appels d’offres\. Page 47  - Alléger les procédures d’acquisition chez les bailleurs\. - Assurer à l’UGP le bon soutien et le suivi permanent par les bailleurs durant toute la période du projet et dans tous les domaines\. - Ne pas anticiper des rapports finaux et des conclusions par les bailleurs avant la fin de tous les travaux et la réalisation de l’étude de faisabilité\. 3- Appréciations du support de la banque mondiale - La Banque Mondiale a assuré au projet un bon suivi et un soutien permanant durant toutes les phases du projet par le contact direct avec l’UGP pour résoudre certains problèmes, pour accélérer certaines procédures, pour assurer une meilleure coordination avec les autres bailleurs et aussi par la mise à disposition d’experts hautement qualifiés dans tous les domaines\. - Les points à améliorer par la banque sont notamment : • Le soutien financier pour le projet en cas de besoin d’extension du budget pour les aléas qui a fait défaut tout au long du projet • Une meilleure coordination entre le task manager et le représentant local pour éviter des situations d’incompréhension\. En effet, le suivi assuré par la représentation locale ainsi que les interprétations des données se faisaient uniquement à travers les documents à disposition et non de la source par des contacts directs avec le task manager ou les responsables de l’UGP\. 4- Impacts du projet sur l’activité géothermique à Djibouti - Avoir une grande expérience dans la gestion et l’exécution des projets géothermiques notamment dans les domaines de l’acquisition, de la gestion financière et du forage\. - Exploiter les résultats des forages pour optimiser les études d’exploration géothermique au pays\. Fin Page 48 Page 49 Page 50  Comments received from the French Development Agency (AFD) Message n° 018 ------------------------ Bonjour Lucine, Nous vous remercions d'avoir partagé ce Rapport d'Evaluation Finale du Financement de la Banque Mondiale du projet de géothermie de Fialé et l'avons parcouru avec intérêt\. Vous trouverez ci-après nos réactions de fond sur les quelques points ci-après\. 0- Remarques générales Je me permets en préambule de souligner que le délai (5 jo) laissé pour analyser ce document dense et émettre des commentaires pertinents est assez contraint\. Nous regrettons également vivement qu'aucun échange n'ait pu avoir lieu entre les bailleurs BAfD/AFD et les experts et consultants chargés de cet exercice d'évaluation finale du financement BM, alors même qu'il nous semble que cela avait bien été prévu ou annoncé lors des précédentes missions de supervisions conjointes\. Par ailleurs, nous avions compris lors de la mission de supervision de février 2020 et des échanges ultérieurs, que ce travail d'évaluation attendrait les résultats de la dernière phase de financement du projet, avec la stimulation et le nettoyage des puits puis les campagnes de tests\. Compte-tenu des contraintes liées au C-19, il ne nous semble pas que cette phase ultime soit achevée et que le rapport soit établi en prenant en compte ces résultats, ce qui est peut- être dommage\. 1- Performances de l'Unité de Gestion du Projet Dans le point 87, il est indiqué que “The PIU staff (based in Djibouti-City and at the project site) performed adequately after initial adjustments\.” Notre appréciation sur ce point reste assez éloignée de celle formulée par la Banque, dans la mesure où ce sujet de la gestion de projet était remonté quasiment systématiquement lors des missions de supervisions des bailleurs de fonds\. Le partage des informations, des documents et des rapports, la communication du projet, la diffusion des rapports des bailleurs, l'annonce et la préparation des missions de consultants par exemple… était loin d'être optimales\. De nombreux constats réservés ont émaillé les missions de supervisions, portant sur les retards récurrents dans la diffusion d'informations (diffusions souvent partielles en fonction des bailleurs…), les difficultés pour disposer des budgets détaillés et lisibles du projet, des plannings actualisés, les difficultés liées à la prise en main et l'utilisation du logiciel de comptabilité, etc\. etc\. A titre d'exemple, sur la dernière phase du programme actuellement en cours, nous (AFD) n'avons reçu aucun rapport ni information conséquente sur l'état d'avancement depuis début 2020\. Mais peut-être que ces informations ont-elles bien été transmises à la BAfD, seul financier encore en lice…? 2- Coûts du projet Concernant "l'explosion" des coûts du projet au fil de l'eau, il est indiqué dans le point 118 notamment que « Drilling costs are very country specific »\. Cela peut certes se comprendre, mais n'explique pas tout et en particulier le niveau final des couts pour 3 forages profonds\. Il nous semble qu'il aurait été intéressant d'interroger un peu plus finement e t en détail, le jeu d’acteurs des différentes parties prenantes au projet, notamment ceux de l'équipe projet (Directeur de Projet International, conseillers techniques, équipe de la PIU) mais aussi du maître d'ouvrage délégué (EDD)\. Par exemple, on peut souligner que dans le budget de la dernière phase de financement demandée à la BAfD (environ 3,3 M€), le seul financement du poste du Directeur de Projet représente 60% des coûts de la PIU\. Une des recommandations pourrait éventuellement être de fixer la rémunération sur l’atteinte d’objectifs du projet ou de certains indicateurs de performance dans la gestion du projet\. Par ailleurs, le sujet de la Passation des Marchés particulièrement complexe pour ce programme, aurait probablement mérité une analyse détaillée de la totalité des marchés passés et pas uniquement ceux de la BM, même si nous comprenons que l'approche de cette évaluation ne concerne que les sujets BM\. Enfin, dans le coût global du projet, le financement de l’Etat Djiboutien est passé de 0,5 MUS D à 10 MUSD, ce qui in fine, pèsera lourd sur le modèle économique du projet dans sa phase de production (si elle venait à voir le jour…), tout particulièrement si le coût des prêts contractés est intégré dans les calculs financiers globaux\. Page 51  3- Coordination inter-bailleurs Sujet récurrent, de notre point de vue, cette coordination entre bailleurs a largement été défaillante (point 92) dès le démarrage du projet et l'absence d'accord conjoint tripartites entre les bailleurs dès le début a représenté une contrainte très forte dans la bonne harmonisation et cohérence des décisions\. Malgré le fait que l'AFD a tiré la sonnette d'alarme à plusieurs reprises lors des missions de supervisions en particulier, aucune mesure significative n'a finalement été prise\. D'ailleurs, on peut mettre en parallèle la réalisation de ce rapport d’évaluation par la Banque sans avoir malheureusement associé en amont nos collègues de la Banque Africaine ou nous –mêmes, ce qui est une illustration assez parlante de cette communication insuffisante entre les 3 bailleurs principaux du programme\. Nous espérons vivement que ces quelques premiers éléments pourront figurer en annexe du rapport d'évaluation finale\. Vous en souhaitant bonne réception\. Philippe Collignon, collignonp@afd\.fr Comments received from the AfDB A la page 2 sur 49 : FINANCING : Ci-dessous les données des financements de la BAD : NOM DU PROJET : PROJET D’EXPLORATION GEOTHERMIQUE DANS LA REGION DU LAC ASSAL DONNÉES DE BASE Projet d’exploration géothermique dans la région du lac Assal Date de mise en Date d'approbation : Date de signature : Taux décaissement (%) vigueur : Don FAD: 3,531 MUC 28 juin 2013 26 août 2013 26 août 2013 99,4 Prêt FAD: 0,269 MUC 28 juin 2013 26 août 2013 26 août 2013 100 Don SEFA: 1,8 MUSD 28 juin 2013 26 août 2013 26 août 2013 95 1er financement supplémentaire Prêt FAD: 10,74 MUC 02 mai 2018 08 mai 2018 27 septembre 2018 94,90 e 2 financement supplémentaire Don FAD: 2,36 MUC 15 janvier 2020 03 juin 2020 03 juin 2020 2,02 Partout où il sera question de la contribution de la BAD dans le rapport d’achèvement de la Banque Mondiale, le tableau ci-dessus devra être utilisé comme référence\. A la page 5 sur 49 : Section 3 : Cette section doit être révisée en tenant compte du tableau ci-dessus\. A la page 5 sur 49 : Section 4 : Dans cette section, il faut préciser que le financement nécessaire pour compléter le projet a été approuvé par la BAD le 15 janvier 2020 et la notification à Djibouti a été faite le 31 mars 2020\. A la page 5 sur 49 : Section 5 : Le forage des 3 puits était achevé en décembre 2020\. Toutefois, l’un des puits a révélé une obstruction qu’il est nécessaire de nettoyer\. A la page 13 sur 49: Section 45: Je suggère de réviser la section comme suit: « Well test protocols have been developed by the consultant or owner engineer (Geologica) and applied to each of the three wells drilled\. This expected outcome has been met » A la page 14 sur 49 : Section 51 : La section parle d’un contrat signé entre ODDEG et KenGen pour forer des puits additionnels\. Prière de bien noter que les puits additionnels ne font pas partie du projet de Fiale \. Page 52 A la page 14 - 15 sur 49 : Section 54 : Pour ce qui est des couts du projet, la contribution de la BAD est donnée dans le tableau au début de ce document\. A la page 15 sur 49 : Section 55 : Le processus de passation de marchés compétitif a donné lieu à des prix exorbitants\. Nous nous interrogeons si le recrutement direct (sans compétition) de KenGen, dont l’expérience est prouvée, n’aurait pas fortement réduit ces couts exorbitants ? Quelles sont les leçons à tirer de ce projet par rapport à la méthode de passation de marchés au regard des montants exorbitants mis en jeux ? Moussa Kone Chef de Projet, m\.o\.kone@afdb\.org Page 53 ANNEX 5\. Project Map and Site Layout Page 54 Project Site Layout Page 55  ANNEX 6\. Project Cost THEORY OF CHANGE: DJIBOUTI GEOTHERMAL POWER GENERATION PROJECT ACTIVITIES OUTPUTS EXPECTED OUTCOMES MEDIUM TERM OUTCOMES LONG TERM OUTCOMES Undertaking of the Drilling Program Greenhouse gas emissions avoided Positive impacts on Climate Change Incl\. Civil eng\. preparatory work, design and execution of the drilling program, Access to the drilling site constructed inspection and testing of the reservoir flow rates Fully-fledged power generation feasibility study Geothermal and financial resources confirmed; Decrease in Electricity Generation Investment in Geothermal Costs and Electricity tariffs Power Generation commissioned Technical assistance for the drilling program, incl\. design of the drilling program, execution of the well test Number of wells Drilled (4); well test protocol and 3rd party certification of protocol in place; tests results tests results, preparation of a technical certified; technical and financial and financial feasibility study for a feasibillity compled for power plant geothermal power plant (provided the geothermal resource is suitable for power generation) Geothermal well test protocol Increase in energy independence and developed and in place electricity reliability Project Management, incl\.consultants services, financing of operationals costs and monitoring and evaluation Well test results independently reviewed and certified (source: PAD: Project components) Critical Assumptions A\. Competent project management and contractors to carry out the civil works, drilling program and well testing protocol B\. Planned Drilling Program completed; test protocols and certification completed; feasibility study completed C\. Adequate and low cost geothermal resources identified D\. Investment in Geothermal Power Plant commissioned Page 56  ANNEX 7\. Project Implementation Project Implementation as in the PAD Page 57 PROJECT IMPLEMENTATION AS OF APRIL 2020 Page 58  ANNEX 8\. Supporting Documents - PAD - ISRs - Aide-Memoires - Legal Agreements - E&S documents - ICRs of Geothermal IDA financed projects in 1983 and 1989 - Client’s Progress Reports Page 59

REVIEW

P076764

 ICRR 11945 Report Number : ICRR11945 ICR Review Operations Evaluation Department 1\. Project Data: Date Posted : 09/21/2004 PROJ ID : P076764 Appraisal Actual Project Name : Sac I (Montenegro) Project Costs 15 16\.9 US$M ) (US$M) Country : Serbia and Montenegro Loan/ US$M ) 15 Loan /Credit (US$M) 16\.9 Sector (s): Board: EP - Central Cofinancing government administration US$M ) (US$M) (35%), Compulsory pension and unemployment insurance (20%), Power (20%), General industry and trade sector (15%), Law and justice (10%) L/C Number : C3705 Board Approval 3 FY ) (FY) Partners involved : Closing Date 09/30/2003 01/31/2004 Prepared by : Reviewed by : Group Manager : Group : Elliott Hurwitz Emily S\. Andrews Kyle Peters OEDCR 2\. Project Objectives and Components a\. Objectives The Credit was intended to support the Government of the Republic of Montenegro (GOM), the smaller constituent republic of the Federal Republic of Yugoslavia (FRY), in implementing a structural reform agenda with the main objectives of enhancing medium -term fiscal sustainability and improving the prospects for growth as a basis for sustained poverty reduction \. The government's program supported by the operation worked to achieve these objectives through specific reforms in the areas of : (i) public expenditure management; (ii) pensions; (iii) the energy sector; (iv) labor markets; and (v) the business environment\. b\. Components 1\. Public Expenditure Management : 1\.1 Satisfactory progress preparing and adopting secondary legislation to implement Law on the Budget System; 1\.2 MOF used comprehensive medium-term macro/fiscal framework in formulating 2003 budget; 1\.3 GOM approved policy paper on use of donor funds, including clearly established procedures for incorporating into the budget in -year receipt and use of donor funding; 1\.4 GOM implemented satisfactory Treasury system and transferred to Treasury accounts of budget -financed ministries and agencies into single treasury account; 1\.5 MOF adopted time-bound plan for extending Treasury services to operation of all social funds; 1\.6 Debt management department in Treasury established, with staff hired and training organized; 1\.7 MOF providing monthly summaries of budget execution to the Cabinet and public; 1\.8 MOF established and staffed Internal Audit Department, which has established 2003 annual audit plan\. 2\. Pensions : 2\.1 GOM enacted law on pensions and disability insurance; 2\.1 Pension Fund (PF) revenues improved by GOM becoming current on contributions to PF starting July 1, 2002; 2\.3 Draft 2003 budget proposes elimination of specified non-pension benefits from the PF\. 3 Energy : 3\.1 Actions taken to reduce electricity supply problems; 3\.2 GOM submitted energy law to Parliament ; 3\.3 GOM has established and maintained level of tariffs satisfactory to the Bank; 3\.4 GOM has prepared strategy for KAP including time bound Action Program that addresses ownership and operating issues \. Draft program has been shared with the Bank so that its comments can be taken into account before implementation; 3\.5 Electric Power Industry (EPCG) has further increased collections /billings ratio such that accounts receivable do not increase by more than 15 percent of total revenues during previous 12 months; 3\.6 EPCG reduced barter as a share of total collections to a maximum of 10 percent\. 4\. Labor Market : 4\.1 GOM enacted law on labor, including provisions on severance pay, maternity leave, and special leave entitlements\. 4\.2 Ministry of Labor assessed active labor programs and is refining scheme from micro credits toward more cost-effective options\. 5\. Business Environment : 5\.1 GOM adopted and begun to implement registration procedures for new enterprises, developed in accordance with the law on Business Organizations In addition , the Borrower was required to maintain an appropriate medium -term macroeconomic framework\. c\. Comments on Project Cost, Financing and Dates While the project size at appraisal was US$ 15 million, US$16\.9 million was expended due to exchange rate variations\. The project closed 4 months later than envisioned due to a 4-month delay in the establishment of the Internal Auditing Department\. 3\. Achievement of Relevant Objectives: Most relevant objectives were achieved : 1\. Public Expenditure Management : All benchmarks were met, with the exception of the policy paper on use of donor funding\. 2\. Pensions : All benchmarks were met except that the improvement in PF revenues was not sufficient for the GOM to become current on PF contributions starting July 1, 2002 (the government is now current)\. 3\. Energy : All benchmarks were met except for increased collections as a percent of billings, the share of barter as a percent of collections, and development of an Action Plan for KAP (sec\. 5); 4\.Labor Market : All benchmarks were met except for the assessment of active labor programs; 5\. Business Environment : GOM adopted and began implementation of registration procedures for new enterprises \. 4\. Significant Outcomes/Impacts: The 2003 budget was prepared using a three -year macro-fiscal framework for 2003-05, and utilized integrated projections from all revenue sources and a comprehensive expenditure picture including extra -budgetary funds\. Achievements in the areas of raising energy prices and adopting a new energy law exceeded project requirements 5\. Significant Shortcomings (including non-compliance with safeguard policies): Barter as a share of collections (including offsets) amounted to 20-30%, compared to 10% as specified in the project documents; also, the ratio of collections to billings did not meet the levels specified by the project A strategy for KAP, including an Action Program addressing ownership and operating issues, was not developed 6\. Ratings : ICR OED Review Reason for Disagreement /Comments Outcome : Satisfactory Satisfactory Institutional Dev \.: Substantial Substantial Sustainability : Likely Likely Bank Performance : Satisfactory Satisfactory Borrower Perf \.: Satisfactory Satisfactory Quality of ICR : Unsatisfactory NOTE ICR rating values flagged with ' * ' don't comply with OP/BP 13\.55, but are listed for completeness\. NOTE: 7\. Lessons of Broad Applicability: 8\. Assessment Recommended? Yes No 9\. Comments on Quality of ICR: The ICR is unsatisfactory, as it provides inadequate information upon which to base evaluative judgments \. It bases its ratings almost exclusively on the fulfillment of core conditions, whereas the credit's non -core conditions represent important and relevant aspects of the reforms supported by the credit \. For example, the following are non-core conditions: project requirement information in ICR MOF has made satisfactory progress in preparing and No information in the ICR adopting secondary legislation to implement the Law on the Budget System MOF has prepared and the GOM has approved a policy No information in the ICR paper on the use of donor funds, including clearly established procedures for incorporating into the budget in-year receipt and use of donor funding Debt management department in Treasury has been No information in the ICR established, with staff hired and training being organized Pension Fund revenues have been improved by the GOM No information in the ICR becoming current on contributions to the Pension Fund starting July 1, 2002 Actions have been taken to reduce electricity supply No information in the ICR problems The Electric Power Industry (EPCG) has further The ICR states that "progress has been more modest than  increased the collections/billings ratio such that envisioned in the SAC," but does not provide specifics \. accounts receivable do not increase by more than 15 percent of total revenues during the previous 12 months\. EPCG has reduced the share of barter in total barter in total collections to a maximum of 10 percent\. Ministry of Labor has assessed active labor programs and No information in the ICR is refining the scheme from micro credits toward more cost-effective options The Government has prepared a strategy for KAP ICR incorrectly states that "\.the SAC did not focus on including an time bound Action Program that addresses high voltage customers\. By far the largest consumer of ownership and operating issues for the supply of bauxite electricity in Montenegro is the aluminum company (KAP)\. and electricity\. The draft program has been shared with It accounts for nearly half of total energy consumption in the Bank so that its comments can be taken into account the republic, but it contributes only 30% of EPCG before implementation revenue\.the Bank is following up on this issue in the proposed SAC 2\."

REVIEW

P073394

 ICRR 12384 Report Number : ICRR12384 IEG ICR Review Independent Evaluation Group 1\. Project Data: Date Posted : 04/03/2006 PROJ ID :P073394 Appraisal Actual Project Name :Cambodia: Flood Project Costs 40\.4 43\.4 Emergency Rehabilitation US$M ) (US$M) Project Country :Cambodia Loan /Credit (US$M) Loan/ US$M ) 35 37\.50 Sector (s):Board: ): RDV - Roads and US$M) Cofinancing (US$M ) 0 0 highways (50%), General education sector (24%), Irrigation and drainage (12%), Flood protection (11%), Central government administration (3%) L/C Number :C3472 FY ) Board Approval (FY) 01 Partners involved : Closing Date 12/31/2004 06/30/2005 Evaluator : Panel Reviewer : Division Manager : Division : Anna Amato Fernando Manibog Alain A\. Barbu IEGSG 2\. Project Objectives and Components a\. Objectives Primary: To rehabilitate economic and social infrastructure damaged by the 2000 floods while also indirectly supporting a recovery in rural production and incomes \. Secondary: To assist the government in formulating a long -term strategy aimed at reducing the country ’s vulnerability to flooding\. b\. Components (or Key Conditions in the case of Adjustment Loans ): a) The rehabilitation of damaged sections of national primary and secondary roads; (Appraisal: US$12\.3m; Actual: US$12\.92m) (b) The rehabilitation of rural infrastructure; (Appraisal: US$8\.1m; Actual: US$8\.1m) (c) The rehabilitation of flood control and irrigation systems; (Appraisal: US$9\.3m; Actual: US$11\.63m) Revision: The number of irrigation sub-projects to be rehabilitated was reduced by 60 percent -- from 89 to 33 -- at the time of the mid-term review (MTR) because the costs of initially -considered sub-projects were discovered to be under-estimated\. (d) The rehabilitation of primary and secondary schools; (Appraisal: US$9\.4m; Actual: US$9\.41m) and (e) Project management and financial assistance to carry out studies to help the Royal Government of Cambodia (RGOC) in the development of a long-term strategy to reduce vulnerability to flooding \.(Appraisal: US$1\.3m; Actual: US$1\.34m) c\. Comments on Project Cost, Financing, Borrower Contribution, and Dates IDA financed a total of US$37\.5 million compared to the US$35\.0 million foreseen at appraisal, the difference being the result of exchange rate movements with respect to the SDR \. These additional funds were reallocated to the components with pressing demand for sub -projects\. The project was extended for one year, but no specific reason was given in the ICR, other than general comments about delays in procurement, hiring and greater-than-expected damage to the roads \. 3\. Relevance of Objectives & Design : The project was adequately designed to meet the first objective of rehabilitation and economic recovery following the floods, however only one small subcomponent was directly designed to meet the secondary objective of formulating a long term strategy to reduce vulnerability to future floods \. Since Cambodia is a flood-prone country, more resources and activities toward a national mitigation strategy would have been appropriate \. In addition, although a full appraisal is not required and might take too long for an emergency project, the ICR notes a number of activities, such as agricultural extension and identification of sub -projects, that, if included, would have greatly improved the project\. Taking a bit more time for appraisal and design, or organizing a subsequent regular investment project that would focus on these activities and longer term sustainability would have enhanced the effectiveness of this project's results\.  4\. Achievement of Objectives (Efficacy) : Primary objective: The miles of roads rehabilitated and the number of flood control structures repaired or reconstructed [components a) and b)] were exceeded\. However, component c) was significantly downsized\. Due to the lack of experience in the provincial office, the cost for rehabilitating individual sub -projects was greatly underestimated at appraisal\. As a result, the total number of irrigation sub -projects that could be rehabilitated with the available funds had to be reduced during the MTR, from 85 at appraisal to only 33 in actual implementation\. Since this component had the greatest impact on economic recovery and on the poor, according to the report, the foregone subprojects would have done a great deal toward furthering those objectives \. Gains from the SDR exchange rate also went to make up this shortfall \. Component d) also suffered from lack of appraisal experience \. The monies for repair of school rooms was reallocated toward building of new ones because it was found during implementation that the nature of damage to existing school buildings was more serious and the costs for making sound repairs was unexpectedly high\. As a result, the total number of classrooms repaired under the project was reduced significantly (from 2,000 to 33) and the number of classrooms constructed was increased from 1,100 to 1,459\. In total, that means that 1,492 classrooms were put back into use, rather than the 3,100 envisioned\. The second objective was met as conceived by the Component e ): a case study on disaster mitigation was completed which was helpful toward a national strategy and flood protection infrastructure and early warning systems were built or reconstructed\. However, it seems this objective was given very little focus in the project \. Mitigation planning in a flood-prone country such as Cambodia is a crucial activity \. 5\. Efficiency : No ERR is required for an ERL\. However, a Cost and Benefit analysis was done in the areas impacted by the road and irrigation components that showed significant efficiencies \. The completed roads increased traffic flow from 2,943 vehicles per day in 2000 to 15,163 in 2005\. The efficiency of the irrigation component is mixed \. With the number of projects lowered by 60 percent, each individual subproject was more costly than envisioned \. However, the rice paddy yields showed an increase in rice production of 98,600 tons in 2004 compared to 1998 (before the floods) in the areas affected by the irrigation works \. Annual agricultural production per capita in the area was increased by 35-53 percent, of which the project contributed about 17-26 percent, according to this analysis \. The annual farmer agricultural income per capita was increased by 73-97 percent, of which the project contributed about 35-43 percent\. The success of the irrigation activities emphasizes the lost opportunity in that only 33 of the 89 proposed sub-projects for this component could be funded \. 6\. M&E Design, Implementation, & Utilization: The design of the M and E to keep track of results from the components was adequate, although there was no indicator for the secondary objective (disaster mitigation strategy) as conceived in Component E\. The appraisal, in the form of the Technical Annex, included an indicator for amount of school furniture supplied but there was no report on this indicator in the ICR\. 7\. Other (Safeguards, Fiduciary, Unintended Impacts--Positive & Negative): The project clearly had a positive impact on a great many people \. According to the ICR and a supporting analysis (Annex 8: Social and Poverty Impact Assessment ) included in it, the project is estimated to have benefited directly some 5\.92 million people in the provinces covered by the project \. However, given that the flood damage assessment claimed that 3\.4 million people were affected by these floods (the worst in 40 years), and that the population of Cambodia is 13\.6 million, the ICR's estimate seems to stretch the definition of "benefit\." 8\. Ratings : ICR ICR Review Reason for Disagreement /Comments Outcome : Satisfactory Satisfactory The basis of this rating, despite the downsizing of components c) and d), is the Region's clarification that: (i) there was very little time for detailed cost estimates at appraisal, hence the costs of the irrigation subprojects and construction of schools ended up being under-estimated; and (ii) given the project budget, better quality of outcomes would not have been achieved even if there had been better cost estimates\. Institutional Dev \.: Substantial Substantial Sustainability : Likely Likely "Marginally likely", if this rating were available\. Although the 4 infrastructure components all have plans for O&M, the  ICR reports that the budget available for 3 of them is insufficient\. The Water User groups in particular need agricultural extension services and funds to maintain the irrigation systems\. Bank Performance : Satisfactory Satisfactory Due to the insufficient appraisals of both the irrigation and schools components, and the inadequacy of cost estimation, quality at entry was unsatisfactory, which would make overall Borrower performance Moderately Satisfactory, if this rating were available\. Borrower Perf \.: Satisfactory Satisfactory However, more interest from the borrower in formulating a long-term strategy to reduce the country's vulnerability to flooding would have improved the project's long term impact\. Quality of ICR : Satisfactory NOTES: NOTES - When insufficient information is provided by the Bank for IEG to arrive at a clear rating, IEG will downgrade the relevant ratings as warranted beginning July 1, 2006\. - ICR rating values flagged with ' * ' don't comply with OP/BP 13\.55, but are listed for completeness \. 9\. Lessons: 1\. Since Cambodia is a flood-prone country, more resources and activities toward a national mitigation strategy would have been appropriate\. 2\. Having a list of sub-projects identified through field visits with priorities or ranking for IDA financing at project appraisal would have made approval and supervision much more effective \. 3\. Better appraisal and more time estimating project costs would have made better use of the money (irrigation and schools components had to be revised dramatically )\. 4\. Availability of agricultural extension services is crucial to increasing farmers' incomes, not only for poverty alleviation but also for sustainable O&M for their irrigation facilities rehabilitated under the project \. 5\. Planning is crucial to sustainability \. There was no budgeting for how the Water User groups would be able to sustain themselves and the systems, nor was there a budget to maintain the restored /constructed infrastructure \. (By the end of the project, many embankments repaired 3 years earlier at the beginning of the project, already need to be fixed again and no funds are available \.) Also, contingencies should have been planned for destruction caused by floods occurring during project implementation \. 6\. Participatory community contracting for school construction is an efficient means of procurement when large numbers of schools need to constructed over a wide geographic range \. These groups were able to identify smaller regionally-based construction companies and supervised the work quite well \. 7\. Training of implementing agency staff in project management, procurement and financial management is critical for civil works restoration projects \. 10\. Assessment Recommended? Yes No Why? The sustainability of the project results and the status of the Water Users groups would be important to investigate as well as whether further mitigation measures recommended by the mitigation study were implemented\. Also, a project that claims to impact almost half the population of a country is worth verifying \. 11\. Comments on Quality of ICR: The ICR is rated satisfactory and was mostly complete and balanced and gave a good overview of the implementation of this project\. A specific explanation for the one year extension could have been given \. Conflicting numbers were given for the irrigation subprojects -- in some places it was 85 and in others it was 89\. The number in the Technical Annex was 89, so that is what this review used \.

REVIEW

P001874

 ICRR 10731 Report Number : ICRR10731 ICR Review Operations Evaluation Department 1\. Project Data: Date Posted : 08/08/2000 PROJ ID : P001874 Appraisal Actual Project Name : Public Resource Project Costs 20\.0 21\.1 Management Project US$M ) (US$M) Country : Mauritania Loan /Credit (US$M) Loan/ US$M ) 20\.0 21\.1 Sector (s): Public Financial Cofinancing Management US$M ) (US$M) L/C Number : C2887; CP925 Board Approval 97 FY ) (FY) Partners involved : UNDP, France, EU Closing Date 06/30/1999 12/31/1999 Prepared by : Reviewed by : Group Manager : Group : 2\. Project Objectives and Components a\. Objectives The overall objectives of this credit were improved Domestic Resource Mobilization; better Public Expenditure Management and Modernization of the Public Sector\. b\. Components The first two objectives were covered under the policy reform component\. The third objective was covered under the capacity building component\. Policy reform had the following sub-components: a) improving domestic resource mobilization by broadening and diversifying the tax base; and b) improving public expenditure allocation and management by preparing a three year rolling public expenditure program consistent with the macro-economic framework and oriented toward poverty reduction\. Capacity building had the following sub-components: a) improving the organizational structures and administrative procedures of five key ministries (Planning, Finance, Fisheries, Commerce and industry); and, b) improving economic policy-making capacity by strengthening the Technical Secretariat of the Inter-ministerial Committee for Economic Policy c\. Comments on Project Cost, Financing and Dates The IDA credit was disbursed in three core tranches; two floating tranches - institutional restructuring and tax reform respectively; and, two components - studies and PPF Refunding respectively\. Three supplemental allocations were approved and disbursed: on 12/23/96 (along with second core tranche), 06/30/98 (along with the first floating point tranche) and on 06/13/99 along with the second floating point tranche)\. These are reflected in the higher actual disbursements\. The credit was fully disbursed as projected by the revised closing date\. 3\. Achievement of Relevant Objectives: The project was successful in achieving its stated objectives\. Domestic Resource Mobilization has improved\. The tax base has been broadened and the tax regime simplified\. Public Expenditure Management has improved through introduction of annual Public Expenditure Programs and three year rolling Public Sector Investment Programs compatible with macro-economic framework\. Policy making capacity has improved, particularly in the Technical Secretariat of the Inter-ministerial Committee for Economic Policy\. There is improved dialogue between Government and donors on sector policies and strategies\. The technical capability of the five key Ministries responsible for economic management has been strengthened and modernized\. Civil service reform is on-going\. 4\. Significant Outcomes/Impacts: It is too early to judge overall project impact\. However, judging from the successful achievement of the specific objectives of the policy reform and capacity building components there are indications that the project will have significantly positive outcomes/impacts\. One early indication is the increase in social sector expenditures from a very low 2\.9 percent of GDP in 1996 to about 7\.2 percent of GDP in 1999\. 5\. Significant Shortcomings (including non-compliance with safeguard policies): The project did not have an effective M&E program focusing on outcomes and results\. 6\. Ratings : ICR OED Review Reason for Disagreement /Comments Outcome : Highly Satisfactory Satisfactory The project did not put in place an effective M&E component focusing on outcomes and results Institutional Dev \.: Substantial Substantial Sustainability : Highly Likely Highly Likely Bank Performance : Satisfactory Satisfactory Borrower Perf \.: Satisfactory Satisfactory Quality of ICR : Satisfactory NOTE: NOTE ICR rating values flagged with ' * ' don't comply with OP/BP 13\.55, but are listed for completeness\. 7\. Lessons of Broad Applicability: Partnership between Government, other Donors, the IMF and the Bank is crucial for the success of adjustment operations and capacity building is crucial for successful reform\. The sequencing and timing of reforms is extremely important\. 8\. Assessment Recommended? Yes No 9\. Comments on Quality of ICR: The ICR is of satisfactory quality\. The Capacity Building Program, though crucial and synergistic for the success of the Public Resource Management Program, was not directly funded by IDA\. It was funded by EU, France and UNDP\. This raises difficult issues of attribution\. It would have been useful for the ICR to discuss these issues\.

REVIEW

P073578

 ICRR 12811 Report Number : ICRR12811 IEG ICR Review Independent Evaluation Group 1\. Project Data: Date Posted : 12/21/2007 PROJ ID : P073578 Appraisal Actual Project Name : Social Protection Vi US$M ): Project Costs (US$M): 1,987 2,486 Project - Jefes De Hogar (heads Of Household) Country : Argentina Loan /Credit (US$M): Loan/ US$M ): 600 597 Sector Board : SP US$M): Cofinancing (US$M ): Sector (s): Other social services (97%) Central government administration (2%) Sub-national government administration (1%) Theme (s): Social safety nets (100% - P) L/C Number : L7157 Board Approval Date : 01/28/2003 Partners involved : Closing Date : 07/31/2004 07/28/2006 Evaluator : Panel Reviewer : Group Manager : Group : Roy Gilbert Kris Hallberg Soniya Carvalho IEGSG 2\. Project Objectives and Components: a\. Objectives: There were two different, but complementary, formulations : Loan Agreement (Schedule 2): To reduce poverty and to improve economic and social infrastructure facilities and services in the Borrower's territory, through the support of the Jefes de Hogar (heads of household) ) Program (PJH), a social safety net self-targeted to poor households\. Project Appraisal Document (A\.1): To support of the "workfare" part of PJH, a social safety net launched by the Government of Argentina to alleviate the impact of rising unemployment due to the sharp worsening of the economic crisis \. [For this review, IEG uses the content of both objective statements, enabling the evaluation to consider explicitly and separately the objective of poverty reduction (explicit in the LA) and the objective of strengthening the "workfare" part of the Program (mentioned in the PAD, but not cited in the LA )\. The ICR itself followed the objective formulated in the PAD\. b\.Were the project objectives/key associated outcome targets revised during implementation? No c\. Components (or Key Conditions in the case of DPLs, as appropriate): a) Subprojects of the PJH (appraisal cost - US$1,942 million; actual cost - US$2,459 million) - chosen from a menu that included: community services, minor construction, repair, expansion, maintenance or remodeling of schools, health facilities, basic sanitation facilities, small roads and bridges, and on a pilot basis, some productive activities, financing a share of the total costs \. b) Project administration (appraisal cost - US$25 million; actual cost - US$13\.3 million) costs to the national government of administering the project, including financial charges of processing payments to beneficiaries, providing technical assistance, preparing progress reports, computers and operational expenses such as travel and per diem\. c) Project supervision (appraisal cost - US$ 12 million; actual cost - US$1\.4 million) - cost of supervision by Ministry of Labor staff at the municipal level, with a supervisory role by municipal and provincial councils too \. d) Monitoring and Evaluation (appraisal cost 2\.0 million; actual cost - US$5\.9 million) - including evaluations of targeting performance, impacts of sub -projects upon the communities, ex -post evaluations of sub-project quality, beneficiary assessments, and program implementation monitoring according to the agreed indicators \. d\. Comments on Project Cost, Financing, Borrower Contribution, and Dates: It is not clear whether the US$500 million cost overrun was the result of higher unit costs or an expansion of the Program, since initial targets were not always clear \. Considerable cost savings on project administration and project supervision were reported\. If these savings resulted from the transfer of these costs to other project stakeholders (e\.g\. municipalities or NGOs) rather than a reduction of these activities, then the full costs incurred by all participants should have been reported \. Due to the late start and slow pace of disbursements, the original closing date was extended five times, until the project finally closed two years behind schedule \. 3\. Relevance of Objectives & Design: IEG reckons that the social protection aspect of the project objective remains substantially relevant to current policy and the 2006 CAS, that give it a high priority, albeit no longer in the emergency mode of this 2002 Program\. The project design, too, was substantially relevant , especially through incorporating components that could provide quick relief to the intended participants, whose participation in preparation helped ensure beneficiary ownership of the operation\. 4\. Achievement of Objectives (Efficacy): a) Reducing poverty - Substantially achieved : Between 125,000 and 200,000 more people would have fallen below the poverty line than actually did, thanks to this operation \. The ICR reports that 80% of PJH beneficiaries came from the bottom 40% of the income distribution in Argentina \. b) Supporting the "workfare " part of PJH - Substantially achieved : At its peak in May 2003, JDH served 1,991,000 household heads (20% of all Argentina's) , 3-6 times the before-project numbers\. Before this operation in 2002, JDH served only 300,000 in 2002, according to the PAD (p\. 9), or 574,000 according to the ICR (p\.4)\. There clearly was a substantial increase, whichever baseline number is used \. As expected, the easing of Argentina's macroeconomic crisis and macro-economic recovery after 2003 have gradually eroded the number of participants, currently standing at 1,472,187, according to JDH's website\.http:// gov \.ar/ http ://www :// www\. www \.trabajo \.gov\. ar/jefes/ jefes /infostats /index\. asp These trends have also led index \.asp\. to shortfalls of work participation in sub -projects, when compared with the expected numbers \. The project helped strengthen PJH management controls, helping to ensure that PJH funding reached its proper destination \. There were some shortcomings, however\. These included shortfalls in achieving the targeted number of sub -projects and difficulties encountered by some municipalities in supervising PJH in their jurisdictions \. Beyond achieving these objectives \. an important unintended benefit (as far as the explicit project objectives are concerned) of the project was to help Argentina deliver social assistance services better over the longer term, thanks to the institutional strengthening and management improvements to the Program introduced by the project (especially cleaning up beneficiary databases and tightening governance )\. 5\. Efficiency (not applicable to DPLs): The ICR did not provide an explicit measure of the project's efficiency gains, such as lower PJH unit cost per beneficiary for example, even in a section of the report and an Annex entitled "cost effectiveness"\. These sections do tell us that 40% construction sub-projects were labor intensive, as were 80-90% of community sub-projects\. Also, the administrative overhead was 5%\. But, without performance targets or standards, these figures can give only partial insights to how efficiently the project performed \. A better way would have been to assess ex-posteconomic rates of return (ERR) of sub-projects (or at least a sample of them) to demonstrate whether the returns of the project investments exceeded the opportunity cost of capital in Argentina, and whether performance was stronger or weaker than similar investments in other countries \. For efficiency, IEG considers it important that project resources be used for high return facilities and services, something that can be assessed by an ex-post ERR estimate\. IEG notes from subsequent comments on this ICR Review, that the Region considers that achievement of distributional targets is a sufficient condition for efficiency that pre -empts the need for an ERR estimate\. Cost-effectiveness estimates too need to be benchmarked to make it clear, at least, whether the operation was more or less efficient than other similar ones \. The Region, in its comments, argued that efficiency in a social safety net project should be measured by targeting and coverage performance, net benefits to participants, and administrative costs, but that IEG considers that measuring the efficiency of infrastructure investments ex-post is also important\. ERR )/Financial Rate of Return (FRR) a\. If available, enter the Economic Rate of Return (ERR) FRR ) at appraisal and the re- re -estimated value at evaluation : Rate Available? Point Value Coverage/Scope* Appraisal No ICR estimate No * Refers to percent of total project cost for which ERR/FRR was calculated\. 6\. Outcome: The project achieved its objectives with moderate shortcomings in actual coverage and in shortfalls in outputs \. a\. Outcome Rating : Moderately Satisfactory 7\. Rationale for Risk to Development Outcome Rating: The ICR reports that physical works financed by the project were of good quality and continue to be used by the beneficiaries\. Argentina's economic recovery and continuing federal government commitment moderates the risks to the project outcomes that may come from lower tiers of government \. a\. Risk to Development Outcome Rating : Moderate 8\. Assessment of Bank Performance: Preparation benefited from quick and effective work by a Bank team with strong country knowledge \. Bank's response to Borrower's urgent request for assistance during a crisis was timely \. Bank supervision, occurring frequently out of the Bank field office in Buenos Aires, dealt candidly with implementation issues as they arose and quickly sought solutions to them \. at -Entry :Satisfactory a\. Ensuring Quality -at- b\. Quality of Supervision :Satisfactory c\. Overall Bank Performance :Satisfactory 9\. Assessment of Borrower Performance: Government ownership was strong \. Government response to the emergency posed by the 2001-2002 crisis was rapid\. As the macroeconomy began to recover, the Borrower moved gradually into a normal mode of operation, calling upon municipalities to fulfill their expected roles more fully \. In fact, the transition to normal operations, while still ongoing, has been handled well despite the challenges posed by increasing decentralization \. Implementation difficulties at the municipal level made for a less than perfect project execution \. a\. Government Performance :Satisfactory b\. Implementing Agency Performance :Moderately Satisfactory c\. Overall Borrower Performance :Satisfactory 10\. M&E Design, Implementation, & Utilization: The PAD's logframe (not reported in the ICR) mentioned generic performance indicators (e\.g\. "poverty indicators (headcount etc\.") without specifying the exact variable to be measured, the baseline values or the targets to be achieved\. According to the PAD (p\. 9), baseline data would be collected \. In addition, the PAD (p\. 36) lists 22 monitoring indicators but again provides no data for baselines or targets \. The ICR (p\.35) does refer to target figures, but IEG could not find them in the PAD\. While frequently mentioned in both the PAD and the ICR, project M&E paid far more attention to monitoring the implementation of the project --an important activity in itself of course --than to the actual results achieved\. A rigorous impact evaluation was c onducted using October 2001 baseline and October 2002 endline data\. According to the ICR (p\. 45), the endline was later updated to May 2003\. (Later comments by the Region indicated that the data used was "up to May 2003")\. Even if all the data were from May 2003 (before which only 31 percent of loan disbursements had been made ) is too early to measure project outcomes as far as Bank financing was concerned, since so much of the project was yet to be implemented after this date \. This timing is closer to that of a baseline estimate than to an outcome measurement \. For this reason, IEG considers the endline survey timing, could not capture the actual and full impact of Bank support since so much of the project was yet to be implemented after this date --at least US$367 million of the Loan was disbursed after that date\. (The Region commented, however, that the early impact evaluation was useful during subsequent project implementation to monitor targeting performance\.) At an estimated appraisal cost of US$ 2\.0 million, the project had its own M&E component that would include evaluation of the project's targeting performance, sub -projects impact, beneficiary assessments and implementation itself \. By closing, the project had spent US$ 5\.9 million, nearly three times the appraisal estimate\. According to the ICR (p\.34), the increased costs were due to the acquisition of equipment in an amount of US$5\.5 million\. a\. M&E Quality Rating : Modest 11\. Other Issues (Safeguards, Fiduciary, Unintended Positive and Negative Impacts): 12\. 12\. Ratings : ICR IEG Review Reason for Disagreement /Comments Outcome : Moderately Moderately Satisfactory Satisfactory Risk to Development Moderate Moderate Outcome : Bank Performance : Satisfactory Satisfactory Borrower Performance : Satisfactory Satisfactory ICR rating given here and used by IEG is the one reported in the ICR Ratings Summary, and not the "Moderately Satisfactory" rating given in the ICR text (p\.31)\. Quality of ICR : Unsatisfactory NOTES: NOTES - When insufficient information is provided by the Bank for IEG to arrive at a clear rating, IEG will downgrade the relevant ratings as warranted beginning July 1, 2006\. - The "Reason for Disagreement/Comments" column could cross-reference other sections of the ICR Review, as appropriate \. 13\. Lessons: The ICR's include: During times of crisis, a trade-off between orderly expansion of a safety net and rapid coverage of the poor might arise\. During economic recovery, the impact of income transfers and the design of emergency programs need to be carefully assessed so not to impact negatively on labor supply \. Decentralization and participatory management can bring decision -making closer to those in need of assistance, but division of responsibilities and accountability relationships need to be clear and enforced \. Managing a large-scale decentralized program transparently and efficiently requires strong management information systems, good information technology infrastructure and adequate instruments to compile data on implementation and outcomes\. Having been able to respond effectively to an emergency enables a government to build up institutions needed to provide social protection over the longer term \. IEG would add: M&E design should include baseline and endline measurements covering the period of Bank financing \. An impact evaluation is one way to achieve this measurement or it can be done through the use of traditional monitoring indicators\. Baseline data (describing the before-project condition) is very important for rigorous evaluation \. In some  cases it can be assembled quickly and cheaply from existing secondary sources as was done for this project \. M&E design needs to incorporate explicit targets for performance indicators that measure results \. Especially in data-rich environments such as the context of this project, more should be done to assess the efficiency of projects, particularly through ex-post ERR estimates of a random sample of activities or sub-projects as well as their cost-effectiveness standards and performance \. 14\. Assessment Recommended? Yes No 15\. Comments on Quality of ICR: The ICR would have provided a much stronger self -evaluation had it focused less upon the implementation of the project and more upon the results obtained \. Descriptions of implementation details, as well as much repetition leads to a report nearly three times longer than recommended by the guidelines \. Notwithstanding the great length, the ICR does not adequately cover relevance and efficiency (the cost-effectiveness section does not refer to targeted and actual unit costs, for instance ), baselines and targets, and explanations of changes of project costs \. The ICR does not report results through the project's logframe, for instance (normally the first annex of an ICR)\. There is an inconsistency in rating Borrower performance, given as "Satisfactory" in the ratings summary, while given as "Moderately Satisfactory" in the text\. Another inconsistency is between the "English summary of the Government's ICR" and the original in Spanish version to which it is attached \. The English summary has different conclusions and assessment of Bank Performance, includes data not reported by the Government ICR and has a complete section on "workfare activities" that does not exist in the original Spanish language version \. A later note by the Region confirmed that the summary of the Borrower ICR prepared in English by the Bank and the summary prepared in Spanish by the Borrower have "somewhat different" content, yet are "completely consistent in substance \." According to IEG guidelines, such features as these would not normally be found in a satisfactory quality report \. a\.Quality of ICR Rating : Unsatisfactory

REVIEW

P114810

Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review BR GEF Amazon Region Prot Areas Phase 2 (P114810) Report Number : ICRR0021137 1\. Project Data Project ID Project Name P114810 BR GEF Amazon Region Prot Areas Phase 2 Country Practice Area(Lead) Brazil Environment & Natural Resources L/C/TF Number(s) Closing Date (Original) Total Project Cost (USD) TF-12073 30-Nov-2015 85,890,000\.00 Bank Approval Date Closing Date (Actual) 23-Feb-2012 31-Jul-2017 IBRD/IDA (USD) Grants (USD) Original Commitment 15,890,000\.00 15,890,000\.00 Revised Commitment 15,890,000\.00 15,890,000\.00 Actual 15,890,000\.00 15,890,000\.00 Prepared by Reviewed by ICR Review Coordinator Group Katharina Ferl Vibecke Dixon Christopher David Nelson IEGSD (Unit 4) 2\. Project Objectives and Components a\. Objectives According to the Project Appraisal Document (PAD) (p\. iv) and the Grant Agreement of March 21, 2012 (p\. 7) the objective of the project was “to expand and consolidate the system of Protected Areas in the Amazon Region, and to strengthen the mechanisms for its financial sustainability\.” The Global Environmental Objective is the same as the Project Development Objective (PDO)\. This project is the second phase of the three phase Amazon Region Protected Areas Project (ARPA)\. Page 1 of 12  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review BR GEF Amazon Region Prot Areas Phase 2 (P114810) b\. Were the project objectives/key associated outcome targets revised during implementation? No PHEVALUNDERTAKENLBL c\. Will a split evaluation be undertaken? No d\. Components The project included four components: Component 1: Creation of New Protected Areas (appraisal estimate US$1 million, actual US$0\.30 million): This component was to finance the creation of approximately an additional 13\.5 million hectares of new Protected Areas in the Amazon Region to those created under ARPA 1 by i) identifying new areas in the Amazon Region to be designated as Protected Areas; ii) carrying out environmental, socioeconomic, and land tenure assessments as needed, including public consultations and workshops, in respect to the new areas identified in the Amazon Region to be designated as Protected Areas; and, (iii) establishing new Protected Areas by enacting the necessary decrees, followed by demarcation of the boundaries of the Protected Areas in question\. Component 2: Consolidation of Protected Areas (appraisal estimate US$11 million, actual US$12\.08 million): This component was to finance the consolidation of approximately 32 million hectares of Protected Areas, including new Protected Areas established under Component 1 of the project and other Protected Areas already established before the implementation of this Project by (i) providing technical assistance to strengthen the recipient’s capacity in managing the consolidation of Protected Areas and carrying out works to build certain structures, such as visitor centers, office space, guard-posts, to support consolidation in selected Protected Areas; (ii) preparing, implementing and evaluating Management Plans for Protected Areas; (iii) promoting better coordination and institutional enhancement of local communities and organizations; and, (iv) providing training to relevant staff in the management of Protected Areas\. Component 3: Long-Term Sustainability of Protected Areas (appraisal estimate US$0\.40 million, actual US$0\.26 million): This component was to finance technical assistance to develop and implement strategies to raise additional revenue for the Endowment Fund and strengthen the Recipient’s procurement capacity and to support the development of effective and transparent mechanisms for disbursement of the proceeds of the Endowment\. This component was also to finance the carrying out of studies to identify management and funding options to support the long-term economic sustainability of Protected Areas\. Component 4: Project Coordination, Monitoring, Management and Communication (appraisal estimate US$3\.49 million, actual US$3\.25 million): This component was to finance the establishment of efficient management arrangements, strengthening of communication and coordination among stakeholders, and management of financial resources, procurement and budget allocation\. Also, this component was to support the development and implementation of a communication strategy, and M&E activities\. e\. Comments on Project Cost, Financing, Borrower Contribution, and Dates Project Cost: The project was estimated to cost US$85\.89 million\. Actual cost was US$87\.89 million\. Financing: The project was financed by a US$15\.89 million Global Environment Facility grant and US$40 million co-financing by donors (US$30 million by the KfW Development Bank and US$10 million by the Page 2 of 12  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review BR GEF Amazon Region Prot Areas Phase 2 (P114810) World Wildlife Fund)\. Borrower Contribution: The borrower (state and federal level) was planned to contribute US$30 million\. Actual contribution was US$29 million\. Dates: The project was approved on February 23, 2012 and effective on June 19 the same year The project was restructured twice: • On September 22, 2015, the project was restructured to extend the closing date from November 30, 2015 to November 30, 2016\. Political and administrative changes and demobilization of teams at the end of the previous phase of the ARPA Program (Phase I of this project) resulted in project implementation and disbursements delays\. The project extension was to allow for the completion of all pending activities to enable the full achievement of the project’s targets and outcomes, and to utilize the entire grant\. • On November 1, 2016, the project was restructured to extend the closing date from November 30, 2016 to July 30, 2017 to allow the grant co-recipients to finalize ongoing project activities, conduct final independent project evaluation, and reallocate grant proceeds between disbursement categories\. The original closing date was November 30, 2015 and the actual closing date was July 31, 2017, i\.e\. a 20 months’ long extension, or 1 year and 8 months in total\. 3\. Relevance of Objectives Rationale The Amazon region represents the largest area of remaining tropical rain forest in the world (approximately 30 percent) and is estimated to contain carbon stores of approximately 120 billion tones\. However, despite the significant importance of the region to the regional and global climate, its sustainability is threatened by deforestation, degradation of watersheds, and overexploitation of wildlife and fisheries resulting from poorly planned and managed economic development\. The government of Brazil has been developing policies and implementing regulations to expand the Protected Areas and reduce deforestation and greenhouse gas emissions since 1997\. Critical policies included the passage of the National Protected Area System passage which put the management of federal, state, and municipal Protected Areas within a single national system, the establishment of the 2010 National Goals for Biodiversity, and the 2009 adoption of a National Policy for Climate Change\. The project’s objective is in line with the Bank’s most recent Country Partnership Framework (FY2018-2023) which focuses in one of its thematic areas on inclusive and sustainable development by supporting land-use targets, and promoting inclusive rural development and protection of vulnerable groups\. The objective of the project is also in line with the Bank’s 2016 Systematic Country Diagnostic which identifies well managed land, forest, and water resources as key to economic returns, provision of livelihoods, and environmental services\. Furthermore, the project’s objective is also aligned with the Bank’s Biodiversity Roadmap which stresses the importance of sustainable use and conservation of biodiversity to end extreme poverty and promote shared prosperity\. Also, the Bank’s Climate Change Action Plan 2016 emphasizes climate-smart land use, water and food security as one of six high-impact action areas\. Finally, the project’s objective Page 3 of 12  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review BR GEF Amazon Region Prot Areas Phase 2 (P114810) supported the Global Environmental Facility Amazon Sustainable Landscape program which aims to protect globally significant vegetation cover in Brazil, Colombia and Peru\. Rating High 4\. Achievement of Objectives (Efficacy) PHEFFICACYTBL Objective 1 Objective To expand the system of Protected Areas in the Amazon region: Rationale Outputs: • The amount of areas studied for the creation of Protected Areas increased from 5 million hectares in 2012 to 30 million hectares in 2017, achieving the target\. The studies conducted included analyses of the integrity of ecosystems, presence of local communities and indigenous people, and land tenure status\. • The map of priority areas is being updated based on the evaluation of the representation of the current system of Protected Areas, public areas without destination, endangered species, traditional communities, and indigenous people\. However, since this process has not been completed, the target of completing the updating the map was not achieved\. Outcomes: • The amount of newly protected areas in the Amazon increased from 2\.4 million in 2012 to 3\.75 million in 2017, not achieving the target of 13\.5 million hectares\. Officially, 5\.5 million hectares were created resulting in the establishment of 24 new Protected Areas\. However, only 16 Protected Areas, covering 3\.75 million hectares, were eligible to be counted toward the ARPA targets according to the program’s guidelines, which only allows the inclusion of strict protection categories (ecological stations, biological reserves, national parks, natural monuments, and wildlife reserves) and two sustainable use categories (extractive reserves and sustainable development reserves)\. • 33\.95 million hectares of protected areas were consolidated in the Brazilian Amazon, surpassing the target of 32 million hectares\. Of the 114 Protected Areas supported by the ARPA program, 30\.05 million hectares were consolidated in stage 1 and 3\.9 million hectares were consolidated in stage 1\. Rating Modest Page 4 of 12  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review BR GEF Amazon Region Prot Areas Phase 2 (P114810) PHREVDELTBL PHEFFICACYTBL Objective 2 Objective To consolidate the system of Protected Areas in the Amazon region: Rationale Outputs: • Six integrated Protected Area Management Models were developed and tested, surpassing the target of three models\. Outcomes: • The amount of existing protected areas consolidated increased from 8\.5 million in 2012 to 33\.88 million hectares in 2017, surpassing the target of 32 million hectares\. A consolidated Protected Area is defined as one which has all necessary material, financial, and human resources to ensure that its protected status is being respected and land-use restrictions are being enforced\. Rating Substantial PHREVDELTBL PHEFFICACYTBL Objective 3 Objective To strengthen mechanisms for the system of Protected Areas’ financial sustainability: Rationale Outputs: • 23 Protected Area Action Plans were implemented with communities and indigenous people in accordance with the Indigenous People Policy Framework and Process Framework, surpassing the target of 20 Action Plans\. These action plans focused on increasing capacity of traditional communities and indigenous people to participate in the management of Protected Areas and to improve the sustainability of their natural resource use\. • The project’s capacity building plan was prepared and its implementation started in 2014, achieving the target\. 692 Protected Area Staff were trained in technical and administrative capacity\. • The ARPA endowment fund is fully operational and makes annual disbursements to selected Protected Areas, achieving the target\. • Six strategic studies and four protected Areas financial sustainability plans were implemented, Page 5 of 12  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review BR GEF Amazon Region Prot Areas Phase 2 (P114810) surpassing the target of six studies and plans\. • The Strategy for Conservation and investment (ECI) and Protected Areas Evaluation Tool (FAUC) are being annually updated and used to guide operations\. The ECI assesses, among others, the biodiversity significance of and the level of threat to individual Protected Areas\. The FAUC assesses the management performance of Protected Areas\. Outcomes: • The ARPA endowment fund (FAP) increased from US$27\.2 million in 2012 to US$121\.3 million in 2017, surpassing the target of US$42\.8 million\. Rating High PHREVDELTBL PHOVRLEFFRATTBL Rationale Achievement of the objective "to expand the system of Protected Areas in the Amazon region" was Modest, achievement of the objective "to consolidate the system of Protected Areas in the Amazon region" was Substantial\. Achievement of the objective "to strengthen mechanisms for its financial sustainability" was High\. Overall, this results in a Substantial efficacy rating\. Overall Efficacy Rating Substantial 5\. Efficiency Economic Efficiency: The PAD (p\. 12) included an economic analysis of ARPA Phase 2 which was based on incremental costs and compared a baseline scenario with the ARPA Phase 2 proposal\. The baseline scenario was based on the progress of Phase 1\. Soares-Filho et al\. (2008) found that the creation of 13 Protected Areas in the Amazon under ARPA from 2003 to 2007 was associated with the offset of emissions equivalent to 430 million tons of carbon by 2050 as compared to the business-as-usual scenario\. Assuming the value of US$ 5 per ton of carbon, these PAs were to account for US$ 2\.2 billion dollars of emissions reductions by 2050 or about US$ 54 million dollars per year\. The ARPA Phase 1 total cost was of US$ 84\.5 million, thus the IRR for this investment was 22%\. The ICR (p\. 10) mentioned the analysis for the Brazil Amazon Sustainable Landscapes project which includes the third phase of the ARPA program\. The analysis shows that the program is economically viable even when only stimulated over the project life time\. However, the ICR did not conduct an Economic analysis for this project\. Page 6 of 12  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review BR GEF Amazon Region Prot Areas Phase 2 (P114810) Operational Efficiency: The project’s closing date had to be extended twice which might indicate an inefficient use of project funds\. Overall, the project’s efficiency is rated Modest\. Efficiency Rating Modest a\. If available, enter the Economic Rate of Return (ERR) and/or Financial Rate of Return (FRR) at appraisal and the re-estimated value at evaluation: Rate Available? Point value (%) *Coverage/Scope (%) 0 Appraisal 0 Not Applicable 0 ICR Estimate 0 Not Applicable * Refers to percent of total project cost for which ERR/FRR was calculated\. 6\. Outcome Relevance of the objective was High since it supported the government’s priorities and the Bank’s strategies to expand the Protected Areas and reduce deforestation and greenhouse gas emissions\. Overall efficacy was Substantial\. Efficiency was Modest\. Overall, this results in a Moderately Satisfactory outcome rating\. a\. Outcome Rating Moderately Satisfactory 7\. Risk to Development Outcome Since the new government came in place in 2014, commitment to the creation of new Protected Areas in the Amazon is less favorable than it used to be\. In May 2017, the Brazilian congress approved, for the first time since the establishment of the 1988 Constitution, a reduction and degazetting of federal Protected Areas\. The president vetoed this vote, however, in 2016 a constitutional amendment was passed which freezes federal spending for the next 20 years\. Any increase in budget line items such as spending on Protected Areas requires budget cuts of an equal amount in another area\. This is a major setback to the government’s previous commitment to increase the budget for ARPA annually\. This political environment presents a risk to the sustainability of project outcomes and the overall ARPA\. Firm donor commitments and growing international Page 7 of 12  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review BR GEF Amazon Region Prot Areas Phase 2 (P114810) recognition of the importance of this program will continue to be critical\. 8\. Assessment of Bank Performance a\. Quality-at-Entry The project design was built on the experience of ARPA’s phase 1 and the achievement of pilot programs to conserve the Brazilian rain forest and previous Global Environment Facility operations in the country\. The project benefited from the experience of key Bank team members already having worked on the implementation of phase 1, allowing for continuity\. The Bank identified relevant risk factors, however, the risk of political changes was underestimated, resulting in implementation delays due to changes in internal procedures for the creation of new Protected Areas\. During project preparation, the Bank took critical aspects such as securing community rights to land and resource access, the interest of indigenous people, and providing opportunities for income generation associated with Protected Areas, into account\. The team designed a robust Results Framework with relevant indicators for measuring progress towards the project’s objective (see section 10 a for more details)\. Quality-at-Entry Rating Satisfactory b\. Quality of supervision The Bank conducted regular supervision missions twice per year to assess implementation progress and identify any issues\. The in-country presence of some team members allowed for continuous engagement with the counterpart and for fast responsiveness to address any implementation bottlenecks\. Also, the project benefited from having the same Task Team Leader throughout implementation\. The Bank submitted Implementation Status Reports in a timely manner and reviewed the project’s compliance with social and environmental safeguards throughout implementation\. The project’s mid-term evaluation found that the growing political crisis might have a negative impact on the creation of new Protected Areas\. However, the Bank, the government and the donors decided to maintain the project’s objective and did not change any target indicators\. The Bank team was successful in securing new Global Environment Facility funds to support the third phase of the ARPA program ensuring the sustainability of already achieved outcomes\. Quality of Supervision Rating Satisfactory Overall Bank Performance Rating Satisfactory 9\. M&E Design, Implementation, & Utilization Page 8 of 12  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review BR GEF Amazon Region Prot Areas Phase 2 (P114810) a\. M&E Design The theory of change and how key activities and outputs would lead to outcomes were reflected in the Results Framework\. The objective of the project was clearly specified\. The Results Framework included an adequate set of PDO and intermediate outcome indicators to measure the contribution of the project towards achieving the outcomes\. The indicators were specific, measurable, relevant and time bound\. All PDO indicators had a baseline\. The targets were realistic based on ARPA Phase 1, however, due to the changing political context they became too optimistic\. The M&E unit within the Ministry for Environment (MMA), which was already established under ARPA Phase 1, implemented M&E activities independent from the Project Coordination Unit\. The Protected Areas Evaluation Tool was used to report on the status of the consolidation of each Protected Area on an annual basis and provide data for the development of the biennial Protected Areas operating plans\. The M&E system is likely to be sustainable since a new Bank project, which will continue to finance the M&E system, was approved in December 2017\. In addition, the M&E system was adopted by the Protected Areas Agencies (ICMBIO)\. b\. M&E Implementation The indicators included in the Results Framework were measured on a regular basis by the Project Implementation Unit\. An M&E specialist within the PIU was responsible for data collection, tracking and monitoring progress\. The project developed a systematic reporting tool which provided regular data on all project activities\. A technical financial report on the progress of each of the project’s component was produced every two years\. Bank missions produced regular progress reports on the selected indicators on a biannual basis\. Additional data was also collected through the World Wide Fund’s (WWF) Rapid Assessment and Prioritization of Protected Area Management (RAPPAM) tool at a system-wide level and the Global Environmental Facility Management’s Effectiveness Tracking Tool at the Protected Area level\. The Bank team stated that M&E data was of good quality and reliable\. In addition to the Bank’s close supervision during project implementation, the ARPA program’s M&E system was also assessed by different partners such as WWF and KFW Development Bank and considered robust and of good quality c\. M&E Utilization The Bank team stated that M&E findings were used to track progress towards the project’s objective and to inform decision making such as the funding made by the Transition Fund Board which was based on the achievement of established consolidation benchmarks for different types of Protected Areas\. Furthermore, the project established a comprehensive system of biodiversity monitoring that is currently implemented in 45 Amazon Region Protected Areas\. This monitoring system has already produced a large amount of data which is being used by researchers and provides new information about the biodiversity of the Amazon Page 9 of 12  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review BR GEF Amazon Region Prot Areas Phase 2 (P114810) M&E Quality Rating Substantial 10\. Other Issues a\. Safeguards The project was classified as category B and triggered the Bank’s safeguard policies Environmental Assessment (OP/BP 4\.01), Natural Habitats (OP/BP 4\.04), Forests (OP/BP 4\.36), Physical Cultural Resources (OP/BP 4\.11), Indigenous People (OP/BP 4\.10), and Involuntary Resettlement (OP/BP 4\.12)\. During project preparation, an Environmental Assessment was conducted, and an Environmental Management Framework was developed as well as an Indigenous People Policy Framework and Resettlement Policy Framework\. No involuntary resettlement took place because of the project\. Also, issues regarding some access restrictions to natural resources by neighboring communities were addressed by the management councils of the Protected Areas\. The ICR (p\. 16) states that safeguard compliance was satisfactory throughout project implementation\. b\. Fiduciary Compliance Financial Management: The project complied with the Bank’s policies, guidelines and financial covenants\. The team at the Brazilian Fund for Biodiversity (FUNIBO) maintained detailed accounts throughout project implementation\. Also, FUNIBO conducted a financial management assessment of the project which was found to be Satisfactory\. The Bank conducted regular expenditure reviews\. Any issues that were identified were clarified and addressed properly\. All Interim Financial Reports were submitted on a timely basis and all external financial audits were found to be satisfactory\. Procurement: The Bank conducted ex-post procurement reviews on a regular basis\. During the 11th supervision some weaknesses in procurement capacity were identified\. The Bank addressed them by providing additional assistance and training and procurement was rated Satisfactory at project closing\. The Transition Fund adopted FUNIBO’s procurement rules as described in its procurement manual\. Procurement was rated Satisfactory at project closing\. c\. Unintended impacts (Positive or Negative) NA d\. Other Page 10 of 12  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review BR GEF Amazon Region Prot Areas Phase 2 (P114810) --- 11\. Ratings Reason for Ratings ICR IEG Disagreements/Comment Moderately Moderately Outcome --- Satisfactory Satisfactory Bank Performance Satisfactory Satisfactory --- Quality of M&E Substantial Substantial --- Quality of ICR Modest --- 12\. Lessons The most notable lessons learned are taken from the ICR (p\. 18 to 20) with some modification of language: • Cost modelling of PA management and of conservation fund dynamics are essential tools for long- term conservation planning: This project conducted extensive cost modelling on the Protected Areas to estimate a more accurate overall budget for the program and for a long-term conservation fund\. This modelling provided the necessary information for the establishment of the Transition Fund such as the capitalization requirements, time limit for the sinking fund, and the government’s Protected Area budget required to achieve the total incorporation of the ARPA program\. • Traditional income-generating activities for Protected Areas such as eco-tourism, concession agreements, end entrance fees might not work everywhere\. In this project, as well as in Phase 1, such income generating activities were unsuccessful in the Protected areas due to their remoteness, lack of transportation infrastructure, health and sanitation concerns, and high costs\. Therefore, other revenue generating mechanisms such as procuring compensation money from large-scale development projects, were identified\. • Allowing the management approach to be adapted is critical for the management of Protected Areas over a long-term period since it allows for flexibility\. Over a 15 year implementation period the ARPA program developed different methodological tools to address budgetary, institutional and political changes\. This had a positive impact on the implementation of activities\. 13\. Assessment Recommended? No 14\. Comments on Quality of ICR Page 11 of 12  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review BR GEF Amazon Region Prot Areas Phase 2 (P114810) The ICR provides a good overview of key factors affecting project preparation and implementation\. The ICR is concise and internally consistent\. However, the ICR does not provide a traditional Economic analysis and does not list any outputs the project produced\. Also, the ICR does not provide sufficient information on critical areas such as M&E and does not state the date of the second restructuring\. a\. Quality of ICR Rating Modest Page 12 of 12

REVIEW

P075464

 ICRR 14163 Report Number : ICRR14163 IEG ICR Review Independent Evaluation Group 1\. Project Data: Date Posted : 06/25/2013 Country : Philippines Project ID : P075464 Appraisal Actual Project Name : National Sector US$M ): Project Costs (US$M): 110\.0 104\.7 Support For Health Reform L/C Number : L7395 Loan/ US$M): Loan /Credit (US$M): 110\.0 104\.7 Sector Board : Health, Nutrition and Cofinancing (US$M): US$M ): Population Cofinanciers : Board Approval Date : 06/29/2006 Closing Date : 06/30/2011 03/31/2012 Sector (s): Compulsory health finance (40%); Health (40%); Central government administration (10%); Non-compulsory health finance (10%) Theme (s): Health system performance (33% - P); Tuberculosis (17% - S); Social risk mitigation (17% - S); Administrative and civil service reform (17% - S); HIV/AIDS (16% - S) Prepared by : Reviewed by : ICR Review Group : Coordinator : Judyth L\. Twigg Robert Mark Lacey Ismail Arslan IEGPS2 2\. Project Objectives and Components: a\. Objectives: According to the Loan Agreement (p\. 22) and the Project Appraisal Document (PAD, p\. 4), the project’s objectives were to: “(i) improve priority public health outcomes and increase the utilization of health services by the poor in areas and for conditions or diseases subject to intervention under the project; and (ii) increase financial protection of indigents from health care costs \.â€? The PAD (p\. 6) specified that the project would focus on reduction and control of infectious disease and micronutrient deficiencies, specifically citing tuberculosis, HIV /AIDS, malaria, rabies, leprosy, schistosomiasis, filiarisis, and infections covered under the Extended Program of Immunization (EPI), including hepatitis B\. The PAD (p\. 6) also indicates that the bulk of interventions in these areas would be nation -wide\. b\.Were the project objectives/key associated outcome targets revised during implementation? No c\. Components: The project contained four components : 1\. Health Financing (appraisal, US$ 40\.0 million; actual; US$ 44\.0 million)\. This component was intended to provide health insurance for indigents through financing the government ’s payments to the Philippines Health Insurance Corporation (PHIC) under a national contribution subsidy \. To identify beneficiaries, Local Government Units (LGUs) were to use acceptable, defined methods of means testing \. Bank financing of these premiums was expected to increase over the life of the project as more LGUs implemented community -based poverty mapping and other acceptable means tests \. The PHIC was to support these reforms through  collaboration with LGUs to identify appropriate schemes of means testing, development of a partial subsidy scheme for the near-poor, and increased financial protection of the insured through preferred provider agreements and enhancement of the benefits package \. 2\. Health Service Delivery (appraisal, US$ 38\.5 million; actual, US$ 49\.6 million)\. This component was intended to support disease prevention and control measures to reduce, control, or eliminate infectious diseases and micronutrient deficiencies\. Specific activities were to include the provision of Expanded Program of Immunization (EPI) vaccines, tuberculosis control drugs, laboratory supplies, HIV /AIDS drugs, micronutrients, other drugs and related commodities, and information and education materials to help eradicate malaria, rabies, leprosy, schistosomiasis, and filiarisis \. A minimum of US$ 5\.0 million under this component was to be allocated on the basis of LGU performance, through pilot service performance agreements between the Department of Health and participating LGUs\. 3\. Regulation of Pharmaceuticals (appraisal, US$ 0\.5 million; actual, US$ 0)\. This component was to support implementation of a master plan to upgrade the services of the Bureau of Food and Drugs in regulating the manufacture, importing, and distribution of pharmaceuticals \. Support was to include operating costs associated with new business procedures, improved services at drug quality control laboratories, and implementation of a new program to provide “quality sealsâ€? to certify pharmacies that offer quality drugs at competitive prices \. This component also included an option for the unallocated portion of the loan to finance US$ 5 million in equipment upgrades in Bureau of Food and Drugs laboratories \. 4\. Health System Governance (appraisal, US$ 10\.7 million; actual, US$ 10\.8 million)\. This component was intended to support the development of strategic national initiatives in the Department of Health ’s human resources in health master plan, especially the deployment of health professionals to rural areas to reduce shortages\. The component also was to support the Department of Health ’s contribution to a European Commission-financed program of performance -linked local health systems reform grants for 16 provinces\. These grants were to assist participating LGUs with capacity building, systems development, and monitoring and evaluation\. Finally, this component was to strengthen Department of Health (DOH) internal management systems, including public financial management and materials management systems \. This part of the project (strengthening of DOH internal management systems ) was financed from a US$ 1\.2 million grant to the government from the European Commission, administered by the World Bank as a Trust Fund \. The Loan Agreement also earmarked US$ 20 million to be allocated at a later date to project components with the fastest pace of activity \. d\. Comments on Project Cost, Financing, Borrower Contribution, and Dates: Project Cost: At an August 2010 Level II restructuring, funds were reallocated from the unallocated expenditure category mainly to the second component, as it was by far the most active component \. There was ultimately no activity, and therefore no disbursement, under the third component or under the human resource activities of the fourth component\. Financing: The project was financed by a US$ 110 million Sector Investment and Maintenance Loan \. The project was intended to finance a slice of the country ’s overall health sector reform program as part of the appropriated budget, similar to sector budget support but with no financial increments to the sector \. There were no contributions from other external partners \. Borrower Contribution: No government contribution was planned or made \. Dates: The project went through Level -II restructuring twice\. In August 2010, the first restructuring reallocated funds from the unallocated expenditure category, and from slower -performing to faster-performing components\. In May 2011, the second restructuring extended the project ’s closing date from June 30, 2011 to March 31, 2012, to complete project activities, especially documentation of enrollments and calculation of required national subsidies for the poor in the National Health Insurance Program \. 3\. Relevance of Objectives & Design: a\. Relevance of Objectives: Substantial \. At the time of appraisal, major disparities in health outcomes (across provinces and across income levels) had not been addressed\. Under-5 mortality of the poorest 20% of households, for example, was 2\.7 times higher than that for the richest 20% in 2003\. Out-of-pocket payments as a percentage of total health  expenditures were large (54%), threatening the financial security of the poorest households \. Two major reforms – the 1991 decentralization of health services to Local Government Units (LGUs) and the 1995 reform of the National Health Insurance program that had expanded health coverage and established the Philippines Health Insurance Corporation (PHIC) – had led to extreme fragmentation in health financing and delivery \. In 2005 a “FOURmula ONE (sic) for Health,â€? or F1, national health strategy was approved to organize reform initiative into four implementation components: health financing, health regulation, health service delivery, and good governance in health\. The project’s objectives were substantially relevant to F 1’s goals of ensuring access to and availability of essential health packages; ensuring quality and affordability of health goods and services; securing better and sustained financing for health; and improving health system performance \. The project’s objectives are also substantially relevant to the government ’s goal of achieving universal health coverage by 2016, included in its Development Plan 2011-2016\. The Bank’s current Country Assistance Strategy (2010-2013) includes emphases on financial protection for the poor, public health service delivery, and performance-linked local health systems reform \. b\. Relevance of Design: Substantial \. The project's objectives were clear and measurable \. The components contained activities that would plausibly have been expected to produce achievement of these objectives \. The second component’s interventions to provide vaccines, micronutrients, and information /communication interventions should have led to improvements in health outcomes for the diseases and conditions to which they were matched, and it appears that this component included interventions related to each of the specific infections and conditions listed in the PAD\. The third component should have ensured that equipment and procedures were in place for effective and efficient purchase and delivery of vaccines and other drugs \. The first component, covering increased and well-targeted subsidies for health insurance for the poor, should have both increased use of health services by the poor and protected the poor from excessive health care costs \. Finally, the fourth component’s activities should have ensured that the human resources and management systems were in place to facilitate effective implementation of all project activities, particularly in poor and rural areas \. There were no exogenous factors or potential unintended effects identified \. 4\. Achievement of Objectives (Efficacy): For evaluation purposes, the project ’s development objectives, “(i) improve priority public health outcomes and increase the utilization of health services by the poor in areas and for conditions or diseases subject to intervention under the project; and (ii)ii) increase financial protection of indigents from health care costs, " are broken down into three sub-objectives: (a) improve priority public health outcomes in areas and for conditions or diseases subject to intervention under the project; (b) increase the utilization of health services by the poor in areas and for conditions or diseases subject to intervention under the project; and (c) increase financial protection of indigents from health care costs \. (a) Improve priority public health outcomes in areas and for conditions and diseases subject to intervention under the project is rated Modest \. Outputs : Through UNICEF, the project financed the procurement of all vaccines under the Expanded Program on Immunization (EPI), including the first-ever procurement of Hemophilus influenza B (HiB) and Measles, Mumps, and Rubella (MMR) vaccines\. UNICEF’s activities are reported to have improved quality assurance for vaccines, capacity to forecast and budget for public health commodities, and cold chain management (ICR, pp\. 18, 35)\. However, a Bank-supported 2008 logistics review found that a significant volume of drugs and vaccines had expired before they had been used, and that “near date-expiryâ€? drugs and vaccines were routinely being delivered to health facilities\. In most cases, there were no housekeeping rules for pest control or for the disposal of expired stocks\. The 2008 review did show proper functioning of cold chain facilities down to the level of municipalities\. No logistics review took place at the end of the project to track progress before project closure \. LGUs successfully adopted the scorecard system necessary for implementation of the service -level agreements as part of the European Commission -financed program of performance -linked local health systems reform grants for 16 provinces by July of 2007, with these scorecards now rolled out nationwide \. The ICR does not provide detail on how these grant funds were spent \. The project team confirmed that the grants provided variable-tranche financing for local governments based on their performance on indicators linked to their own individual annual operational plans \. The ICR does not provide information on other planned activities related to this objective, including provision of micronutrients, TB and HIV/AIDS drugs, laboratory equipment, and information and education materials to help eradicate malaria, rabies, leprosy, schistosomiasis, and filiarisis \. The project team confirmed that project funds were predominantly spent on EPI vaccines \. This was because the government wanted to procure the vaccines from UNICEF, which requires up-front payment in US dollars that the government did not have; project funds were therefore used for this purpose \. Outcomes : Data quality: The ICR (p\. 15) reports that the data presented on immunization and TB detection and cure are not reliable, and that results of a Department of Health quality check were not available in time to validate project data\. Furthermore, the immunization indicator used the wrong denominator, and the ICR (p\. 15) indicates that these data will need to be recalibrated using new census figures \. The project team confirmed that these data validation exercises have not yet taken place \. Attribution: The PAD (pp\. 25-26) reports on the activities of numerous other donors in the sector, including the United States Agency for International Development and the Global Fund to Fight AIDS, TB, and Malaria \. The ICR does not address the extent to which the activities of these other donors raise questions about attribution of observed outcomes to the Bank -financed project\. The project team confirmed that the Global Fund and USAID activities were primarily targeted at HIV /AIDS, TB, malaria, and health policy, and that there was therefore very little overlap with this project's activities \. The percentage of children who were fully immunized increased from 80% in 2005 to 85% in 2011, not reaching the target of 90%\. According to project data, the TB case detection rate remained at 72% in 2005 and 2010, not reaching the target of 80%\. The Department of Health provided additional data (ICR, p\. 45) that include the private sector, showing that the case detection rate increased from 70% in 2005 to 78% in 2010, still not meeting the 80% target\. The TB cure rate remained stagnant at 81% in 2005 and 82% in 2010, not reaching the target of 85%\. The percentage of total government health spending (excluding staff salaries) dedicated to public health increased from 25% at baseline to 50-55% in 2012\. The ICR does not present specific data on health outcomes for any of the other conditions or diseases cited in the PAD\. However, it does state generally that morbidity rates for acute lower respiratory tract infection, pneumonia, leptospirosis, malaria, neonatal tetanus, and schistomiasis “declined sharplyâ€? over the project period, and that there were “continuing low morbidity ratesâ€? for cholera, diphtheria, and filariasis (ICR, p\. 15)\. However, the ICR (p\. 15) also notes that morbidity rates for leprosy and rabies rose sharply from 2009 on, and that the Philippines is one of a small number of countries in the world with an increasing number of HIV cases \. (b) Increase the utilization of health services by the poor in areas and for conditions and diseases subject to intervention under the project is rated Negligible \. Outputs : Other than vaccines (see above), the ICR does not provide information on outputs related to this objective\. Outcomes : The project did not track utilization of health services by the poor (ICR, p\. 15)\. The project team pointed out that in principle, the subsidies for health insurance for the poor (see below) should have increased access to health services, but no data are presented on this \. (c) Increase financial protection of indigents from health care costs is rated Negligible \. Outputs : The ICR data sheet reports that the percentage of the DOH budget allocated on the basis of need and performance increased from zero in 2006 to 5\.4% in 2007, then fell to 1\.8% during the global economic crisis, and then increased to 24% in 2010\. The 2010 achievement exceeded the target of 5%\. The ICR does not provide an explanation for the extraordinary increase between the global economic crisis and 2010\. Due to local political and governance issues, very few LGUs implemented the planned identification of the poor using an acceptable, defined method of means testing and enrollment in an indigent program \. During implementation, the project shifted to support a nationally developed means test, enabling an enrollment of an additional 4\.3 million poor households in the National Health Insurance Program (NHIP) Indigent Program;  together with 900,000 households that were already enrolled, this nearly reached the number of households (6-7 million) that had been planned for identification under the LGU program \. As a result, health coverage for the total population has increased from 55% at baseline to 75% at project closure\. However, the ICR (p\. 16) cautions that these enrollment data have not been verified through confirmation that the newly enrolled know that they are now in the NHIP \. Also, due to their disagreement with the nationally developed means test, LGUs refused to pay the premiums for poor households identified through this method \. The national government is paying these premiums as a “remedial measureâ€? (ICR, p\. 33)\. There was limited progress on planned development of a partially subsidized scheme for the near -poor\. There was also slow progress in implementing planned financial protection for existing NHIP members through preferred provider agreements that limited extra billing, and through incremental enhancement of the benefits package\. Outcomes : Outcome data on financial protection of indigents, including out -of-pocket spending on health, percentage of household budgets spent on health, utilization of health services, etc \., are not available, as the indigent households were enrolled in the NHIP only in the final year of the project period (April 2011)\. As the ICR (p\. 16) indicates, increase enrollment in the insurance program does not mean that the insurance is effective, has increased health care utilization, and /or has decreased household spending on health care \. Furthermore, even if data on out-of-pocket spending were available, this would not be an adequate indicator of financial protection from health care costs, since out -of-pocket spending could decrease simply because people and households do not seek or utilize health care \. The ICR provides no information on utilization of health services by the poor (see above) or on the number or percentage of individuals or households who incurred catastrophic health care expenses\. 5\. Efficiency: Efficiency is rated Negligible \. Vaccination is widely acknowledged to be the most cost -effective intervention for limiting incidence and spread of infectious disease\. The project also contributed to better targeting of resources on the poor, which introduced efficiencies by concentrating resources on those who are likely to have greater health deficits \. However, the enrollment of the poor into the NHIP took place only in late 2011 and 2012, and no data are available to demonstrate that the poor were actually able to make greater use of health services or experience improved health outcomes\. Also, the delay in agreement over the appropriate method of means -testing, while eventually producing what appears to be a cost -effective approach, introduced inefficiencies \. Net present value, economic and financial rate of return, and cost -effectiveness were not calculated in either the PAD or the ICR\. The efficiency section of the PAD instead presents a national budget execution review \. Project disbursements lagged significantly behind what was planned, with over half of the project ’s resources disbursed in the last year before closure \. There were inadequate efforts by the government and Bank team to reallocate resources from inactive subcomponents to active ones \. Also, the ICR (p\. 10) notes that the project was not “programmaticâ€? enough to allow for financing to move frequently and flexibly from one budget line to another (except for the US$ 20 million unallocated portion), requiring restructuring to reallocate resources \. No formal Mid-Term Review mission took place\. This was a missed opportunity for the government and the Bank to adjust activities to realities on the ground, and in the process ensure that resources were being invested in the most efficient manner\. ERR )/Financial Rate of Return (FRR) a\. If available, enter the Economic Rate of Return (ERR) FRR ) at appraisal and the re- re -estimated value at evaluation : Rate Available? Point Value Coverage/Scope* Appraisal No ICR estimate No * Refers to percent of total project cost for which ERR/FRR was calculated\. 6\. Outcome: Based on substantial relevance of objectives and design, modest achievement of one objective and negligible achievement of the other two, and negligible efficiency, the project ’s outcome is rated Unsatisfactory \. The project’s objectives were substantially relevant to country conditions at the time of appraisal, and they remain relevant to current Bank and government strategy \. The activities outlined in the project ’s components could plausibly have been expected to lead to achievement of the development objectives \. However, despite provision of all vaccines in the expanded program on immunization (EPI), the ICR does not provide evidence on improvement in any of the diseases and conditions specified as targeted under the project, and serious questions are raised about data quality for indicators related to immunization and TB detection and cure \. While the project expanded insurance coverage for the poor beyond initial expectations, there is no evidence that this coverage led to increased utilization of health services, and because this coverage was put in place only in the last year of the project, it is not yet known whether it is effective and has protected the poor from excessive health care costs\. While immunization is acknowledged to be a cost -effective intervention, delays and inflexibilities throughout implementation introduced inefficiencies \. a\. Outcome Rating : Unsatisfactory 7\. Rationale for Risk to Development Outcome Rating: The health financing reform is expected to continue with support from a World Bank National Sector Support for Universal Health Care Project, which is expected to include enrollment of near -poor households, enhancements to the benefits package, and improved health services delivery \. Currently, the national government is paying NHIP premiums for the poor who are identified using nationally constructed eligibility guidelines – despite a legal requirement that LGUs pay half -- while LGUs are paying only for a smaller number of households that they define as poor \. However, due to a mismatch between national and local procedures for identifying the poor, it appears that many of the households in the LGU lists are not actually poor (ICR, p\. 17)\. It is questionable whether the LGUs will be willing to pay premiums for poor households identified under the national guidelines in order the make funding arrangements more sustainable, and there is no clear pathway for addressing the problem of LGUs enrolling and paying for “poorâ€? households that are not actually poor\. However, the national government has committed to a search for sustainable ways to finance health insurance premiums, through increased Department of Health budgets and /or through "sin" taxes on such products as tobacco and alcohol\. The project team stated that the national government has "guaranteed" that these payments will be made over the next few years, with excise taxes covering any increase in enrollments \. As of January 1, 2013, 80% of new "sin tax" revenue has been earmarked for expanding universal health coverage, including covering premium payments for the poor \. Furthermore, the definition of "the poor" has been expanded to encompass 40% of the population, who will be completely exempt from payments at government health facilities\. a\. Risk to Development Outcome Rating : Moderate 8\. Assessment of Bank Performance: a\. Quality at entry: The project was designed as national sector support, underpinned by requirements to improve the management of specific budget line items \. According to the ICR (p\. 8), design “deeply underestimated the capacity of the Department of Health to implement a budget support approach on its own, â€? with oversight from the Department of Budget and Management \. The speed with which F1 reforms would be implemented was also overestimated\. A February 2006 Quality Enhancement Review expressed concern about Department of Health capacity, and as a result the objectives were appropriately revised prior to approval to be more modest and specific\. Even so, there was a delay of almost six months from approval to effectiveness, indicating “that some issues about readiness for implementation were not adequately addressed during the design stage â€? (ICR, p\. 8)\. Ultimately, the project’s design lacked flexibility, in that financing could not move frequently and flexibly from one budget line to another without major restructuring \. Lack of readiness delayed implementation in a variety of ways \. Visions differed between the Department of  Health and the Department of Budget and Management about whether to establish a special account; eventually this was resolved through agreement to use the latter ’s reimbursement mechanisms together with commitment to providing the former with adequate up -front releases of funds to implement project activities \. Other activities were delayed due to issues related to specific operational manuals and to disagreements over which specific line items the project was to finance \. The management system activities funded by the European Commission Trust Fund were delayed due to lack of familiarity with new tools and lengthy reviews of investment plans, annual plans, training plans, and project procurement and management plans \. The willingness and commitment of the LGUs to reform was seriously overestimated \. Allocation of various public health commodities to LGUs on the basis of performance did not take place, despite US$ 5 million having been allocated for this purpose \. LGUs complained that implementing this reform would have negatively affected the residents of poor -performing LGUs rather than the LGU administrators \. According to the ICR (p\. 18), “the Department of Health did not raise this concern, as it should have, during project design and appraisal\.â€? Also, project design offered no incentive for LGUs to identify the poor for inclusion in subsidized health insurance using acceptable methods; according to the ICR (p\. 24), the Bank team did not sufficiently and carefully assess the local politics and governance issues in this area \. Monitoring and evaluation design and institutional arrangements were weak \. Indicators were poorly matched to the project’s objectives, and there were no target values for several indicators \. at -Entry Rating : Quality -at- Moderately Unsatisfactory b\. Quality of supervision: The Bank team was prudent in recognizing early that LGUs were not using acceptable methods of means testing for enrollment in the NHIP and shifting to a national focus \. The Bank’s fiduciary team provided timely advice and other forms of support to enhance the project ’s procurement and financial management activities \. However, there were significant shortcomings in supervision \. According to the ICR (p\. 24), “the team was under constant pressure to achieve quicker disbursement, â€? distracting from a focus on results and proper M&E; the ICR does not specify the source of that pressure to disburse \. There was inadequate attention to identification of methods for measuring progress on specific indicators and overall achievement of objectives, with some key indicators never properly tracked \. Department of Health processes made it difficult for the Bank to organize the standard twice -yearly supervision missions; when the Bank realized that the government’s Joint Assessment and Planning Initiative process was not working well for tracking the specific progress of the project, it did not undertake its own follow -up missions\. As a result, “supervision of the project was sub-parâ€? (ICR, p\. 25)\. Given that the policy environment was dynamic and there were important lessons to be learned from early implementation, the supervision team should have organized a formal mid-term review, but this did not take place \. Furthermore, the Bank team did not follow up on issues required by the Loan Agreement \. For example, the Department of Health did not submit required annual reports with analyses on project progress and plans to address shortcomings, and the Bank team did not pursue the matter \. This partly contributed to the project ’s weak M&E\. It also appears that the Bank team did not follow up on other key activities specified in the PAD, including the conducting of baseline and follow -up surveys in key areas \. Quality of Supervision Rating : Moderately Unsatisfactory Overall Bank Performance Rating : Moderately Unsatisfactory 9\. Assessment of Borrower Performance: a\. Government Performance: Because the Department of Health was both a unit of government and the implementing agency, this Review will address the Department’s political and policy activities in this section, and its project implementation activities in the following section \. The national government and Department of Health were strongly committed to project activities and goals throughout\. Since the current government was put in place in May 2010, there has been a strong  commitment to public health spending, with an increasing share of those funds allocated toward insurance premiums for the poor\. The Department of Health successfully spearheaded several reforms, including the strengthening of performance -linked local health systems reform grants \. However, the Bureau of Food and Drugs/Food and Drug Administration was less supportive of project implementation, possibly because the budget support structure of the loan did not provide a new source of funds specifically for that agency yet added burdens to its staff \. The same was true of the Human Resources in Health Unit of the Department of Health, with regards to the planned human resource development activities; however, important programs to deploy health professionals to underserved areas were implemented using the Department of Health ’s own resources\. The national government could have done more to address shortcomings in data tracking and the overall M&E process\. According to the ICR (p\. 26), problems with availability and accuracy of data are system -wide and go beyond the Department of Health, meaning that it would be appropriate for the national government to take the lead in strengthening these mechanisms \. LGUs did not enroll the poor into subsidized national health insurance using acceptable, defined methods of means testing, as had been planned, forcing the project to change course and initiate enrollments at the national level\. This national government was strong in its support for a new, appropriate method of means testing, which eventually produced a much larger number of new poor enrollees than had been originally planned\. It appears that lists of “poorâ€? households identified by LGUs contained many who were not identified as poor using the nationally adopted methodology, raising suspicion of political influence and governance problems in the LGUs leading to subsidies for the non -poor\. Also, LGUs did not provide necessary data on inventories of essential public health commodities, highlighting issues with central -local political relations (ICR, p\. 18)\. Finally, although LGUs successfully adopted the scorecard system necessary for implementation of the service -level agreements as part of the European Commission -financed program of performance-linked local health systems reform grants for 16 provinces, with these scorecards now being rolled out nationwide, their health offices initially admitted that they were selecting scorecard indicators they thought would be easiest to achieve in order to increase their performance -based payments\. Beginning in 2009, the indicators became uniform in all provinces, though questions remain about the validity of the LGUs’ self-reported data\. Government Performance Rating Moderately Unsatisfactory b\. Implementing Agency Performance: The project was implemented by the Department of Health \. There were numerous procurement and financial management challenges (see Section 11)\. Lengthy procurement problems prevented some activities, such as the human resources activities, from being financed by the project\. However, eventually Department of Health systems reached full compliance with the Bank’s procurement procedures and standards, and over 80% of internal audit staff met international standards\. The Department was also able to roll out the Electronic National Government Accounting System; although slightly behind the initial schedule, according to the ICR, “the DOH should be given credit for its persistence in expanding the use of the System â€? (p\. 20)\. The Department also helped overcome initial resistance from local politicians to use of negotiated procurement with UNICEF for the purchase of vaccines \. Department of Health M&E activities were consistently weak \. Annual reports were not prepared as specified by the Loan Agreement, and key indicators were not tracked \. The Department also did not provide appropriate supervision and coordination for agencies that were in charge of several project activities, including performance-based allocation for public health commodities, regulation of pharmaceuticals, and development of human resources for health \. Implementing Agency Performance Rating : Moderately Unsatisfactory Overall Borrower Performance Rating : Moderately Unsatisfactory 10\. M&E Design, Implementation, & Utilization: a\. M&E Design:  The project’s outcome measures were based on overall sector outcomes, rather than outcomes from specific Bank financing\. The Loan Agreement and PAD included the following key outcome indicators : Increase coverage rate of fully immunized children from 80% to 90% Increase TB case detection rate from 72% to at least 80% Increase TB cure rate from 81% to at least 85% Evidence of a statistically significant improvement (wherever feasible), or validation by an alternative method, of improvement in prevention, diagnosis, or treatment rates in participating LGUs for diseases or conditions subject to performance agreements and grants Increase number of indigent families enrolled in NHIP using acceptable, defined means tests, up to at least 1\.51 million indigent families Insured indigent households have lower out -of-pocket spending on health compared to uninsured households and compared to prior time periods There were no indicators to track important parts of the project ’s development objectives, including conditions and diseases beyond TB and those covered by the expanded program on immunization, health services utilization by the poor, and outcome data on financial protection of the poor from health care costs \. Baseline data were missing for several indicators \. b\. M&E Implementation: All development partners were expected to participate in a Joint Assessment and Planning Initiative (JAPI) organized by the Department of Health annually or biannually \. While this process, which included field visits and a concluding workshop led by Department staff, helped harmonize development partners ’ activities, it rendered impossible the Bank’s due diligence that is the norm in regular supervision missions \. Because the JAPI did not use a formal M&E framework aligned to the project, it was difficult to track and report on project indicators, and therefore the tracking of these indicators was inconsistent at best over the entire project period \. No proper mid-term review took place\. As a result, the project’s indicators were not adjusted during implementation, despite the fact that some were no longer applicable and should have been removed or restructured \. Overall, “the ICR team concluded that during implementation, the results framework for the project was not properly tracked by either the Borrower or the Bank â€? (ICR, p\. 11)\. Furthermore, the Department of Health did not submit required annual progress reports to the Bank \. One M&E-related success was the scorecard system used to track LGUs under the performance -linked local health system reform grants, which was broadly supported by the project \. The Department of Health had been unable to obtain health data from LGUs on a regular basis, but the scorecard has changed this pattern and has now been rolled out from the initial 16 provinces to the rest of the country \. The ICR (p\. 15) reports that the data presented on immunization and TB detection and cure are not reliable, and that results of a Department of Health quality check were not available in time to validate project data \. Furthermore, the immunization indicator used the wrong denominator, and the ICR (p\. 15) indicates that these data will need to be recalibrated using new census figures \. c\. M&E Utilization: M&E data were not used to inform decision -making and resource allocation \. Instead, resource allocation decisions appear to have been based on where disbursement was most rapid (primarily the purchase of public health commodities)\. M&E data were used for the performance -linked local health system reforms, where LGU scorecards determined the release of variable tranches from the Department of Health \. M&E Quality Rating : Modest 11\. Other Issues a\. Safeguards: The project was environmental category “Câ€? and did not trigger environmental safeguard policies \. The project  did not invest in civil works or other activities that could have a significant impact on the environment \. The project was expected to contribute positively to indigenous people who benefited from expanded insurance coverage, and the Indigenous People Safeguard Policy (OP/BP 4\.10) was triggered by this potential positive impact\. The ICR (p\. 13) reports that the Department of Health implemented an Indigenous Peoples Planning Framework that outlined measures adopted to ensure that the reform program adequately addressed the specific needs and cultural preferences of indigenous people \. The results of implementation of this Framework were mixed, with some measures initiated but not completed (the ICR does not specify what these measures were)\. Some provinces (Oriental Mindoro, Ifuago, and Mountain Province ) moved faster than others on indigenous people issues\. b\. Fiduciary Compliance: Systemic procurement challenges were encountered : procurement planning was not systematic, leading to exhaustion of stock in a number of cases; there were delays in the procurement of drugs and vaccines due to delays in finalizing the required Memorandum of Understanding between UNICEF and the government, and Department of Health difficulties in compliance with some Central Bank rules; and failure of a Department of Health plan to purchase TB control drugs through the World Health Organization, due to inability to reach agreement on “certain issuesâ€? (ICR, p\. 13)\. To address shortages, the Department of Health shifted to a national competitive bidding approach and therefore was able to procure TB and other drugs locally \. There were also a number of financial management challenges, primarily due to inadequate staffing at both the agency and project level, leading to delayed recording and financial reporting and weaknesses in internal control\. The situation improved over the course of implementation as more staff were hired to address these issues\. Despite improvement, however, there continued to be delays in the submission of quarterly financial reports, audit reports, and information from warehouses on the issuance of drugs \. The ICR does not state whether external audits were unqualified \. c\. Unintended Impacts (positive or negative): None reported\. d\. Other: 12\. 12\. Ratings : ICR IEG Review Reason for Disagreement /Comments Outcome : Moderately Unsatisfactory Despite provision of all vaccines in the Unsatisfactory expanded program on immunization (EPI), the ICR does not provide evidence on improvement in any of the diseases and conditions specified as targeted under the project, and serious questions are raised about data quality for indicators related to immunization and TB detection and cure\. While the project expanded insurance coverage for the poor beyond initial expectations, there is no evidence that this coverage led to increased utilization of health services, and because this coverage was put in place only in the last year of the project, it is not yet known whether it is effective and has protected the poor from excessive health care costs \. While immunization is acknowledged to be a cost-effective intervention, delays and inflexibilities throughout implementation introduced inefficiencies\. Risk to Development Moderate Moderate It is questionable whether LGUs will be  Outcome : willing to pay premiums for poor households identified under the national guidelines in order the make funding arrangements more sustainable, and there is no clear pathway for addressing the problem of LGUs enrolling and paying for “poorâ€? households that are not actually poor \. The national government has committed to a search for sustainable ways to finance these premiums, through increased Department of Health budgets and/or through “sinâ€? taxes, but it is not clear that these solutions are achievable or sustainable \. Bank Performance : Moderately Moderately Unsatisfactory Unsatisfactory Borrower Performance : Moderately Moderately Unsatisfactory Unsatisfactory Quality of ICR : Satisfactory NOTES: NOTES - When insufficient information is provided by the Bank for IEG to arrive at a clear rating, IEG will downgrade the relevant ratings as warranted beginning July 1, 2006\. - The "Reason for Disagreement/Comments" column could cross-reference other sections of the ICR Review, as appropriate\. 13\. Lessons: The ICR (pp\. 28-30) offers several lessons, the most important of which are summarized here : Design of “programmatic â€? operations should be flexible \. Even though this project was designed to operate within the framework of the Department of Health and finance a selection of priority national elements that were ready for implementation, project design lacked flexibility \. This made it a relatively inflexible sector budget support operation, not capable of moving financing freely and flexibly \. Specific amounts were allocated for each project component, and restructuring was necessary when resources needed to be reallocated\. Actual implementation was therefore more like a traditional operation than a “programmaticâ€? sector-support operation\. Appropriate attention to M&E is critical \. In this case, efforts to define and track indicators that adequately measured progress toward achievement of objectives was lacking throughout \. Without key M&E data and analysis, key opportunities were missed to change direction and increase flexibility \. Appropriate and deep political economy analysis is important, particularly for bringing local and national government policies and procedures into alignment \. In this project, it proved impossible to overcome local government resistance to adoption of acceptable methods of identifying poor households for enrollment in subsidized health insurance, and little thought was apparently given to incentive structures that might have addressed this problem\. 14\. Assessment Recommended? Yes No Why? To validate the data, and to explore lessons from the political economy issues related to local -national government relations\. 15\. Comments on Quality of ICR:  The ICR is candid about the project ’s challenges and about the extent to which it achieved its objectives \. It is evidence-based and presents critical arguments about issues related to design, implementation, and M&E \. However, there were shortcomings \. The ICR does not include data that it cites as readily available on public health outcome indicators that are directly relevant to achievement of the project ’s objectives, stating that these indicators were outside the project ’s results framework (p\. 15)\. Even though these data were not part of the formal results chain, they are still important indicators for assessing achievement of objectives \. Also, the ICR does not address the extent to which the activities of other donors impact possible attribution of observed outcomes to this project\. a\.Quality of ICR Rating : Satisfactory

REVIEW

P117275

Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review Integrated Fin\. Mg't\. Infor\. System (P117275) Report Number: ICRR0022633 1\. Project Data Project ID Project Name P117275 Integrated Fin\. Mg't\. Infor\. System Country Practice Area(Lead) Gambia, The Governance L/C/TF Number(s) Closing Date (Original) Total Project Cost (USD) IDA-59040,IDA-H5800,TF-17976,IDA- 31-Dec-2012 15,374,202\.15 H8800 Bank Approval Date Closing Date (Actual) 01-Jun-2010 30-Nov-2020 IBRD/IDA (USD) Grants (USD) Original Commitment 5,250,000\.00 0\.00 Revised Commitment 5,250,000\.00 0\.00 Actual 15,374,202\.15 0\.00 Prepared by Reviewed by ICR Review Coordinator Group Hjalte S\. A\. Sederlof Clay Wescott Jennifer L\. Keller IEGEC (Unit 1) 2\. Project Objectives and Components DEVOBJ_TBL a\. Objectives The Project Development Objective (PDO) for the Gambia Integrated Financial Management Information System (IFMIS) project as set out on page 4 of the Credit Agreement and page 13 of the PAD was to increase the Government of The Gambia’s capacity in public resource management\. The PAD (page 13) elaborates two expected outcomes: increased capacity for budget execution and reporting, and increased capacity for operating and maintaining the IFMIS\. Page 1 of 12  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review Integrated Fin\. Mg't\. Infor\. System (P117275) The PDO was subsequently restated as follows: (i) improve public resource management through the expansion of the IFMIS system, and (ii) strengthen capacity of the government to effectively use the system in a sustainable manner (Restructuring Paper, 2019)\. The ICRR will use this formulation to assess project achievement\. The ICRR will not undertake a split evaluation, as the restated PDO spells out the intentions that underlay the original objective\. b\. Were the project objectives/key associated outcome targets revised during implementation? Yes Did the Board approve the revised objectives/key associated outcome targets? No c\. Will a split evaluation be undertaken? No d\. Components The project originally had five components: Component 1: IFMIS Rollout, Interfaces and System Training (estimated cost at appraisal US$4\.0 million; actual cost US$9\.5 million)\. The component aimed at increasing government capacity to operate and maintain the IFMIS\. It comprised five sub-components: (i) IFMIS hardware; (ii) IFMIS systems and applications software; (iii) consultancy services for IFMIS installation, configuration, and implementation; (iv) IFMIS systems training and certification; and (v) IFMIS skills transfer\. Component 2: New IFMIS activities (estimated cost at appraisal US$1\.0 million; actual cost US$0\.02 million)\. The component was to lay the groundwork for the introduction of new IFMIS applications\. It consisted of three sub-components: (i) business process review workshops and sensitization materials; (ii) IFMIS concurrent licenses for EPICOR financials and Active Planner (a software application); and (iii) Consultancy services for the validation of human resources and payroll records\. Component 3: Communications and Change Management (estimated cost at appraisal US$0\.1 million; actual cost US$0\.04 million)\. The component was to create greater awareness among government officials and the public at large about the IFMIS\. The communications and change management strategy included the production of sensitization materials and their use on targeted audiences in workshops and seminars, as well as the distribution of circulars, posters, newsletters etc\. Component 4: Accounting and IT Capacity Building for Sustainability (estimated cost at appraisal US$0\.3 million; actual cost US$0\.42 million)\. The component was to increase local capacity in IT and accounting services\. It had three sub-components: (i) overseas training for government officials in professional accounting and IT courses; (ii) local training in the same subjects; and (iii) professional accounting and IT books and related equipment\. Page 2 of 12  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review Integrated Fin\. Mg't\. Infor\. System (P117275) Component 5: Project Implementation Support (estimated cost at appraisal US$0\.40 million; actual cost US$0\.85 million)\. The component provided financing for expenditures related to the IFMIS project coordination unit (PCU) SIGNIFICANT CHANGES DURING IMPLEMENTATION The project went through five restructurings including two Additional Financings\. While the ICR’s Data Sheet includes a chronological listing of restructurings, the ICR details restructurings by theme, an approach that is also applied here\. Revised PDO\. The PDO was revised as a Level 2 change (it was not submitted to the Executive Directors for approval), introduced to counteract the vagueness of the original formulation\. Revised outcome indicators\. Outcome indicators were revised in four of the restructurings\. Revisions were undertaken to make original indicators more measurable; clarify targets or units of measure; or revise targets to better reflects project progress\. New indicators were introduced with the two Additional Financings reflecting expanded IFMIS coverage and new project activities\. Annex 7 of the ICR provides a list of changes in indicators (which are also discussed in Section 9)\. Revised components\. While the five original components were maintained, their scope was adjusted with the introduction of the Additional Financings: Component 1 was expanded from US$4\.0 million to US$9\.5 million; and new modules were added to the original IFMIS (budget, project and contract management, human resources, and payroll), and an overall system/platform upgrading was done\. New components\. Three new components were introduced, one, Component 6, supported statistical capacity building and was introduced under Additional Financing 1; and two - Components 7 and 8, preparation of a national energy emergency study and SOE reform, respectively, were introduced under Additional Financing 2\. Project implementation period\. With the five restructurings, project implementation was extended from two and a half years to ten and a half years, from June 2010 to November 2020\. Summary\. The restructurings not only expanded the IFMIS but also introduced activities that were independent of the IFMIS (Components 7 and 8) and were undertaken in response to emerging government priorities\. e\. Comments on Project Cost, Financing, Borrower Contribution, and Dates Project cost\. At appraisal, total project cost was estimated at US$5\.69 million\. Actual project cost at closing was US$15\.37 million, including two Additional Financings at US$5\.0 million each, and reflecting adjustments to the exchange rate\. Financing\. The project was financed with an initial IDA Credit of US$5\.25 million and two Additional IDA Credits of US$5\.0 million each, and a Trust Fund grant of US$0\.4 million\. US$15\.4 million were disbursed\. Dates\. The project was approved on June 1, 2010, with an original closing date of December 31, 2012\. The closing date was extended three times, and the project closed on November 30, 2020\. Page 3 of 12  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review Integrated Fin\. Mg't\. Infor\. System (P117275) 3\. Relevance of Objectives Rationale The original and revised PDO was aligned with country priorities, the Bank’s Country Engagement Note (CEN) for FY18 to FY21, and a Systematic Country Diagnostic (SCD), published in May 2021\. The PDO is included as one of the enabling elements of the government’s own development strategy, and it is consistent with the priorities in the Second Joint IDA-African Development Bank Joint Strategy for The Gambia for FY13 to FY16\. The SCD highlights the importance of IFMIS to sound PFM through improved budget preparation and execution, accounting, payroll, reporting, financial controls, and auditing\. While the introduction of actions on SOEs and energy, included as new government priorities, aligned with “improving public resource management”, they fall outside the PDO focus on expanding the IFMIS and strengthening government capacity to use the system\. Rating Relevance TBL Rating Substantial 4\. Achievement of Objectives (Efficacy) EFFICACY_TBL OBJECTIVE 1 Objective Improving public resource management by expanding the IFMIS system Rationale The objective was to be achieved by adding new modules to the IFMIS; and by expanding the IFMIS across all ministries, departments, and public agencies\. Success was to be determined by (i) IFMIS coverage of central government expenditures; (ii) timely publication of budget execution reports; and (iii) timely availability of GDP data\. (The project also financed elements of public resource management that went beyond the IFMIS: better HR management, laying the foundations for a stronger energy sector by financing a sectoral roadmap, and achieving better control of SOEs through special audits as a means of reducing fiscal risk\. As these fall outside the PDO, they are not taken into consideration when assessing project efficacy\.) Outcomes As a result of the project, IFMIS now includes all central government expenditures against a target of 90 percent; all budget execution reports are included on the website of the Ministry of Finance in line with the Page 4 of 12  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review Integrated Fin\. Mg't\. Infor\. System (P117275) target; and the budget execution rate (excluding donor funding) is 91 percent, against a target of 90 percent\. GDP data is made publicly available annually, against a target of quarterly availability\. The ICR (p\.7) indicates that because of these measures, the IFMIS has improved efficiency in processing payments, in accounting, and in reporting: payment backlogs have been cleared, 2020 accounts are being prepared, and 2019 accounts are being audited\. Interface with the Central Bank has enabled Electronic Funds Transfer, increasing the predictability of cash flows and transactions efficiency as the country moves from physical approval of transactions to electronic transfers\. The ICR flags several weaknesses in IFMIS operations: system interface and data migration are still incomplete; reporting on public spending remains unreliable as some commitments remain outside the IFMIS, for instance subsidized agencies and project coordinating units\. System use is also constrained by data gaps, insufficient granularity, and occasional misalignment with other government reporting\. Summary\. The roll-out of the IFMIS was achieved, and new modules were introduced that increased its efficiency as a means of processing payments, accounting, and reporting\. At the same time, the IFMIS displays operational deficiencies that are likely to reduce its usefulness if not tackled\. The HR improvements led to significant savings\. Outside the PDO framework, energy and SOE initiatives may reduce fiscal risk and improve performance over time, but there are few indications of whether these reforms are achieving, or moving towards, intended changes, absent indicative milestones\. Rating Modest OBJECTIVE 2 Objective Strengthening the capacity of the government to effectively use the IFMIS in a sustainable manner Rationale The objective was to be achieved by building capacity in key organizations that would allow them to apply the IFMIS system for better policy making and fiscal management\. Success was to be measured by timely availability of fiscal data for policy making\. The project built capacity in the Budget Directorate in budget data analysis\. This included training to enhance the Directorate's capabilities in IFMIS network, database, and support functions; and at establishing a core team to oversee the integrated human resources management information system and payroll modules\. Sensitization and behavior change activities have been undertaken to raise awareness about the IFMIS among a broader segment of public officials as well as the public at large\. Staff from The Gambia Bureau of Statistics was trained in the use of IFMIS for collecting, processing, and analyzing key data inputs, including the development of a strategic plan to develop a new civil registration and vital statistical system\. This was accompanied by key statistical inputs, including an economic census and business establishment survey, an integrated household survey, and GDP and CPI rebasing\. Page 5 of 12  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review Integrated Fin\. Mg't\. Infor\. System (P117275) Despite the capacity building initiatives, the ICR cautions that the effective use of the IFMIS cannot be established based on project results\. Gaps in recording of expenditures remain, as do concerns about economic classification, both which may be indications of deficiencies in staff training\. Consequently, regular issuance of GDP data (which was intended as a proxy measure of improved statistical capacity and systems) had not been achieved by project closing\. Other measures also remain uncertain, such as changes in arrears to government suppliers, and government contracts managed through the IFMIS, and hence they had been dropped as indicators\. On the positive side, the IMF in its Extended Credit Facility report indicates that expenditure control and treasury cash management have recently improved, and major expenditure overruns and accumulation of arrears have been avoided\. But it also signals an urgent need to improve the quality of fiscal data\. Using the IFMIS to report on state budget funding by civil society, albeit of uncertain quality, has increased transparency and accountability of government (ICR, p\. 10)\. The ICR does note, correctly, that it is difficult to substantiate sustainability of system use\. There remain gaps in its use; system modules, interfaces and data migration are incomplete; and data lacks robustness\. All these concerns will take time to address and are a function of how IFMIS quality improves\. Rating Negligible OVERALL EFF TBL OBJ_TBL OVERALL EFFICACY Rationale Of the two objectives, the first one was partly achieved and the second one barely so, based on available information\. The first objective – improving public resource management by expanding the IFMIS system strengthened processing and reporting of information in the system, but several weaknesses remained that influenced the quality of information flows\. They remain to be resolved\. The second objective – strengthening capacity to sustainably use the system – did undertake capacity building initiatives, but information on effectiveness is lacking and sustainability as defined in Section 2a cannot be confirmed\. Considering the uncertainty regarding sustainability of the IFMIS, the overall efficacy rating is negligible\. Overall Efficacy Rating Primary Reason Negligible Insufficient evidence 5\. Efficiency Neither the PAD nor the ICR undertook an economic analysis of the project, noting difficulty in quantification of benefits and pointing to qualitative efficiency gains in improved governance\. The ICR did point to savings on ghost worker wages estimated at US$11 million over the life of the project by strengthening the personnel database and payroll; higher efficiency in public spending as measured by fiscal savings of some 4\.9 percent of GDP; unquantified savings from energy sector reforms; SOE reform, notably a progressive clearance of arrears, Page 6 of 12  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review Integrated Fin\. Mg't\. Infor\. System (P117275) estimated by the IMF at 0\.3 percent of GDP in terms of arrears to domestic suppliers\. While these were favorable outcomes, their attribution to the project is questionable\. Efficiency was also undermined by an implementation period of ten years instead of two and one half, increasing the cost from US$5\.25 million to US$15\.39 million\. The project team told IEG that the original timing estimate reflected the fact that there was already an existing IFMIS system developed with the support of a previous Bank project that would be expanded to additional government sites\. The project team at design was counting on being able to rely on the PCU of the previous project for implementation\. During project preparation, the team did not foresee the future need to expand the system to include web-based functionality which was the main purpose of the first additional financing\. Efficiency Rating Modest a\. If available, enter the Economic Rate of Return (ERR) and/or Financial Rate of Return (FRR) at appraisal and the re-estimated value at evaluation: Rate Available? Point value (%) *Coverage/Scope (%) 0 Appraisal 0  Not Applicable 0 ICR Estimate 0  Not Applicable * Refers to percent of total project cost for which ERR/FRR was calculated\. 6\. Outcome Relevance of objectives was rated substantial: the focus on building the IFMIS to improve public resource management corresponded to government and Bank priorities\. Efficacy was rated negligible: one objective was partly achieved, with significant weaknesses remaining that influenced the quality of information flows; and the other raised questions of sustainability of project outcomes\. Efficiency was rated modest: despite greater efficiencies in public spending, they were achieved over a ten-year period compared to an expected two years\. a\. Outcome Rating Moderately Unsatisfactory 7\. Risk to Development Outcome The ICR points to several challenges in rating the risk to development outcome as Substantial, reflecting the large number of activities or reforms that remain incomplete and will require additional resources: These include the need to finalize incomplete modules and interfaces for IFMIS, and address remaining Page 7 of 12  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review Integrated Fin\. Mg't\. Infor\. System (P117275) uncertainties about data quality and integrity, requiring buy-in by relevant government officials\. Despite an emphasis on capacity building under the project, the ICR team still points to risk in this area, as trained staff becomes attractive on the private market\. On the other hand, despite the end of support from this operation, the IFMIS has been expanded in 2021 to all local government councils and is being rolled out to all self-accounting projects, to embassies, and to two agencies, the Office of the Ombudsman and the Human Rights Commission (IMF 2021\. Gambia Second Review under the Extended Credit Facility\. This expansion is expected to continue with support from follow- up projects such as a governance project under preparation that builds on the IFMIS project, and a Fiscal Management Development Project (P166695) that aims at better management of fiscal resources and SOEs Despite these positive indications, the risk to the development outcome remains substantial 8\. Assessment of Bank Performance a\. Quality-at-Entry The project was strategically relevant, building an information system for sound public expenditure management that could provide greater stability to a small open economy\. It was consistent with the Bank’s country strategy as articulated in several documents although country capacity was clearly overestimated, and it drew on the experience of a preceding Bank project in the same area - a Capacity Building and Economic Management project, including maintaining the PCU from that project\. and key lessons were incorporated into the design of this project to bolster existing weaknesses that threatened the sustainability of the system: it was critically dependent on a relatively weak IFMIS operator (the Directorate of Treasury); on weak budget execution; and the need for stronger inter-ministerial coordination as a key to ownership of the IFMIS\. While the project drew on the experience of a previous one (Capacity Building for Economic Management, P057995) quality of entry had many weaknesses\. The project was designed as a two-year project in a very low-capacity environment when similar projects in higher capacity countries have a lifespan of five to six years\. While external factors contributed (regime change and unforeseen necessity to upgrade to web-based platform), the original design seriously underestimated cost and complexity of reforms and the difficult operating environment\. The project logic was originally straightforward but then confused through the introduction of a number of at best peripherally related objectives (SOEs, energy, human resources)\. The original PDO formulation was vague and did not well reflect the sought-after outcomes on IFMIS\. Quality-at-Entry Rating Unsatisfactory b\. Quality of supervision Formal supervision missions were undertaken twice yearly, supported by technical assistance throughout the time of project implementation\. The missions assessed project progress and interacted with national Page 8 of 12  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review Integrated Fin\. Mg't\. Infor\. System (P117275) stakeholders and development partners\. The five restructurings, including two AFs, indicate a challenging implementation environment and might have called for a redesign or cancellation of the project, particularly as new tasks were added to it\. Instead, supervision ratings were mostly satisfactory, especially during the first five years, which is surprising given its overall performance\. Quality of Supervision Rating Unsatisfactory Overall Bank Performance Rating Unsatisfactory 9\. M&E Design, Implementation, & Utilization a\. M&E Design M&E design was weak\. It was based on a PDO broadly aimed at improving public resource management, later redefined as expanding IFMIS and increasing government capacity to use the system\. In a third iteration of the PDO, new government priorities were introduced\. None of these changes were formalized\. Original key indicators were all revised during implementation, some twice\. No outcome indicators were introduced to measure the impact of actions on the government’s new priorities\. b\. M&E Implementation The project maintained accessible records on the IFMIS roll-out and implementation of the other PFM reforms\. Quarterly and annual performance reports were produced\. The annual report was circulated to major stakeholders and included on the Ministry of Finance’s homepage\. The PCU collected data and prepared reports on progress of key indicators\. These guided supervision missions and in-the-field technical assistance and adjustments to the project\. M&E was mostly rated satisfactory despite repeated slippages in implementation, which were countered by continued strengthening of the PCU\. Original key indicators were all revised during implementation\. The team added new indicators to measure wider IFMIS coverage and support to SOEs, but there was no new indicator measuring support to the energy sector\. c\. M&E Utilization M&E was used to inform project management and decisionmakers of project progress and aspects of the project that needed strengthening during implementation\. One shortcoming is that intermediate Page 9 of 12  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review Integrated Fin\. Mg't\. Infor\. System (P117275) indicators that had been achieved were dropped during the third restructuring; they should have been retained to get a full picture of project achievement\. M&E Quality Rating Modest 10\. Other Issues a\. Safeguards The environmental assessment category was rated as “C” and no safeguard policies were triggered\. During implementation, no environmental or social issues were identified despite de facto significant broadening of project scope\. b\. Fiduciary Compliance Procurement and Financial Management were rated “Satisfactory” from ISR 1 to ISR 16 (June 2018) when both ratings were downgraded to “Moderately Satisfactory”\. The Financial Management rating was downgraded due to the weak internal control environment, the poor quality of the record keeping mechanism and the lack of oversight of the postings and supporting documents in respect of all expenditures\. The procurement rating was downgraded due to non-conformity around strengthening the procurement section of the Project Operations Manual\. Fiduciary risk was rated as “Low” from inception to ISR 6 (October 2012), when it was upgraded to “Substantial” due to high levels of corruption in The Gambia\. However, the risk rating was reverted to “Low” in ISR 9 (December 2014) based on applied mitigation measures\. The project mitigated the risks of fraud and corruption by ensuring that procurement under the project was carried out according to World Bank guidelines, as well as by making sure that the project would only use the IFMIS accounting system\. The fiduciary risk was again upgraded to “Moderate” in ISR 12 (March 2016) based on procurement delays\. c\. Unintended impacts (Positive or Negative) None noted d\. Other None noted 11\. Ratings Page 10 of 12  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review Integrated Fin\. Mg't\. Infor\. System (P117275) Reason for Ratings ICR IEG Disagreements/Comment Moderately Moderately Outcome Unsatisfactory Unsatisfactory Weak assessment of implementation challenges at Moderately Bank Performance Unsatisfactory start-up, resulting in a ten-year Unsatisfactory project with at best modest outcomes\. Quality of M&E Modest Modest Quality of ICR --- Substantial 12\. Lessons The following lessons were drawn from the ICR: A well-defined PDO can facilitate tracking project progress towards its objectives\. In this project, the PDO was initially too broad\. the PDO should have been formally amended to reflect the significant expansion in scope\. Political commitment and ownership of the borrower matter\. An explicit target IFMIS completion date could be announced early in project implementation and monitored closely at the highest level\. The context for implementing reforms in a challenging environment need to be well understood\. PFM reforms cannot be achieved focusing only on technical solutions but need to be accompanied by behavioral and policy change\. 13\. Assessment Recommended? No 14\. Comments on Quality of ICR The quality of evidence and the analysis presented in the ICR was satisfactory, albeit that a more systematic focus on outputs and outcomes could have facilitated the arguments in the text\. While the PDO formulations were challenging, the ICR did provide necessary clarity to allow assessment\. a\. Quality of ICR Rating Substantial Page 11 of 12 Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review Integrated Fin\. Mg't\. Infor\. System (P117275) Page 12 of 12

REVIEW

P002073

 ICRR 10032 Report Number : ICRR10032 ICR Review Operations Evaluation Department 1\. Project Data : OEDID: OEDID : L2963 Project ID : P002073 Project Name : Highway Sector Loan Country : Nigeria Sector : Highways L/C Number : Ln 2963-UNI Partners involved : None Prepared by : Antti P\. Talvitie, OEDST Reviewed by : Yves J\. Albouy Group Manager : Roger H\. Slade Date Posted : 04/20/1998 2\. Project Objectives, Financing, Costs and Components : Objectives : (i) Protect existing road assets; (ii) Carry out an appropriate road maintenance program; (iii) Improve efficiency and effectiveness through better contracting and design; and, (iv) Improve road safety\. Components : (a) Road improvement: strengthening, rehabilitation and new construction; (b) Road maintenance: to provide routine maintenance on all federal roads (28000km) by contract and force account; (c) Road safety: to build up capability in data collection, accident analysis, and traffic safety training to identify and correct hazardous locations on the road network; and (d) Institutional development: consulting services for a broad program of institutional development \. Costs : The total project costs were estimated to be US$ 955\.4 million for which a Bank loan of US$250 million was approved in 1988\. A total of US$108\.3 was cancelled in three instalments, US$ 50 million in 1993, US$40 million in 1996 and US$18\.3 in 1997\. 3\. Achievement of Relevant Objectives : The project's objectives were not achieved because only a small part of the loan's components were carried out \. Specifically, in the road improvement component, less than half of the targeted kilometers were completed; in the road maintenance component the achievement of the targeted objective is unclear; in road safety, proposals for improving 10 hazardous locations on the federal network were made but no action was taken; and in institutional development no progress was made \. In spite of the meager results and substantial cancellations, US$ 9\.9 million of the originally scheduled US$11\.0 million for consulting services and technical assistance was spent \. 4\. Significant Achievements : Some roads were rehabilitated and maintained and ten bridges were built under difficult circumstances, but there are no significant achievements \. 5\. Significant Shortcomings : All the components of the loan have significant shortcomings \. These can be traced to the optimistic and imprecise Staff Appraisal Report\. It took little or no cognizance of past experience in Nigeria and prepared a project whose quality at entry was poor, the Bank's specific role and key components in the project being undefined \. Past experience shows the project to have been too demanding, its risks not well identified and the institutional component too complex\. Bank decisionmakers failed in appraising and implementing a project unsuited to Borrower capacity and conditions\. 6\. Ratings : ICR OED Review Reason for Disagreement /Comments Outcome : Unsatisfactory Unsatisfactory Institutional Dev \.: Negligible Negligible Sustainability : Unlikely Unlikely Bank Performance : Deficient Unsatisfactory Borrower Perf \.: Deficient Unsatisfactory  Quality of ICR : Satisfactory 7\. Lessons of Broad Applicability : That the management should intervene in projects in trouble \. This is especially true if the difficulties are of such nature, as they were in Nigeria, that they cannot be adequately managed either by the Bank or the borrower \. There are no other lessons that can be supported by the evidence \. 8\. Audit Recommended? Yes No Why? Given the Bank's past and current experience in Nigeria's transport sector, and before the Bank continues lending for it, a thorough review of lending to Nigeria's transport sector must be undertaken \. A program audit, covering projects approved since 1980 and, importantly, all the ongoing projects, is one good approach to evaluate past experience and map out interventions that can have a reasonable chance of success \. 9\. Comments on Quality of ICR : The ICR is satisfactory, but it would have been better if more attention was paid to the following issues : (1) The economic analysis\. The high ERRs are doubtful because of the low fuel costs -- and hence benefits are calculated for a higher traffic volume than would be the case if fuel were fully costed \. The method employed is, however, common to most ICRs and not solely a fault of this particular ICR\. It cannot be rectified quickly \. Work is being undertaken to address this issue in the context of improving the Bank's economic analysis methods \. (2) The achievements, whether by contractors or the force account, should have been discussed in greater detail (for example, there is no discussion of routine maintenance by the force account; the ICR only comments on what little was accomplished, or planned to be accomplished, by contract )\. (3) The reasons for the cancellations, especially the first two, amounting to US$90 million, should have been discussed \. (4) The ICR puts the primary blame for the lack of success on broad country factors rather than focusing on what could have been done to make the project (and its contracts) successful\. The circumstances were complex, but the specific difficulties in institutional development, the many failed contracts and the intensive supervision --27 supervision missions-- surely provided rich material for study and lesson learning \. Consequently, and because this was not done, there was no evaluation of how the Bank dealt with the difficult circumstances and no lessons learned -- even from mistakes\. Finally (6) the Borrower's lack of response to the ICR should be noted in the main text

REVIEW

P007784

Document of The World Bank FOR OFFICIAL USE ONLY Report No\. 16775 IMPLEMENTATION COMPLETION REPORT NICARAGUA SECOND ECONOMIC RECOVERY CREDIT (Credit No\. 2631-NI) June 17, 1997 Central America Departnent Latin America and the Caribbean Region This document has a restricted distribution and may be used by recipients only in the performance of their official duties\. Its contents may not otherwise be disclosed without World Bank authorization\.  CURRENCY EQUIVALENTS Currency Unit: C6rdobas (C) 1994: US$1 = C6\.72 1995: US$1 = C7\.53 1996: US$1 = C8\.44 1997: US$1 = C9\.13 (March) FISCAL YEAR January 1 to December 31 MAIN ACRONYMS AND ABBREVIATIONS ARI Institutional Restructuring Agreement (Acuerdo de Reestructuraci6n Institucional) BANADES National Development Bank (Banco Nacional de Desarrollo) BANIC State Bank for Industry and Trade (Banco Nicaraguense de Industria y Comercio) CACM Central American Common Market CORNAP State Holding Corporation (Junta General de Corporaciones del Sector Pzublico) ESAF Enhanced Structural Adjustment Facility ENITEL Telecommunications Enterprise (Empresa Nicaraguense de Telecomunicaciones) ESW Economic and Sector Work FNI National Investment Fund (Fondo Nacional de Inversiones) 1DB Inter American Development Bank IDC Institutional Development Credit KfW German Development Agency (Kerditanstalt fur Wiederaujbau) MCT Ministry of Construction and Transport MIFIN Ministry of Finance OECF Overseas Economic Cooperation Fund of Japan PETRONIC State Petroleum Company (Empresa Nicaragfiense del Petr6leo) PFP Policy Framework Paper PSRC Public Sector Reform Credit TELCOR Telecommunications Corporation (Corporaci6n Micaraguense de Telecomunicaciones) UCRESEP Project Management Unit for the Public Sector Reform Program (Unidad Coordinadora para la Reforma del Sector P0iblico) UNDP United Nations Development Progranime Vice President: Shahid Javed Burki Director: Donna Dowsett-Coirolo Staff member: Ian Bannon  FOR OFFICIAL USE ONLY TABLE OF CONTENTS Preface Evaluation Summary \. \. \.-\. PART I: Program Implementation Assessment Background \. \.1\. A Statement/Evaluation of Objectives \. \. \.1\.I B\. Achievement of Objectives \. \. \. 2 Macroeconomic Framework \. 2 Reformn of the State \. 2 Fmancial Sector Reform \. \.5 Private Sector Development \.7 C\. Major Factors Affecting the Program \. \. \. \. 10 D\. Program Sustainability \. \. 10 E\. IDA Performance \. \. 10 F\. Borrower Performance \. \. \. 11 G\. Assessment of Outcome \. \. \.1\. 1 H Future Operation \.1\. 1 1\. Key Lessons Learned \. 11 PART II: Statistical Tables ANNEX A: Governrent Evaluation of the Second Economic Recovery Credit (ERC II) This document has a restricted distribution and may be used by recipients only in the performance of their official duties\. Its contents may not otherwise be disclosed without World Bank authorization\.   IMPLEMENTATION COMPLETION REPORT NICARAGUA SECOND ECONOMIC RECOVERY CREDIT (Credit 2631-NI) Preface This is the Implementation Completion Report (ICR) for the Second Economic Recovery Credit to Nicaragua, for which Credit No\. 2631-NI in the amount of SDR42\.5 million was approved on June 21, 1994 and made effective on June 29, 1995\. ERC II was supplemented by IDA Reflows of SDR5\.36 million (Cr\. 26311-NI) approved on June 21, 1994, SDR4\.40 million (Cr\. 26312-NI) approved on December 8, 1994, and SDR3\.9 million (Cr\. 26313-NI) approved on December 12, 1995\. The Credit was closed on June 30, 1996, compared with the original closing date of December 31, 1995\. The first tranche, released upon effectiveness, was fully disbursed by September 1994, the second and third tranches were released in February and June 1996, respectively\. In addition, a total of SDR13\.66 million in IDA Reflows were added to ERC II\. Cofinancing in the amount of V3,878 million was provided by the Overseas Economic Cooperation Fund (OECF) of Japan\. The German Kerditanstalt fir Wiederaufbau (KfW) provided parallel financing of DM20 million, disbursed at the time of the release of the second and third tranches of ERC II\. This ICR was prepared by Ian Bannon (Lead Economist of the Central America Department) based on a report prepared by Mr\. Claudio Pardo (Consultant)\. The ICR was reviewed by Ms\. Violeta Rosenthal (Task Manager for ERC II, Central America Department) and Ms\. Donna Dowsett-Coirolo (Director, Central America Department)\. The Borrower contributed to this ICR by preparing its own evaluation of the program\. A translation of the Government's evaluation is included as Annex A of this report\. OECF, the co-financier, did not submit comments on the ICR\. The ICR draws from the President's Report, the Development Credit Agreement, and other material in the files\. The report is based on discussions with IDA staff, and on the findings of a mission to Nicaragua in early December 1996\. The mission did not leave an Aide Memoire with the Government, although it discussed major findings and key lessons\.  I  SECOND ECONOMIC RECOVERY CREDIT NICARAGUA Evaluation Summary i\. When the Government of President Chamorro assumed office in April 1990, following 11 years of civil war, it faced a highly polarized society and an economy devastated by the conflict and inappropriate policies\. Over the next two years, the Government successfully implemented a comprehensive reform program, designed to bring hyperinflation and major macro imbalances under control, and begin the longer- term transition from central planning to market-led development\. The initial phase of this program was supported by IDA's first Economic Recovery Credit (ERC), completed in June 1992\. The follow-on operation (ERC II) was delayed by a political crisis which emerged in the second half of 1992 and continued throughout 1993\. Once the political crisis was resolved in early 1994, IDA moved quickly with ERC II, which was approved by the Board of Directors on June 21, 1994 ii\. ERC II aimed to support the second phase of the Government's economic reforn program\. The operation had three major components: public sector reform, increased efficiency in financial intermediation, and an improved private sector climate\. The balance of payments support provided by ERC II and its associated bilateral financing would allow the Government to plan for a more gradual and predictable path as the economy adjusted to the expected decline in aid flows\. The two main risks identified were\. (i) a breakdown of the political consensus and strong opposition to some of the reforms, leading to a political crisis, as had happened in 1993; and (ii) weak institutional capacity, which could delay implementation of reform measures\. Political risks proved critical\. iii\. Although throughout program implementation, the Government had some difficulty maintaining macroeconomic targets, especially in the fiscal area, it largely succeeded in maintaining relative macro stability (supported by an IMF Staff-Monitored program), especially during the lead up to National elections in late 1996\. More impressive has been the strong economic recovery during program implementation, especially after the negative growth and stagnation that characterized the early 1990s\. Key achievements have been: high economic growth over the past two years; a strong export recovery, including high growth of non-traditional exports; falling unemployment; and a marked reduction in the country's massive external debt\. As the new Administration, inaugurated in January 1997, retakes the stabilization and adjustment agenda, there are good prospects that Nicaragua's economic recovery will be mamtained\. iv\. Despite this impressive economic recovery, the ICR rates achievements in macro and sectoral policies as only partial, due to continuing weaknesses in fiscal policy, remaining problems with the state banking sector and the still large external imbalances that affect the economy\. Achievernent of institutional and public sector management objectives is also rated as partial, since progress in some of the institutional reform aspects of the public sector reform program was slower than expected\. By far the strongest area has been private sector development, where achievements are rated as substantial\. The reform program supported by ERC II contributed to a substantial improvement in the business climate, increasing transparency, strengthening prudential supervision of the financial system, encouraging the adoption of a modern labor code, improving trade policies and carrying out a large privatization program\.  ii Evaluation Summary v\. Based on the achievements of the program, Nicaragua's marked economic recovery and early signs from the new Admimstration (including some concrete steps already taken) that the stabilization and adjustment program will be continued and deepened, the ICR rates program sustainability as likely\. vi\. IDA's performance is rated as satisfactory in all aspects\. As discussed in the ICR, two aspects of IDA's performance can be noted\. First, it designed the adjustment operation with considerable flexibility, taking into account Nicaragua's very difficult political environment\. Second, with the approval of the Government, IDA was prepared to engage in a debate and dialogue on the need for adjustment with Nicaraguan opinion-makers beyond the immediate circle of the Government's economic team\. This proved key in mutmg outright opposition to some of the more difficult reform measures\. Borrower performance is also rated satisfactory in all aspects\. Despite Nicaragua's often turbulent and confrontational political environment, the Government was able to maintain its sights firmly set on the longer-term objectives of the reform program\. Taking all the above factors into account, and the shape of Nicaragua's economy today compared to when the adjustment program started, this ICR rates the overall outcome as satisfactory vii\. Key lessons learned flow from the very special and difficult circumstances which confronted Nicaragua during program implementation\. The lessons are not unexpected and have been learned in other adjustment operations, but they bear restating in the case of Nicaragua\. * The design of adjustment operations should be flexible\. This is important under any circumstance, but proved critical in the case of Nicaragua where the Government had to deal with a highly polarized and confrontational political environment\. The design of an adjustment program, especially in a difficult domestic environment, needs to consider the possibility that in the course of program implementation, the Government may decide on alternative means to meet program objectives\. * In countries with weak implementation capacity, a high degree of political polarization and weak democratic institutions, conditionality should focus on a few key priorities\. From program identification to appraisal, trade-offs and priorities need to be intensively evaluated and discussed with the Government, as well as the IMF where structural reforms will be an integral part of an ESAF program\. * Where the political discussion in the country specifically questions the aims and rationale for the adjustment process, IDA should be prepared, at the request and with the express approval of the Government, to participate in the national dialogue\. IDA's willingness to extend the dialogue on adjustment beyond the Administration and to engage in a dialogue with the opposition on the alternatives to adjustment proved invaluable in mitigating outright opposition to the reforms\. Interestingly, the second episode of political irnpasse in Nicaragua no longer involved the adjustment process but focused instead on the relative powers between the Executive and Legislature\. * Reliance on quick-disbursing adjustment operations to support public sector reformn, especially institutional restructuring is questionable\. Easily monitorable measures such as employment reductions and privatization are amenable to adjustment conditionality, but the broader aim of modernizing and radically transforming institutional structures is not well suited to the scope and constraints inherent in adjustment operations\. The inadequacy of the adjustment instrument is exacerbated in countries with weak institutional capacity\. * The one negative lesson that can be drawn from the ERC II experience involves the Bank's readiness to work with the Government on alternatives to the closure of BANADES\. Although the strategy of  Evaluation Summary 1II containment proposed by the Government and accepted by IDA was appropriate at the time that ERC II was designed and approved, IDA might have been able to move more quickly and effectively when it started to become clear that the Government would need support in terms of designing a viable alternative to rural credit\. It has only recently began the analytical work that can reach closure on alternatives to the traditional state development bank model for rural credit\.   PART I: PROGRAM IMPLEMENTATION ASSESSMENT Background 1\. The Chamorro Government, which came to office in April 1990, designed a stabilization and structural adjustment program which received broad support from the donor community\. Within this framework, IDA's first Economic Recovery Credit (ERC I) was approved in September 1991 and fully disbursed m June 1992\.1 Following successful completion of ERC I, IDA moved quickly to identify a follow-on operation, but the process was complicated by a deteriorating political situation in the second half of 1992 and in 1993\. Splits emerged within the Government coalition and between it and the Sandinista party\. In these circumstances, the Government found it difficult to carry forward the second phase of its stabilization and structural reform programs\. Attempted fiscal measures were met with violent strikes and demonstrations leading to their withdrawal\. GDP fell, inflation accelerated, reserves dropped, and aid flows were interrupted\. 2\. During 1993, the donor community, including IDA, continued a dialogue with the Government on the need to develop a national consensus, and offered to help in the process\. Some bilateral donors offered their good offices to mediate the political conflict; IDA and the IMF participated in a round of discussions with key opposition and Government figures on the need to continue with the stabilization and adjustment effort\. Partly as a result of these efforts, but also because of a growing realization that the confrontational politics of 1993 would lead to chaos, the political situation stabilized in the closmg weeks of 1993 and then began to improve In this improved political climate, IDA and other donors moved quickly to assist the Government restart the stabilization and adjustment process\. A\. Statement/Evaluation of Objectives 3\. The Nicaragua Second Economic Recovery Credit (ERC II) for SDR42\.5 million ($60 million equivalent) was approved by the Board of Directors on June 21, 1994, signed on June 22, 1994 and became effective on June 29, 1994\. It consisted of three tranches, the first at effectiveness of $30 million and two tranches of $15 million each\. ERC II was supplemented by an IDA Reflows credit of SDR5\.36 million ($7\.6 million) to be disbursed upon effectiveness\. ERC II was co-financed by Japan with a $37 million credit\. In addition, Germany provided parallel financing of $13\.3 million, although it did not formally co-finance the IDA credit\. ERC II supported measures to: (i) reform the State by reducing public employment, privatization and initiation of a comprehensive and longer-term public sector reform program; (ii) improve financial intermediation by increasing the efficiency of the public banks and strengthening prudential supervision; and (iii) improve incentives for private sector activity by increasing transparency, reducing protection, supporting resolution of property disputes and improving labor policies\. 4\. ERC II was designed to deepen the structural reforms supported under ERC I and allow the Government to carry out an orderly adjustment in response to the expected decline in aid levels, while establishing the conditions for a revival of private sector-led growth\. The balance of payments support would allow the Government a more gradual and predictable economic adjustment path to reduced aid flows\. The principal risks identified included: (i) a breakdown of the political consensus and strong opposition to some of the reforms, leading to a political impasse as had occurred in 1993; and (ii) the Government's weak institutional capacity, which could delay implementation of several components of the program 1 The Project Completion Report (No\. 14892) for the Economic Recovery Credit (Credit 2302-NI) was distributed to the Board on August 10, 1995  2 Ni caragua ERC II B\. Achievement of Objectives Macroeconomic Framework 5\. ERC II was processed in parallel with an IMF ESAF arrangement\. Major elements of the Government's program were outlined in the Policy Framework Paper covering 1994-97, presented to the Board in conjunction with ERC 11\. The ERC 1I President's Report also included the Country Assistance Strategy for Nicaragua\.2 6\. Macroeconomic conditions improved considerably during 1994\. (Key economic indicators, actuals and projected, are presented in Table 2\.) GDP expanded by 3\.3 percent, inflation was reduced to 12\.4 percent compared to 19\.5 percent in 1993, and gross domestic investment increased by 5 percentage points of GDP to 25 percent The mam area of disappointment in 1994 was the inability of the public sector to raise its savings, which at 1\.8 percent of GDP remained basically unchanged and fell far short of the 1994 program target of 4 percent\. The overall fiscal deficit mcreased from 8\.8 percent of GDP in 1993 to 12\.4 percent in 1994\. The fiscal deterioration continued during the first three quarters of 1995, driven mainly by expenditure overruns and the poor performance of state enterprises, especially the power company which was affected by a severe drought\. Also, net domestic assets exceeded the program targets due to a combination of shortfalls in external flows and Central Bank credit expansion to finance economic recovery\. As a result, the IMF decided not to complete the mid-year review of the ESAF, scheduled for early 1995, and IDA delayed release of the second tranche of ERC II\. 7\. From mid-1995 the Government and the Fund worked on developing a set of corrective measures to bring the ESAF program back on track\. A Staff-Monitored Program, which included monthly performance targets, was agreed in the last quarter of 1995\. Performance under this program was satisfactory and 1995 ended up being an encouraging year for the economy, continuing the recovery that had begun in 1994\. GDP expanded by 4\.2 percent, merchandise exports continued to grow strongly, rising by 50 percent m dollar terms from the previous year, and inflation was reduced somewhat to 11\.1 percent\. Perhaps more impressive was the return to fiscal austerity in the last four months of 1995, which made it possible to achieve public savings of 4 percent of GDP for the year as a whole, exceeding the IMF target, and to lower the overall fiscal deficit somewhat\. Based on this progress, IDA concluded that an appropriate macroeconomic framework was in place, which pennitted release of the ERC II second tranche in February 1995 8\. In the first quarter of 1996, the Government reached agreement with the Fund on targets for 1996\. In the second quarter of 1996, the Fund advised that the Staff-Monitored Program remained on track, and IDA concluded that the macroeconomic framework was consistent with the objectives of the program and proceeded to approve release of the ERC II third tranche in June 1996\. Economic performance in 1996 continued to improve\. GDP grew by an impressive 5\.5 percent (among the highest in Latin America), inflation was contained at 12 percent, and merchandise exports expanded by 27 percent in dollar terms\. The Government's efforts to renegotiate its external debt, supported by IDA and other donors, produced a marked drop in total external debt outstanding, from $10\.3 billion in 1995 to $6\.1 billion in 1996 Reform of the State 9\. ERC II aimed to continue supporting the process of state reform, initiated under ERC I, focusing on three key areas: (i) strengthening of the fiscal position by reducing public sector employment through a labor mobility program; (ii) continuation of the privatization process, covering most of the remaining nationalized enterprises and bringing private sector capital and management into the telecommunications sector; and (iii) laying the base and taking initial steps to begin a longer-term process to create an efficient, smaller and modern public sector\. 2 Report No P-6430-NI, May 27, 1994\.  Nicaragua ERC II 3 10\. The Labor Mobility Program\. Prior to Board presentation, the Government prepared an action plan to reduce public sector employment by 13,569 positions over 1994-96, or about 13 percent of all public sector employees\. These targets were to be achieved through attrition and voluntary retrenchments encouraged by a severance package\. The program included safeguards to avoid rehiring and the loss of the more productive employees\. IDA conditionality specified a reduction of 5,000 positions for second tranche and a cumulative reduction of 7,000 positions by third tranche\. The lower IDA target was due to the fact that the Government's program would cover 30 months, whereas ERC II was designed to be implemented over 12-18 months\. Rather than set detailed quarterly targets and in order to allow flexibility in the implementation of the labor reduction program, IDA chose the 7,000 figure to measure progress, which would roughly correspond to the mid-point in the labor mobility program\. This inbuilt flexibility was also prompted by a desire to avoid the common perception which tends to associate public sector reform programs exclusively with labor retrenchments\. This was felt to be especially important in the case of Nicaragua, given its still fragile political environment and serious unemployment problems\. 11\. The labor mobility program had a slow start\. By February 1995, the originally projected date for second tranche release, the employment reduction was only about 1,150 The Government had found some problems with the original design of the severance arrangements, and therefore introduced modifications to attract more interest among potential candidates for voluntary separations and to make the program more effective in targeting the least needed positions\. By the time of second tranche release early in 1996, the Government had clearly met the ERC II targets and was well on the way to meeting the 7,000 required for third tranche\. Official figures show that from January 1994 to November 1996, public sector employment had fallen by 8,438 positions, of which 3,798 were in the Central Government and the rest in state enterpnses\.3 12\. The Privatization Program\. During the first phase of adjustment, CORNAP, a holding company was created and charged with the divestiture of 351 state enterprises, most of them nationalized during the Sandinista Administration\. By the time of ERC II, CORNAP still held 72 enterprises, of which 33 had been brought to the pomt of sale by Board presentation\. By second tranche, CORNAP was to have brought an additional 33 enterprises to the point of sale or closure\. Although the objective was to complete the process initiated by CORNAP, ERC II left a cushion of 6 enterprises to allow some flexibility in meeting the conditions in the event that unforeseen legal problems delayed or impeded full divestiture\. In addition, ERC II aimed to\. (i) divest 9 out of 17 enterprises under the Ministry of Construction and Transport (MCT); (ii) divest two enterprises in the energy sector (ENIGAS and LUBNICA); (m) bring to the point of sale 40 percent of the telecommunications company TELCOR, including the transfer of management control to the foreign partner; and (iii) bring to the point of sale some of the commercial operations of PETRONIC, the state petroleum company, including its gasoline distribution operations\. 13\. CORNAP, MCT and Energy\. By Board presentation, the Government had divested 2 enterprises in the energy sector and 8 MCT enterprises, leaving only one additional MCT enterprise to divest by second tranche\. By the time of third tranche release, IDA determined that of the 66 CORNAP enterprises to be divested, the Government had fully divested or closed 63 and had divested a majority interest in 3 others MCT had completed divestiture of 10 enterprises\. 14\. TELCOR Although the privatization of TELCOR was mamly seen as a way of improving services and coverage, and to give a strong signal to foreign investors, the Government also saw it as an opportunity to help improve the property resolution process by making the compensation bonds more attractive\. It planned to use part of the privatization proceeds to back the government bonds issued as 3The total reduction would have been about 2,650 higher had the privatization of TELCOR taken place as planned\.  4 Nicaragua ERCII compensation to owners of properties that could not be returned\. As part of the reform program, the Government aimed to create a regulatory agency, able to supervise the new private sector operator\. 15\. At the time of appraisal, the TELCOR divestiture process was well advanced, with 9 reputable mternational companies having been pre-qualified\. Progress continued until the third quarter of 1994, when the regulatory powers of TELCOR were transferred to a newly-created agency\. At the same time ENITEL, the new service provider and company to be privatized, came into existence and had prepared drafts of all the bidding documents and the management concession\. In the fourth quarter of 1994, the Government decided to send to the Assembly a new Telecommunications Law, to improve the regulatory framework\. Although the existing legal framework permitted the privatization of TELCOR, it was obsolete and did not provide for a competitive regime for the future (after the end of the exclusivity period)\. Unfortunately, this privatization process came to a stand-still in late 1994, when the country was again engulfed in a political crisis, this time centered on proposed Constitutional amendments\. During the following months Constitutional issues dominated the political agenda, until mid-1995 when a political agreement was reached which enabled enactment of selected amendments\. Included in the constitutional changes was the provision that privatization of State assets would now require approval by the Assembly\. The ENITEL privatization process resumed soon after the amendments came into effect\. In July 1995, the Assembly passed the Telecommunications Law and in November 1995 the Law to Incorporate Individuals in the Operation and Expansion of Public Telecommunications Services (required under the reformed Constitution)\. The Government proceeded to advertise the sale of ENITEL (January 12 in The Financial Times and January 13 in The Economist) specifying the privatization process and the calendar to be followed\. The announcement specified that the award notification would take place no later than June 10, 1996\. On the basis of the new legal framework and the Government's public call for bids on the ENITEL privatization, IDA considered that the Government had complied with the condition of making progress in the implementation of the TELCOR Privatization Plan\. 16\. By the time of third tranche release, it was found that the process was further advanced and due diligence had been largely completed\. Although at the time the opening of bids had been postponed to July, the Government maintained its commitment to proceed with the privatization process\. Ultimately, the opening of bids was postponed a number of times, apparently at the request of a key bidder\. Finally, on October 3 1996, rather than announcing the winner of the bidding process, the Government decided to postpone the sale of ENITEL shares due to the lack of substantial interest among potential foreign investors\. The Government had been led to understand that there would in effect be only one bidder and its offer price would be extremely low\. In retrospect, it appeared that investors considered that the Law to Incorporate Individuals in the Operation and Expansion of Telecommunications Services contained a number of onerous conditions, especially those related to investment obligations and labor flexibility\. The fact that Presidential elections were imminent may also have played a role\. Also, in the year of delay there was a noticeable change in the international climate, as new privatization opportunities were opening up and deregulation in the U\.S\. and Europe was, reportedly, leading major players to reassess their expansion plans in foreign markets\. In the event, the Government felt it had no option but to leave the privatization process to the new Administration that would take office in early 1997\. 17 PETRONIC\. The conditionality associated with PETRONIC was quite specific\. At the time of appraisal, it was felt that the full privatization of the company was not politically feasible, because it had an import monopoly for hydrocarbons and was vested with regulatory functions for the sector\. However, it was decided that the process could be advanced by partial privatization of some commercial activities of PETRONIC, especially its gasoline distribution operations\. By the time of third tranche release, the Government had deregulated the gasoline market and private companies were in charge of the bulk of the distribution process\. PETRONIC by then was playing a rather small role in gasolme distribution and the regulatory functions were vested in the National Energy Institute, independent of PETRONIC\. Moreover, the Government proposed to proceed with the full privatization of PETRONIC and mdicated that since under the modified Constitution even the partial privatization of PETRONIC would require legislative  Nicaragua ERC 11 5 approval, it preferred to seek Assembly approval for the full privatization of the company\. IDA accepted that the full pnvatization of PETRONIC was preferable to the privatization of only gasoline distribution, and that given the Assembly's calendar, approval of the privatization would be lengthy and extend well beyond the life of ERC II\. In March 1996, the Government submitted to the Assembly a Law for the Privatization of PETRONIC\. On this basis, IDA agreed to seek a waiver to this condition for third tranche release\. 18\. Public Sector Reform\. Because of the long-term nature of public sector reforrm, ERC II would concentrate on defining the process and the initial stages of implementation\. It was understood that the process would have to be continued under a new Administration that would inevitably want some flexibility in defimng its own public sector reform program\. In addition, the Government recognized its weak institutional capacities and requested IDA technical assistance to bolster the capabilities of the management unit in charge of the design and coordination of the broad-based reform program\. In March 1995, IDA approved an Institutional Development Credit ($23 million) to support the public sector reform effort which would continue beyond the life of ERC II\. 19\. As part of Board presentation conditions, the Government: (i) prepared a detailed policy statement outlining the overall State reform process and its broad elements, imbedded in its Letter of State Reform; and (ii) created the Project Management Unit within the Ministry of Finance (UCRESEP)\. 20\. The PSRP got off to a good start\. In October 1994, the Government issued Presidential Decree 94-44 establishing the goals and management structure for a 5-year reform program\. The Decree created a high-level executive comnuttee, CERAP, m charge of guiding the reform process\. This initiated a process of negotiation with various Ministries, state agencies and other Government institutions, to reach agreements on detailed plans for institutional restructuring and a schedule for achieving specific goals\. This effort provided a consistent direction for the reform program and helped with overall coordination of the various donor efforts that were supporting public sector reforms\. By the time of second tranche, CERAP had signed the first Institutional Restructuring Agreement (ARI) with MCT and was making progress in the negotiation of several others\. By the time of third tranche in mid-1996, CERAP had signed an additional ARI with the Social Security Institute\. In addition, progress continued with the initiation of restructuring of several ministries and the drafting of key legislation, including the General Financial Management Law\. Progress had been achieved in the design of a new civil service legal framework, including the proposed Senior Technical and Management Service, and initial steps to reform financial management practices, although implementation of the two ARls was slower than expected\. In particular, the procurement effort to hire the consulting teams to provide the technical assistance to implement the ARIs took much longer than anticipated, due largely to local inexperience with international procurement practices\. On balance, however, IDA concluded that satisfactory progress was being achieved in the implementation of the overall public sector reform program\. Financial Sector Reform 21\. The process of financial liberalization was well advanced at the conclusion of ERC I\. Two important problems remained, however\. Although private banks had quickly emerged, the financial system continued to be dominated by two large state banks, BANADES and BANIC\. Under ERC I the Government had initially sought to transform BANADES into a small, pass-through agency, channeling externally-funded lImes of credit, but the political obstacles to effectively closing BANADES proved formidable\. It therefore opted for a strategy of refonning the state banks, with technical support from IDB for BANADES\. Despite major recapitalizations and restructuring, these banks remained heavy money losers and continued to have dismal loan recovery rates\. 22\. The issue of what to do about the two state banks was extensively debated internally within IDA and with the Government\. In addition, the problem was also discussed with the IMF, as the poor financial position of the banks posed a serious threat to the stabilization program under preparation\. Within IDA  6 Nicaragua ERCII some held the view that, smce the effort under ERC I to reform the two banks, especially BANADES, had not worked, ERC II should either seek the divestiture of the two banks (through closure or, if feasible, privatization), or steer clear from the issue\. The Government had taken the position that while it recognized the inefficiency of the banks and the threat to the stabilization program, it felt it could not master the needed support for their closure/privatization\. This was due to two reasons: (i) politically it could not push for the closure of the banks, especially BANADES which was the more serious problem, because it carried too much weight in the banking system; and (ii) the Constitution specifically required the Government to guarantee the existence of state banks\. The legal interpretation of the Constitutional requirement was not entirely clear, but the Government felt any attempt to divest itself of the banks would leave it open to a Constitutional challenge\. 23\. Instead, the Government proposed to keep the two banks under close monitonng to avoid major expansion, while allowing private banks to grow\. As private banking expanded, the state banks would become increasingly marginal, eventually making it politically easier to close or privatize\. In the end, IDA took the position that while ERC II could not achieve a lasting solution to the state bank problem, it would support the Government's strategy of containment, provided that there would be no recapitalization of the state banks with public money or revaluation of assets and that the state banks would be subject to the prudential norms issued by the Superintendency\. It was felt that this would provide some breathing space while the legal issues were clarified and other options explored (such as the partial privatization of BANIC)\. In addition, ERC II required the implementation of an action plan to strengthen prudential supervision, including issuing revised prudential norms on capital adequacy, portfolio classification and portfolio concentration\. 24\. No efforts were made to recapitalize the two state banks, but BANADES and BANIC continued to have serious loan recovery problems\. External audits confirmed that the need to make loan-loss provisions made them effectively insolvent\. The Supermtendency of the Financial System (SBFI) monitored these institutions effectively, but since neither the option of recapitalization or outright closure due to bankruptcy was available, it had no option but to exempt the state banks from prudential norms for two and a half years\. At the same time the two banks were put under restructuring programs monitored by SBFI and agreed with IDA, IDB and the IMF The restructuring programs tried to make progress beyond IDA's containment strategy with two key aims in mmd: (i) substantially downsizing BANADES, leaving it as a very small financial intermediary focused only on small-scale farmers; and (ii) privatize BANIC through a capital increase from private investors, who would also have operating control of the bank\. As a first step in this process, in early 1996 non-performing assets in the two banks (nearly 40 percent of their portfolios) were transferred to a newly-created collection agency (COBANICSA)\. The further downsizing of BANADES and the actual privatization of BANIC were to be supported through a proposed Public Sector Reform Credit (PSRC) which IDA had began preparing as a follow-on to ERC II\. As the elections approached both the proposed PSRC and the state bank reform program were postponed\. 25\. Toward the end of the ERC II period, the Government began raising the issue of alternative credit delivery systems to reach small-scale farmers\. It argued that it could not solve the BANADES problem unless it could put in place an alternative rural credit scheme targeted on small-scale farmers\. IDA responded by: (i) organizing a local workshop to explore rural credit options in early 1995; and (ii) preparing a rural credit pilot program under the ongoing Land Management and Agricultural Technology Project\. 26 SBFI has played a key role in improving the prudential supervision of the financial system\. Its supervisory functions have been extended to cover the stock exchange and insurance companies\. A General Bankmg Law is currently before the Assembly, which would replace the old legislation dating to the 1960s, and would further strengthen SBFI's supervisory and regulatory functions\. Despite this progress, much remains to be done to strengthen SBFI and prudential supervision n Nicaragua\.  Nicaragua ERC II 7 Private Sector Development 27\. There were four main objectives under the private sector development component: (i) resolution of property rights disputes, in order to improve security of land tenure and the private sector climate; (ii) provision of a more stable and transparent policy environment for the private sector, by reducing ministerial discretionality In changing tax and fiscal policies and the creation of new commercial enterprises; (iii) promotion of export growth and efficient import substitution, by reducing the level and dispersion of nominal protection and creating a more transparent and effective export incentive system; and (iv) promotion of greater labor productivity by ensuring flexibility in the operation of the labor market\. 28\. Property Rights\. The long-standing problem of inadequate property rights guarantees in Nicaragua, which was exacerbated durng the Sandinista Administration, presented the Chamorro Government with a very complicated problem\. In 1992, following a major information gathering effort, a comprehensive admimstrative procedure to address property disputes was established\. The National Review Commission was created to review claims by previously confiscated owners and to recommend equitable solutions, and the Office of Territorial Ordering was established to review the legitimacy of property assignments during the transitional period between February and April of 1990\. Also, the Government created the Office of Quantification of Compensation, to determine just compensation amounts for those whose properties could not be returned\. This scheme, which provided compensation via dollar- indexed govemment bonds, was intended as a faster administrative solution and not as a replacement for legal recourse, which remained an option for claimants 29\. By end 1993, the Govenmment had made significant inroads in the resolution of property disputes but the problem remained large\. At the time of appraisal, it was estimated that there were about 5,400 claimants involvmg more than 16,000 disputed properties\. The problem was exacerbated by the fact that a large number of disputes involved U\.S\. citizens\. Although IDA recognized the critical importance of resolving the property issue in Nicaragua, because of the domestic and mtemational politicization of the issue, it was felt that specific conditionality and targets on the resolution of disputed cases would be counterproductive and would merely add to its politicization\.4 Instead, ERC II supported the process through: (i) the establishment of a mechanism at the Ministry of Finance to carry out random inspections to verify compliance with adopted procedures to resolve property conflicts, and to report deviations for their correction; and (ii) the commissioning of a study to analyze potential new uses for the compensation bonds, which could raise their value in secondary markets and thus be more attractive for claimants whose property could not be returned Actions expected before releasmg the second tranche were a satisfactory implementation of the verification process and the completion of the study on potential uses for the compensation bonds\. The third tranche was made contingent on having implemented the recommendations agreed on in the context of the study\. 30\. There was substantial progress made on both topics during program implementation\. A new Vice- Ministry was created in the Ministry of Finance exclusively in charge of addressing problems related to property conflicts and disputes, including a unit to carry out the inspections agreed in ERC II\. UNDP, IDB and other donors supported the random inspection scheme\. The Government actually commissioned two studies to enhance the value of the bonds, which provided the basis for the Ley Especial de Valorizaci6n de Bonos de Pago por lndemnmzaci6n, approved by the Assembly in July 1994\. 31\. As a result of this Law, the maturity of the compensation bonds was reduced from 20 to 15 years, their interest rate increased and uses extended, so that they could be used also as guarantees in public works contracting and collateral for bank loans, and as means of payment for settling liabilities with the tax office and state enterprises\. Despite the new enhancements, the compensation bonds rose only moderately in price in the secondary market after the passage of the new legislation, so further ways to increase their The Government, however, included its own targets in its Letter of Development Policy\.  8 Nicaragua ERC II market attraction were sought by the Government\.s Thus, in the context of the ENITEL privatization, the Government decided that part of the privatization proceeds would be used to buy zero-coupon U\.S\. Treasury bonds to back the compensation bonds\. This would place the compensation bonds in the category of "Brady bonds", a class of heavily traded instruments in the mternational financial market today\. 32\. As of October 1996, the Government had issued the equivalent of $501 million in compensation bonds, of which $120\.5 million, or 24 percent of the total, had been redeemed by bondholders through the various options open to them\. A significant portion of today's outstanding compensation bonds are held as part of the portfolios of international investors\. Although not a condition in ERC II, the Government also made substantial progress m the resolution of actual property right disputes\. At the end of October 1996, 90\.8 percent of the disputes involving agricultural land were settled, 94\.6 per cent of those involving family homes, and 88\.3 percent of those disputes related to just home sites\. Of the politically sensitive 2,293 cases involving properties of U\.S\. citizens, Government figures for October 1996 showed that only 573 cases remained unresolved, with a total claim value of $51 million\. 33\. Discretion in Economic Policy\. In Nicaragua, the President had ample discretionary powers to change taxes and regulations\. At the time of program design, the President had delegated many of these powers to the Ministerial level in an effort to facilitate and expedite the policy and incentive changes required to eliminate the policy-mduced distortions inherited from the Sandinista era\. However, this was causing significant uncertainty m the private sector, as the discretionality and lack of transparency was undermimng investor confidence\. In order to improve the business climate and ensure that there was a level and transparent playing field for the private sector, it was agreed that it was time to sharply reduce the discretionary powers vested in the different Ministries Thus, as a Board condition, it was agreed that: (i) to be legally binding, any changes in tax and fiscal policies had to be published in the Official Gazette, except in cases offorce majeure, in which event it had to be published in at least one daily newspaper of broad circulation, (ii) the powers of Ministries and government agencies to change tax and fiscal policies were abrogated, and simultaneously elevated to the Presidency; and (iii) the powers of Ministries and govermnent agencies to create new commercial enterpnses were eliminated\. These policy changes have been maintamed contributing to increased transparency and an improved business climate\. Furthermore, the Constitutional amendment of 1995 vested in the Assembly most of the powers until then held by the Executive on tax matters\. 34\. Trade Reform\. Trade liberalization and lower protection was at the core of the Government's program of structural reform supported by ERC I\. Although substantial advances were made to reduce nominal protection and render it more uniform, at the time of ERC U appraisal the level and dispersion of tariff rates remained high\. The rate of import protection at the time, including tariffs and specific import consumption taxes, ranged between 10 and 40 percent, with a few exceptions below 10 percent\. Virtually all trade-related non-tariff barriers had already been abolished\. Nonetheless, the pace of advance had been slower than that promised by the Government in the Letter of Development Policy agreed for ERC I where the maximum nominal rate of import protection was set at 20 percent\. During this time, Nicaragua had agreed with its partners m the Central American Common Market (CACM) on a slower pace of tariff adjustments, setting the longer-term objective of a maximum tariff of 20 percent for year-end 1999\. IDA accepted the program agreed under CACM\. 35\. Another source of concern at the time of appraisal was the temporary export promotion mechanism introduced in 1991 and modified in 1992\. The scheme established tariff exemptions on inputs and capital goods for all exporters, and a generous package of income tax relief plus direct subsidies in the form of tax-rebate certificates for non-traditional exporters\. The 1992 amendment to the export scheme had 5Today, the discount rate implicit in the market value of the compensation bonds appears reasonably m line with the interest rates paid on similar-risk dollar-indexed financial instruments in Nicaragua\. This suggests that to further increase the value of the compensation bonds, alternative options that actually reduce Nicaraguan nsk have to be explored\.  Nicaragua ERC 1I 9 extended the timetable of benefits for non-traditional exporters, which gradually diminished through 1997, to be discontinued at the end of that year\. 36\. ERC II sought to make further progress in promoting export growth and efficient import substitution through a reduction in the level and dispersion of nominal protection, and by creating a more transparent and effective export incentive system\. More specifically, the Government agreed that before Board presentation it would approve a satisfactory phased tariff reduction program reaching an all- inclusive nominal protection ceiling of 37 percent by mid-1995 and 20 percent by 1999\. This condition was met by Decree 24-90 of May 1994, which specified a calendar of tariff reductions in line with the program agreed with CACM\. The next set of actions by the Government included two conditions for third tranche release: (i) satisfactory progress in implementing the import tariff reduction program, in particular achieving a nominal protection ceiling of 37 percent (except for 8 products referred to as the fiscal industries, which accounted for a large share of fiscal revenues); and (ii) preparation of an action plan to replace the existing export promotion mechanism, either by a duty drawback system or a temporary admission regime\. 37\. In January 1996 the Government reduced the nominal protection ceiling on imports to 35 percent, except for the 8 fiscal industry products\. It thus met the first part of third tranche conditionality\. As to the duty drawback system and the temporary admission regime, the Government studied and rejected them as practical alternatives to promote non-traditional exports\. It estimated that it lacked the capacity and could not afford the costs of administering such systems\. Instead, it opted for the simpler strategy of drastically lowering tariffs on inputs\. As a general rule, inputs are subject to a 5 percent stamp tax plus a 5 percent import tariff, the latter only for those coming from outside the CACM\. The Government sent tax reform legislation to the Assembly in 1996, including a provision to lower these tariffs to 1 percent, but failed to gain approval\. In May 1997, however, the current Admimstration succeeded in passing a new tax package, including the proposed trade reforms\. 38\. The expansion of Nicaraguan exports has been substantial in the last few years\. They went up in value from some $267 million in 1993 to an estimated $635 million in 1996, the period covered by ERC II\. The growth of non-traditional exports has been the most impressive, as illustrated by last year's performance, when they accounted for some 47 percent of the total, after having a net gain over 1995 of about $104 million\. 39\. Labor Market Reform\. While faster output growth was considered essential to address unemployment and underemployment, the Government sought also to promote greater labor productivity and more flexible labor markets\. The Labor Code in effect at the time of ERC II appraisal was not unduly restrictive, but modifications had been under discussion in the Assembly for some time\. The Government felt that some of the proposals being made could result in an extension of troubling privileges already enjoyed by a small segment of the labor force, comprising mainly workers in the public sector and some of the newly-privatized state enterprises\. If enacted, it was felt that the changes could seriously jeopardize the structural reform effort, by imposing stronger rigidities on labor mobility and making it more difficult for private firms to compete at an international level\. The Government and IDA agreed that a more modern Labor Code would be needed in the future but that this was not the time to initiate what would be a politically-difficult process\. The Government was prepared to veto any modifications of the existing Labor Code that went in that direction, in particular those changes that imposed excessive restrictions on the ability of employers to hire or fire employees\. In this context, the Government wanted to have the backing of IDA\. To that end, it was agreed that the Government prior to Board presentation would prepare a detailed Letter of Labor Policy stating the policy and objectives concerning the functioning of labor markets in Nicaragua\. Compliance with this Policy Letter was made a condition for all tranche releases\. 40\. On October 1994, the National Assembly approved a new Labor Code containing provisions that the Executive opposed, so in January of 1995 it proceeded to partially veto the proposed legislation\. The  10 Nicaragua ERC II main concem was that the changes would lead to a deterioration in labor-employer relations and growing rigidities in the labor market\. Several months of negotiations followed until a compromise was reached among all interested parties\. The new Labor Code was published in the National Gazette at the end of October 1996\. As a result of the negotiations, some of the concepts m the new Labor Code do not totally agree with those contamed in the Letter of Labor Policy, but by and large Nicaragua now has a modern body of labor legislation in place\. Unemployment, although still high, has fallen steadily, from 20\.4 percent in 1993 to 16\.1 percent in 1996\. C\. Major Factors Affecting the Program 41\. The President's Report recognized that an important risk for implementation of ERC II was a breakdown of the political consensus, although it foresaw this as coming from opposition to the reform program\. The risk proved real but it emerged from an unexpected quarter\. In February 1995, the Assembly approved a set of Constitutional reforms which essentially aimed to redraw the balance of power between the Executive and the Legislature The Executive opposed the reforms and refused to promulgate them\. The Assembly published the Constitutional amendments but the Executive did not recognize them and maintained that the old Constitution remained in force\. Over the next four months, the country was enmeshed m a full-blown Constitutional cnsis, which dommated the Government's attention\. A negotiated settlement was reached in the third quarter of 1995 and important Constitutional amendments were enacted\. The political crisis and its aftermath had two important effects on ERC II\. First, the political impasse delayed overall program implementation as the Government attempted to resolve the Constitutional crisis\. Second, one of the amendments specified that privatization of State assets would now require approval by the Legislature\. As explained above, this new requirement affected the privatization of ENITEL and PETRONIC\. D\. Program Sustainability 42\. Program sustainability is considered likely\. This assessment is based on IDA's preliminary discussions with the new Administration\. The Government has indicated broad agreement with the structural reforms supported by ERC II and its interest in deepening the adjustment process A key component of the Government's reform program will be public sector reform and our current policy dialogue is focusing on the design of the reform program and further efforts to reduce the size of the State\. As a first step, UCRESEP has been placed under the Vice-President's Office to give the process increased political backing\. The Government has also announced continuation of the Labor Mobility Program targeting the elimination of at least 3,000 positions during the rest of 1997\. Our dialogue on the financial sector has concentrated on the issue of the state banks, with the Government having agreed to close BANADES and proceed with a partial privatization of BANIC\. In addition, IDA is working with the Government on design of an alternative rural credit scheme that would substitute for the role of, BANADES\. In the area of privatization, the Government has requested technical assistance from IDA in order to redesign the ENITEL privatization process and get it back on track\. The Government has indicated it supports the privatization of PETRONIC, while also stating its intention to proceed with privatization or concessioning of ports and to attract private participation in the power sector\. In terms of import tariffs, the Assembly recently passed legislation to reduce the tariff ceiling to 10 percent by end- 1999\. IDA is continuing discussions on a follow-on adjustment operation to support the Government's reform program\. E\. IDA Performance 43 IDA's overall performance is considered satisfactory\. IDA moved quickly after ERC I with the identification of a follow-on operation\. Although political events delayed preparation of ERC II, IDA maintained the focus on the new operation and was thus ready to move quickly as soon as the political impasse was resolved\. IDA performance during identification, preparation and appraisal was satisfactory,  Nicaragua ERC II 1 1 as it carefully evaluated options with the Government, IMF and other donors, and appropriately focused on the issues that appeared as priorities for Nicaragua at the time\. Drawing lessons from recent adjustment operations in the Region, it avoided the temptation to overload ERC II with an excessive number of detailed conditions and exercised considerable flexibility in assessing overall compliance with program objectives\. Performance in supervision was also satisfactory with appropriate staffing and effort\. The one weakness in IDA's performance relates to the issue of the state banks\. Although the concern over the design of alternative rural credit systems did not emerge until after ERC II had been approved, IDA could have either: (i) foreseen the issue; or (ii) once it emerged, taken a more pro-active stance to assist the Government\. While agreeing to the Government's containment strategy, IDA could have also moved in parallel through ESW to assist the Government design an alternative rural credit system\. F\. Borrower Performance 44\. Borrower performance is considered satisfactory\. Preparation work involved close collaboration with IDA and a strong commitment to the continuation of the adjustment program initiated under ERC I\. Despite considerable political volatility, a difficult external environment and weak implementation capacity, the Borrower maintained a commendably strong comnitment throughout program implementation\. Covenant compliance was also satisfactory\. The waiver for the partial privatization of PETRONIC resulted from a Government decision to aim instead for full privatization\. The failure to complete the privatization of ENITEL was in large measure due to factors beyond the Government's control\. G\. Assessment of Outcome 45\. The overall outcome of the reform program supported by ERC II is considered satisfactory\. The economy has recovered strongly during the ERC II implementation period Noteworthy is the strong economic growth following the stagnation of the early 1990s, the continuing export recovery with high growth of non-traditional exports, the improved business environment and the sharp fall in Nicaragua's massive external debt\. Although the country's stabilization and adjustment agenda remams formidable, the economy is in far better shape today than at the end of 1993, when many in IDA and the donor community despaired over Nicaragua's development prospects\. H\. Future Operation 46\. Following completion of ERC II, IDA and the Government identified a one tranche adjustment operation (PSRC) focusing on public sector reform and the state banks\. Although durmg the first half of 1996 the Government advanced considerably in preparation of this operation-including draft legislation to reform the tax system, further steps to deepen the public sector modernization process, establishment of a collection agency to recover arrears in the state banks and a detailed plan for the partial privatization of BANIC-the plans were overtaken by the proximity of the general elections in late 1996\. In particular, approval of the Government's proposed tax package, which was supported by the proposed PSRC and was a key element for a reactivation of the Fund's ESAF program, was held up in the Assembly\. As mentioned above, IDA is currently preparing a new adjustment operation with the current Administration, which will likely focus on public sector reform, state banks and further measures to improve the business climate I\. Key Lessons Learned 47\. Key lessons learned flow from the very special and difficult circumstances which confronted Nicaragua during program implementation\. The lessons are not unexpected and have been learned in other adjustmnent operations, but they bear restating in the case of Nicaragua\. * The design of adjustment operations should be flexible\. This is important under any circumstance, but proved critical in the case of Nicaragua where the Government had to deal with a highly polarized and  12 Nicaragua ERC II confrontational political environment\. The design of an adjustment program, especially in a difficult domestic environment, needs to consider the possibility that in the course of program implementation, the Government may decide on alternative means to meet program objectives\. * In countries with weak implementation capacity, a high degree of political polarization and weak democratic institutions, conditionality should focus on a few key priorities\. From program identification to appraisal, trade-offs and priorities need to be intensively evaluated and discussed with the Government, as well as the IMF where structural reforms will be an integral part of an ESAF program\. * Where the political discussion in the country specifically questions the aims and rationale for the adjustment process, IDA should be prepared, at the request and with the express approval of the Government, to participate in the national dialogue\. IDA's willingness to extend the dialogue on adjustment beyond the Admimstration and to engage in a dialogue with the opposition on the alternatives to adjustment proved invaluable in mitigating outright opposition to the reforms\. Interestingly, the second episode of political impasse in Nicaragua no longer involved the adjustment process but focused instead on the relative powers between the Executive and Legislature\. * Reliance on quick-disbursing adjustment operations to support public sector reform, especially institutional restructuring is questionable\. Easily monitorable measures such as employment reductions and privatization are amenable to adjustment conditionality, but the broader aim of modernizing and radically transforming institutional structures is not well suited to the scope and constraints inherent in adjustment operations\. The inadequacy of the adjustment instrument is exacerbated in countries with weak institutional capacity\. * The one negative lesson that can be drawn from the ERC II experience involves the Bank's readiness to work with the Government on alternatives to the closure of BANADES\. Although the strategy of containment proposed by the Government and accepted by IDA was appropriate at the time that ERC II was designed and approved, IDA might have been able to move more quickly and effectively when it started to become clear that the Government would need support in terms of designing a viable alternative to rural credit\. IDA has only recently began the analytical work that can reach closure on alternatives to the traditional state development bank model for rural credit\.  Nicaragua ERCII 13 PART II: STATISTICAL TABLES Table 1: Summary of Assessments Table 2: Key Economic Indicators: Projected and Actuals Table 3: Related IDA Credits Table 4: Program Timetable Table 5: Program Financing Table 6\.a\. Credit Disbursements: Cumulative Estimated and Actual Table 6\.b: ERC II IDA Disbursement Profile Table 7: Dates of Tranche Releases Table 8: Studies Included in the Program Table 9: Status of Legal Covenants and Conditionality Table 10: IDA Missions Table 11: IDA Resources: Staff Inputs  14 Nicaragua ERC II Table 1: Summary of Assessments A\. Aeievenmntat objectives Substantial Partial Negligible Not appcable Macro policies V/ Sector policies / Financial objectives V/ Institutional development 4 Physical objectives / Poverty reduction V Gender issues v Other social objectives 4 Environmental objectives 4 Public sector management Private sector development / t kp^FR _~~~~~~~~I\. \. S [D\. Program susftainabW#ly Liel Unilkely ~ Ulet C\. Bank perfornance Highly Sat actory Deficient Identification V Preparation assistance 4 Appraisal / Supervision v A Borrower-performance ihySatisactory Defkicnta Preparation V Implementation 4 Covenant compliance V E\. Assesd Wt of 'attnm \.i \. \.r dactery j \. nstisctot \. \. \.~~~~~gaifatr unsasfaetewr-  Nicaragua ERC II 15 Table 2: Key Economic Indicators: Projected and Actuals, 1990-96 Actuat ERC fI Adual IR3lC Actu E1 CU AP$uai tw~~~~~~~~1 9 1!9% ,- 1 4 \. 1" ! \.5\.; \. \. \.94\. X\. -t ------ t GDP Groth (%) -01 -0 2 0 4 -0 2 2\.0 3\.3 3 0 4\.2 4\.5 5\.5 Inflation (end year, %) 13,500 866 3 5 19 5 10\.0 124 7,7 111 6\.0 12\.1 Gross Dom\. Investment' 19 3 20 1 18\.0 20 2 21\.5 25 0 21\.4 26 9 21\.2 27 6 o/wPnvate' 180 131 97 90 11\.1 10\.4 10\.6 106 10\.1 13\.4 Overall Fiscal Balance2 -29 4 -7 7 -8 4 -8 8 -8 & -12 4 -6\.8 -11\.1 -6\.3 -13\.4 Current Account Balance2 -35 6 -48 9 -59 3 -48 0 -48\.1 -54 0 -33 2 -37 5 -32\.9 -32 5 Exports3 330 6 272 4 223 1 267 0 291 0 351 2 330\.0 526 4 368\.3 670 1 inports3 567 4 668 6 771 2 668 4 658 0 783 8 690\.0 865 0 714\.0 1023 8 ExtDebtOutstanding4 10 7 10 7 11 1 10 5 12 6 11 0 12 4 10 3 12\.7 6\.1 Projections are form the President's Report 1 AsashareofGDP 2 As a share of GDP, excluding grants 3 Merchandise 4 Billions of US$ Table 3: Related IDA Credits Credits AimIwit Year of Status \._\.___\._\.____\._\. (SDR m) A~pp\.R\.Ap\. A1 (_S ERC I (2302) Support the Government's 83 5 09/26/91 Completed structural adjustment program Institutional Development Improvement in delivery of 15\.7 03/16/95 Ongoing Credit (2690) public services and increasing public savings Table 4: Program Timetable Steps in Prgram Cycle | Date Planned Actual Dates Identification (Imtlal Executive 01/15/93 01/15/93 Project Summary) Preparation 03/05/93 03/15/93 Appraisal 06/03/93 04/04/94 Negotiations na 07/23-25/94 Board Presentation na 06/21/94 Signing na 06/22/94 Effectiveness na 06/29/94 Credit closing na 06/30/96 na not available in project files  16 Nicaragua ERC II Table 5: Program Financing btS ~~~~~Appr*i$"1 esttim* Atal WS$lm (UgsSn) IDA credit 60 0 61\.7 IDA reflows 7 6 19\.9 OECF (Japan) 60 0 37\.0' KfW (Germany) 12 0 13\.32 Government of Sweden 9\.0 -- Govemment of Switzerland 6\.0 -- Total 154\.6 131 9 I Cofmancing 2 Parallel financing Table 6\.a: Credit Disbursements (US$ million) PY9 FY97 Appraisal estimate * Annual 52\.6 15\.0 0\.0 * Cumulative 52 6 67\.5 0\.0 Actual disbursements \. Annual 31\.0 30\.7 0\.0 \. Cumulative 31\.0 61 7 61\.7 IDA Reflows actuals 7\.9 6\.4 5 6 Table 6\.b: ERC II IDA Disbursement Profile IRVC FV#4 f low-s FM9 Reflows W96 fows- \. se >31 } (311) (2631> Total \. \. \. \. \. \. \. ;\. \. ;\. \. ;\. O)rijtina 60\.4) 7\.6 6\.3 5\.8 79\.7 \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. FY95 31\.0 7\.9 0\.0 0\.4 38\.9 7/94 19\.9 19\.9 9/94 10\.6 7\.8 18\.4 10/94 0 4 0\.1 0 4 11/94 0\.2 0\.2 FY96 30\.7 0\.0 6\.4 0\.0 37\.1 2/96 15\.3 6\.3 21\.6 3/96 0\.1 0\.1 0\.3 6/96 15\.3 15\.3 FY97 0\.0 0\.10 0\.0 5\.6 5\.6 11/96 5\.6 5\.6 \.77\.6\.56\. \. \. \. TOTAL ~~~ ~ ~~61\.7\. 7\.9 \.6-\.4 \. 5\.6 8\.  Nicaragua ERC II 17 Table 7: Dates of Tranche Disbursements Tra_he Date First 6/94 Second 2/96 Third 6/96 Table 8: Studies Included in the Program Additional enhancements for Analysis of mechanisms that Two studies were completed; Compensation Bonds issued to could render the Compensation recomnmendations were used to resolve outstanding property Bonds more attractive to holders prepare legislation that improved disputes between the private and without jeopardizing fiscal the term and conditions of the public sector\. stability Compensation Bonds as well as their use to settle fiscal obligations of the private sector\.  18 Nicaragua ERCII Table 9: Status of Covenants and Conditionality Agree cavenanat Prosent Fu1fill_\. SWwn Tyo lt>j#n\. $ mel a 1\.01 (b) General Evaluation report by the C 4/23/97 Report due no later than 6 months condition Borrower on the Program's after the Closmg Date\. execution 3 03 (b) Accounts/ Furmish externally audited C First There was an Amendment to the audits reports not later than 4 tranche Credit Agreement that made the months after the end of each report: delivery of the externally audited FY or not later than 90 days 6/23/97 report for the second and third after the last withdrawal in tranches contingent on a specific connection with the request by the Association, which expenditures financed out of IDA has chosen not to exercise\. the proceeds of each tranche\. Schedule 1 Macroecono- The macroeconomic policy CD Condition Significant policy slippages in the mic policy framework of the Borrower is to be macroeconomic program during the conditionality consistent with the objectives fulfilled at last quarter of 1994 and the first of the Program\. the time of half of 1995 Then, after some each months of satisfactory performance, disburse- substantial deviations from the ment macroeconomic targets re-emerged m mid-1996 on\. Schedule Sector policy The Borrower shall have CD Second Initial delays m reducing the 3, conditionality made progress m the tranche number of positions due to the Part A (1) adm [budgetary implementation of the Labor condition\. postponed privatization of TELCOR /allocative Mobility Program (LMP)\. and the need to enhance the LMP's change incentive package to attract \.__________ ____potential beneficiaries\. Schedule Divestiture of The Borrower shall have CD Second CORNAP divested or closed 63 3, state brought to the point of sale, tranche enterprises, sold its majority Part A (2) enterpnses offered for lease or ceased the condition\. interest in another 3 enterprises and operations of at least 33 of completed the pnvatizathon 2 MCT CORNAP's enterpnses, 1 enterpnses Initially there were MCT enterpnse and have delays in the privatization program made progress m the of TELCOR due to changes in the privatization of TELCOR Constitution that made its privatization contingent on a law, rather than on a decree, as oonginally planned by the Government Although the Government took the privatization of TELCOR to the point of sale, the programmed privatization failed to materialize\. Schedule Sector policy The Borrower shall have C Second Decree 9444 of October 1994 3, conditionality prepared and commenced tranche established the goals and Part A (3) adm\./budgetary implementation of the Public condition\. management structure for a lallocative Sector Reform Program comprehensive 5-year public sector change reform program\. Schedule Sector policy The Borrower shall have C Second Emphasis of the action plan was on\. 3, conditionality\. made progress in the tranche (a) introduction of a new charts of Part A (4) regulatory implementation of the action condition accounts; (b) design of a centralized change plan to Improve prudential MIS on debtors, (c) inclusion of FNI supervision of the financial and INISER in the system\. Superintendency's inspection plan; and (d) higher penalties for non- comphlance with prudential norms\. Schedule Sector policy The Borrower shall have C Second This program included: (a) the 3, conditionality: made progress in the tranche creation of a Vice Ministry at the  Nicaragua ERC II 19 mqnt Condftmnalty Descriptno Status meat Date ComiMents Part A (5) allocative implementation of the condition\. MIFIN to address property-related change Property Rights Improvement issues; (b) 2 studies to prepare Program\. legislation (enacted 7/94) to enhance the value of the Compensation Bonds, and (c) cumulative targets for resolvmg property cases over time Schedule Sector policy The Borrower shall have C Third A cumulative elimmation of 7,000 3, conditionality, made further progress in the tranche positions was deemed satisfactory Part B (1) adm /budgetary implementation of the Labor condition\. for third tranche release\. Actual / Mobility Program (LMP) reductions reached 7,432 positions\. allocative change Schedule Divestiture of The Borrower shall have: (a) CP Third Under the Project, CORNAP 3, state offered for sale or lease, or tranche divested or closed 63 enterpnses Part B (2) enterpnses liquidated all but 6 of condition Also, it sold its majority interest in CORNAP's enterprises and another 3 enterprises in which all but 8 of MCT's maintained only munority equity enterpnses, (b) discontmued positions MCT completed the PETRONIC's gasoline divestiture of 10 enterpnses Since distribution operations, and gasolme distnbution by PETRONIC (c) defined the regulatory contmued beyond third tranche functions, if any, of release a waiver was granted\. PETRONIC Currently, PETRONIC still is m Government's hands, but it has no regulatory functions  20 Nicaragua ERC II \.~~~~~~~~~~ :7 \. \. \.r \. \.,b'' \. \. \. \. \. , Schedule Sector policy The Borrower shall have C Third Two Institutional Restructuring 3, conditionality\. made progress in the tranche Agreements (ARIs) were signed Part B (3) adm /budgetary implementation of the Public condition (between CERAP and MCT and /allocative Sector Reform Program ISS), the implementation of the change including, in particular, the agreed action plans is underway\. restructuring of at least two Credit 2690-NI is currently major public institutions providing financing to carry out the implementation of ARIs\. Schedule Sector policy The Borrower shall have C Third Three actions were taken: (a) the 3, conditionality\. made further progress in the tranche new chart of accounts was Part B (4) regulatory implementation of the action condition\. adopted by all private banks; (b) change plan to improve prudential the centralized risk management supervision\. system run by the Superintendency of Banks became operational; and (c) the Superintendency of Banks was designated by decree as the regulatory agency of the Nicaraguan Stock Exchange\. Compliance of state banks with prudential regulations remamns unsatisfactory and they do not follow the adopted accounting prnnciples\. Schedule Sector policy The Borrower shall have C Third The Government succeeded in 3, conditionality made further progress in the tranche substantially meetmg its Part B (5) allocative implementation of the condition cumulative targets for resolvmg change Property Rights Improvement property cases through Program\. administrative means, although for a mmonty of claims a final =__________ resolution remains to be found\. Schedule Sector policy The Borrower shall have C Third The Government implemented 3, conditionality\. made progress m the tranche the import tariff reduction Part B (6) adm\./budgetary implementation of the Tanff condition\. program as expected and /allocative Reduction Program and shall approved a satisfactory action change have prepared a satisfactory plan to phase out the fiscal action plan for the incentives provided to non- replacement of its export traditional exporters by end-1997\. promotion scheme by an It determned that a duty another regime satisfactory to drawback system or temporary the Association\. admission regime would be too complex to admnmister, and instead proposed a simpler strategy of lowermg tanffs on inputs\. This alternative approach was found acceptable by IDA\. Present status\. C = complied with CD = complied with after delay CP = complied with partially  Nicaragua ERC II 21 Table 9: Missions \.tge 9taff gang Pru %f Pj \.ect cle: Year p tabt:\. Through 06/92 6 14 i (2),j,k, appraisal 05/93 12 12 a,e,i(2),n,o,q,r,s 07/93 3 5 ,t,u 03/94 9 9 c,i,m a,b(2),e(2),i,n,o, p Appraisal through Board approval Board approval S S through effectiveness Supervision 04/94 5 12\.3 a,b,c,d,e S S 03/95 5 a,b,c,f,g S S 03/96 2 h,t S S Completion 12/96 0 2 0 2 1 Performance ratmg as shown m Supervision Form 590 2\. Key to Specialized Staff Skills a Lead Economist I Water and Sewerage Specialist b Financial Economist m Financial Sector Specialist c Bankig Specialist n Privatization Specialist d Lawyer p Resident Representative f Public Sector Specialist q Taxation, Public Enterp , Natural Res\. Specialist g Telecommumcations Specialist r Property Rights Specialist h Country Economist s Export Development Specialist Economist t Country Analyst j Mming Specialist u Country Officer k Energy Specialist  22 Nicaragua ERCII Table 10: Bank Resources: Staff Inputs Actual stge of Stan fWwe Through appraisal 68\.9 185\.1 Appraisal-Board 1\.1 2\.2 Board-effectiveness 7\.3 23\.8 Supervision' 20\.0 67\.7 Completion 4 0 19\.1 TOTAL 101\.3 297\.9 Task management of ERC II was performed by the Bank's Resident Representative in Nicaragua The 2OSW figure refers mainly to mputs of others, and likely understates the intensity of supervision\. \.  ANNEX A Government Evaluation of the Second Economic Recovery Program (ERC 11) Annex A presents an unedited translation of the Government's evaluation of the Second Economic Recovery Credit\. The Government evaluation was prepared by the Ministry of Finance and also included a table of selected economic indicators (Annex I) and a matrix showing the results of the adjustment program (Annex II)  Managua, April 23, 1997 7f6 idLe'4 0j~ Re: Assessment of the Second Economic Recovery Program (ERC I) During the last six years, Nicaragua has made significant progress in the stabilization and structural reform process with the aid of the international economic community\. With this support, the deficit of the balance of payments was eliminated and economic and social projects and programs were developed\. In this context, the Government of Nicaragua reached agreement on an Enhanced Structural Adjustment Facility (ESAF) program with the IMF, and contracted the First and Second Economic Recovery Credit with the World Bank, agreeing on the implementation of economic policies to support macroeconomic stability and structural adjustment to consolidate the basis for sustained growth\. In this document, I outline the main results of the Government's management during the 1994- 1996 period, regarding the commitments undertaken for the execution of the Second Economic Recovery Credit (ERC II) in June, 1994\. I\. Economic Developments during 1994-1996 During this period, Nicaragua showed significant signs of recovery, achieving incremental growth rates of 3\.3% in 1994, 4\.5% in 1995, and 5\.5% in 1996\. The main sectors which contributed to the economic growth were agriculture (average 13\.2% during the period), construction and mining (16\.1%) and fishing (37\.1%)\. In agriculture, strong growth was recorded by export products-mainly coffee and sugar-as well as non-traditional exports and basic grains for domestic consumption (see Annex I)\. Regarding the price system, the Government succeeded in keeping inflation at manageable levels, with a moderate inflation of around 10% on average during the last three years (see Annex I)\. In the external sector, exports of goods and services increased from US$267\.0 million in 1993, to US$634\.8 million in 1996 (equivalent to a 137\.8% growth)\. On the other hand, imports increased at lower rates than exports (50\.2% between 1993 and 1996)\. This resulted in a decrease of the trade gap, from US$402\.6 million in 1993, to US$371\.2 million in 1996\. Furthermore, there was an improvement in the net international reserve position, with an increase of US$66\.0 million during 1996\. Lower accrued interests due to a debt restructuring with the Paris Club, the buy- back of commercial debt and debt forgiveness, contributed to this result\. In 1996, debt totaling US$4,165\.6 million with Russia and Mexico was canceled\. During these three years, the focus of fiscal policy continued to aim at improving the current account balance, which moved from a deficit to a surplus since 1992\. This was mainly the result of the major down sizing of the State and a proactive revenue policy, so as to enhance tax  collection efficiency and other tax reforms\. Current savings increased to an average of 4\.4% relative to GDP during the last three years However, fiscal policy was not successful enough to comply with the ESAF targets\. For this reason, toward the end of 1995 the country agreed with the IMF on a monitoring program, which encompassed corrective measures, including larger tax collections and fiscal restraint, as well as a tight monetary policy through the reduction of net credit to the financial sector and the Government, which would set the basis for the second phase of the ESAF in 1996\. Overall compliance with the monitoring program during September 1995 and March 1996 was satisfactory\. Subsequently, due to the delay in the approval of the Tax Reform Law (Ley para el Fomento de la Estabilidad, las Inversiones y el Empleo), there was a lag in compliance with the revenue collection targets\. In addition, public expenditures increased significantly due to the electoral campaign, the rise in social security expenditures, and in transfers to the education sector\. On the other hand, credit recovery of the state-owned banks did not meet expectations\. As a result of the above, negotiations with the LMF for the second phase of the ESAF under the policy framework adopted by the new Government were delayed until 1997\. Results of the 1994-1996 period show that the Nicaraguan economy is gradually approaching stability and sustained growth, given a gradual reduction and reversion of foreign trade, fiscal, and employment imbalances, through the boost in exports, the generation of public savings, the containment of in inflationary pressures, and the creation of new jobs in the private sector\. II\. Public Sector Reforms State reform was part of the ESAF and ERC II framework\. A key component of this reform was the down sizing of the Central Government, through the elimination of 13,500 posts in the public sector between 1994 and 1996\. By December 1996, the public sector labor force had been reduced by 10,285 posts, 76\.2% of the proposed target, its reduction is foreseen to continue during 1997, until reaching an optimum level for the operation of the State apparatus\. The Government implemented a privatization program aimed at promoting an efficient allocation of resources, and reducing the size of the Central Government\. The privatization process of 351 enterprises owned by the Corporaci6n Nacional del Sector Puiblico (CORNAP) began in 1990, and by 1996 97% of all CORNAP firms were privatized\. The privatization process of the remaining firms is in its last phase; its completion is expected for the first semester of 1997\. The privatization of one of the MCT firms and LUBNICA and ENIGAS was also completed\. As part of this same reform process, operations of PETRONIC were opened to the private sector, so as to position it as a business enterprise within a competitive market, pursuant to the regulations of Decrees 56-94 and 26-95\. Three Draft Laws were submitted to the National Assembly for the restructuring of the electric power industry, and the operation and prospecting of  hydrocarbons, as well as for their supply; this is also aimed at allowing the involvement of the private sector (Appendix II, point II B)\. Under the ERC II policy matrix, the Government committed itself to undertake the sale of 40% of the TELCOR shares, and to award a management concession\. In this regard, Law No\. 210, Incorporaci6n de Particulares en la Operaci6n y Ampliacion de Servicios Pzublicos de Telecomunicaciones, was approved in December, 1995\. ENITEL was created under this Law, which was charged with the operation of the public telecommunications services\. This Law enables the Government to sell up to 40% of ENITEL shares-including the management contract-to a worldwide known company\. A reform plan and its implementation was proposed to complete the public sector reform program, including the restructuring of at least two public agencies\. There has been significant progress in this issue\. Six reorganization agreements (ARIs) were signed, for the Ministry of Construction and Transport (MCT), the Ministry of Finance (MIFIN), the Ministry of Environment and Natural Resources (MARENA), the Ministry of Economy and Development (MEDE), the Nicaraguan Institute for Municipal Development (INIFOM), and the Nicaraguan Institute for Social Security (INSS)\. The reform in these Ministries and governmental agencies is under way in several aspects: * A new organization was designed in the MCT, creating an Economic Infrastructure Planning Division and preparing a diagnosis for the installation of a new data processing system\. * Progress has been made in the design of the new Social Security System, and in the development of a study aimed at strengthening the Health Insurance model within the INSS\. * In the MIFIN, a study was carried out on the staffing structure and pattern according to the Sistema Integrado de Gesti6n Financiera, Administrativa y Auditoria (SIGFA)\. * The INIFOM made efforts to procure financing for the measures set forth in its ARI, which was attained with donor aid from the Danish Government\. * The design of the Sistema Gerencial y Tecnico del Estado (SGTE) was completed, and 400 officials of the public sector were trained\. * The first draft of the Financial Management Law (Ley de Administraci6n Financiera) was prepared, which will lay the legal basis for SIGFA's operation, and submitted to the National Assembly\. Likewise, this system began its implementation in several Ministries\. * In 1996, four contracts with international consulting firms were signed, to provide technical assistance to agencies that have signed ARIs, in the four components of Institutional Restructuring, Civil Service, Budgeting and Auditing, and Data Processing Technology\.  M\. Reform of the Financial Sector Components planned for the financial sector were to promote the development of an efficient financial intermediation system, with greater involvement of the private sector, strengthening compliance with prudential regulations of the Superintendency of Banks, enhancing the data system on bank debtors, and implementing a new chart of accounts\. Under a state bank reform program agreed with the World Bank and the IDB, the down sizing of the state banking system is being implemented\. The latter is carried out through the transfer of approximately C1,500 million of the banks' portfolio to the Central Bank-which represents over half of the state banks' portfolio-by way of debt payments due to the Central Bank\. Moreover, a cut-back in the number of offices and branches, especially in the case of the Banco Nacional de Desarrollo (BANADES) is being carried out\. Restrictions have also been imposed on the growth of the BANADES portfolio\. As of July 1995, the Central Bank canceled the 3- and 12-month rediscount line of credit, and only the overnight and 10-day liquidity support facilities will remain in place Thus, the Central Bank will only act as lender of last resort\. Using its own powers, the Superintendency of Banks has increased penalties for the non- compliance with its prudential norms\. In May, 1996, the Superintendency of Banks approved new prudential norms on credit concentration, asset valuation and classification, capital adequacy, and reforms to the exception norms (norma sobre excepcionalidades)\. The draft General Banking Law, which is under review in the National Assembly, includes the strengthening of bank supervision powers\. The debtor system is performing well, and pursuant to the prudential norms of the Superintendency of Banks, the banks are committed to provide reports to keep the system up to date\. A new chart of accounts was implemented as from 1994 under resolution CBI-DIF-I-4-93, currently including all state banks and private banks\. IV\. Development of the Private Sector To establish a favorable environment for the development of the private sector, the Government intends to address the problem of property rights so as to ensure land tenure security, and also to solve conflicts resulting from the land seizures of the Sandinista Government\. With this objective in mind, the Government created a program for the administrative settlement of property claims\. Up to 1996, the Oficina de Ordenamiento Territorial (OOT) had reviewed 12,117 cases of Law 85 (urban areas), 98% of the total cases submitted to the revision process\. With respect to Law 86 (rural areas), 82% of the 106,130 cases submitted to this process were reviewed, and a 90\.8% progress was achieved in the cases related to the Agrarian Reform (Law 88) (Annex II, point IV)  In turn, the Government increased its efforts regarding the compensation and indemnification process\. Up to December 1996, 4,501 resolutions were issued, accounting for 79% of all claims submitted under the Sistema Integrado de Atenci6n de Reclamos de Propiedades (SIARP)\. The indemnification process involved the issuance of C3,933 7 million in Compensation Payment Bonds (BPI) since 1993, and interest coupons for the years 1995-1996 amounting to C23\.9 million have been paid\. As a result of an agreement among the National Assembly, the Association of Bond Holders, and the Government, and based on the recommendations of a study by Dr\. Strasma, Law No\. 180 was passed\. This Law modified the terms of the bonds from 20 to 15 years, increased the fixed 3% interest rate to an incremental interest rate of up to 5%, established semi-annual interest payments, and extended the use of these bonds to the payment of tax, basic services, and other debts originating before June, 1993\. At the end of 1996, Ministerial Agreement No\. 17-96 was issued defining the establishment of a BPI exchange system\. Through this system, the bonds can be traded in international financial markets (Appendix II, point IV A)\. Other reforms proposed in support of a productive private sector, under the terms of this Credit, refer to foreign trade\. A strategy to foster export growth was developed, as well as a more efficient import policy through the reduction of the level and dispersion of nominal protection\. In May, 1994 a gradual schedule to reduce the nominal ceiling rates of Import Tariffs (DAI, Derechos Arancelarios de Importaci6n), Fiscal Stamp Tax (ITF, Impuesto de Timbre Fisca), and Temporary Protection Tariff (ATP, Arancel Temporal de Protecci6n) was prepared\. Through Decree No\. 41-95, DAI rates for a wide range of products were cut from 5% to 1%\. Concurrently, ATP rates for a series of products included in Appendix I published in Decree No\. 22-94 were modified, reducing the 5-15% range to a 10-12% range\. With respect to Appendix II of the ATP, the maximum level was cut from 30% to 25%\. At the end of 1996, the maximum ceiling of the sum of DAI, ITF, and ATP of Appendix II was less than 40%, in accordance with the import duty reduction schedule announced by the Government in 1994\. Mr\. President, this new Government considers that our country has progressed satisfactorily during the last three years\. Reforms carried out have aimed to maintain both price stability and structural adjustment, as key steps to achieve sustained growth\. As part of these reforms, a set of policy measures were implemented in the areas of expenditure reductions, privatization of Government assets, and trade liberalization\. These reforms were carried out in the context of macroeconomic policies that guarantee overall stability\. Economic performance improved significantly under the economic policies followed, but we know that we still face enormous challenges\. We cannot be satisfied until we achieve a strong, market- oriented economic recovery, able to offer a bright future for our people\. The Government of Nicaragua is willing and determined to continue deepening the economic transformations leading to growth with equity\. Then, a new and prosperous phase will begin, where the true rule of law is  re-established, and a stable environment consolidated; domestic and foreign investments will increase, and with it production and productive employment for all Nicaraguans\. In such context, support from the international community, mainly the World Bank, is critical to continue transforming our economy and take firm steps in the difficult road ahead of us\. We are currently undertaking a series of activities in coordination with the IMF, in order to reach agreement on a second economic program in June, 1997\. Considering the success obtained under ERC II, we are sure that we will be able to count on the support of the World Bank as a co- financing agency for our economic program, through a third economic recovery credit\.   ANNEX I NICARAGUA: SELECTED ECONOMIC INDICATORS 1993 1994 1995 1996 A\. Gross Domestic Product (1980 C6rdobas) -0\.4 3\.3 4\.5 5\.5 Primnary 1 8 10\.8 5\.5 9\.8 Agriculture -6 2 16\.1 8\.2 15\.4 Fishing 62\.7 55\.8 47\.5 7\.9 Secondary 0 3 2\.7 5\.4 4\.7 Manufacturng 0 0 1\.0 3\.0 2\.0 Construction 1 5 17\.8 16\.3 15 4 Minmg 2\.7 -10 1 30 3 27 2 Tertiary -1\.8 -0 1 3\.3 3 4 Trade -2\.3 1\.6 5 0 5 7 B\. GDP (current C6rdobas) 11,067\.3 12,445 4 14,455 5 17,126 0 C\. Inflation Rates Annual average 20\.4 7\.8 11 2 11\.6 Cumulative 19\.5 12 4 11\.1 12\.1 D Unemployment (national) 21\.8 20\.7 18 2 16 1 E Public Fmances (% of GDP) Non-Fin\. Public Sector Balance (after grants) -0 2 -5 9 -2 4 -4 9 Non-Fin\. Current Balance 3 2 2\.4 6 1 4 7 F External Sector (US$ million) Exports FOB 267\.0 351\.2 526 4 634\.8 Imports FOB 669\.6 784\.7 865\.0 1006\.0 Trade Balance -402\.6 -433\.5 -338\.6 -371\.2 Net International Reserves of Central Bank 40\.5 105\.1 99\.2 165\.2 External Public Debt 10,987 3 11,695 0 10,298\.9 6,104\.8 Sources Central Bank Annual Reports, 1994, 1995 and 1996\.  ANNEX n NICARAGUA: SECOND ECONOMIC RECOVERY CREDIT MATRIX OF RESULTS, 1994-96 Objective Commitment or Action Required Status or Results I Macroeconomic Framework Maintain a stable Durng 1994-96, Nicaragua initiated an economic Ensure a stable macroeconomic program withm the ESAF framework During thls macroeconomic framework\. period, the Nicaraguan economy has shown significant framework\. signs of recovery, reachmg average economic growth rates of 4\.5% and a recovery of exports\. Nonetheless, in 1995 and 1996 fiscal and monetary targets were out of line, which prevented contiuation of the ESAF program\. Agreement was reached m end-1995 on a monitoring program with the IMF\. The new Adminstration of Dr\. Aleman aims to agree with the DMF, during the first semester of 1997, on a program which can restart the ESAF II Reform of the State A\. Labor Mobility Plan Design and implement an As of December 1996, almost 10,300 positions had been Achieve a permanent action plan for the labor eliminated from the public sector labor force; 76% of the reduction in costs to mobility program in order target\. strengthen the fiscal to reduce employment by balance through a 13,500 positions durng reduction in the public 1994-96\. sector labor force\. B\. Privatization Program Promote more efficient Brmg to the point of sale The process of disincorporating the 351 enterprises was resource allocation and or closure enterprises started in 1990\. By 1996, 97% of the goal was achieved, lower fiscal burden under CORNAP and MCT with 10 pending enterprises which are m the final stages through dismcorporation of of liquidation or closure\. state enterpnses\. The process of selling the assets of CONSULTRAN, an MCT enterpnse, was completed in end 1995\. Another 7 enterpnses continue to be part of this Ministry, grouped under the Corporacion Regional de Empresas de Construcci6n, located m different parts of the country\. A Bank-fmanced study on the privatization of these enterpnses is in the hands of the relevant Ministry, awaiting its mnplementation\. Bring to the point of sale Decree 56-94 of December 1994, established that the or liquidation some of the importation, export, refining, transport, storage and operations of PETRONIC, marketing of hydrocarbons could be carried out by mcluding gasoline national or intemational natural and legal entities whlch distribution, while the obtained the appropriate license, with the State eventual regulatory guaranteeing the corresponding regulations\. With this functions of PETRONIC law, PETRONIC ceased to have a state monopoly on are defined these activities\. Subsequently, Decree 26-95 reformed PETRONIC's organic law m order to place it as a commercial -enterprise in a competitive market\.  NICARAGUA: SECOND ECONOMIC RECOVERY CREDIT MATRIX OF RESULTS, 1994-96 Objective Commitment or Action Required Status or Results In the case of LUBNICA, 25% of its capital was transferred to its workers, and the remaining 75% was transferred to INE to repay debts to PETRONIC In the case of ENIGAS, workers were paid with the enterorise's assets\. Improve the efficiency and Take steps for the sale of Law No 210, Incorporaci6n de Particulares en Ia service coverage by 40% of ENITEL shares, Operaci6n y Ampliacw6n de los Servicios Puiblicos de promoting pnvate sector mcluding the offer of a Telecomunicaciones, was approved on December 7, participation in the management contract for 1995\. The Law created ENITEL to operate public telecoms sector\. the wmmng bidder\. telecommunications services\. Thls same law authorized the Govemnment to sell up to 40% of ENITEL shares, including a management contract to an mternationally-renowned enterprise\. In addition, if necessary to back up the compensation bonds, an additional 10% of shares could be sold\. A Committee was created in charge of canying out the pre- qualification process, the public bidding of the concession and the sale of ENITEL shares\. C\. Public Sector Reforms Create an efficient, smaller Prepare a 3-year plan, m As of December 1996, 6 Institutional Restructurng and modern public sector line with the Agreements (ARIs) were finalized, for MCT, MIFIN, Government's public MARENA, MEDE, INIFOM and INSS\. Reforms have sector reform policy begun to be implemented in a number of aspects in the Achieve satisfactory Mimstnes and mstitutions\. In MCT, a new structure progress in its was designed, creatmg a Planning Division for Economic implementation, mcluding Infrastructure, and a diagnosis was carried out for the the restructurng of at least adoption of new computer installations\. In INSS, 2 important public progress was made on the design of a new social security mstitutions\. system and completion of studies to strengthen preventive health\. In MIFIN, a study was carried out on the structure and payroll in line with the Integrated Financial Management System (SIGFA)\. INIFOM managed to secure financing from the Government of Denmark to carry out actions stipulated in the ARI\. Design of the Public Management and Technical Service was completed\. A draft law for SIGFA was prepared and implementation was started in a number of Ministries\. In 1996, 4 contracts were signed with mternational consultmg firms to provide techmcal assistance to institutions with ARIs, m the areas of institutional restructurng, civil service, budget and auditing, and information technology Im Financial Sector Reform A\. Banking Sector Policy Maintain policy of: (i) not A policy of reducing the size of the state banking sector Encourage development of recapitalizmg state banks has been implemented within the framework of a state an efficient financial through new public sector reform program agreed with the World Bank and IDB\. intermediation system, funds or revaluation of with mcreased private non-financial assets; sector participation\.  NICARAGUA: SECOND ECONOMIC RECOVERY CREDIT MATRIX OF RESULTS, 1994-96 Objective Commitment or Action Required Status or Results (ii) ensure compliance This has been achieved through a portfolio transfer to the with prudential norms and Central Bank m the order of C1,500 milhion, equivalent instructions issued by the to more than half of the portfolio of state banks, on Superintendency of Banks; account of debt payments to the Central Bank, as well as and (iii) no pre-assigning reduction in the number of offices and branches, of rediscounts from the especially in the case of BANADES\. At the same time, Central Bank for specific Ilmits were set on the growth of loans of BANADES> activities\. Any revaluation of non-financial assets can only be made to cover a deficit in loan provisions-when revenues are insufficient to cover required provisions and capital adequacy is at its miumum-or to cover severance payments\. B\. Superintendency of Enact decree, action plan The Superintendency has increased penalties for non- Banks or draft law to increase compliance with its prudential norms, relymg on its own Strengthen compliance penalties, create new attributions In May 1996, the Supermtendency with prudential norms of prudential norms and approved new prudential norms on loan concentration, the Superintendency, improve the operations of evaluation and classification of assets, capital adequacy improve the financial the Superintendency of and reforms to exceptions to the norms The National information system ana Banks\. Assembly is discussmg the draft General Law of Banks accountmg systems\. which includes the strengthening of the Superintendency\. Design and implement a The system is in operation and the Superintendency's debtor management prudential norms include the requirement that bariks system\. report in order to maintain the system current\. A user manual on the central risk system is being tested\. The system has three tools: relevance analysis, balance mformation, loan amounts and provisions\. The modules on repayment status, and repayment analysis are being developed\. Implement a new chart of A new chart of accounts has been implemented smce accounts 1994 through resolution SBI-DIF-I-4-93, currently mcludmg all state and private banks\. IV Private Sector Development A\. Property Rights Establish a program to As of 1996, the Oficina de Ordenamiento Territorial had Resolve property rights review compliance with reviewed 12,117 cases under Law 85 (houses) equivalent problems in order to established procedures to to 98% of the total number of cases presented for review\. improve land tenure resolve property conflicts\. With respect to Law 86 (rural sector) 82% of the 106,130 secunty and improve cases submitted were reviewed\. Lastly, progress was pnvate sector climate made on 91% of the agrarian reform cases (Law 88)\. At the same time, the Government made greater efforts on the compensation process\. As of December 1996, 4,501 resolutions were issued, covering 79% of the total claims  NICARAGUA: SECOND ECONOMIC RECOVERY CREDIT MATRIX OF RESULTS, 1994-96 Objective Commitment or Action Required Status or Results presented to the Integrated System for Review of Property Claims\. The compensation process meant the issumg of C3,933 million in compensation bonds since 1993, with coupon interest payments for a total of C23\.9 million durng 1995-96 On the basis of the study by Dr\. John Strasma, Law 180 Carry out a study and was approved, following consensus between the Implement its Assembly, the Association of Bond Holders and the recormendations with the Government\. This Law reduced the period of the Bonds aim of raismg the value of from 20 to 15 years, the fixed 3% interest rate was compensation bonds\. gradually increased to reach 5%, mterest payments would be every 6 months, and the use of the bonds was extended to cover tax payments, basic services and other debts prior to June 1993 The Ministerial Accord No 17 was published m late 1996, creating a redemption system that would allow these bonds to be transacted ui mternational markets\. B\. Discretion in Economic Policy Promote a more stable and Issue a presidential decree Presidential Decree 20-94 was issued in April 1994, transparent policy establishung: (i) that any which established that Executive Decrees and enviromnent for the change in tax or fiscal Admnistrative Rulings of a fiscal nature must be private sector, reducmg policy, to be legally published in the Official Gazette to be legally bindmg ministerial discretionality bmdmg, must be published In the same month, Presidential Decree 21-94 abrogated to change tax and fiscal in the Official Gazette, the discretionary powers of Ministries and autonomous policies and the creation of except m cases offorce and decentralized agencies of the Executive Power to new state enterprises\. majeure, m which case it create and change taxes\. must be published in at least one daily newspaper of broad circulation; (ii) abrogatmg and elevatmg to the Presidency the powers of Ministries and government agencies to change tax and fiscal policies; and (iii) abrogating the powers of Ministries and government agencies to create new conmercial enterpnses\. C\. Foreign Trade Reforms Reduce nominal protection A schedule for the reduction of nominal tariff ceilings for Promote export growth and rates from a range of 10- the DAI, ITF and the ATP was established in May 1994\. efficient import 40% to 10-37% (except for 37% for July 1, 1995; 35% for January 1, 1996; 32% for substitution by reducmg fiscal mdustries)\. Present January 1, 1997\. At end 1996, the ceiling (including the the level and dispersion of a time-bound tariff DAI, ITF and ATP of Annex II) was below 40%\. nominal protection, and reduction program\. the creation of a transparent and efficient export incentive system\.  NICARAGUA: SECOND ECONOMIC RECOVERY CREDIT MATRIX OF RESULTS, 1994-96 Objective Commitment or Action Required Status or Results Complete preparation of action plan to replace existmg export promotion mechanisms by a duty drawback system D\. Labor Market Reform Promote greater labor Comply with agreements A new Labor Code was promulgated m end 1996\. productivity and reduce the on labor policy incentives toward infonnal activities by ensuring flexibility m the operation of the labor market\.  I  IMAGING Report Na\. 1877a Type: ICR

REVIEW

P086513

 ICRR 14387 Report Number : ICRR14387 IEG ICR Review Independent Evaluation Group 1\. Project Data: Date Posted : 07/09/2014 Country : Uganda Project ID : P086513 Appraisal Actual Project Name : Millennium Science US$M ): Project Costs (US$M): 33\.35 34\.72 Initiative L/C Number : C4174 Loan/ US$M ): Loan /Credit (US$M): 30\.00 31\.91 Sector Board : Education US$M): Cofinancing (US$M ): Cofinanciers : Board Approval Date : 05/25/2006 Closing Date : 12/31/2011 06/30/2013 Sector (s): Tertiary education (65%); Central government administration (29%); Other industry (6%) Theme (s): Other financial and private sector development (40% - P); Education for the knowledge economy (40% - P); Improving labor markets (20% - S) Prepared by : Reviewed by : ICR Review Group : Coordinator : Erik A\. Bloom Denise A\. Vaillancourt Lourdes N\. Pagaran IEGPS2 2\. Project Objectives and Components: a\. Objectives: The Project Agreement states that : The objective of the project is to support [Uganda's] efforts in assisting public and private universities and institutions of research within its territory to produce more and better qualified science and engineering graduates, attain higher quality and more relevant research, and to improve its productivity through increase use of outputs of such research by private and public firms to enhance science and technology -led growth\. The objective in the Project Appraisal Document (PAD) is effectively the same: The project's development objective is for Ugandan universities and research institutes to produce more and better qualified science and engineering graduates, and higher quality and more relevant research, and for firms to utilize these outputs to improve productivity for the sake of enhancing S&T [science and technology]-led growth\. A project restructuring in November 2012 involved the refinement of outcome indicators for enhanced clarity, coherence and measurement of project performance \. While this restructuring involved a change in the target value of one outcome indicator (number of active researchers ) from 392 to 522, this change alone does not warrant a split rating, as specified in the Bank's ICR guidelines \. b\.Were the project objectives/key associated outcome targets revised during implementation? No c\. Components:  The project had two components : Component 1 (Appraisal amount: US$16\.69 million; final amount: US$19\.29 million)\. The Millennium Science Initiative Funding Facility\. This was to support the creation of a competitive funding facility that provides (i) grants for high quality research closely connected to graduate training; (ii) grants for the creation and upgrading of undergraduate programs in science and engineering; and (iii) grants to support the collaboration between the private sector and researchers and to promote internships \. Component 2 (Appraisal amount: US$16\.65 million; final amount: US$15\.43 million)\. This component supported outreach programs, capacity building, and monitoring and evaluation \. d\. Comments on Project Cost, Financing, Borrower Contribution, and Dates: The project was approved on May 25, 2006 and became effective on March 02, 2007, which was the planned date\. The project closed on June 30, 2013 which was 18 months after the originally planned closing date of December 31, 2011\. The government of Uganda provided US$ 2\.81 million, which was less than originally planned amount of US$3\.35 million\. The IDA credit of SDR 29\.0 million (US$31\.91 million equivalent) was fully disbursed\. The project had three restructurings (February 14, 2011; September 28, 2011; and November 15, 2012)\. These restructurings extended the project closing date to allow for additional grants and to give the implementing agency time to carry out complicated procurement \. The restructurings also reallocated resources across disbursement categories\. The 2012 restructuring also involved changes to the key indicators, essentially rephrasing the five key outcome indicators to enhance clarity and measurability and to rationalize the two different sets of indicators in the FA and the PAD \. Only one outcome target value (number of active researchers) was formally changed -- from 392 to 522\. This change, alone, does not warrant a split evaluation, as required under the Bank's ICR guidelines \. The ICR does not explain why the refinements to indicators were made so late in the project's life\. 3\. Relevance of Objectives & Design: a\. Relevance of Objectives: Relevance of objective is rated substantial \. Increasing the impact of science and technology was a government priority in 2006, when the project was approved (page 1 of the ICR)\. It remains a priority of the government in both its medium -term and long-term strategies and the government has continued to maintain its support for the Initiative (page 14 of the CAS; page 51 of the ICR)\. The Bank's most recent CAS (2010) does not include further investment in the area of Science and Technology, although many areas supported by the project contribute to the CAS' Area One (Inclusive and Sustainable Economic Growth), particularly related to "improved conditions for private sector growth " and "increased productivity and commercialization of agriculture \." Currently the World Bank and the government are working to develop a follow-on project in the Bank program (interview with project team; page 18 of the ICR)\. b\. Relevance of Design: Relevance of design is rated substantial \. The project was well designed with appropriate activities to address the subobjectives \. The different activities supported each other, creating positive synergies \. The package of activities provides credible inputs into the causal chain, with appropriate timing and realistic goals on what the project could accomplish \. To promote better qualified science graduates and to develop higher quality and more relevant research, the design allowed for several different types of grants, each responding to a different approach to promoting science and technology \. The grant program was designed to support better and more relevant science with its rigorous review of grant proposals \. The project also included a number of steps to support students as they study science, thus providing support to current and potential future researchers, including providing scholarships to students who were working towards a degree while supporting the research project \. The project also provided direct support to the universities to create new science programs and to increase the coverage  and quality of existing programs \. To support the increased use of research by public and private firms, the project also provided support to public-private research collaboration \. The project also provided substantial support for outreach activities aimed at various groups (the general public, the private sector, etc \.)\. 4\. Achievement of Objectives (Efficacy): Based on the legal agreement, efficacy is divided into three sub -objectives\. Produce more and better qualified science and engineering graduates is rated high\. high Outputs The project supported the creation of four new undergraduate programs as well as the significant upgrading of six other programs (intermediate indicator 6; discussion with project team)\. Independent assessments show that these new programs were operating at 100 percent capacity , compared to a target of at least 70 percent\. In addition all of these programs were fully accredited by the National Council of Higher Education (intermediate indicator 9)\. In addition,, the research grant program included scholarships , largely for graduate students, to support science and engineering graduates (page 12 of the ICR; discussion with the project team )\. The project supported a number of initiatives to improve science and technology outreach \. This included organizing a School Visit Program with 30 top scientists and researchers serving as role models\. The program had an estimated audience of around 70,70 ,000 secondary school students \. Outcomes The number of BSc graduates in targeted fields increased from 892 which essentially met the 3,241 to 4,892, target of 4,861\. 633 , exceeding the target of 330\. The number of MSc graduates increased from 245 to 633, \. 41 , exceeding the target of 36\. The number of PhD graduates increased from 24 to 41, Attain higher quality and more relevant research is rated high Outputs The main instrument to improve research was through the competitive grants that were available to research teams\. In total, nine senior research teams and fourteen emerging research teams received grants through the project\. These grants ranged from US$100,000 to US$800,000 each (pages 31 to 36 of the ICR)\. The grant program was highly competitive and only 9 percent of proposals were awarded \. Generally, a low figure is considered an indicator of quality as it shows a competitive process \. The selection panel consisted of both high-level international and domestic scientists, which ensured high selection standards (page 21 of the ICR; discussion with the project team )\. The project supported the National Science Week on an annual basis with a number of activities to encourage interest in science (page 30 to 32 of the ICR)\. Outcomes The number of active researchers increased from 261 to 760, 760 which exceed the original target of 392 and the formally revised target of 522\. In part, this was the result of the scholarships offered by the project \. The research grants also allowed a number of institutions to hire researchers to support their projects \. Published articles in recognized journals is commonly used as a proxy for research quality \. The percentage of researchers published in a peer -reviewed journal increased from 2 percent to 3\.5 percent , compared to a target of 4\.0 percent\. An additional 88 articles in the pipeline at the time of the project's closing is a good indicator that this target will be exceeded in 2014\. (ICR p\. 3) In addition, the proportion of researchers that published in international non -referred journals increased from 11\.0 percent \. Similar increases were seen in national journals, with the proportion of 1\.7 percent to 11\. researchers publishing in nationally peer -reviewed journals increasing from 1\.7 percent to 11\. 11 \.7 percent and 12 \.6 percent \. No targets had been set for these elements \. in non -referred journals from 2\.2 to 12\.  Other benefits include a substantial increase in the number of researchers that are working to revise textbooks 2012 Likewise, the proportion of researchers receiving patents and from 2 percent in 2007 to 11 percent in 2012\. utility models, increased from 3\.3 percent to 5\.1 percent from 2007 to 2011 (page 39 of the ICR)\. Improve productivity through increased use of outputs of such research by private and public firms to enhance science and technology -led growth is rated modest Outputs The project included a number of initiatives to support the transfer of technology from researchers to the private sector\. The project supported five grants for technology transfer \. This was complemented by a student internship program that offered opportunities to 29 percent of science and technology students , compared to a target of 15 percent\. Most of these internships were in public institutions \. Outcomes Two of the five grants (the equivalent of 40 percent ) led to the adoption of new technology , compared to a target of 30 percent\. However the project did not lead to any new collaborative research, against a target of 15 percent\. The ICR reports that 40 percent of the interns were hired by the firms where they carried out an internship, compared to a target of 15 percent\. There is no evidence on the number of interns hired by public institutions\. Overall, firms active in technological development increased the number of employees with science, technology, and engineering backgrounds by 35 percent , compared to a targeted 25 percent increase (indicator 4; page 3 of the ICR)\. The ICR does not provide any data on the improvement of productivity \. 5\. Efficiency: The project's efficiency is rated substantial \. The ICR reported that the project had an economic rate of return from 31 to 33 percent, with a net present million These estimates depend on the unemployment rate \. A few value between US$ 69 million to US$ 81 million\. other factors point to substantial efficiency : There is evidence of improved internal efficiency \. For instance, faculty members produced more research outputs after the project intervention \. Further, the revenue generated by Uganda Industrial Research Institute also increased through consulting services with the private sector from almost nil to UGX 67 million, due to the project financial support \. These improved internal efficiencies directly contributed to the PDO, specifically improvement of research quality and relevance, and utilization of the research for productivity improvement\. The collected data indicates an improvement of external efficiency, which can be evaluated by the degree of relevance of education to the socio -economic conditions\. The data shows the increase in employment of STE skilled workers with diploma or degrees (BSc, MSc, and PhD) from less than 5 percent in 2007 to 35 percent in 2013\. As much as the project was allocated in the form of grants to researchers, it is not possible to estimate the efficiency of the individual projects \. These sub-projects were chosen competitively through a high quality process; this process helped ensure that the best projects were selected \. The project was fully disbursed by the closing date \. There were minor shortomings in efficiency, such as initial delays in procurment and restructurings, which could have been combined and carried out earlier \. Nevertheless, there were high levels of efficiency in terms of project interventions and, overall, implementation was largely efficient\. ERR )/Financial Rate of Return (FRR) a\. If available, enter the Economic Rate of Return (ERR) FRR ) at appraisal and the re- re -estimated value at evaluation : Rate Available? Point Value Coverage/Scope* Appraisal No ICR estimate Yes 32% 100% * Refers to percent of total project cost for which ERR/FRR was calculated\. 6\. Outcome: The overall rating is satisfactory \. The project's relevance of objectives and the relevance of design are rated substantial \. The two of the three objectives are rated high and the third was rated modest \. The efficiency was rated substantial \. a\. Outcome Rating : Satisfactory 7\. Rationale for Risk to Development Outcome Rating: The project's contributions to science and technology are likely to be long -lasting as they are embedded in human capital\. However, there are concerns that many of the project's initiatives have stopped since the project closed\. The project had a high level of support during implementation and both the government and the Bank have indicated their interest to launch a second phase of the project \. However, it appears that there has been little progress on the ground in developing a new project (page 18 of the ICR)\. Likewise, the government has not provided additional resources, which has led to a decline in client perceptions of the Science and Technology Council (page 15 of the ICR)\. There is no indication that the private sector is providing additional financing to support the project's activities \. a\. Risk to Development Outcome Rating : Significant 8\. Assessment of Bank Performance: a\. Quality at entry: The Bank provided detailed support in the design and appraisal of the project \. The project had a sound design and drew from the experience of research bodies in other countries, including the use of highly competitive grants and a high level, international advisory panel (page 11 of the PAD, page of 19 of the ICR, interview with task team)\. The Bank also supported studies during the preparation and facilitated a project preparation grant (page 52 of the ICR)\. The Bank worked with the implementing agencies to develop a clear set of selection criteria prior to project approval\. The guidelines are important since they lay down clear ground rules for a new instrument (competitive grants)\. The Results Framework (Annex 3 of the PAD) was well designed and included a good set of PDO and intermediate indicators\. The review of Financial Management and Procurement identified the fiduciary risks associated with working in Uganda and with the implementing agencies \. They also outlined corrective steps to reduce these fiduciary risks \. To provide the balance between flexibility and transparency with procurement done through the sub-grants, the fiduciary arrangements included contracting a third party procurement agent to support the grant recipients, prior to submitting a procurement plan to the Bank \. The PAD's economic analysis was comprehensive \. It provided an economic justification for public sector investment in research\. The economic analysis outlined the project's potential development outcome \. Given the significant use of competitive grants, it is difficult to quantify ex ante the project's benefits \. The analysis has a description of the potential benefits that can arise from investing in science and technology, based a review of literature and meta-evaluations\. at -Entry Rating : Quality -at- Satisfactory b\. Quality of supervision: The Bank's supervision was efficient and supportive \. The Bank maintained frequent interactions with the counterparts, in addition to both formal and informal missions \. The project had two TTLs, one of whom was based in Kampala\. This maintained continuity and ensured a high level of responsiveness \. In addition to its role in supporting implementation, the Bank provided technical support to the government and the Science and Technology Council to implement the program, with both theoretical and empirical studies (page 52 of the ICR)\. The Bank was also active in maintaining contact with higher authorities, including the Ministry of Finance to inform them of the project's advances and to work on developing  follow-on activities\. Due to the complex nature of some of the procurement, there were a number of delays in fiduciary activities \. While these delays are likely to represent the prudent reviews necessary for complicated procurement, the ICR argues that the Bank could have been more active in providing support to resolve delays \. The Bank showed candor in discussing these delays with the government and internally, and on balance this is a minor shortcoming (pages 9 and 19 of the ICR)\. The Bank continuously monitored the project and its indicators without any major difficulty (page 8 of the ICR)\. The Bank was proactive in updating the results framework, including adding an additional indicator and raising some of the targets to reflect the project's contribution \. However, this adjustment came late in the project\. Quality of Supervision Rating : Satisfactory Overall Bank Performance Rating : Satisfactory 9\. Assessment of Borrower Performance: a\. Government Performance: The government showed a high commitment during project preparation \. In addition to political support, the government increased financing to the sector outside of the project and supported policy changes to facilitate the project (page 20 of the ICR)\. The government also provided most of the counterpart financing planned during appraisal (page 23 of the ICR)\. The government published the National Science, Technology, and Innovation Strategy in 2009 and complementary action plans in 2012 (page 20 of the ICR)\. Although there has been no agreement on a follow-on project, the government has maintained a dialogue with the Bank through out the project (page 19 of the ICR)\. Government Performance Rating Satisfactory b\. Implementing Agency Performance: Both of the implementing agencies, the Uganda National Council for Science and Technology and the Uganda Industrial Research Institution, improved their supervision and fiduciary capacity during the project, and both saw significant increases in the number of staff members (page 20 of the ICR)\. The Science and Technology Council also improved its M&E capacity and by the end of the project was carrying out rigorous quantitative analysis in addition to its basic monitoring (page 21 of the ICR)\. There were a number of shortcomings with fiduciary procedures \. A number of audit reports were submitted late throughout the project\. However there were no major fiduciary issues \. Procurement was also delayed, in part due to the complexity of some of the procurement packages that needed to be procured internationally (page 9 of the ICR)\. The ICR reports that implementing agencies were proactive with safeguards, particularly in addressing environmental safeguards \. This included a close working relation with the environmental authorities as well as periodic inspections (page 9 of the ICR)\. Implementing Agency Performance Rating : Moderately Satisfactory Overall Borrower Performance Rating : Moderately Satisfactory 10\. M&E Design, Implementation, & Utilization: a\. M&E Design: The results framework was appropriate, including relevant PDO -level and intermediate indicators for each of the  objectives\. The results framework included both quantitative and qualitative indicators \. The results framework included baselines and realistic targets \. The annual monitoring framework (page 41-43 of the PAD) included some gaps, as some of the yearly targets needed to be developed\. The Result Framework clearly indicated who was responsible for collecting data and how the data were to be collected \. b\. M&E Implementation: Throughout project implementation, the M&E capacity of the implementing agencies improved substantially (page 20 of the ICR)\. Throughout the project's implementation, the Bank classified M&E satisfactory \. The project supported carrying out at least new surveys related to science and technology and the results of these surveys were disseminated (page 8 of the ICR)\. The aide memoires always included the PDO indicators although the intermediate indicators were not always updated \. Towards the end of the project, in the restructuring in November 2012,, the government and Bank agreed to clarify some of the indicators, to improve the measurability (pages 3-4 of the ICR)\. In addition, they agreed to increase one of the targets and to introduce an additional indicator \. c\. M&E Utilization: The M&E system supported the government's and Bank's decision to extend the project and to offer another round of grants, based on the evidence of the project's impact (pages 5-6 of the ICR)\. In addition, data from the project played a role in developing the Science, Technology, and Innovation Strategy and its complementary action plans (pages 8-9 of the ICR)\. M&E Quality Rating : Substantial 11\. Other Issues a\. Safeguards: The project reviewed the safeguard risks and triggered two safeguard policies -- environmental assessment and involuntary resettlement\. Since much of the financing was to be done through yet unassigned sub -grants, the project developed environmental and resettlement frameworks to allow necessary flexibility as the project was implemented (pages 23-25 of the PAD)\. The ICR reports that there were no major safeguard issues and that project carried out inspections and cooperated with national environmental authorities \. b\. Fiduciary Compliance: Audits were often presented late, although they did not report any financial irregularities \. Likewise, there were no issues about the eligibility of expenditures \. Procurement was delayed, in part due to the complexity of some of the packages\. c\. Unintended Impacts (positive or negative): d\. Other: 12\. Ratings : 12\. ICR IEG Review Reason for Disagreement /Comments Outcome : Satisfactory Satisfactory Risk to Development Significant Significant Outcome : Bank Performance : Satisfactory Satisfactory  Borrower Performance : Satisfactory Moderately Although the project was generally Satisfactory well-implemented, there were a number of delays with procurement and the annual audits\. Quality of ICR : Satisfactory NOTES: NOTES - When insufficient information is provided by the Bank for IEG to arrive at a clear rating, IEG will downgrade the relevant ratings as warranted beginning July 1, 2006\. - The "Reason for Disagreement/Comments" column could cross-reference other sections of the ICR Review, as appropriate\. 13\. Lessons: The ICR identified a number of lessons from the project (pages 21-22 of the ICR)\. Some of the main lessons include: (1) The rigorous selection of research proposals can have a real impact on the quality of science and technology research\. (2) While highly competitive selection of technical grants is important to ensure high quality, it is also important to take into account the proposals of weaker institutions by ensuring that they have adequate technical resources\. (3) Investing in science and technology requires a long -term strategy to ensure continued public sector support as well as partnership with the private sector \. 14\. Assessment Recommended? Yes No Why? The project presents an important example of investing in science and technology in a low income country \. It can provide important lessons to similar projects in other contexts \. 15\. Comments on Quality of ICR: Although long, the ICR provides a detailed account of the project \. It is well organized and provides a good analysis of the different elements in the objective as well as a complete narrative of the project \. It also provides extensive evidence in the annexes which is useful to understand project contributions and achievements \. While the ICR provides a candid account of the Bank ’s performance, its discussion of the borrower ’s performance is less comprehensive\. The ICR has a well-reasoned discussion of the project ’s lessons\. a\.Quality of ICR Rating : Satisfactory

REVIEW

P078212

 ICRR 12553 Report Number : ICRR12553 IEG ICR Review Independent Evaluation Group 1\. Project Data: Date Posted : 12/29/2006 PROJ ID : P078212 Appraisal Actual Project Name : Emergency Municipal US$M ): Project Costs (US$M): 70\.0 106\.1 Services Rehabilitation Project Country : West Bank & Gaza Loan/ US$M): Loan /Credit (US$M): 20\.0 19\.9 Sector Board : UD Cofinancing (US$M): US$M ): 47\.0 79\.2 Sector (s): Sub-national government administration (85%) Other social services (15%) Theme (s): Access to urban services and housing (50% - P) Municipal finance (25% - S) Social safety nets (25% - S) L/C Number : Board Approval Date : 12/17/2002 Partners involved : EU, Belgium, Closing Date : 06/30/2005 03/31/2006 Denmark, and Italy Evaluator : Panel Reviewer : Group Manager : Group : Roy Gilbert Kris Hallberg Alain A\. Barbu IEGSG 2\. Project Objectives and Components: a\. Objectives: (a) To mitigate further deterioration in quality and coverage of basic municipal service delivery \. (b) To create temporary labor-intensive employment opportunities \. (c) To establish a mechanism to link central and local budget mobilization, planning and transfer process \. b\.Were the project objectives/key associated outcome targets revised during implementation? No c\. Components (or Key Conditions in the case of DPLs, as appropriate): 1\. Emergency Program Assistance\. (Appraisal cost: US$68\.00 million; Actual cost: US$17\.8 million): (i) local government expenditures for essential service provision; (ii) temporary labor-intensive employment generation micro-projects; and (iii) damage repair to local government facilities and service infrastructure \. 2\. Municipal Fund Design & Monitoring\. (Appraisal cost: US$1\.10 million, Actual cost: US$1\.6 million) (i) the operating cost of a Project Coordination Unit and (ii) the contract of a Management Agent, who would be responsible for designing and monitoring management of the Municipal Fund over a period of 18 months\. 3\. Technical Assistance and Capacity Building \. (Appraisal cost: US$0\.90 million; actual cost: US$0\.50 million) the costs of consultant services necessary for technical support, training, and capacity building primarily targeting small municipalities and village councils \. Support for the design of labor intensive temporary employment projects would also be provided under this component \. d\. Comments on Project Cost, Financing, Borrower Contribution, and Dates: IDA's financial contribution to the project came through grant funding by the Trust Fund for Gaza and the West Bank, for which IDA acts as trustee \. Thanks to significant, but unexpected, project co -financing by Italy and Denmark, the scope of the project was larger than anticipated at appraisal \. The project closed one year later than planned, to allow the completion of investments in smaller municipalities \. 3\. Relevance of Objectives & Design: In the crisis (at this writing) of closures, political instability and a security regime that strangles development, project objectives are only modestly relevant to current country and Bank priorities \. In the current circumstances of ongoing conflict, the menu of policy tools available to the Palestinian Authority is limited, and medium and long term development objectives of the type espoused by this project, have to cede precedence to ad hoc measures to keep the local economy functioning, as the Bank's 09/2006 Country Economic Memorandum correctly recognized \. Nevertheless, the project design was a good one for achieving the stated objectives \. It was built round a convincing results chain from project interventions in municipalities that would lead to the intended results appropriately focused at the level of local government \. At the time of appraisal in 10/2002, the subsequent slide into open conflict could not have been realistically foreseen \. Hence, project design was substantially relevant \. 4\. Achievement of Objectives (Efficacy): (a) To mitigate further deterioration in quality and coverage of basic municipal service delivery \. Substantial : Additional resources allowed project interventions to reach all West Bank /Gaza's 485 local government units, instead of the 260 foreseen at appraisal\. Altogether, more than 2,200 subprojects--at an average cost of about US$ 48,000 each--in water and sanitation, roads, electricity and solid waste were implemented \. Where the project investments directly served their needs, residents reported through a beneficiary survey that they were satisfied with the results \. (b) To create temporary labor-intensive employment opportunities \. Modest : Against an appraisal target of creating 400,000 person/days of employment, the project led to only 270,000 person/days, after one third of project funding earmarked for employment generation was reallocated to service provision, that was considered a higher priority at the time\. Three quarters of the 50 workers interviewed for the beneficiary survey gave a positive evaluation of their experience, in spite of the fact that only 8 of them thought that the level of remuneration (US$8\.36 per day) was adequate\. Still, the remuneration levels make it clear that the project did focus upon the poor \. (c) To establish a mechanism to link central and local budget mobilization, planning and transfer process \. Negligible : while the project did establish a municipal development fund (MDF), currently managed through a US$ 10 million Danish grant, MDF's effectiveness and efficiency has yet to be assessed \. A serious shortcoming, however, remains the persistent inadequacy of information about government processes, including budget and transfer data, that should have improved under the project \. The ICR still calls for progress in this area \. 5\. Efficiency (not applicable to DPLs): As an emergency recovery loan (ERL), an ERR was not estimated at appraisal or completion \. Although not formally required, an ERR estimate at completion would have been feasible, and could have thrown light upon the returns to some of the project investments in the difficult circumstances in which they had to operate \. The considerable increase in project costs of imported project inputs, resulting from closures and security controls, did undermine efficiency, however\. ERR )/Financial Rate of Return (FRR) a\. If available, enter the Economic Rate of Return (ERR) FRR ) at appraisal and the re- re -estimated value at evaluation : Rate Available? Point Value Coverage/Scope* Appraisal % % ICR estimate % % * Refers to percent of total project cost for which ERR/FRR was calculated\. 6\. Outcome: There were moderate shortcomings in the project's achievement of its objectives \. These include the failure of the project to establish a mechanism for linking central and local budget, planning and transfers --whose processes still remain opaque today\. There was also a shortfall in the amount of temporary employment created \. a\. Outcome Rating : Moderately Satisfactory  7\. Rationale for Risk to Development Outcome Rating: The precarious situation of WBG --of closures, security controls, squeezed government funding (through blocking of VAT revenues by Israel and donor bilateral funding to the Hamas' government --poses great risks to any project achievement, with no improvement in sight at this writing a\. Risk to Development Outcome Rating : High 8\. Assessment of Bank Performance: The project was well designed for the country context at the time of appraisal, and prepared quickly \. Its preparation benefited from the inputs of local staff, helping to ensure that the extraordinary political environment of WBG was well understood by the Bank \. Bank supervision was conducted properly in difficult circumstances, although it did not focus upon M&E of outcomes sufficiently --as evidenced by the lack of baseline data \. at -Entry :Satisfactory a\. Ensuring Quality -at- b\. Quality of Supervision :Satisfactory c\. Overall Bank Performance :Satisfactory 9\. Assessment of Borrower Performance: Borrower commitment to the project was in evidence through the quick Cabinet decision to approve the MDF, and subsequent promotion of it by the Ministry of Local Government \. With time, the PCU, as implementing agency, overcame a sluggish start and became more effective in completing the project as planned \. The PCU also established good working relationships with participating local governments \. Oversight of the PCU by an international consulting firm worked well to improve compliance with Bank procedures, but was only partly successful in inducing significant learning by local staff \. a\. Government Performance :Satisfactory b\. Implementing Agency Performance :Moderately Satisfactory c\. Overall Borrower Performance :Moderately Satisfactory 10\. M&E Design, Implementation, & Utilization: Although called "project development outcome" indicators, nearly all the data to be tracked by M&E was about the outputs of project components \. Furthermore, in the rush to plan and deliver emergency services at the outset, baseline indicators were not adequately set up \. In spite of the lack of explicit baseline data, the ICR does report changes in the values of indicators monitoring outputs (such as the "increased" volume of solid waste collected )\. Either changes have no basis in fact, or the baseline data does exist and was referred to, even though it was not reported in the MOP or ICR\. In spite of these limitations, project M&E was useful in steering project implementation \. a\. M&E Quality Rating : Modest 11\. Other Issues (Safeguards, Fiduciary, Unintended Positive and Negative Impacts): 12\. Ratings : 12\. ICR IEG Review Reason for Disagreement /Comments Outcome : Moderately Moderately Satisfactory Satisfactory Risk to Development High High Outcome : Bank Performance : Satisfactory Satisfactory  Borrower Performance : Satisfactory Moderately Project coordination unit did not adhere Satisfactory to financial safeguards when it made advanced payments totalling US$ 2 million to every local government, regardless of each one's financial capability\. Quality of ICR : Satisfactory NOTES: NOTES - When insufficient information is provided by the Bank for IEG to arrive at a clear rating, IEG will downgrade the relevant ratings as warranted beginning July 1, 2006\. - The "Reason for Disagreement/Comments" column could cross-reference other sections of the ICR Review, as appropriate \. 13\. Lessons: Project experience confirms that it is possible to incorporate modest institutional reform agenda even in "emergency projects", provided that there is close supervision, effective policy dialogue and adequate time to develop and implement the institutional activities \. In the case of EMSRP, delays in making MDF fully operational within the project period meant that there was insufficient time to fully implement this program \. Unfinished business like this has to be followed up by a second project to build on the ground work already achieved thus far \. While the preparation of emergency projects on a fast track may be lauded as demonstrating high responsiveness to immediate needs on the ground, it may mean insufficient focus during project preparation upon important matters like the design of impact monitoring indicators; this could compromise the project and ICR's opportunity to thoroughly self -evaluate project impacts\. Even in emergency operating situations, it is important to be pragmatic in determining the extent to which given funds can be re-allocated without weakening the overall outcome \. The decision to virtually double project coverage of LGUs diluted efforts effectively concentrated on fewer municipalities, but which still covered 94% of the population--there was less than commensurate payback in terms of the additional 4% of the beneficiary population covered \. 14\. Assessment Recommended? Yes No 15\. Comments on Quality of ICR: Overall, this is a good ICR that thoroughly explains the project experience, but there are some shortcomings \. It provides substantive evidence in support of its findings and assessments \. It is also candid in recognizing shortcomings of the quality of the evidence --notably the lack of baseline data and scarcity of outcome indicators \. The ICR is successful in drawing a series of useful lessons for ERL work, in particular, from this project experience \. However, there are some inconsistencies in Annex 1, where the ICR reports changed performance through particular indicators; changes that could only be asserted if baseline data --reported missing--were available\. Also, the self-evaluation would have been much richer and broader had the ICR provided comments or evaluation from the perspective of cofinanciers, notably the European Union and Italy, who each financed a larger share of this project than the Bank itself\. Finally, the ICR could have done a better job in fully and consistently reporting project costs and financing\. In spite of these shortcomings, IEG recognizes that the ICR makes a commendable effort to lay out a results-based framework for self-evaluation\. a\.Quality of ICR Rating : Satisfactory

REVIEW

P086660

Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review TN-Second Natural Resources Management (P086660) Report Number : ICRR0021287 1\. Project Data Project ID Project Name P086660 TN-Second Natural Resources Management Country Practice Area(Lead) Tunisia Agriculture L/C/TF Number(s) Closing Date (Original) Total Project Cost (USD) IBRD-79210,TF-93089 31-Dec-2015 41,517,246\.21 Bank Approval Date Closing Date (Actual) 17-Jun-2010 26-Dec-2017 IBRD/IDA (USD) Grants (USD) Original Commitment 36,100,000\.00 999,710\.00 Revised Commitment 36,100,000\.00 23,508\.96 Actual 33,012,639\.67 23,508\.96 Prepared by Reviewed by ICR Review Coordinator Group Francesco Cuomo J\. W\. van Holst Christopher David Nelson IEGSD (Unit 4) Pellekaan PHPROJECTDATATBL Project ID Project Name P112568 TN:GEF Second Natural Resources Mgt ( P112568 ) L/C/TF Number(s) Closing Date (Original) Total Project Cost (USD) TF-97703 31-Dec-2015 8,845,183\.14 Page 1 of 18  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review TN-Second Natural Resources Management (P086660) Bank Approval Date Closing Date (Actual) 17-Jun-2010 26-Dec-2017 IBRD/IDA (USD) Grants (USD) Original Commitment 0\.00 9,730,000\.00 Revised Commitment 0\.00 8,845,183\.14 Actual 0\.00 8,845,183\.14 2\. Project Objectives and Components a\. Objectives The original project development objective (PDO) was to "to improve living conditions for rural communities in the Project Area" (Loan Agreement, page 5)\. The legal agreement goes on to enumerate activities that would contribute to the objectives such as "fostering increased access to basic infrastructure and services, sustainable increase of income, improved natural resource management practices and promotion of an integrated approach to community-based development among various stakeholders"\. The PAD defined a slightly different PDO: "to improve the living conditions of rural communities in three governorates in terms of access to basic infrastructure and services, sustainable increase in income, and improved natural resource management practices by fostering an integrated approach to community-based development" (PAD, para 14)\. As per IEG guidelines, the objective in the loan agreement will be used in this review against which to assess the project’s achievements\. The original Global Environment Objective (GEO) was to "reduce the threat of land degradation and climate change to vulnerable agricultural production systems in the target areas while developing options to address land-based pollution affecting the Mediterranean Sea" (PAD, para 15)\. According to IEG guidelines the extent to which the GEO is achieved is not assessed separately if it is not part of the IBRD loan agreement\. The project development objective and the Global Environment Objective were revised and combined through a Level 1 restructuring approved on February 5, 2013 to read: "improve access to basic infrastructure and production means, and to improve management of natural resources, using a participatory approach in the project area" (Restructuring Paper, January 2, 2013, Table 1)\. b\. Were the project objectives/key associated outcome targets revised during implementation? Yes Did the Board approve the revised objectives/key associated outcome targets? Yes Page 2 of 18  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review TN-Second Natural Resources Management (P086660) Date of Board Approval 05-Feb-2013 PHEVALUNDERTAKENLBL c\. Will a split evaluation be undertaken? Yes d\. Components The ICR calculated components financing only for IBRD/GEF resources to "maintain clarity and meaningfulness" (ICR, Annex 3)\. The following costs are reflective of only IBRD/GEF commitments and actual costs\. Component 1 - Support to Participatory Development Plan (PDP) Investments (original cost US$47\.91m, actual cost US$39\.9m)\. This component was designed to support priority investments in infrastructure (water access and management, feeder roads) and sustainable agricultural production systems\. Funding was also allocated for technical assistance in "agricultural, pastoral and sylvo-pastoral production practices, proliferation of climate-resilient farming, diversification of rural economic activities, and mainstreaming of soil and water conservation" (ICR, para 12)\. Component 2 - Support to the Development of Treated Wastewater Use for Agriculture (original cost US$2\.06m, actual cost US$0)\. The objective of this component was to support the National Program for Wastewater Reuse through the transfer of treated wastewater from the Greater Tunis area towards the interior of the country (ICR, para 13)\. This component was cancelled following the level 1 restructuring in February 2013 (ICR, para 18)\. Component 3: Institutional Strengthening and Awareness Raising (original cost US$9\.59m, actual cost US$2\.55m)\. The objective of this component was to support the mainstreaming of the integrated participatory approach (IPA) within project areas\. Activities focused on Agricultural Development Groups (ADGs) and Expanded Development Committees (EDCs) at the Imada (district) level; Regional Agricultural Development Commissariats (RADC) and the Regional Coordination Units (RDCs) at the regional level; and the staff of the Ministry of Environment and Sustainable Development (MESD), and the Agriculture, Water Resources and Fisheries (MAWRF) and the Central Coordination Unit (CCU) staff at the national levels (ICR, para 14)\. e\. Comments on Project Cost, Financing, Borrower Contribution, and Dates Project cost\. Total project costs were estimated at US$67\.66m at approval in 2010, revised to US$45\.8m in 2013 during a level 1 restructuring, and actual project cost was US$45\.6m at project close (ICR, page 2)\. This difference was driven by the Government of Tunisia request to reduce its contribution (from US$9\.8m to 0) and a US$4m lower contributions from local communities (from US$7\.4m to US$3\.1m)\. Financing\. At approval, the World Bank committed to an IBRD loan of US$36\.1m, a GEF Grant of US$9\.7m, and another GEF grant of US$999 thousand for project preparation (TF-93089) \. During restructuring, the initial grant of US$999 thousand was reduced to US$23 thousand\. At project close, the World Bank financed US$33m from IBRD (91% of committed financing), the GEF grant was US$9\.4m (96% of committed grant) and US$23 thousand (23% of committed financing)\. Borrower Contribution\. At project approval, the Government of Tunisia (the borrower) agreed to finance US$14\.6m (PAD, page v) and beneficiaries were supposed to contribute US$7\.2m (PAD, page v)\. During the 2013 restructuring, these amounts were reduced to US$0 following the Government of Tunisia request Page 3 of 18  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review TN-Second Natural Resources Management (P086660) to "to increase the financing percentages of projects supported by the Bank in the post revolution Tunisia to 100%" (ICR, para 20)\. According to the ICR, the increased Bank financing percentage was approved due to "the country’s extremely difficult fiscal situation in the post-revolution environment" (ICR, para 24)\. At project close, the Government of Tunisia contributed US$0 (0% of expected contributions), while beneficiaries contributed US$3m (41% of expected contributions)\. Dates and Restructuring\. The project was approved in June 2010, became effective in February 2011, and was closed in December 2017 (compared with the original closing date of December 2015)\. The project was restructured four times as follows: • A level 1 restructuring in February 2013, and three level 2 restructurings in 2015, 2016 and 2017\. The level 1 restructuring in February 2013 revised the PDO and the GEF objective, altered the Results Framework and dropped component 2 to "ensure full alignment and consistency with the revised PDO and new component structure" (ICR, paras 15-18)\. The National Sanitation Utility was excluded from the revised project as it was not relevant, and the role of the Ministry of Environment and Sustainable Development (MESD) was reduced to the implementation of activities under the new subcomponent 2\.3 (Environmental Knowledge Management)\. At the local level, the role for the validation of the participatory development plans was transferred from the Local Development Councils (LDC) and Regional Development Councils (RDC) to Regional Agricultural Development Commissariats, as the LDCs and RDCs ceased to exist (ICR, para 19)\. • The second restructuring extended the project closing date to December 2016 • The third restructuring reallocated proceeds among categories and extended the project closing date to December 2017\. • The fourth restructuring adjusted the target value of selected indicators "for realism and meaningfulness" and increased the financing percentages for works under the GEF grant "to scale up the activities of the Project to the benefit of vulnerable communities" (ICR, para 22, 26)\.　 Given the changes in both the PDO and Results Framework, this review will proceed with a split evaluation of the overall outcome\. 3\. Relevance of Objectives Rationale Relevance of Objectives at project approval\. At approval, the project development objective "to improve living conditions for rural communities in the project area" was relevant to the Government of Tunisia 2007 National Development Plan (NDP) and the Bank’s 2009 CPS\. The project development objective was relevant to axis two of the NDP (comprehensive development approach that guarantees sustainable growth and a harmonious balance among economic, social and environmental priorities) and axis five, namely the transformation of agricultural system (CPS, para 44)\. The PDO was also relevant to the 2009 Bank Country Assistance Strategy (CAS) pillar two (sustainable development and climate change) and pillar three (improving the quality of service delivery) (CPS, para 71, 90, 93, 101)\. Nevertheless, it was not clear what was meant by either "improve" or "rural communities"\. Page 4 of 18  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review TN-Second Natural Resources Management (P086660) Relevance of Objective at project close\. At project close, the project development objective had been amended but in principle it remained highly relevant to the Government of Tunisia and Bank strategies\. In particular, three pillars of the Government of Tunisia Strategic Orientations for 2016–2020 were relevant to the project: pillar 1 focused on improved governance and structural reforms; (ii) pillar 4 aimed to tackle regional disparities and support the ambitions of lagging regions by building economic infrastructure and supporting entrepreneurship; and (iii) pillar 5 aimed to promote green growth and ensure the sound utilization of natural resources, with an emphasis on rationalizing water and energy consumption, while promoting modern agricultural systems (ICR, para 29; CPS, para 35)\. The Systematic Country Diagnostic (SCD) dated June 2015 for Tunisia highlighted the need to promote inclusive growth through policies aimed at addressing spatial inequalities in relation to access to basic services and infrastructure in lagging areas (in particular, water) and improve people’s employment opportunities and quality of life (pages 27-29, 30- 35)\. The CPF emphasized the need for a greater focus on community engagement of those left behind and territorial planning approaches through Pillar 2 (reducing economic disparities in regional development between coastal and internal lagging regions), and Pillar 3 (need for enhancing social inclusion and directing the Bank’s assistance to particularly vulnerable segments of society) (CPS, paras 36,60-61, 63)\. Project development objective after restructuring\.　 The ICR presented several reasons why the Bank project's team and the Government of Tunisia decided to amend the project development objective\. It was aimed to address low disbursement rates and miniscule results/achievements and reflect changes in country priorities brought about by the revolution of 2011 (ICR, para 24)\. This review notes that the project's amended level of achievement and ambition were lowered as a result of the level one restructuring and that the level of ambition has been downgraded because of a shift from an outcome ("improving living conditions") to an input to the discarded outcome ("improve access to basic infrastructure and production means, and to improve management of natural resources")\. Again, the meaning of "improve" was not defined and "access" was also not defined\. In summary, the relevance of the revised objective was marginally relevant to the Government and Bank’s strategies because of its weak formulation while still being relevant to some of the activities included in those strategies\. Conclusion: The relevance of the original objective to Government and Bank strategies at project approval was high but demanding in terms of measurability\. On the other hand, after restructuring (and consequently at the project's close) the revised objective was weak (without any definition of the meaning of "improve" or "access" and also one which was difficult to measure) and only modestly relevant to Government and Bank strategies\. Therefore the relevance of the project's objective at the project's close is rated modest\. Rating Modest 4\. Achievement of Objectives (Efficacy) PHEFFICACYTBL Objective 1 Objective To improve living conditions for rural communities in the project area Page 5 of 18  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review TN-Second Natural Resources Management (P086660) Rationale This is the original objective of the project, before its revision in 2013\. The theory of change was that this objective was to be achieved "by fostering increased access to basic infrastructure and services, sustainable increase of income, improved natural resource management practices and promotion of an integrated approach to community-based development among various stakeholders" (PAD, para 14)\. The project area covered the Governorates of Jendouba, Kasserine and Madenine\. These are areas representative of a major agro-ecological zones and socio-economic system: the humid and diversified North, the dry agro-pastoral Center, and the predominantly arid pastoral South\. The selection criteria for the governorates also included high poverty levels, vulnerability to land degradation including desertification, and increased drought risk (with water scarcity expected to worsen as a result of climate change)\. Outputs: Infrastructure and land ownership • Margins per hectare increased to TND15,000 (US$5,400) from TND8,000 (US$2,900) from land re- parceling, small irrigation (ICR annex 1), and rain water collectors saved TND250 per hectare on additional irrigation costs leading to TND1,500 (US$540) per hectare of extra earnings on plantation (ICR Annex 1)\. • According to the ICR, calculations done using available data showed an incremental net benefit of about 2,700 TND (US$980) per cistern/year\. According to crop production data from the 4th Northwest Mountainous and Forested Areas Development Project (PNO4), which the ICR used in lieu of missing data from this project (ICR, Annex 5, para 3), there were incremental net benefits per hectare for leguminous species, 100 TND (US$36) for wheat and 260 TND (US$94)　for olives, and increases in yields varying between 25 percent for wheat, and 27 percent for olives and 13% for fodder crops (ICR, Annex 4, para 3)\. The ICR does not, however, justify the relevance of the results measured in a different project in a mountainous region in Tunisia (PNO4) to this project, which despite being supervised jointly and programmatically, it was operating in other 7 regions\. • 1,312 cisterns for rain water collection were constructed over the project investment period (ICR, Annex 4, para 7)\. These cisterns benefited some 1,312 households (and served about 1,400 ha of agricultural land)\. • Land ownership was consolidated on 15,243 hectares (target 9,000 hectares), so that individual farmers own fewer, larger, more compact and more contiguous land parcels\. This activity interested 11,334 farmers (ICR, Annex 1 page 32)\. Access to water\. Providing access to water has resulted in a reduction in the average distance travelled to fetch water from 3\.0 to 0\.5 kilometers and reduced the amount of time women and children spent supplying the household with water by an estimated three hours per day (ICR, para 38)\. Income Generating Activities\. Income generating activities supported by the project yielded average net earnings of　TND1,300 per year, ranging from TND450 for poultry and TND1,000 for beekeeping to TND2,270 for greenhouse and TND3,000 for sheep fattening\. Page 6 of 18  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review TN-Second Natural Resources Management (P086660) • The project supported 3,691 income generating activities\. The most common activities were sheep fattening: 38%, beekeeping: 28% and poultry: 27%\.　Others (greenhouses, rabbit, etc\.) accounted for the remaining　7% (ICR, Outcome 2, page 32)\. • 4,474 beneficiaries received technical advice on investment projects, of which 1,402 beneficiaries trained in livestock production, and more than 1,000 livestock producers received regular technical and management advice\. Outcomes: • Investments in small irrigation, land re-parceling and rain water collector led to significantly improved margins per hectare for beneficiary households\. According to the Bank's project team, due to data limitation at baseline and project end, it is impossible to clearly assess the project's impact on improved incomes for beneficiaries\. Nevertheless, the project had a positive impact on the living conditions in some of the poorest areas of Tunisia, mostly landlocked and areas to the south\. • Based on a beneficiary survey more than 50% of beneficiaries from income generating activities stated that they experienced a 20% increase of their incomes\. 34\.5% stated that they had a significant positive impact on food consumption and self-sufficiency, 9% on education, and 7\.5% on the value of household assets (ICR, Annex 1)\. • Income generating activities increased margins on average by TND 9,500 per hectare\. In the project areas, the poverty lines are 1703 TND/per year per person for Communal areas and 1501 TND per year per person in Noncommunal\. • Project beneficiaries reported in 2016 that rehabilitation of feeder roads brought about improvements in access to medical services, schools and other public services outside community boundaries (ICR, para 38)\. Conclusion: While the objective of improved living conditions was not defined in the project documents, based on the evidence above, the project was substantially associated with measurable improvements in the welfare and economic activities in rural communities and the services available to those communities\. Rating Substantial PHREVDELTBL PHINNERREVISEDTBL Objective 1 Revision 1 Revised Objective To improve access to basic infrastructure and production means [in the project area] Revised Rationale The original project objective was restructured and divided in two parts\. This is the revised objective 1\. According to this objective the project aimed to improve access to basic infrastructure and production means by financing the construction of several infrastructure (roads, water, etc\.) and supporting income generating Page 7 of 18  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review TN-Second Natural Resources Management (P086660) activities via training and financing\. Hence, the theory of change for this revised objective was to provide access to infrastructure and production means to support the achievement of long-run improvements of in living conditions "in concert with the continued focus on applying participatory approaches to identifying local development priorities" (ICR, para 27)\. Outputs • Improved access to infrastructure\. • 210 kilometers of rural feeder roads covering around 8 percent of the population in target areas (about 10,620 households or about 64,000 people considering 6 people per households) were built or rehabilitated (original target 90 km, revised target 150km) (ICR, para 34)\. • 1,339 water supply points, including for domestic-use, were built (original 400, revised 900)　(ICR, para 34)\. Of these, 1,312 cisterns for rain water collection were constructed over the project investment period (ICR, annex 4, para 8)\. These cisterns benefited some 1,312 households (and served about 1,400 ha of agricultural land)\. • 64 districts (Imadas) were　provided with new/improved irrigation or drainage services covering 55% of the population of the 3 Governorates (ICR, Outcome 1, page 31) • Improved access to production means • 5,554 ha of irrigated land were developed or rehabilitated (target of 3,500 ha) representing a 30% increase of irrigated areas in the Project targeted Imadas (ICR, Outcome 2, page 32)\. • The project supported 3,691 income generating activities\. The most common activities were sheep fattening: 38%, beekeeping: 28% and poultry: 27%\.　Others (greenhouses, rabbit, etc\.) accounted for the remaining 7% (ICR, Outcome 2, page 32)\. • The project also supported 4,474 beneficiaries with technical advice on investment projects, 1,402 beneficiaries trained in livestock production, and more than 1,000 livestock producers received regular technical and management advice (ICR, Outcome 2, page 32)\. Outcomes: • The project provided improved access to basic infrastructure to roughly 76,000 beneficiaries, which represented around 12,700 households (original target 21,000, revised target 50,000) (ICR, para 34)\. The project achieved so by financing the construction of infrastructure mentioned above\. According to the Bank's project team, households were estimated based on proximity to Bank financed investments, based on a clear methodology developed during the first Natural Resource Management project\. • The project improved access to production means to 19,700 direct beneficiaries (original target 17,500, revised target 18,000)　by supporting income generating activities, agricultural extension and technical consultations, construction and rehabilitation of small-scale irrigation schemes mentioned above (ICR, para 35)\. Conclusion: The project substantially improved access to basic infrastructure and production means for beneficiaries in the project area\. Page 8 of 18  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review TN-Second Natural Resources Management (P086660) Revised Rating Substantial PHEFFICACYTBL Objective 2 Objective To improve management of natural resources [in project areas] - this objective was added after the project restructuring\. Rationale The original project objective was restructured and divided in two parts\. This is the second part of the revised objective According to this objective the project was designed to support investments in sustainable land management, including: construction of dry-stone gabions and catchments, land re-parceling and consolidation, investments in improvements of pastures and local forests, conservation of deteriorated pasture tracks, etc\. That said, the ICR indicates, that although there is little evidence "on the impact of the project’s extensive water and soil conservation activities" positive impacts "can be plausibly assumed from literature" which is the basis for the theory of change that would achieve this objective (ICR, para 40)\. 　 Outputs: • 36,000 trees were planted; 3,157 ha of improved pastures and 40 ha of forestry access rehabilitated\. • 67,370 cubic meters of gabions in Kasserine and Jendouba and 14 aquifer recharge units in Médenine were built, • 3,000 cubic meters of gabions were restored and 1,000 ha were consolidated • 1,050 ha of olive terraces and 90 ha of basin plantations were rehabilitated • According to the Bank's project team, most the 6,000 beneficiaries from training activities in national institutions were trained by the Ministry of Environment on mainstreaming natural resource management\. The training covered organizing demonstration and field schools for demonstration purposes, capacity building with local leaders in small communes and study tours and workshops in the Ministry of Environment and Agriculture\. • According to the Bank's project team, these were direct natural resource management investments that stemmed from a very narrow definition of natural resource management activities\. On top of these, there were other activities performed along infrastructure rehabilitation (such as small barrages and dikes on the side of the roads), irrigation activities and land re-parceling\. These activities contributed to improve the state of natural resources and protect farmland, particularly considering that land in project areas is steep\. Outcomes: • Approximately 33,600 hectares were covered by natural resource management investments and practices (compared with a revised target of 20,000 hectares, and an original target of 34,000 hectares in 2017)\. Page 9 of 18  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review TN-Second Natural Resources Management (P086660) • The ICR acknowledges that the project did not produce strong evidence to substantiate the claim of improved management of natural resources, and no outcomes are provided (para 59)\. It is understood, however, that it is nearly impossible to present robust evidence on outcomes of natural resource management activities due to the long period before these outcomes materialize\. • According to the Bank project's team, there is limited understanding in Tunisia of soil conservation, multi- or inter-cropping and consequently the soil is plowed, and exposed to sun and rain to the point that rain water is often not absorbed because the soil is too compacted\. Considering that there has also not been a robust focus in government policy on improving natural resource management and that on the other hand there has been a strong incentive to cultivate land unsustainably because of large crop subsidies, this project arguably took action to improve the management of natural resources in Tunisia since it promoted the adoption of sustainable farming practices\. For example, "nearly 5,500 hectares of small-holder plots under irrigation coverage (on- and off-farm systems), and the IGAs have been an essential tool in ensuring diversification of agricultural activities away from climate-risky field crop cultivation, to sustainable animal husbandry, climate-resistant arboriculture, and protected agriculture (e\.g\. the proliferation of 150 green houses in Medenine, one of the most water-stressed regions" (ICR, paragraph 40)\. Conclusion: The project did not present sufficient evidence in terms of outcomes to establish the achievement of its objective of "improved management of natural resources\." Such outcomes will only be evident in the longer term\. There was evidence, however, that during implementation the project took action to introduce a number of mechanisms and strategies specifically directed at improving the management of natural resources in Tunisia\. The efficacy of this objective has therefore been rated substantial\. Rating Substantial PHREVDELTBL PHOVRLEFFRATTBL Rationale In conclusion, the efficacy of the original objective is rated Substantial because it achieved its objective of improving the living conditions of beneficiaries in project areas\. The efficacy of the revised objective is also substantial as revision 1 of the first objective is rated Substantial because the ICR showed evidence of improved access to basic infrastructures and production means\. The efficacy of the new Objective 2 is also rated substantial because of the evidence of improved management of natural resources during project implementation\. Overall Efficacy Rating Substantial Page 10 of 18  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review TN-Second Natural Resources Management (P086660) 5\. Efficiency The PAD provided an ex ante analysis of the likely efficiency of the project by examining at the introduction of improved agricultural practices and rural infrastructure\. The Economic Rate of Return (ERR) was estimated at 16 percent over 20 years (PAD, paras 38-40)\. However, the ICR indicated that there were questions regarding the validity of the ex-ante analysis in the PAD because of "methodological and project-specific impact data constraints" and the exclusion of income generating activities from the analysis (ICR, paras 42, 46)\. The ICR, examined efficiency against the efficiency of the participatory development plans (the main tool used to disburse project funds), and the project administrative efficiency of the project's administration\. Efficiency of participatory development plans\. These groups/committees were the system for communities to develop and implement Participatory Development Plans, which was the "main tool for engaging local communities" (ICR, para 33)\. 84% of ADGs/EDCs participatory development plans were executed compared with a target of 90%\. Due to the lack of robust quantitative evidence, the ICR attempts to establish efficiency for the Participatory Development Plans by using rural roads and income generating activities as a proxy\. According to the ICR, benefit streams comprised results from a rural roads model (the largest sub-component of the Project by cost), as well as the budgets of the Project’s most representative income generating activities\. The base-case Economic Internal Rate of Return was estimated at 17% over twenty years (ICR para 44)\. Project administrative efficiency\. According to the ICR, "in terms of unit costs, project’s activities have been implemented efficiently, well-within comparable cost ranges for similar types of activities across Tunisia" but no verifiable evidence is presented in terms of project management costs as they are allocated within components (ICR, para 44)\. There were 2 years of delays due to political events happening in country and changing priorities, which eventually led to the restructuring of the project in 2013\. Not mentioned in the ICR, is that the average cost of the project per household was $295 or perhaps $59 per capita (assuming an average household size of 5), based on an actual cost of $45\.6 million and 154,000 households reached\. These investments led to improvement in average net incomes for beneficiaries from income generating activities of TND1,300 (US$468)\. Thus, the project was in the end efficiently administrated, considering that the poverty line per person is TND1,704 per person per year\. Conclusion: This review agrees with the ICR that there was limited evidence on the project's efficiency due to methodological and project-specific impact data constraints\. Nevertheless, considering the project's achievements in providing beneficiaries with substantial benefits in terms of enhanced living conditions and better services, with net income gains of at least US$468 per household, at an average cost of $295 per household, efficiency is rated substantial\. Efficiency Rating Substantial a\. If available, enter the Economic Rate of Return (ERR) and/or Financial Rate of Return (FRR) at appraisal and the re-estimated value at evaluation: Page 11 of 18  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review TN-Second Natural Resources Management (P086660) Rate Point value (%) *Coverage/Scope (%) Available? 0 Appraisal  16\.00 Not Applicable 0 ICR Estimate  17\.00 Not Applicable * Refers to percent of total project cost for which ERR/FRR was calculated\. 6\. Outcome Relevance of objectives is rated modest because of the diluted and weak revised project objective, efficacy for both the original and revised objectives is rated substantial and efficiency is also rated substantial because of the net gains achieved by households in project areas at a limited cost for the project\. Thus, the outcomes of the project objective before and after restructuring was Moderately Satisfactory\. As such, the project had moderate shortcomings and hence the overall outcome rating is Moderately Satisfactory\. a\. Outcome Rating Moderately Satisfactory 7\. Risk to Development Outcome The main risks to development outcome concern the sustained capacity of various institutions supported by the Project to maintain infrastructure and support income generating activities\. • First, according to the ICR, "It remains an open question to what extent and how adequately the Tunisian institutions in charge of the local infrastructure created by the project can manage it effectively to ensure its long-term functionality and viability" (ICR, para 70)\. • Second, the sustainability and continuity of investments and economic activities initiated with the Project’s financial and technical support remain unclear\. As the ICR notes: "a significant part of the income generating activities have been implemented towards the end of the project and not enough support has been provided to ensure that these essential activities are robust enough to stand on their own\. As these small businesses carry on, or perhaps attempt to grow, questions about access to finance and markets continue to persist" (ICR, para 71)\. • Finally, the ability of regional authorities, RADCs, specialized technical entities (such as the Office of Pastures and Animal Husbandry), and Agricultural Development Groups to sustain the project’s local participatory development is unclear\. Page 12 of 18  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review TN-Second Natural Resources Management (P086660) 8\. Assessment of Bank Performance a\. Quality-at-Entry • This project was largely a replica of the first NRMP which closed in 2004\. The PAD for this second phase reviewed the lessons from the first project that highlighted the need to strengthen institutions particularly the capacity building of Agricultural Development Groups (ADGs) which were at the center of supporting their communities to design and implement participatory development plans (PDPs)\. However, the team did not analyze what major changes happened between 2004 and 2010, and in case what design modification would have best addressed these changes\. • However, the identified local partners (local municipalities and Regional Agricultural Development Commissariats), had no prior experience in implementing Bank project, and this was not taken into account at the design stage\. According to the Bank project's team, this was also one of the key reasons why the project stagnated for so long, and by the original project closing date there was still a significant share of commitment that remained undisbursed\. • The original PDO was, however, ambitious given the risky environment of the project area described in the PAD as having "high poverty levels, vulnerability to land degradation including desertification, and increased drought risk with water scarcity expected to worsen as a result of climate change" (para 5)\. Moreover, the project would focus on degraded zones in the project areas\. The assessment of these and other risks facing the project as "medium" in the PAD was probably too optimistic (PAD, paragraph 33)\. Indeed, the ICR also noted that the project design also lacked an adequate recognition of the potential risks for implementation, as well as a frank assessment of the readiness/realism for successful implementation (ICR, para 66)\. • The original Results Framework described in the ICR "was ineffectual in capturing the project’s implied theory of change" (ICR, para 66)\. The core weakness of the Framework was that it was merely a listing of objectives and expected outcomes and their indicators\. Here was also no mention of the roles that the project’s institutions or the private sector would play in achieving the project’s objectives and outcomes\. • The potential lack of local private contractors for small-volume works, particularly for construction/reconstruction of remote feeder roads and other civil works, was not taken into account at appraisal\. Due to the high regionalization and fragmentation of the project’s interventions, it was a challenge to identify adequately qualified (technically and financially) private sector suppliers, thus causing disruptions and delays in the project’s implementation\. Eventually, this was overcome through aggregation of civil works packages, which led to a better supply response from the private sector (ICR, para 54)\. • According to the ICR, the original M&E design had "overconfidence in the ability of implementing partners, both central and regional, to understand, internalize and sustain the project’s M&E efforts" (ICR, para 57)\. Page 13 of 18  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review TN-Second Natural Resources Management (P086660) Quality-at-Entry Rating Moderately Unsatisfactory b\. Quality of supervision • When this project’s launch workshop was held at the end of May 2011 (in the wake of the Jasmine Revolution), it faced additional difficulties to those already outlined above with respect to the project’s quality at entry\. • The Bank’s project team identified the implementation issues in the immediate aftermath of the Revolution and with the Government of Tunisia, restructured the project in order to improve its prospects for effective implementation and impact\. In the even the ICR reports that the project was turned around from the brink of cancellation to a relative success (ICR, para 67)\. While before restructuring only US$2 million were disbursed, by project close 93% of projects funds were disbursed\. • The Bank’s project team supported the project with significant efforts and, together with the Government of Tunisia, several rounds of restructuring in order to improve implementation results\. However, according to the ICR, the Bank should have attempted to avoid two back-to-back closing date extensions (a year apart), and instead undertake just one extension of 18 months (ICR, para 56)\. Furthermore, the revised objective of the restructured project was significantly weakened in its ambition, as discussed in section 3\. • The ICR noted that the project was supervised jointly with PNO4, which had similar objectives and approaches to implementation\. Bank project teams were adequately staffed and, when necessary, relied on FAO and outside consulting expertise (ICR, para 68) • According to the ICR, the Bank project’s team supported through constant capacity building and supervision effort support of the RADCs staff for screening subproject activities and properly reporting on compliance and application of safeguard mitigation measures\. Quality of Supervision Rating Moderately Satisfactory Overall Bank Performance Rating Moderately Satisfactory 9\. M&E Design, Implementation, & Utilization a\. M&E Design • The initial formulation of the M&E design framework was inadequate to assess the original PDO and the GEO\. Rather the PDO indicators were output or input/implementation variables as opposed to outcomes (ICR para 57)\. According to the ICR, the complexity of the original M&E design and excessive layering of objectives was caused by a poorly flowing Results Framework (ICR, para 57) Page 14 of 18  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review TN-Second Natural Resources Management (P086660) • After restructuring, the results framework was also revised to better align with the new PDO, and the monitoring system became more relevant (ICR, para 57)\. However, one needs to consider that the PDO was significantly lowered in its level of ambition to measure only access to basic services and production means\. • Due to the weak revised objectives, no outcome oriented PDO indicators were introduced, leaving the results chain focused on measurements of physical achievements for all indicators (ICR, para 57)\. Furthermore, indicators for the revised objective 2 ("to improve management of natural resources") were still not adequate to track evidence that showed an improved management of natural resources in project areas\. b\. M&E Implementation • The Ministry of Agriculture, Water Resources and Fisheries was responsible for project implementation, and chaired by the National Coordination Committee\. This committee was designed to be supported by the Central Coordination Unit (CCU), established within the Directorate General of Financing, Investments, and Professional Organizations (DFIPO)\. • The Central Coordination Unit was responsible for M&E of the project\. Data were to be gathered and handled by the three Regional Agricultural Development Commissariats (RADCs) and then sent to the CCU as well as to the Ministry of Environment and Sustainable Development, specifically to　the General Directorate of Environment and Quality of Life (DEQL)　and National Sanitation Utility (NSU)\. The computer M&E system was to be implemented in the first year of the Project\. A consulting firm was selected to be responsible for developing the system, designing the data base, training personnel, and ensuring technical assistance over the initial period\. Data collection and recording would be carried out by the institution responsible for the data base (CCU, the RADCs, the DEQL and the NSU)\. After project restructuring in February 2013, the NSU was excluded from project implementation as it was no longer relevant because component 2 was dropped at restructuring\. • According to the ICR, "The RADCs through the Regional Coordination Units and the CCU made significant efforts in collecting and systematizing implementation monitoring data throughout the life-cycle of the project" (ICR, para 58)\. This allowed for efficient corrective action, including identifying solutions to problems with contractors and alerting the higher-level decision makers\. • Despite the lack of appropriate outcome/impact variables even after restructuring, several thematic studies were commissioned in 2016-2017 and yielded some information on impact\. The Government of Tunisia’s final evaluation report of NRMP2 included a few basic elements of evaluation, further informing the discussion on impacts of increased access to infrastructure and production means (ICR, para 59)\. c\. M&E Utilization • According to the ICR, "there is scant evidence of broad and specific utilization of data, information and knowledge generated by the Project" (ICR, para 60)\. Page 15 of 18  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review TN-Second Natural Resources Management (P086660) • On the other hand, it is salutary to read in the ICR that the Ministry of Agriculture, Water Resources and Fisheries has adopted the project M&E data collection system for various other projects under its implementation M&E Quality Rating Modest 10\. Other Issues a\. Safeguards According to the ICR, the project was compliant with the social safeguards requirements (ICR, para 62)\. • According to the ICR this project was at the forefront of piloting the use of ‘borrower systems’ for environmental and social safeguards under OP 4\.00\. It triggered OP/BP 4\.01 on Environmental Assessment, OP/BP 4\.36 on Forests, and OP/BP 4\.12 on Involuntary Resettlement\. • No major or pervasive environmental safeguards issues were flagged during implementation\. • The acquisition of land for project activities was done on a voluntary basis and conformed with the requirements of OP 4\.12 and national legislation (ICR, para 62)\. There were delays in registering land transfers, but this shortcoming were resolved before project closed, and no conflicts related to land issues were registered b\. Fiduciary Compliance Procurement\. According to the ICR, significant problems persisted with respect to aspects related to procurement, which was not managed up to standard throughout implementation\. According to the Bank's project team, the reason for this was the original identification of local municipalities and Regional Agricultural Development Commissariats that had no implementation experience and required significant capacity building\. As a consequence, these project implementation entities were not able to ensure timely settlement of all outstanding payments for the goods and works delivered under the Project\. (ICR, para 64)\. Furthermore, fiduciary aspects related to procurement (from TORs to award), contract management and settlements remained a constant issue, and, while eventually resolved with assistance from the Bank’s project team, they required the Bank’s maximum allowable two-month extension of the grace period for disbursements/payments to clients and vendors\. This concerned specifically the settlements for works and goods delivered as there were systemic delays in the final acceptance/certification of works by specialized domestic authorities and local contractors were unable to secure warranty bonds to have final payments authorized and released in a timely manner (ICR, para 55)\. Financial Management: According to the ICR, the financial management arrangements were reviewed regularly by the local Tunisian body for reviewing public spending, as it is the case with all Bank project\. The Page 16 of 18  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review TN-Second Natural Resources Management (P086660) reviews provided accurate financial information and reasonable assurance that project funds were being used for the purpose intended (ICR, para 63)\. One audit resulted qualified: a small amount (US$7,000) was found as ineligible expenditure under the GEF Grant (misattribution to category) by the external auditor and this was regularized on time by the CCU (ICR, para 63)\. c\. Unintended impacts (Positive or Negative) • According to the ICR, gender was given significant attention in the project as well as efforts to ensure specific targeting of women\. This resulted in achieving a rate of 38 percent inclusion of women (ICR, para 48)\. • The Project had a significant institutional development dimension and reached nearly 6,000 individuals with capacity enhancement activities in key institutions such as the Ministry of Environment, the Ministry of Agriculture and local municipalities (ICR, para 50)\. d\. Other --- 11\. Ratings Reason for Ratings ICR IEG Disagreements/Comment Moderately Moderately Outcome --- Satisfactory Satisfactory Moderately Moderately Bank Performance --- Satisfactory Satisfactory Quality of M&E Modest Modest --- Quality of ICR Substantial --- 12\. Lessons The ICR concluded that six lessons emerged from this project\. Some lessons were focused exclusively on the situation in Tunisia and others provided minimal new insights\. This Review has selected three lessons from the ICR as being novel and relevant to broader operational interests than this project in Tunisia\. They are as follows with some re-arrangement of emphasis and editing by IEG: Following the deteriorating political environments, the continued relevance of the project objectives, design implementation modalities should be re-assessed at the first available opportunity\. In the case of this project Bank management took appropriate action to launch a review of the project’s future with the new Government very soon after the political transition had taken place which avoided the risk of the project’s cancellation due to its very low disbursement percentage and lack of progress on implementation\. As the ICR Page 17 of 18  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review TN-Second Natural Resources Management (P086660) noted, such reviews can "determine the necessity for and scale of changes required to reset projects on the course of successful implementation (or alternatively cancellation)"\. Natural resource management projects should provide a methodology at appraisal for an accurate measurement of the impact improved natural resource management\. The ICR provided an example, namely "the case of land consolidation activities where preliminary assessments indicated a significant increase in the profitability of farms whose land was consolidated"\. Increased values of land holdings, particularly in conjunction with the resulting access to feeder roads, was observed\. Nevertheless, the ICR cautioned against generalization of such conclusions based on small samples\. On the other hand, in this project no methodology or indicators were provided to understand and assess the effectiveness and efficiency of natural resource management activities, particularly as they related to GEF’s global mandates\. Effective promotion of income-generating projects requires more than start-up support\. The ICR noted that access to finance and markets are an indispensable element for implementing income generation activities (IGAs)\. It agreed that, "while providing training, technical support and assets to IGA beneficiaries were an essential first phase, lack of access to finance and markets as they grow dampened their growth prospects and affected sustainability"\. Agricultural finance instruments and linkages for farmers to markets are therefore important necessary conditions for supporting IGAs in the agricultural sector\. 13\. Assessment Recommended? No 14\. Comments on Quality of ICR The ICR is well written, concise and outcome oriented\. It provided a clear and logical story line for the project using data to support its conclusion\. The ICR also identified shortcomings in the data when they existed\. a\. Quality of ICR Rating Substantial Page 18 of 18

REVIEW

P083377

 ICRR 13924 Report Number : ICRR13924 IEG ICR Review Independent Evaluation Group 1\. Project Data: Date Posted : 11/16/2013 Country : Kyrgyz Republic Project ID : P083377 Appraisal Actual Project Name : Small Towns US$M ): Project Costs (US$M): 15\.60 21\.93 Infrastructure & Capacity Building Project L/C Number : C4016; C4556; Loan /Credit (US$M): Loan/ US$M ): 15\.00 20\.00 CH139; CH455 Sector Board : Urban Development US$M ): Cofinancing (US$M): Cofinanciers : Board Approval Date : 05/02/2005 Closing Date : 03/31/2010 09/30/2011 Sector (s): General water sanitation and flood protection sector (52%); Sub-national government administration (23%); Roads and highways (19%); Health (3%); General education sector (3%) Theme (s): Other urban development (40% - P); Pollution management and environmental health (20% - S); Urban services and housing for the poor (20% - S); Decentralization (20% - S) Prepared by : Reviewed by : ICR Review Group : Coordinator : Elaine Wee-Ling Ooi Judyth L\. Twigg Soniya Carvalho IEGPS1 2\. Project Objectives and Components: a\. Objectives: The development objective, as stated in both the Project Appraisal Document (PAD) page 3, and Schedule 2 of the Grant Financing Agreement, was: " to improve the availability, quality, and efficiency of local infrastructure services for the population of participating small towns \." This would be achieved by: (a) financing the rehabilitation and /or repair of basic infrastructure and utility service installations and equipment, and (b) assisting local governments in increasing the effectiveness of the management of local infrastructure services \. b\.Were the project objectives/key associated outcome targets revised during implementation? No c\. Components: STIs ) (estimated A\. Small Towns Infrastructure Investments (STIs) 13 \.5 million, actual $ 17\. ( estimated cost US$ 13\. 17 \.8 million )\. Note: Actual costs are taken from ICR Annex 1, page 14\. This component was to finance rehabilitation, replacement, or upgrading of urban infrastructure and services (water supply, waste water treatment, solid waste collection and disposal, urban roads ) and social infrastructure (primary schools, community facilities, health facilities )\. There was also provision for consulting services (technical studies, final engineering designs for urban infrastructure, and procurement and organization of tenders) to assist the Community Development and Investment Agency (ARIS) in implementing the project\. B\. Institutional Strengthening (estimated cost US$ 0\.8 million, actual USD$ 0\.53 million \.) This component was to provide capacity building to local self governments (LSGs) and their local infrastructure service providers in the 23 participating small towns, to help them do their part in "co-implementing" the project\.  Technical assistance to be provided to support preparation of Performance Improvement Action Plans (PIAPs) required of each local infrastructure service provider that "benefited" from the urban infrastructure development in component A\. The PIAPs were to improve technical, management and financial management competencies such as inventory of assets, clarify contractual relationships between LSGs and utility entities, develop preventive maintenance programs, reduce accounts payable and other arrears, introduce tariffs based on actual operating costs, strengthen billing and collection systems, etc \. The component also provided for capacity building of various entities within the National Government to develop and implement a policy framework in support of the National Strategy for Decentralization and Local Government \. ( estimated cost US$ 1\.3 million, actual US$ 1\.66 million ) C\. Implementation Support for the project (STICBP ) (estimated The component was to provide local experts to help LSGs identify and develop the social infrastructure investments, and support development and operation of an M&E system for the project and annual audits of project accounts\. This component was also to support some equipment and vehicles, plus the staffing and travel costs to operate the project located within ARIS, the implementing agency \. d\. Comments on Project Cost, Financing, Borrower Contribution, and Dates: Project Costs : Total project costs were more than 30% higher than at appraisal due to price escalation of construction materials, low quality technical/engineering designs, political and social unrest, and temporary suspension of Bank disbursements that disrupted or slowed project implementation \. The Kyrgyz Republic experienced two revolutions (2005 and 2010) during the project's life\. The first revolution, where the President was ousted, occurred in the first year of project approval (ICR, page 5)\. As the only donor-assisted project supporting secondary towns, the project encountered high demand for social services (solid waste management) and infrastructure, which were on the brink of collapse \. The project responded by including all 23 towns (beyond project targets) in its solid waste collection services \. Cost increases also resulted from additional civil works and redesign of some subprojects and engineering designs by local engineering firms (for example, relocation of a waste water treatment plant, and modification of certain technologies)\. Component B was underspent, as there was less demand than anticipated to develop and implement the policy framework for the National Strategy for Decentralization and Local Government \. Financing : Additional financing of $2\.2 million and $1\.8 million in Credit 4556 and Grant 4550 respectively was approved in April 2009 to accommodate the increased costs of materials and additional operating costs due to the project ’s extension by 18 months\. The additional financing was primarily targeted at the infrastructure component, which received an additional $3\.65 million\. Borrower Contributions : Final expenditures of local governments ($0\.66 million ) were close to the $0\.6 million estimated at appraisal\. An additional $1\.33 million was provided by the Kyrgyz Government, $ 1\.2 million of which was in-kind (ICR Annex 1)\. Dates : The project's closing date was extended twice \. The first Additional Financing of April 2009 allowed for an additional 15 months (due to the conflict), to close the project by June 30, 2011\. The second political uprising in 2010 resulted in the second additional financing (approved in May 2011), which added another 3 months to the project completion date\. 3\. Relevance of Objectives & Design: a\. Relevance of Objectives: High\. High At appraisal, a key priority for the Bank's Country Assistance Strategy (CAS, 2003 - 2006) was to arrest the deterioration in key infrastructure and social services that had worsened since the fall of the Soviet Union \. The CAS also articulated the need to improve the efficiency of services, while empowering local communities to partake in identifying their own development priorities \. These priorities, all supported by the project, were consistent with the decentralization thrust of the National Poverty Reduction Strategy of 2002\. At project close, the project's objectives were relevant and consistent with the Bank ’s Interim Strategy Note for the Kyrgyz Republic for FY 2012-2013\. There, the third pillar calls for "social stabilization, through social services and community infrastructure\.with particular emphasis on the southern part of the country \." b\. Relevance of Design: Substantial \. The project had the essential elements and components to achieve its development objectives \. There was a civil works component accompanied by provisions for contractual oversight and technical designs, plus an institutional development component to build capacity and competency of the local governments and the utility companies\. Project inputs (technical improvements to local water and sanitation infrastructure, and improvements in the skills of small towns to manage and oversee utility service providers ) would be expected to improve the availability, quality, and efficiency of utility services in these small towns \. While the results chain for this project is rather straightforward, it is not clearly presented in the Results Framework (PAD, Annex 3 page 23)\. Based on the interview with the project team, IEG believes there is not a problem with the project's theory, design and assumptions, but there are shortcomings with their articulation in the results framework as presented \. In the former Soviet system, the top -down, three-tiered centralized planning structure, from oblast to rayon to small town, had left small towns with weak capacity and little decision -making authority\. Government spending tended to favor the “higher levelsâ€? of the state\. In fiscal year 2000, small towns accounted for only ten percent of subnational spending, compared to 75 percent for oblasts and rayons \. The project was appropriately designed to redress the situation, building the strategizing, planning, and decision -making capacity of small towns and local governments (with input from local communities)\. Eligibility for participation was not limited only to the high performers, and the outcomes and key performance indicators were not cast in stone \. Depending on capacity, priorities, and level of commitment of the different municipalities that sought to participate, the key indicators and outcomes were defined accordingly \. The project presented "possible" project outcomes to be adopted by towns, such as "increase in available water supply in hours per day, increased frequency of solid waste collection per month, and increase in bill collection rates\." According to the project team, this flexibility of design was important because of the wide variation in capacity between the towns\. The ability for the towns to identify /determine their own targets (including the elaboration of Performance Implementation Action Plans (PIAPs)) was an important developmental process, a means to change mindsets and practice away from centralized, top -down planning\. 4\. Achievement of Objectives (Efficacy): The project sought to improve the availability, quality, and efficiency of local infrastructure services for the population of participating small towns \. There were therefore three subobjectives \. The Bank was the only development partner institution working with small towns in the country \. All the results below are directly attributable to the project\. a) Availability of local infrastructure services : Modest upgraded to Substantial Availability of services was measured by percentage of population supplied with water for at least 12 hours per day, and percentage of population served with municipal solid waste collection twice a month \. Outputs: All 23 towns had completed PIAPs and comprehensive plans for the project \. At appraisal, 6 towns were identified as strong candidates with good monitoring capability and the ability to implement their PIAPs \. The PIAPs were an important capacity building and institutional development process \. At project close, all 23 towns (LSGs and utilities) were implementing their PIADs and have started to rely on them for record -keeping and business accounting \. In total, 88 subprojects were implemented, benefiting 104,000 people\. These included rehabilitation of reservoir – head water intakes, installation /replacement of high-pressure/efficiency water pumps, and construction of second -tier pumping stations\. Outcomes: Of the 16 towns financed by the project to improve water supply, only 10 had reliable M&E\. Nine of these towns achieved or exceeded their targets, ranging from 27% to 95% of people having access for more than 12 hours\. The improvements in water supply from their respective baselines were considerable (caveat: the targets were set by the towns themselves)\. The other six towns also are reported to have experienced improved water supply, but were not entered into this computation due to their weak data systems and lack of baselines \. The project team subsequently provided new data (collected in October 2013, 2 years after project close) to fill the data gap in 5 towns\. There was 100% coverage (at least 12 hours per day) in water availability in 4 of the towns, and enhanced coverage by 2% in the fifth\. None of the towns had set targets \. 16 towns were to receive improvements in waste collection \. Only 7 towns tracked this indicator \. Of these, only 2 towns met or exceeded their targets, which ranged from 25% to 95% in population coverage \. The improvements in waste collection compared to their respective baselines were considerable (caveat: the targets were set by the towns themselves)\. During the course of the project, all 23 towns were provided with waste collection service "to reduce social tensions that arose during the 2 conflicts," but resources for this intervention were spread thinly across the 23 towns\. The planned targets for the 7 towns that tracked the waste collection indicator should have been adjusted downward, but they were not\. Additional data on solid waste collection was collected by the project team from 7 towns, making a total of 14 towns with data\. In all 7 towns (which had not set targets), service coverage (waste removal at least 2 times a month) was enhanced, by (on average) 10-15 % of the population\. The project objective was to improve availability of services in all participating towns \. The ICR provided evidence for only a subset of these towns : 10 out of 16 towns for water supply, and 7 out of 16 towns for solid waste\. Based on this sparse evidence and low attainment of targets on waste collection, achievement of this objective was originally rated as modest\. However, based on the additional data, availability of services is upgraded to Substantial \. b) Quality of local infrastructure services : Modest upgraded to Substantial Quality of service was measured by percentage of people reporting poor water quality \. Outputs: Sixteen towns were supported in the rehabilitation /construction of chlorination and pumping stations \. Outcomes: A beneficiary satisfaction survey was conducted in nine towns \. Six of these nine towns met their targets, one town reported worse water quality, and two others experienced no change \. (IEG notes that beneficiary satisfaction surveys can be flawed measures of quality improvement, and are subject to all sorts of survey bias errors \. A direct quality measure would have been better but was not practicable )\. Water and supply systems were in very poor shape after the fall of the Soviet Union \. Project interventions began at the utility level, and at this stage would not yet have addressed the water distribution networks at the town level that would have had a major effect on water quality \. Based on this limited impact, plus the fact that evidence is provided for only nine towns (and there is no way to know whether results for these nine towns are representative of all participating towns), achievement of this objective is rated as modest \. Additional data subsequently collected and provided by the project team from 15 out of the 16 water utilities shows that water quality two years after project close was improved at the utility level \. Twelve utilities fully met 100% of national water quality standards, and 3 utilities achieved 90% compliance with the National Standards \. Based on this additional information, overall quality of services is upgraded to Substantial \. c) Efficiency of local infrastructure services : Modest Efficiency achievements were measured by the revenue /cost ratio of water supply, and energy consumption from supplying water\. Outputs: The project introduced a billing system that increased the collection of user fees \. In eight out of the ten towns that had monitoring data and baselines on collection, there was substantial improvement of the collection rate (from 35% to 85%)\. Outcomes: Nine towns reported data on revenue /cost ratio for water supply, and only two of these reached their targets \. Three had ratios worse than before the project started \. Another seven towns reported that they carried out interventions related to this objective, but outcome data are not presented \. Eight towns reported data on reducing energy consumption as a percentage of total costs of supplying water, and six of those met their targets\. However, no data were available from seven other towns that also reported interventions \. Based on limited impact on revenue /coast ratio for water supply, plus the fact that evidence is provided for only a subset of towns (and there is no way to know whether results for these towns are representative of all participating towns), achievement of this objective is rated as modest \. 5\. Efficiency: A partial economic analysis was done by the ICR only on the water supply sector \. This sector accounted for approximately 70% of project costs\. The analysis found an economic internal rate of return of 13\.72%, with a benefit-cost ratio of 1\.36\. The analysis took into account benefits such as time saved (confirmed in a 2011 survey), savings in costs of boiling untreated water and not having to purchase bottled water, and savings from avoidance of treatment of waterborne diseases \. The 2011 survey did not capture the benefits from the solid waste management interventions that took place after the survey was completed \. There may be additional health benefits and associated savings from the removal of solid waste \. In IEG's view because the survey was conducted in only 5 out of 12 towns (approximately 42%) that had received substantial investments in water supply improvements, the ERR calculation /findings can only be applied to 42% of the water investments\. The project did not provide comparisons against the ERR or cost benefit ratios from other similar projects \. Since there was no sector or country benchmark against which to compare the project, the global Bank benchmark of 12% is applied here\. Efficiency may be rated as substantial for the 42% of the project that had water investments \. For the greater proportion of the project, reliable estimates were not generated \. The project was extended by a total of 18 months (15 months under additional financing, plus 3 months to complete works in the Southern town of Kok -Jangak where tensions were high)\. The project team subsequently undertook another estimate of the project's ERR \. The estimates were based on a more comprehensive economic analysis, where total project costs (both Bank and counterpart funding ) were computed into the estimates\. Returns were estimated from time savings from not fetching water, time savings from not storing water, and cost savings from not having to purchase safe water storage equipment \. Returns also included actual savings in energy consumption collected from 8 water utilities\. If only 50% of recipient households saved 1\.5 hours/day, and only 20% of households saved $250 each from not buying water storage tanks, the project arrived at a savings of $4\.7 million (opportunity cost of $1\.5/day) + $ 204,000\. Energy consumption savings of $90,000 were accrued by 8 utilities\. Based on these calculations, the project's ERR was 18%, higher than the 13\.72 % presented in the ICR\. The investment costs used were total project costs, compared to a more conservative estimate of returns \. The new calculation of 18% ERR is applicable to 70% of the project costs (instead of 13\.72% and 42% coverage, as stated in the ICR)\. Based on this analysis, efficiency is upgraded to Substantial \. ERR )/Financial Rate of Return (FRR) a\. If available, enter the Economic Rate of Return (ERR) FRR ) at appraisal and the re- re -estimated value at evaluation : Rate Available? Point Value Coverage/Scope* Appraisal No ICR estimate Yes 13\.72% 42% * Refers to percent of total project cost for which ERR/FRR was calculated\. 6\. Outcome: Relevance of objectives was high, and relevance of design was substantial \. The project's objectives were well aligned with country conditions and Government and Bank strategy, and the project's design contained activities that would plausibly have been expected to achieve the development objectives \. Based on additional information provided by the project team 2 years after project close, efficacy for 2 objectives (availability, quality) is rated substantial, and while one objective (efficiency) is still rated modest\. Seventy percent of the project's costs (water supply activities) returned an 18% economic rate of return, which is therefore rated substantial \. The project's outcome is therefore rated Satisfactory\. a\. Outcome Rating : Satisfactory 7\. Rationale for Risk to Development Outcome Rating: There are several significant risks : Financial: utilities are far from being self sustaining, and tariffs are yet to be increased \. Physical: water supply distribution network lines are antiquated, broken, and in need of repair and extension \. Technical: proper operation and maintenance is required but is often neglected \. A follow-on project (Additional Financing for Bishkek and Osh Urban Infrastructure (BOUIP) project) will have a component supporting the objectives and activities of STICBP \. Government ownership has increased \. The project team reported that as a result of this project, both the LSGs and MOF have dramatically increased their counterpart funding for the follow-on project; they will now contribute 10% each compared to the 3% from LSG and 0% by MOF in the STICBP\. Other donors (EBRD and ADB) are also starting to invest in small town infrastructure improvement \. Given the country's stage of development, outcomes will still be dependent on external aid at least for the near term \. a\. Risk to Development Outcome Rating : Significant 8\. Assessment of Bank Performance: a\. Quality at entry: The project team incorporated lessons from other municipal infrastructure projects in the Region and globally into the project design for a post -conflict country\. They included: placing decisions on investment priorities with local government and communities; packaging capacity -building together with investment interventions; and simplifying implementation arrangements\. The project appropriately used analytical studies from other donors (USAID, UNDP) and the Urban Institute to guide project preparation \. The project focused appropriately on quickly restoring essential infrastructure, and it selected an appropriate implementation partner, ARIS (government, LSG, and civil society representatives sit on the ARIS Board )\. Using a bottom-up approach, the project focused on and allowed the LSGs and utilities to identify their own priority needs which were then approved by town governance committees\. The PIAPs were an important developmental process and helped prepare LSGs for the financial, institutional, and technical challenges to come \. The project was the first in the country (former centrally planned economy ) to work at the small town level\. The project team was cognizant of capacity issues as well as the data collection challenges to be encountered in this demand driven project, but still believed the project's design and approach were appropriate \. at -Entry Rating : Quality -at- Satisfactory b\. Quality of supervision: The Bank worked effectively and had good relations with all counterparts (ARIS, LSGs, and utilities), which were particularly important when conflict broke out and persisted for seven years \. These good relations enabled the project to be adaptable in spreading some of the project's financing to cover more towns than planned to meet the most urgent needs\. There were adequate resources for supervision, and although there were five TTLs, there was continuity in handover \. Proper attention was given to oversight of financial management, procurement, and safeguard issues\. As the first and only donor supporting infrastructure services in small towns, the Bank faced many challenges\. The Borrower's ICR attested to the contributions of the Bank in provision of timely and expert supervision to the project \. The Borrower also expressed appreciation for the project's implementation model and concept\. All 23 towns eventually opted to participate in the project \. This was more than the project had anticipated, but the Bank proceeded nonetheless \. This created two problems: financial resources and project capacity were stretched thin; and weaker towns were unable to provide sufficient outcome data \. Supervision is therefore rated as moderately satisfactory, based on the information presented in the ICR \. However, based on new information subsequently provided by the project team showing that outcome results were not as compromised as originally thought, and the fact that the Bank worked well with the Client and was responsive to the Client's needs at a time of social division and conflict, Bank supervision is upgraded to Satisfactory\. Quality of Supervision Rating : Satisfactory Overall Bank Performance Rating : Satisfactory 9\. Assessment of Borrower Performance: a\. Government Performance: The government remained committed to the project and continued to endorse it through three changes of administration during the project’s lifetime\. These different administrations maintained appropriate communication with the Bank despite the challenge of not having a lead agency overseeing local governance and public utility services in the central government \. No problems were encountered with counterpart funding, and LSGs provided 3% of project costs\. However, perhaps due to the desire to maintain social cohesiveness, the government allowed all towns who wanted to do so to participate in the project \. As a result, financial resources and project capacity were stretched thin; and weaker towns were unable to provide adequate outcome data \. All towns were assisted in developing and implementing an M&E system, but many did not achieve desired results by project closing \. Based on new information subsequently provided by the project team, outcome results were not as compromised as originally thought\. The Client's response to public health demand by all towns for solid waste collection at a time of social division and conflict was a national public good \. Government performance is therefore upgraded to Satisfactory\. Government Performance Rating Satisfactory b\. Implementing Agency Performance: ARIS managed the project through the conflict, remaining resilient and dedicated to the project ’s goals and responsive to to the needs of LSGs and utilities \. The utilities depended on ARIS to help them develop and implement their customized PIAPs\. ARIS was technically competent and discharged all its project management responsibilities in a professional manner \. It satisfactorily performed its financial and procurement management responsibilities in a conflict-ridden and politically charged environment \. All quarterly and annual reports were submitted on time\. ARIS was highly rated in the Beneficiary Survey \. Implementing Agency Performance Rating : Satisfactory Overall Borrower Performance Rating : Satisfactory 10\. M&E Design, Implementation, & Utilization: a\. M&E Design: After the subproject applications from the towns were selected, outcome indicators were defined \. Ultimately five (two on availability, one on quality, and two on efficiency ) were chosen to represent the three development objectives\. At appraisal, six towns were assessed to have the ability to collect monitoring data and to participate effectively in the project\. They were included in the first year of project interventions \. In subsequent years other towns were added to the project \. The project assisted with building M&E capacity of the LSGs and utilities, which was included as a provision/requirement in the PIAPs\. The main weakness of the M&E provisions for the project was the inability to gather data from all participating towns \. The project did not have a effective plan for the M&E issues that would arise as " weaker" towns started becoming project participants\. As a result, only data and evidence from the towns with "strong" M&E systems were reported and analyzed\. For those six towns that had the capacity to collect data systematically throughout the project's duration, a baseline (through a survey) was established\. Later on other towns had project -sponsored interventions but were not included in the computation of achievement of objectives (see Section 4)\. The M&E system also included a mid-term review, beneficiary survey, and an impact evaluation, but not all of these were applicable to all 23 towns\. b\. M&E Implementation: Even though data quality varied, it was collected in the selected towns as planned \. Data collection was a key component of the PIAP\. All towns were using their respective M&E systems, but there was wide variability in the quality and reliability of these systems \. Nine towns had consistently reliable M&E systems, and data were routinely submitted from these nine systems to ARIS for analysis and project programming \. An additional five towns had reasonable data collected, which helped the project and ICR to track some of their targets and achievements \. The surveys and impact studies were implemented as planned \. c\. M&E Utilization:  Where reliable data were available, the above -mentioned studies and surveys and routine monitoring were useful programming tools, systematically utilized by ARIS \. More importantly, these towns now appear to understand the value of the M&E and depend on it to improve services \. Even though not all towns had sufficiently reliable data from which to assess project achievements, all towns have begun to collect and analyze outcome information \. M&E Quality Rating : Modest 11\. Other Issues a\. Safeguards: Safeguards compliance was monitored throughout the project, which was classified Category B \. A framework Environmental Management Plan and Environmental Impact Assessment were prepared as required and approved by the responsible Kyrgyz environmental authority \. Given the types of investments and the small volumes of waste water concerned, the project was granted a waiver to notification under OP 7\.50\. No issues materialized\. Asbestos cement was used extensively in the former Soviet Union, and a Kyrgyz factory still produces asbestos cement \. The project team noted that special attention was paid when reviewing bidding documents and technical specifications to ensure exclusion of asbestos cement \. b\. Fiduciary Compliance: The ICR notes that the financial management arrangements established by ARIS were satisfactory throughout the life of the project\. The project was fully compliant with the financial covenants of the Legal Agreement, and no significant accounting or internal control issues were discovered \. c\. Unintended Impacts (positive or negative): d\. Other: 12\. 12\. Ratings : ICR IEG Review Reason for Disagreement /Comments Outcome : Satisfactory Satisfactory Risk to Development Significant Significant Outcome : Bank Performance : Satisfactory Satisfactory Borrower Performance : Satisfactory Satisfactory Quality of ICR : Satisfactory NOTES: NOTES - When insufficient information is provided by the Bank for IEG to arrive at a clear rating, IEG will downgrade the relevant ratings as warranted beginning July 1, 2006\. - The "Reason for Disagreement/Comments" column could cross-reference other sections of the ICR Review, as appropriate\. 13\. Lessons: The ICR offers the following lessons which are summarized below : In circumstances where a whole system is on the verge of collapse, the need for flexibility in project design is required \. The project faced dilemmas typical to the water /urban sector in Central Asia\. Public services were functional prior to the collapse of the Soviet Union, but deteriorated rapidly due to : (i) the lack of funding by local authorities and utilities, even for basic operations and maintenance; (ii) non-existent maintenance or capital investment since the late 1980s; (iii) obsolete and energy-inefficient technologies; and (iv) the limited technical capacity of local operators \. Under such enormous challenges a project should be pragmatic in prioritizing demands/investments, and start first with restoring services to acceptable levels while slowly strengthening utilities that were on the verge of collapsing \. A project should be flexible enough to allow both needs to be served in a timely and effective manner \. However they should do so in a way that does not compromise quality\. Projects should not spread themselves too thin and nor should they forego data collection to ensure resources are wisely invested \. By preventing a complete collapse and allowing services to recover to a minimal level, others donors can be persuaded to invest and be more strategic later on \. With services running again and utilities back in operation, some towns have witnessed increased revenues and investment, and are therefore no longer in "emergency mode\." More donors are now investing or preparing investment in selected small towns \. These focused investments could yield significant results in fewer selected towns, with higher economic rates of return and greater impact\. If a project's investment is spread to a larger number of towns /beneficiaries than originally planned, it is important that the task team adjusts the targets downwards \. In this case, such adjustments could have impacted the project's outcome rating\. New technologies can significantly improve the availability of services and the operations of utilities, and therefore capacity building related to these technologies should be an integral part of project design \. In this case, the use of modern technology and equipment has had a significant impact on improving the efficiency of the participating utilities, especially in reducing energy consumption \. The knowledge related to the installation, operation, and maintenance of new systems (energy efficient pumps, computerized billing, accounting, and metering, etc ) is vital for utilities to keep up with proper operation and maintenance of installed equipment \. Practical and on-the-job training, which accompanied the installations, was one of the aspects of the project most appreciated by beneficiaries \. Further, where computerized billing and accounting systems were installed and utility staff trained, utility revenue and management capacity markedly improved\. 14\. Assessment Recommended? Yes No 15\. Comments on Quality of ICR: The ICR is satisfactory and very concise, but it should have pulled into the discussion more of the findings of the Impact Evaluation and Mid-Term Review\. This is especially necessary due to the fact that not all 23 towns had reliable data\. The Stakeholder Workshop, Impact Evaluation Study, and Borrower's ICR in the ICR annexes added considerably to understanding the challenges and performance of the project \. The Beneficiary Survey Instrument should have also been attached \. a\.Quality of ICR Rating : Satisfactory

REVIEW

P058367

 Document of The World Bank Report No: ICR2377 IMPLEMENTATION COMPLETION AND RESULTS REPORT (TF-90534 IDA-39980 TF-54531 TF-24759) ON A CREDIT IN THE AMOUNT OF SDR6\.9 MILLION (US$10\.0 MILLION EQUIVALENT) AND A GLOBAL ENVIRONMENTAL FACILITY GRANT IN THE AMOUNT OF US$5\.0 MILLION TO THE REPUBLIC OF SENEGAL FOR AN INTEGRATED MARINE AND COASTAL RESOURCES MANAGEMENT PROJECT October 30, 2012 Environment and Natural Resources Management Unit 3 (AFTN3) Sustainable Development Department Country Department 1 (AFCF1) Africa Region  CURRENCY EQUIVALENTS (Exchange Rate Effective June 30, 2012) Currency Unit = Franc CFA CFAF500 = US$1\.00 US$1\.00 = SDR 0\.66 FISCAL YEAR [January 1 – December 31] ABBREVIATIONS AND ACRONYMS CAS Country Assistance Strategy CBD Convention on Biodiversity CCLME Canary Current Large Marine Ecosystem Project CFAF CFA Francs CRODT Centre de Recherches Océanographiques de Dakar-Thiaroye / National Oceanographic Research Centre DMF-IU Department of Maritime Fisheries Implementation Unit DNP-IU Department of National Parks Implementation Unit EIG Economic Interest Groups EMC Ecosystem Management Committee GDO Global Development Objective GEF Global Environment Facility GEO Global Environment Objective ICR Implementation Completion Report IMCRMP Integrated Marine and Coastal Resources Management Project ISRA Institut Sénégalais de Recherche Agricole / Senegalese Agricultural Research Institute IUCN International Union for conservation of Nature LAFC Local Artisanal Fisheries Council LFC Local Fisher Committee MAB Man and Biosphere (UNESCO) MFME Ministry of Fisheries and Maritime Economy MTR Mid-term Review NGO Non-government organization NRP National Registration Program PAD Project Appraisal Document PAME Protected Areas Management Effectiveness PCU Project Coordination Unit PDO Project Development Objective PFZ Protected Fishing Zones ii PPF Project Preparation Facility RAPPAM Rapid Assessment and Prioritization of Protected Area Management SMFRP Sustainable Management of Fisheries Resources Project UNEP United Nations Environment Programme WARFP West Africa Regional Fisheries Program WCPA World Commission on Protected Areas WWF World Wildlife Fund Vice President: Makhtar Diop Country Director: Vera Songwe Sector Manager: Magdolna Lovei Project Team Leader: John Virdin ICR Team Leader: John Virdin iii  SENEGAL INTEGRATED MARINE AND COASTAL RESOURCES MANAGEMENT PROJECT CONTENTS Data Sheet A\. Basic Information B\. Key Dates C\. Ratings Summary D\. Sector and Theme Codes E\. Bank Staff F\. Results Framework Analysis G\. Ratings of Project Performance in ISRs H\. Restructuring I\. Disbursement Graph 1\. Project Context, Development and Global Environment Objectives Design \. 1 2\. Key Factors Affecting Implementation and Outcomes \. 8 3\. Assessment of Outcomes \. 15 4\. Assessment of Risk to Development Outcome and Global Environmet Outcome \. 21 5\. Assessment of Bank and Borrower Performance \. 22 6\. Lessons Learned \. 26 7\. Comments on Issues Raised by Borrower/Implementing Agencies/Partners \. 28 Annex 1\. Project Costs and Financing \. 29 Annex 2\. Outputs by Component \. 32 Annex 3\. Economic and Financial Analysis \. 61 Annex 4\. Bank Lending and Implementation Support/Supervision Processes \. 66 Annex 5\. Results Framework Analysis\. 69 Annex 6\. Summary of Borrower's ICR and/or Comments on Draft ICR \. 73 Annex 7\. Comments of Cofinanciers and Other Partners/Stakeholders \. 96 Annex 8\. List of Supporting Documents \. 97 iv A\. Basic Information Integrated Marine and Country: Senegal Project Name: Coastal Resources Management Project IDA-39980,TF- Project ID: P086480,P058367 L/C/TF Number(s): 90534,TF-24759,TF- 54531 ICR Date: 11/01/2012 ICR Type: Core ICR GOVERNMENT OF Lending Instrument: SIL,SIL Borrower: SENEGAL Original Total USD 10\.00M,USD 5\.34M Disbursed Amount: USD 9\.07M,USD 3\.85M Commitment: Environmental Category: B,B Focal Area: B Implementing Agencies: Ministry of Marine Economy, Maritime Transports and Fisheries Ministry of Environment Cofinanciers and Other External Partners: B\. Key Dates Integrated Marine and Coastal Resources Management Project - P086480 Revised / Actual Process Date Process Original Date Date(s) Concept Review: 12/18/2003 Effectiveness: 04/15/2005 04/15/2005 Appraisal: 04/16/2004 Restructuring(s): 11/14/2008 Approval: 11/11/2004 Mid-term Review: 01/17/2008 01/17/2008 Closing: 06/01/2010 05/01/2012 Integrated Marine and Coastal Resources Management Project - P058367 Revised / Actual Process Date Process Original Date Date(s) Concept Review: 12/18/2003 Effectiveness: 02/11/2004 04/15/2005 Appraisal: 04/16/2004 Restructuring(s): 11/14/2008 Approval: 11/11/2004 Mid-term Review: 01/17/2008 01/17/2008 Closing: 06/01/2010 12/01/2011 v C\. Ratings Summary C\.1 Performance Rating by ICR Outcomes Moderately Satisfactory GEO Outcomes Moderately Satisfactory Risk to Development Outcome High Risk to GEO Outcome High Bank Performance Moderately Unsatisfactory Borrower Performance Moderately Unsatisfactory C\.2 Detailed Ratings of Bank and Borrower Performance (by ICR) Bank Ratings Borrower Ratings Moderately Moderately Quality at Entry Government: Unsatisfactory Unsatisfactory Moderately Implementing Moderately Quality of Supervision: Unsatisfactory Agency/Agencies: Unsatisfactory Overall Bank Moderately Overall Borrower Moderately Performance Unsatisfactory Performance Unsatisfactory C\.3 Quality at Entry and Implementation Performance Indicators Integrated Marine and Coastal Resources Management Project - P086480 Implementation QAG Assessments (if Indicators Rating: Performance any) Potential Problem Project No Quality at Entry (QEA) None at any time (Yes/No): Problem Project at any time Quality of Supervision Yes None (Yes/No): (QSA) DO rating before Satisfactory Closing/Inactive status Integrated Marine and Coastal Resources Management Project - P058367 Implementation QAG Assessments (if Indicators Rating: Performance any) Potential Problem Project No Quality at Entry (QEA) None at any time (Yes/No): Problem Project at any time Quality of Supervision No None (Yes/No): (QSA) GEO rating before Satisfactory Closing/Inactive Status vi D\. Sector and Theme Codes Integrated Marine and Coastal Resources Management Project - P086480 Original Actual Sector Code (as % of total Bank financing) Central government administration 25 25 General agriculture, fishing and forestry sector 70 70 Other social services 5 5 Theme Code (as % of total Bank financing) Biodiversity 25 25 Environmental policies and institutions 13 13 Other environment and natural resources management 25 25 Participation and civic engagement 13 13 Rural non-farm income generation 24 24 Integrated Marine and Coastal Resources Management Project - P058367 Original Actual Sector Code (as % of total Bank financing) Central government administration 20 20 General agriculture, fishing and forestry sector 80 80 Theme Code (as % of total Bank financing) Biodiversity 40 40 Environmental policies and institutions 40 40 Rural non-farm income generation 20 20 E\. Bank Staff Integrated Marine and Coastal Resources Management Project - P086480 Positions At ICR At Approval Vice President: Makhtar Diop Makhtar Diop Country Director: Vera Songwe Vera Songwe Sector Manager: Magdolna Lovei Magdolna Lovei Project Team Leader: John Virdin John Virdin ICR Team Leader: John Virdin ICR Primary Author: Huong-Giang Lucie Tran vii Integrated Marine and Coastal Resources Management Project - P058367 Positions At ICR At Approval Vice President: Makhtar Diop Makhtar Diop Country Director: Vera Songwe Vera Songwe Sector Manager: Magdolna Lovei Magdolna Lovei Project Team Leader: John Virdin John Virdin ICR Team Leader: John Virdin ICR Primary Author: Huong-Giang Lucie Tran F\. Results Framework Analysis Project Development Objectives (from Project Appraisal Document) Increase sustainable management of coastal and marine resources in 3 pilot areas by communities and the Government of Senegal\. Revised Project Development Objectives (as approved by original approving authority) PDO remains the same\. Global Environment Objectives (from Project Appraisal Document) The global environmental objective of the Project is to secure the conservation and management of Senegal's marine and coastal ecosystems, which are globally significant and vital to the sustained livelihoods of coastal communities\. Revised Global Environment Objectives (as approved by original approving authority) To strengthen the conservation and management of Senegal#s marine and coastal ecosystems, which are globally significant and vital to the sustained livelihoods of coastal communities\. (a) PDO Indicator(s) Original Target Actual Value Formally Values (from Achieved at Indicator Baseline Value Revised approval Completion or Target Values documents) Target Years Local fisheries management sub-projects are implemented in 4 pilot sites by End of Indicator 1 : Project (EOP)\. Value (quantitative or 0 4 4 Qualitative) Date achieved 01/03/2005 06/01/2010 06/01/2012 Comments (incl\. % achievement) National management plans for 2 key fisheries are prepared, and approved by the Indicator 2 : National Consultative Council for Maritime Fisheries\. viii Value (quantitative or 0 2 0 Qualitative) Date achieved 11/11/2004 06/01/2010 06/01/2012 Comments This target was 80% achieved - the management plans are not approved, so the value is (incl\. % still given as zero, but the plans have almost been completed, and will be finalized and achievement) approved shortly with support from the West Africa Regional Fisheries Program\. Participatory assessment of local community involvement in the management of Indicator 3 : biodiversity in the three pilot areas rated as satisfactory at the end of the Project\. Value (quantitative or No Yes - satisfactory Not fully measured Qualitative) Date achieved 11/11/2004 06/01/2010 06/01/2012 Could not be measured fully since no beneficiary assessment was conducted at EOP\. Comments However, a participatory assessment carried out in 2006, and between 2009 to 2011, (incl\. % indicated mean score variation from 67% in 2006 to 75% in 2011, indicating achievement) satisfaction\. (b) GEO Indicator(s) Original Target Actual Value Formally Values (from Achieved at Indicator Baseline Value Revised approval Completion or Target Values documents) Target Years Effective management of biodiversity in the three pilot areas increased by at least 50% Indicator 1 : by EOP\. Value (quantitative or 0 50 61 Qualitative) Date achieved 01/03/2005 06/01/2010 11/01/2011 Comments The mean score improved from 46% in 2006 to 61% in 2011\. Evaluation carried out by (incl\. % DNP from 2009-2011\. achievement) (c) Intermediate Outcome Indicator(s) Original Target Actual Value Formally Values (from Achieved at Indicator Baseline Value Revised Target approval Completion or Values documents) Target Years 60 percent of Local Fisher Committees implementing sub-projects comply with sub- Indicator 1 : project performance targets by end of project\. Value (quantitative or 0 60 75 Qualitative) Date achieved 01/03/2005 06/01/2010 06/01/2012 ix Comments (incl\. % achievement) Biodiversity and Protected Area framework law is prepared and submitted to Indicator 2 : Government before EOP Value (quantitative or No Yes Yes Qualitative) Date achieved 01/03/2005 06/01/2010 06/01/2012 Comments (incl\. % achievement) Indicator 3 : State of biodiversity update reports produced on an annual basis\. Value Yes - reports (quantitative or No - none produced Yes - partially produced Qualitative) Date achieved 01/03/2005 06/01/2010 06/01/2012 Comments (incl\. % Reports were prepared and submitted for 2005, 2007, 2010\. 2012 report pending\. achievement) x G\. Ratings of Project Performance in ISRs - Actual Disbursements Date ISR (USD millions) No\. DO GEO IP Archived Project 1 Project 2 1 12/15/2004 S S 0\.00 0\.00 2 06/21/2005 S S 1\.13 0\.00 3 12/30/2005 S S S 1\.66 0\.30 4 06/30/2006 S S S 2\.52 0\.74 5 01/12/2007 S S S 3\.42 1\.30 6 06/06/2007 MS MS MS 3\.91 1\.43 7 12/20/2007 MS MS MS 5\.18 2\.08 8 04/12/2008 MU MU MU 5\.44 2\.25 9 12/03/2008 MS MS MS 6\.40 2\.51 10 05/30/2009 S S S 7\.15 2\.87 11 12/16/2009 S S S 8\.64 3\.13 12 05/25/2010 S S S 8\.90 3\.36 13 03/16/2011 S S S 9\.24 3\.80 14 08/17/2011 S S S 9\.33 3\.88 15 03/13/2012 S S S 9\.52 3\.85 H\. Restructuring (if any) Amount Disbursed at ISR Ratings at Board Approved Restructuring in Reason for Restructuring Restructuring USD millions Restructuring & Key Date(s) PDO GEO Changes Made DO GEO IP Project1 Project 2 Change Change 11/14/2008 MS MS 6\.40 11/14/2008 Y MU MU 2\.51 See main documents xi I\. Disbursement Profile P086480 P058367 xii 1\. Project Context, Development and Global Environment Objectives (GEF) Design (this section is descriptive, taken from other documents, e\.g\., PAD/ISR, not evaluative) Context\. Senegal’s fisheries resources and related industries, which contributed to about 2\.3 percent of the GDP in 2002 and employed about 17 percent of the active workforce, had been experiencing steep cycles of growth and decline over the last 30 years\. The fishing sector was in crisis and the coastal demersal resources which represented the bulk of exports was particularly affected\. Overfishing and unsustainable fishing practices at the artisanal and industrial levels and the management structure of the marine fisheries and environment sectors from the national to the local levels contributed to this crisis – essentially this was a tragedy of the commons, as the Government failed to address fundamental constraints of open access to the fish resources\. In recognition of the threats to its declining natural resources, Senegal identified the conservation and sustainable use of coastal and marine ecosystems as priorities in its national biodiversity strategy and action plan\. In this context, the World Bank and the GEF agreed to co-finance the Integrated Marine and Coastal Resources Management Project in support of the Government of Senegal’s implementation of two complementary agendas: (a) empowering coastal communities to take concrete actions to reduce conditions of open access and thus overfishing, and (b) protecting sensitive coastal environments and its biodiversity\. The Project would thus contribute to alleviating the poverty found in the coastal areas where fishing communities were steadily losing their main source of income and environments of global significance\. The project’s design was aligned with the objectives of Senegal’s Poverty Reduction Strategy Paper of 2002 and the Country Assistance Strategy of 2003, which placed emphasis on rational management of natural resources and the environment for sustainable development while developing the country’s natural capital, i\.e\., natural resources and biodiversity\. It attempted to address the Government’s concern that “rapid growth and lack of national management capacities subject Senegal's coastal and marine biodiversity to over-exploitation while posing a serious risk to the sustainability of marine exports\.â€? With regards to the GEF areas of emphasis, Senegal had ratified the Convention on Biological Diversity in June 1994\. The project was aligned with the GEF Biodiversity Operational Strategy, the Operational Program on Coastal and Marine Ecosystems, and the Conferences of the Parties to the Convention on Biological Diversity which stresses in situ conservation of coastal and marine ecosystems, and to the Jakarta Mandate endorsed at COP2, through conservation and sustainable use of vulnerable marine habitats and species\. The Project’s Development Objective (PDO), to increase sustainable management of coastal and marine resources in three pilot areas by communities and the Government, and the revised Global Environment Objective (GEO), to strengthen the conservation and management of Senegal’s marine and coastal ecosystems, which are globally significant and vital to the 1 sustained livelihood of coastal communities were formulated to closely align the project activities with these national priorities\. 1\.1 Context at Appraisal (brief summary of country and sector background, rationale for Bank assistance) Senegal’s coastline constitutes one of the richest and most productive upwelling areas in the eastern tropical Atlantic Ocean\. Fishing played a critical role in Senegal's economy with related activities such as processing and marketing amounting to a production gross value of about US$550 million and a domestic value added approximately US$370 million\. Senegal's fisheries also employed some 600,000 people (17 percent of workforce), including over 52,000 full-time artisanal fishers\. In 1999, Senegal exported roughly 124,000 tons of fish products (over 60 percent destined for the European market), with a commercial value of over US$300 million and representing 25-30 percent of the country's exports\. Between 1997 and 2002, catches of demersal species of fish, commercially valuable as an export product, fell by 50 percent, and left a major impact on the economic performance of Senegal’s fisheries\. Artisanal fisheries, using an estimated 10-12,000 locally built pirogues, or small fishing vessels, operated by 50,000-75,000 fishermen, caught 85 percent of fish landed in Senegal, which equaled some 60 percent of the total marine fish catch value\. They were among the most effective in Africa with value added per ton of product being double that of industrial vessels\. At the time of appraisal, this level had dropped to only a third of the fish caught twenty years ago, and about 30-40 percent of such artisanal catch originated in the neighboring countries of Guinea-Bissau, The Gambia, and Mauritania\. Gaps and weaknesses in the management of the fisheries sector that failed to address the open access nature of the resources, including the governing and management structures, capacity of knowledge institutions, the knowledge base needed for policy decision making and the accompanying measures, contributed to the crisis\. The Fisheries Law at that time allowed for open access fisheries which was unsustainable ecologically, economically, and socially\. Historically, boat owners have resisted local fishing restrictions, government attempts to regulate artisanal fisheries have met with strong resistance and limited success\. Consequently, the fisheries administration in Senegal had not been supportive of local initiatives to limit fishing\. The management system in place at the time contributed to overfishing at both artisanal and industrial levels allowing for fishing capacity to increase beyond the level of available resources and without allowing for fish stocks to recover\. Senegal also had a limited capacity to conduct large research programs (stock assessments for industrial and artisanal fisheries, investigations on marine environments, assessment of life cycles of specific fish species)\. The Centre de Recherches Océanographiques de Dakar- Thiaroye (CRODT) was the primary source of information on Senegalese fish stocks\. Once a premier marine fisheries research institution in West Africa, CRODT had lost many of its senior staff to private sector or international organizations resulting in its modest contribution to fisheries management\. The knowledge base needed for the sustainable management of fisheries was either lacking or outdated, and knowledge of the social, cultural, and political context was limited\. Little research had been carried out on local management strategies or on their 2 relationship to sound policy decision-making\. Senegal also planned to implement a nationwide system of canoe/boat registration, based on the results of a Swiss-supported pilot project, as a means to generate revenue for the Government and to control fishing capacity\. This was funded by multiple donors and by the Bank under the Project\. In the Conservation of Critical Habitats area, Senegal had established protected areas along its coast and by the late 1980s had developed an internationally recognized network of protected areas, including five National Parks and three Nature Reserves\. However, by the 1990s, the model used for protected parks experienced problems due to: (i) the nature of the parks which were created initially for a tourism market which never grew, (ii) budget constraints affecting the staffing and maintenance of the parks, (iii) lower levels of international funding support than expected; and (iv) conflicts with the local population who were not consulted when the parks were established\. Such conflicts (which often involved fishing communities) also undermined public support for protected areas\. Project Rationale The Project was a first step in linking fisheries management to address open access with biodiversity conservation, in support of the Government’s strategy to shift focus from sector development to sustainable management of fish resources\. It integrated a project which had been identified in 1997 for GEF financing, the Marine and Coastal Biodiversity Management Project, with urgent initiatives proposed to address the crisis in the fisheries sector in Senegal\. A study was subsequently commissioned in the context of an integrated diagnostic and commercial approach to resources management, which confirmed the urgent need for solutions\. The fisheries sector became a part of the CAS\. The Project was a pilot for an ecosystem approach to the management of marine and coastal resources in targeted areas\. It envisaged a 10-year programmatic approach in collaboration with other donor programs while building the base with pointed interventions in three project areas (Senegal River Delta, Cap-Vert Peninsula, and the Saloum River Delta) and testing co- management initiatives in several pilot sites\. Fisheries sector management was to be tackled through a dual system - industrial fisheries, and highly commercial artisanal fisheries\. These were to be reinforced by accompanying measures, policy revisions, and activities at the national level\. The aim was to put in place measures to start to reduce fishing capacity to a sustainable level\. At the local level, the co-management system engaged the Local Artisanal Fisheries Councils (LAFC) and the Local Fisher Committees (LFC) for greater ownership of management decisions by communities, in partnership with the Government through its fisheries administration authorities\. The system was relevant given the conflicts which have risen from insufficient or lack of community consultation by government institutions in the past\. Co-management introduced to the communities a broader range of themes related to environmental, biological, economic issues, as well as social considerations while building support for their initiatives from the local level through local advisory councils to national level administration\. It was designed to reduce inefficient competition among fishermen for depleting fish resources in the context of open access, and promote community decision-making and ownership of management 3 measures 1\. Compensation for local fishermen who would be affected by reduced fishing was not built into the Project but would be provided through another Bank operation under preparation at the time, under the Senegal Social Investment Fund to ensure synergy between operations\. Ecosystem Approach\. The Ministry of Environment and Nature Protection has since the early 1990s adopted co-management as its core policy, as demonstrated in the National Environment Action Plan (1997) and the National Biodiversity Strategy (2000)\. Most particularly, the Government wants to promote the establishment of community-based protected areas, to increase the protected area coverage from 8 to 12 percent of the country\. 1\.2 Original Project Development Objectives (PDO) and Key Indicators (as approved) Increase sustainable management of coastal and marine resources in three pilot areas by communities and the Government of Senegal\. The associated Key Indicators were: • Catch per fishing effort improved by 10-30 percent from baseline in most community- managed fisheries targeted by the Project, by end of Project\. • Measures to alleviate the impact of reduction in fishing capacity rated satisfactory by at least 75 percent of targeted communities\. 1\.3 Original Global Environment Objectives (GEO) and Key Indicators (as approved) The global environmental objective of the Project is to secure the conservation and management of Senegal's marine and coastal ecosystems, which are globally significant and vital to the sustained livelihoods of coastal communities\. The associated Key Indicator was: • Effectiveness of biodiversity-management improved in the three pilot areas by 20 percent at mid-term review and 50 percent at the end of Project, with the active participation of local stakeholders\. 1\.4 Revised PDO (as approved by original approving authority) and Key Indicators, and reasons/justification The PDO remained the same\. However, the Key Indicators were revised in a first order restructuring approved by the Board in November 2008, to reflect more achievable targets in the remaining project timeframe\. Both of the previous Key Indicators were dropped\. The previous intermediate indicators were revised to become Key Indicators for the restructured Project as follows: • Local fisheries management sub-projects are implemented in four pilot sites by end of Project\. • National management plans for two key fisheries are prepared, and approved by the National Consultative Council for Maritime Fisheries\. 1 This includes the numbers of boats, restrictions on gear, seasons and fishing areas, to protect spawning and juvenile fish, and specific limits on fish landings to optimize fish price and quality\. 4  • Participatory assessment of local community involvement in the management of biodiversity in the three pilot areas rated as satisfactory at the end of the Project\. 1\.5 Revised GEO (as approved by original approving authority) and Key Indicators, and reasons/justification To strengthen the conservation and management of Senegal’s marine and coastal ecosystems, which are globally significant and vital to the sustained livelihoods of coastal communities\. The revised Key Indicator was: • Effective management of biodiversity in the three pilot areas increased by at least 50 percent by end of Project\. 1\.6 Main Beneficiaries, (original and revised briefly describe the "primary target group" identified in the PAD and as captured in the PDO/GEO, as well as any other individuals and organizations expected to benefit from the project) At the local level The primary beneficiaries are the members of fishing communities in the three project areas (the Senegal River Delta, the Cap-Vert Peninsula, and the Saloum River Delta)\. Within these areas, the fishing communities of four pilot sites (Ouakam, Ngaparou, Foundiougne, and Betenty) are the primary target groups for Component 1: Management of Sustainable Fisheries\. Local Artisanal Fisheries Council members are also beneficiaries as the project is seeks to build their mandate to advise and guide the Local Fisher Committees representing the fishing communities\. Local Fisher Committees benefitted as private sector organizations supported and strengthened under the project\. All the facilitators were direct beneficiaries of the project funding, having been trained and employed as consultants under the project\. Under the GEF-funded Component 2: Managing Ecosystems, the primary beneficiaries are members of the local communities in and surrounding the protected parks and reserves, commissioners of the protected areas and officers, local and regional council members, Department of Forestry personnel in the field\. At the regional level The beneficiaries were the representatives of the Ecosystem Committees, regional development agencies, rural community councils, regional representatives from the Ministry of Fisheries and Maritime Economy (MFME), the Ministry of Agriculture, the Ministry of Environment (ME), and the Governor\. At the national level The beneficiaries were the Ministry of Maritime Economy and personnel of the Department of Marine Fisheries - Implementation Unit (DMF-IU), the Ministry of Environment and personnel of the Department of National Parks - Implementation Unit (DNP-IU)\. National research institutions such as the Institut Sénégalais de Recherche Agricole (ISRA) and the Centre de Recherches Océanographiques de Dakar-Thiaroye (CRODT) benefitted from capacity building activities through contracts funded under the project for studies and participative research at the community level\. Various national and international consulting firms including BRLi (fisheries 5 management plans), CAES-Consult (communications), OAFIC (fisheries, agro-processing), were recipients of consultant contracts under the project\. 1\.7 Original Components (as approved) The Project originally had three components\. Component 1: Management of Sustainable Fisheries (US$6\.53 million, of which US$6\.0 million IDA)\. The objective was to increase the sustainability of fisheries through the use of area-based co management through three subcomponents: 1\.1 National-level activities to improve fisheries management (US$1\.38 million), to enable the implementation of co management initiatives\. 1\.2 Promotion and coordination of local management initiatives (US4\.67 million in three pilot areas, Senegal river Delta, the Cap-Vert Peninsula, and the Saloum River Delta\. 1\.3 Institutional strengthening and capacity building (US$0\.48 million) to oversee, support and monitor the implementation of co-management initiatives\. Component 2: Conservation of Critical Habitats and Species (US$6\.02 million, of which US$0\.5 million IDA and US$5\.0 million GEF)\. The objective was to improve the long-term management of Senegal’s network of coastal protected areas by (a) developing and implementing management plans for these areas, according to an ecosystem approach, and (b) by restructuring the biodiversity management framework, through two sub-components: 2\.1 Managing ecosystems (US$4\.45 million) in three pilot areas, Senegal River Delta, the Cap-Vert Peninsula, and the Saloum River Delta\. 2\.2 Strengthening the Biodiversity Conservation Framework (US$1\.57 million) by preparing a Biodiversity and Protected Area Act, strengthening institutions, and preparing the establishment of Trust Fund\. Component 3: Program Management, M&E and Communication (US$3\.94 million, of which US$3\.5 million IDA)\. The objective was to effectively manage the project through five sub-components: 3\.1: Monitoring and Evaluation (US$2\.8 million)\. The Project Coordination Unit (PCU) was to manage aid from donors and partners, ensure efficient implementation and procurement, monitor implementation against indicators, and commission periodic independent evaluation\. 3\.2: Coordination (US$0\.1 million)\. The PCU was to ensure the operations of the Integrated Marine and Coastal Resources Management Steering Committee and the Advisory Scientific and Technical Committee\. It was to also support the cross- sectoral structures necessary in the pilot intervention areas to ensure coordination 6  among various implementing agencies, including joint sessions between the CNCPM and the National Biodiversity Committee\. 3\.3: Communication (US$0\.3 million)\. The PCU was to develop and implement a communication plan to ensure the flow of necessary information to and from stakeholders on project activities\. 3\.4: Sub-regional coordination (US$0\.1 million)\. The PCU was to coordinate with sub- regional and regional structures involved in similar initiatives\. 3\.5: Activities funded under the PPF (US$0\.64 million)\. 1\.8 Revised Components As a result of a first-order project restructuring approved by the Board in October 2008, the GEO was modified and the PCU dissolved\. Components 1 and 2 were retained, and Component 3 was removed and the remaining funds from the PCU’s operation were reallocated to the technical Ministries’ implementation units (DMF-IU and DNP-IU) for project management for each of the Sustainable Fisheries and the Ecosystems Management components\. Component 1: Management of Sustainable Fisheries (US$6\.53 million, of which US$6\.0 million IDA)\. The objective was to increase the sustainability of fisheries through the use of area-based co-management through three sub-components: 1\.1: National-level activities to improve fisheries management, to enable the implementation of co-management initiatives\. 1\.2: Promotion and coordination of local management initiatives in three pilot areas, Senegal river Delta, the Cap-Vert Peninsula, and the Saloum River Delta\. 1\.3: Institutional strengthening and capacity building to oversee, support and monitor the implementation of co-management initiatives\. Component 2: Conservation of Critical Habitats and Species (US$6\.02 million, of which US$0\.5 million IDA and US$5\.0 million GEF)\. The objective was to improve the long-term management of Senegal’s network of coastal protected areas by: (i) developing and implementing management plans for these areas, according to an ecosystem approach, and (ii) restructuring the biodiversity management framework, through two sub-components: 2\.1: Managing ecosystems in three pilot areas, Senegal River Delta, the Cap-Vert Peninsula, and the Saloum River Delta\. 2\.2: Strengthening the Biodiversity Conservation Framework by preparing a Biodiversity and Protected Area Act, strengthening institutions, and preparing the establishment of Trust Fund\. 1\.9 Other significant changes 7 (in design, scope and scale, implementation arrangements and schedule, and funding allocations) Early in implementation, it was realized that the GEO was not attainable within the project timeframe\. Some of the Key Indicators were not measurable and there was insufficient data to provide a viable baseline\. The GEO was revised and the associated key indicator reformulated\. Two of the PDO key indicators were dropped because they were either not measurable or were more appropriate as an intermediate indicator\. The number of pilot sites was reduced from 12 to four for this Project, and the eight others were transferred to the Sustainable Management of Fisheries Resources (SMFR) Project under preparation at the time\. Five fisheries management plans (including national level stock assessments and baseline assessments) planned at appraisal were reduced to two due to the shortage of experts and time caused by delays in project start-up\. The following activities were dropped: (a) the review of policy options, which was replaced with support to revisions to the Fisheries Code, finalization of the Letter of Sector Policy and related Action Plan; (b) study on coastal demersal species to be carried out with the CRODT; and (c) the Information, Education, and Communication (IEC) activities (including the international consultancy) was dropped from Component 3 as a result of the dissolution of the PCU\. Six indicators were dropped: three in Component 2 (the outcomes were no longer feasible), and three in Component 3 (the component was removed)\. Other indicators were moved to intermediate-level indicators and two were moved up to key project indicators for the Project as a whole (see Annex 5)\. These changes were reflected in the first-order Project Restructuring of October 2008 which resulted in the removal of Component 3 and the dissolution of the PCU\. 2\. Key Factors Affecting Implementation and Outcomes 2\.1 Project Preparation, Design and Quality at Entry (including whether lessons of earlier operations were taken into account, risks and their mitigations identified, and adequacy of participatory processes, as applicable)\. Lessons Learned\. The Project drew lessons from best practices examples in the sector and from similar Bank-funded operations involving community-based management of fisheries resources 2, 2 In particular from the Indonesia Coral Reef Rehabilitation and Management Program I and II, the Ghana Fisheries Sub-sector Capacity-Building Project, and the Albania Pilot Fishery Development Project, for the design of the components on national level activities including: managing fisheries stock, not on a stock-by-stock basis but by managing and ensuring the health of the ecosystem which supports the stocks; focusing on the high-value artisanal fisheries sector important for generating employment in the rural sector; establishing partnerships between government and fisher communities to manage resources, i\.e\., area-based collaborative or co-management approaches; establishing marine protected areas to protect key fisheries habitat, and providing alternative livelihoods to fishers affected from controls on fishing efforts\. 8 Lessons from Bank documents for the fisheries sector (Diagnostic Trade Integration Study for Senegal, Fisheries Approach Paper) and the ecosystems approach (endorsed by FAO and central to the Fisheries Approach Paper) were also built into the ecosystem approach and biodiversity conservation activities\. Quality at Entry\. The Project was proposed as a result of sector studies, lessons learned in the sector from other countries mentioned above, and Government strategy in response to the fisheries crisis\. It was the first operation of its type to pilot the integrated approach to coastal and marine resources management in Senegal to address the often conflicting priorities of conservation and fisheries exploitation (including tourism and land development)\. Its approach was to maximize impact by avoiding the more fragmented approach of a stand-alone fisheries project and a biodiversity conservation projects\. In supporting revisions to policy and legal framework documents for both biodiversity and protected areas management and fisheries management, the Project envisioned a consolidation of dispersed mandates in these areas, and greater clarity in policy objectives\. Its approach placed more emphasis on capacity development and less on infrastructure as with past aid projects in the fisheries sector, and established the links with macro-economic development policies (CAS and government strategies)\. Internal reviews by Bank management endorsed the Project’s strategic relevance, innovative approach, and technical analyses\. It was viewed as a new operation in a risky sector and a difficult environment\. The Bank prepared the project with highly qualified staff and consultants, with quality peer reviews, and appropriate management guidance\. Bank inputs for preparation for the IDA component was low, but higher for the GEF component due to longer preparation time and merging of the earlier GEF-funded Marine and Coastal biodiversity Management Project with this Project\. The processing time from appraisal to board approval and effectiveness took a month or two longer than average, typical for a complex operation\. Safeguards documentation adequately addressed the triggers identified in the PAD with the required documentation prior to Board Approval\. Procurement and financial management assessments carried out by Bank specialists on the capacity of the implementing agency rated procurement risk as medium and financial management capacity as satisfactory\. Government Ownership and Participatory Process\. The Project was prepared with strong donor collaboration and Government support\. It used a broad-based consultation process to coordinate projects among donors, within World Bank projects, and to seek agreement of fishing communities to promote the participation aspects\. Agreements were reached with the Department of Marine Fisheries and the PCU to support the merging of the sustainable fisheries priorities with the biodiversity conservation priorities of the Department of National Parks, and both Ministers of Fisheries and Maritime Economy and Environment at the time fully supported the project\. The Ministry of Maritime Economy (MME) demonstrated ownership by taking the lead role in mobilizing donors around a common agenda (January 2004) bringing together the projects of the World Bank, FAO, the European Union, the Agence française de Développement (AfD), and JICA\. The donor coordination group which was established to ensure complementarity and synergies is still active to date\. The design for community-level fisheries activities was based on several successful consultation workshops to build partnership and ownership with different levels of actors from the local, 9 regional and national levels, and collaboration with other donors, civil society and NGOs was sought through consultations as well as through their participation in the Steering Committee and contracts (memoranda of understanding, World Wildlife Fund (WWF), International Union for Conservation of Nature)\. The Swiss Corporation funded the national boat registration program supported under the Project through a trust fund managed by the Bank\. At preparation, the PCU, which was at the Ministry of Environment, was a dynamic unit and actively involved in the preparation of the Project\. It organized a national workshop in April 2003 to outline a management plan for fisheries and the selection of project activities\. It held public hearings to consult stakeholders at the three project areas with regards to environmental safeguards\. However, as project implementation progressed, the PCU’s location within the Ministry of Environment exposed it to pressure and interference and seriously affected its ability to implement the project activities effectively\. Identification and Mitigation of Risks\. The PAD correctly identified a number of the critical risks, particularly those involving community-based activities from components to outputs\. The mitigation measures were appropriate for the community-level activities and were employed successfully in the project\. The mitigating measures proposed for ensuring successful decision making and capacity-building at the national level were less successful\. Risks to the sustainability of community-level activities were not identified, particularly with regards to the funding of operating costs of such activities as well as the provisions to alternative livelihood support, e\.g\., the collaboration with the Bank-funded Social Investment Fund which did not materialize\. At the Outputs to Objectives level, the PAD correctly identified all the risks listed but did not identify the risk of ministerial interference in project activities as well as the risk of poor management at the PCU level which affected project implementation as a whole\. The Project also did not identify the effects of insufficient capacity in employing and implementing an eco-system management approach over a relatively short-term timeframe\. Project Design\. The Project’s approach was innovative and technically sound\. Project design for local co-management initiatives involving communities as partners with the Government in natural resources management were highly successful and formed the core of the project’s successes\. Facilitators selected were successfully trained and inserted into the pilot sites to assist in the preparation of sub-projects and co-management initiatives and were not rejected by the local communities\. Supporting activities targeting training and capacity building of LFCs, and building partnership with fisheries administration and DNP representatives yielded good results and impact, but was less successful with building the partnership with research institutions\. The Project design, however, proved to be too ambitious and complex in certain areas for the project timeframe and the capacities of the agencies involved\. The Project attempted to address a complex set of issues (changes in behavior and approach to natural resources management, social and environmental implications, coordination and collaboration across sectors and institutions, revisions to national policy legislation) in a relatively short timeframe more suited to an APL-type of operation\. Key indicators reflected the high expectations and ambitious targets set at appraisal\. The requirements for project activities required operating budgets and resources which the implementing agencies did not have and which the project’s limited resources could 10 not provide (e\.g\., incentives to regional representatives, regional authorities, supervision of community activities launched and re-animation, coordination/oversight of committees)\. The institutional arrangements to offset weak institutional capacity by establishing a well-staffed and well-paid PCU at the Ministry of Environment created dissention between ministries and absorbed much of the project’s resources during early implementation until the project was restructured\. Restructuring and the dissolution of the PCU improved ownership of the project by the line ministries but overall monitoring, reporting, and collaboration across ministries suffered somewhat as a result\. This indicated that up-front institutional analysis may have been insufficient to ensure Government ownership and commitment at the highest levels\. Building ownership for the ecosystem approach by establishing committees at different levels and pilot sites required a commitment of resources in terms of time, staffing, budget and skills which the implementing agencies did not have\. 2\.2 Implementation (including any project changes/restructuring, mid-term review, Project at Risk status, and actions taken, as applicable) The project was rated as “at riskâ€? prior to the Mid-term review (MTR) of January 2008 where the Development Project Objective (DPO), Global Development Objective (GDO) and Implementation Progress (IP) were downgraded further from “Moderately Satisfactory (MS)â€? to “Moderately Unsatisfactory (MU)â€?\. Project Management and Procurement were also similarly downgraded whereas M&E remained “Unsatisfactory (U)â€?\. The ratings of the Bank supervision teams reflected realistically the situation on the ground\. The main issues were: cases of non- compliance with project procedures with regards to use of project vehicle and fuel, the PCU impinging on the prerogatives of the MEM, derailing key consultancies, and ineligible expenditures to be reimbursed\. Despite a high level of disbursements, the results on the ground were minimal, key indicators had not been reached, and PCU expenditures went over budget and consisted mostly of workshops and staff allowances\. The Bank’s management recommended restructuring the project to avoid downgrading the project to “Uâ€?and early closure\. During the MTR the Bank reviewed all project activities and institutional arrangements with a view to restructuring the project which was stalled due to poor management on the part of the PCU, and contentions to the institutional arrangement on the part of the Ministry of Fisheries\. Following the MTR, a first-order restructuring was proposed and approved by the Board around October 2008\. The changes included: (i) closing the PCU and integrating its remaining activities from Component 3 to Components 1 and 2, and establishing the financial management and procurement oversight at the Ministry of Economy and Finance; and (ii) establishing that the MFME would be responsible for implementing Component 1, and the Ministry of Environment and Natural Resources would be responsible for implementing Component 2 of the project\. In addition to the above changes, Global Environment Objective (GEO) was modified and the results framework revised to better realistic outcomes for the remaining life of the Project\. The decision to continue to support the Project was based on the technical aspects of the Project which the Government and the Bank’s management considered to still be valid\. The local initiatives, in particular, remained consistent with the priorities listed in the revised 2008 Letter of Sector Policy for fisheries to which the Bank provided substantial inputs, along with other donors\. 11 Project management was also affected by a high turnover of key staff in the PCU and at the ministerial level\. During the implementation period, the Project had three Project Coordinators, five Procurement Specialists, and three Ministers of Environment and two different Ministers of Fisheries and Maritime Economy\. The high turnover of ministers added to the challenges already facing the Bank team and the implementing agencies as they had to re-engage different Ministers at each turnover and certain structures agreed with a preceding minister was not supported by a subsequent one\. As a result, the Government’s ownership and commitment obtained at preparation seemed to lack conviction as the project progressed\. Towards the last year of the project, a newly elected Government promptly took action and removed the second Project Coordinator from the DMF-IU following allegations of misappropriation of project funds\. 2\.3 Monitoring and Evaluation (M&E) Design, Implementation and Utilization The PCU prepared the original M&E plan included reporting and coordination system, impact and performance indicators during project preparation\. The reporting system was based on the actual system used by the DNP, DMF, and the CRODT\. However, following Project restructuring, the overall responsibility for maintaining the system was transferred to two separate agencies which were inadequately staffed with qualified personnel\. Consequently, the oversight on M&E for the Project as a whole was lost and regrettably resulted in piecemeal follow-up, particularly at the community level where positive results on fish catch and rejuvenation of resources were observed, some local data collected under the Project were officially validated by the MFME at the regional and central levels, but still need continued support to maintain the effort\. Quarterly Financial Reports were received in a timely manner and were of good quality\. However, they did not contain the qualitative evaluations that yearly progress reporting would have provided\. Although yearly progress reports were stipulated in Project design as part of the M&E system, no such reports were submitted\. Such reports would have provided the Government and the Bank with a useful means to track progress on the Project’s capacity- building objectives, particularly at the national institutions level\. CRODT began the monitoring work for biological monitoring and left fishing communities it visited with data collection sheets\. However, although this work was begun with the enthusiastic participation of the local fishing communities, it was insufficiently followed up by the implementing agencies to ensure that a participative approach was maintained and to validate data collected\. 2\.4 Safeguard and Fiduciary Compliance (focusing on issues and their resolution, as applicable) Environmental\. The Project is rated as a Category B for which broad consultation with stakeholders was carried out through public hearings, workshops and assessments\. An environmental and social assessment was carried out at preparation including an Environmental Management Plan and Resettlement and Process Framework\. During implementation a pier in the Saloum River Delta was constructed without the Bank’s approval and caused a blockage to the movement of shrimp fry\. The Bank team moved quickly to resolve the issue by requesting 12 the DNP to modify the construction to allow the flow of the fish fry\. Environmental compliance is rated as moderately satisfactory\. Social\. The Project promoted community participation with success, particularly in support to women’s groups by focusing on specific activities such as shrimp processing and marketing\. Stakeholder workshops were held during preparation to ensure broad representation and social concerns are included in project design from the local level to the national level (local fisher councils and committees, Scientific and Technical Committees, Steering Committees) and involve local civil society and NGOs\. The key project indicator related to the successful implementation of sub-projects was the measure for social development outcomes\. However, the beneficiary assessments recommended at the MTR and end of project have not been carried out\. As such, the compliance aspect is rated moderately satisfactory\. Procurement\. Procurement performance throughout the implementation has been mixed\. The project coordination units changed procurement specialists five times which affected the pace of important contracts (e\.g\., fisheries management plans, research contracts)\. The Bank’s decision to collaborate with Senegal’s Central Procurement Department in 2008 for eventual use of country systems for procurement, added to the delays caused by an already cumbersome process\. Consequently, the pace of procurement was slow throughout implementation although the quality of documentation was judged acceptable by the Bank team, and a rating of moderately satisfactory was given towards the end of the project\. Financial Management is rated unsatisfactory for the following reasons\. (a) Sustainable Fisheries Management (DMF-IU)\. Following supervision, the mission found that: (i) the accounting records are up-to-date, (ii) the Interim Financial Reports (IFRs) are received on time and are of satisfactory quality, and (iii) the rate of budget execution is acceptable and monitored properly\. However, the overall performance of the financial management of the Project is rated as unsatisfactory because of: (1) the lack of adequate monitoring of financial activities at the Local Fishermen’s Committee level which constitutes one the most important activities of the Project, (2) ineligible expenditures in the amount of 9\.13 million CFA, (3) incomplete documentation for payments from IDA funds for a total of 13 million CFA, (4) delay in the implementation of recommendations made by the external auditor dated June 2011, in particular sufficient justification for expenditures related to field supervision missions conducted by technical experts in the field, (5) recommendations concerning the adoption of the Procedures Manual, and (6) evidence that cast doubt on the authenticity of expenditure on a workshop expenses amounting to 8\.433 million CFA\. (b) Ecosystems Management (DPN-IU)\. The financial management system is assessed as adequate: (i) project accounts are current; (ii) the Financial Monitoring Reports are received on time and are considered satisfactory; and (iii) the rate of budget expenditure is acceptable and properly monitored\. However, the overall performance of the financial management of the Project is rated unsatisfactory due to: (1) ineligible expenditures amounting to 72 million CFA paid for works which were unfinished or non-existent at project closure, contrary to the provisions of the financial agreement; and (2) the lack of 13  supporting documentation relating to the disposal of two vehicles amounting to 44 million CFAF which must be reimbursed\. In total the Bank has requested the reimbursement of 189 million CFA francs of ineligible expenses at the end of the Project\. 2\.5 Post-completion Operation/Next Phase (including transition arrangement to post-completion operation of investments financed by present operation, Operation & Maintenance arrangements, sustaining reforms and institutional capacity, and next phase/follow-up operation, if applicable) Even prior to the mid-term review of the Project, the pilots for local management of fisheries were showing strong community ownership and demand, to help reduce the open access nature of targeted coastal fisheries\. On this basis, when additional GEF funds became available in early 2006, the Sustainable Management of Fisheries Resources Project (SMFRP), 3 was designed in order to replicate and expand the number of these pilots, as a complement to the Project\. More specifically, the SMFRP was a three-year project to build on the results of pilot activities of community fisheries co-management under the Integrated Marine and Coastal Resources Management Project and apply it to eight other sites (Sombédioune, Bargny, Yenne, Mballing, Nianing, Pointe Sarène, Mbodiène, and Fimela) along the central coastline of Senegal from the Cap-Vert Peninsula to the Saloum River Delta\. It was designed to include activities for rehabilitating key coastal habitats essential for fisheries as part of the pilots, as well as additional community development aspects including alternative livelihoods and marketing of fisheries products\. The SMFRP also provided funding for micro-projects and incentives (reconversion of fishermen) which could not be provided under the Integrated Marine and Coastal Resources Management Project\. The SMFR, which was financed with GEF resources from the Strategic Partnership for Fisheries in Africa, was approved in 2008\. The project closed in June 30, 2012\. The SMFRP recorded similar results as the IMCRP, in terms of strong local ownership and uptake of the pilots for local management of targeted fisheries, and continued to validate this model\. However, the project also suffered from significant delays and mismanagement at the national level in late 2011, which led to its closure without an anticipated 18-month extension\. With the IMCRP under implementation and the SMFRP approved, the Bank moved to widen the support from a focus on addressing the constraints of open access in specific pilot sites for local management of fisheries, to addressing these constraints at the national and even regional level via the West Africa Regional Fisheries Program (WARFP)\. 4 The WARFP is a nine-country regional program, that aims to support the countries to sustainably increase the economic returns to the region from marine fisheries, by strengthening governance arrangements to address the constraints posed by open access to the resources, to increase surveillance of the fisheries to reduce illegal fishing and enhance compliance with strengthened governance, and, once these 3 The SMFRP was approved on December 16, 2008 for US$9\.5 million, of which $3\.5 million IDA and $6\.0 million GEF\. 4 The ongoing WARFP was approved in April 2008 and spans seven countries with US$15\.0 million allocated to Senegal\. The WARFP has been effective in Senegal since June 2010\. 14 two steps are completed, to support increased local value added to healthier fisheries, via infrastructure and skills investments\. The WARFP investment in Senegal aims to expand the efforts of the local management pilots to the national level via nation-wide licensing for the country’s fisheries and support for reduction of the industrial fleet, together with increased surveillance of the fisheries and infrastructure for greater value added\. The aim of this combined support is to help the country deliver on the fundamental first objective of the 2008 Letter of Sector Policy, which is to rebuild the natural resource base underpinning the sector\. 3\. Assessment of Outcomes 3\.1 Relevance of Objectives, Design and Implementation (to current country and global priorities, and Bank assistance strategy) The objectives of the Project remain relevant to the global concerns on sustainable fisheries and the growing crisis on world fisheries\. In particular, its objectives are aligned with such global partnership initiatives as Profish and the more recent Global Partnership for Oceans supported by the Bank\. The project also presented an opportunity for the Bank to re-engage with the Government of Senegal in the fisheries sector after long absence\. The Project’s objectives remains relevant to the objectives of the CAS pillars of May 2007 and Senegal’s Poverty Reduction Strategy which supports: (a) accelerated growth and wealth creation, including promoting a modern and diversified agricultural sector, and fostering sustainable development and management of natural resources; (b) human development and shared growth including increasing access to social services and creating opportunities for poor and vulnerable groups, and (c) rural and urban synergies including improving the quality of life of the population through better management of natural resources and improved access to water and sanitation\. In light of the strategies mentioned above, the design of local management initiatives remain particularly relevant since it focuses on the artisanal fisheries sector which plays a major role in poverty alleviation as a major contributor to employment for the rural sector but is risky and difficult to regulate\. However, sustainability of operating costs for local initiatives and attention to alternative livelihood promotion to alleviate overfishing and poverty remains an issue\. Aspects of biodiversity management and ecosystems management are also relevant, although with a modified design with reduced complexity and realistic timeframe and associated targets\. These would be accompanied by strong institutional capacity building and development measures\. 3\.2 Achievement of Project Development Objectives and Global Environment Objectives (including brief discussion of causal linkages between outputs and outcomes, with details on outputs in Annex 2) Achievement of PDO\. The first key indicator: that local fisheries management sub-projects are implemented in four pilot sites by the end of the Project, has been substantially met\. Sub- projects have been prepared by LFCs, submitted and approved by the MME, and implemented successfully at the four pilot sites, with most co-management activities completed at three out of 15 four sites\. At the fourth project site at Ouakam, only one co-management activity (immersion of artificial reefs) in under preparation due to the late start of activities at this site\. As such, it would imply that the capacity of LFCs as private sector organizations have been strengthened to better manage resources, in partnership with the Fisheries Administration of the MME\. Furthermore, stakeholders at the local, regional and national levels collaborated on developing co-management initiatives which reflect a common perception towards management of resources and have tested an alternative decision-making structure which has yielded positive results\. The second key indicator: national management plans for two key fisheries are prepared, and approved by the National Consultative Council for Maritime Fisheries was not met, although the preparation work for the plans have been substantially completed under the Project\. The plans will be finalized under the Bank’s ongoing WARF program and expected to be submitted and approved by the National Consultative Council for Maritime Fisheries shortly\. The remaining work involves conducting the last of the participatory workshops and finalizing the documentation for the management plans before submitting them to the Council for approval\. More importantly, experience with this kind of activity has contributed to strengthening the capacity of the MME for preparing and managing the preparation of national fisheries management plans in the future\. The third indicator: participatory assessment of local community involvement in the management of biodiversity in the three pilot areas rated as satisfactory at the end of the Project, did not benefit from an end of project beneficiary assessment\. However, a participatory assessment carried out in 2006 by the PCU, and between 2009 to 2011 by the DNP using the same tools, indicated a mean score variation from 67 percent in 2006 to 75 percent in 2011, as a measure of satisfaction at the level of communities\. Also, popular demand by communities for some services provided under the project indicates that such activities have been successful in encouraging and strengthening local community involvement in biodiversity management\. Achievement of GEO\. The key indicator: effective management of biodiversity in the three pilot areas increased by at least 50 percent by end of project was substantially met\. It was measured using the Rapid Assessment and Prioritization of Protected Area Management (RAPPAM) 5 methodology developed by the World Wildlife Fund (WWF)\. Compared to the baselines for management effectiveness measured with WWF/World Bank Protected Areas 5 The Rapid Assessment and Prioritization of Protected Areas Management (RAPPAM) methodology is based on the WCPA/Protected Areas Management Effectiveness (WCPA PAME) Framework\. It was developed by the WWF between 1999 and 2002 and is designed to identify management strengths and weaknesses, analyse the scope, severity, prevalence and distribution of threats and pressures; identify areas of high ecological and social importance and vulnerability; indicate areas of urgency and conservation priority; and help develop appropriate policy interventions and follow-up actions to improve protected areas management\. It is similar to the WWF/World Bank tool above but provides additional information on habitat and species evaluation\. The methodology is best implemented through interactive workshops with policy makers, PA managers, and relevant stakeholders\. RAPPAM has been implemented in some 40 countries and over 1,000 protected areas in Europe, Asia, Africa and Latin America\. 16 Management Effectiveness Tool 6 in 2006, the results at end of project (2011) indicates an improvement (see Results Framework Analysis in Annex 5)\. The mean score increased from 46 percent in 2006 to 61 percent in 2011, although the target set by the DPN for itself was actually 69 percent\. For years 2009 – 2011, the RAPPAM methodology was used because it gives more information for habitat and species evaluation than the tool which was used in 2006\. In addition, the development of local level ecosystem management plans for eight of the 10 sites contributed to effective management of biodiversity because of the active participation of the local communities in those areas\. 3\.3 Efficiency (Net Present Value/Economic Rate of Return, cost effectiveness, e\.g\., unit rate norms, least cost, and comparisons; and Financial Rate of Return) In the PAD, the economic analysis presents a description of the likely costs and benefits, and the likely fiscal impacts due to weaknesses of data collection in Senegal and the difficulty of measuring many of the effects involved, especially the likely off-site benefits (positive externalities) of the three proposed Biosphere reserves\. In this ICR, the team will use the same approach (analysis of costs and benefits of the project) with the available data\. At project completion, the financial costs after project completion (amount of total disbursement) were $13\.25 million (80 percent of appraisal) (2005 - 2012) (with two extensions of the closing date occurring in 2008 and 2010)\. In terms of benefits, from the PAD, the three main benefits of the project are: (i) increased fisheries rent some years after the project implementation as a consequence of stock recovery and reduced fishing effort, (ii) increased recreational/ecotourism rent and, (iii) better preservation of marine and bird biodiversity, both in the short term and long term\. From the PAD, the fisheries benefits of the project are the rent of the coastal demersal fisheries, where the remaining fishers would see their catch-per-unit-effort (CPUI) increase due to the project\. For the purpose of the ICR, the team could not calculate this rent for the targeted fisheries due to lack of data for small-scale vessels operations\. Hence, the team has analyzed the CPUE for the targeted fisheries in each of the four pilot sites\. From 2005 to 2011, the CPUE of green lobster fisheries in Ngaparou has increased from 7 kg through 40 kg per vessel, and in Ouakam, the same CPUE has increased from 10 kg to 34 kg between 2007 and 2011 and the CPUE of Thiof has reached 166 kg per vessel (against only 75 kg per vessel in 2007) during the implementation of co-management fisheries\. 6 This tool is simple and basic, and is designed to measure management effectiveness over time, i\.e\., in line with project capacity-building objectives\. The tool is used as a cost-effective proxy to determining impact and has been used in over 85 countries, primarily by donor agencies and NGOs, and is now mandatory for World Bank, GEF and WWF projects\. The methodology uses a rapid, site level assessment based on a score-card questionnaire which includes all six elements of management effectiveness identified in the international Union for Conservation of Nature / World Commission on Protected Areas (IUCN/WCPA) Framework: context, planning, inputs, process, outputs and outcomes\. It enables park managers and donors to identify needs, constraints and priority actions\. 17 For the coastal white shrimp stocks in Foundiougne and Betenty, the implementation of fisheries management initiatives by the LFCs in these localities has allowed the stock of shrimp to begin to rejuvenate and to recover\. As in Betenty for instance, the number of individual shrimp present per sample increased by 38 percent from 2005 through 2011 (it means that the body size of the shrimp has increased as an indicator of higher quality of the fisheries product)\. In the PAD, ecotourism benefits depended on the additional number of visitors over time (compared to the scenario without the project) and on the economic rent from tourism captured by Senegal from the additional visitors\. For the ICR, the team, given the availability of data, has calculated the additional benefits generated by the additional number of visitors at the parks and reserves concerned by the IMCRP through the project implementation\. The additional number of ecotourists was about 44,172 which generated a total additional revenue of the ecotourism in these protected areas during the project implementation (between 2006 and 2010) is about US$96,532\. The benefits of biodiversity conservation by the implementation of the project can be evaluated by the effectiveness rate of management of biodiversity in the three pilot areas (biosphere) and by the rate of participatory involvement of the local communities in the management of biodiversity in these three pilot areas through the project implementation\. As results of such assessment of the effectiveness rate of management of biodiversity, all the three zones have reached the target fixed by the end of the project: Cap Vert 61 of 65 percent, Senegal Delta 62 percent of 70 percent and Saloum Delta 57 percent of 60 percent\. As for the rate of participatory involvement of the local communities in the management of biodiversity, the participatory assessment was done using the same tools\. According to the WWF/CATIE scale, and between 2006 and 2011, this score has increased from 76 percent to 79 percent for Cap-Vert zone, from 64 percent to 75 percent for Senegalese river Delta zone and from 65 percent to 73 percent for the Delta of Saloum zone\. 3\.4 Justification of Overall Outcome and Global Environment Outcome Rating (combining relevance, achievement of PDO/GEOs, and efficiency) Rating: Moderately Satisfactory\. The justification for the rating on the PDO is that, in terms of impact, important results on the ground were achieved compared to when the Project began, despite the shortcomings in management at the national level\. It was a new operation piloting an innovative approach in a difficult environment (risky sector, difficult social, environmental, economic and political conditions)\. Overall, the Project has been successful in changing perceptions towards fisheries resources and biodiversity conservation, and introducing new approaches, even if not all physical targets have been met\. Conflicts from users of the same resources still occur but are increasingly rare as the co-management approach gains ground\. Awareness has been raised from local to national levels in various areas including resources use and management, resources monitoring and evaluation, partnership building and shared decision-making, conflict resolution, as well as technical skills in conservation methods\. Harmful methods of fishing and gear has been reduced, and at the national level for the first time, the nationwide registration program for small fishing boats has put in place an important surveillance system for fisheries administration staff to monitor artisanal fisheries efforts\. Revisions to major legislation in both sectors such as the Fisheries Law, Letter of Sector Policy and Biodiversity Framework Law has re-engaged the 18 Government in the sectors and provided an important opportunity for staff of the MME and MENP to demonstrate their strengthened technical capacities\. The rating justifications are detailed below\. Gaps and weaknesses in the management of the fisheries sector, including governing and management structures, have been narrowed due to the institutional strengthening support to the government institutions 7\. The knowledge base for policy decision-making and accompanying measures has been strengthened through the revisions to major sector legislations 8 \. The successful establishment of a nationwide system for registering small fishing vessels is an important step towards regulating artisanal fisheries for the Government 9 \. The successful implementation of sub-projects by pilot communities whose members (LFCs) conduct their own MCS activities and basic data collection and M&E, indicates that the objective of strengthening capacity of local artisanal fisheries management has been met\. The successes of the co-management approach are now known and the approach is being applied in other donor interventions\. The Government of Senegal is now fully supportive of local initiatives to manage and limit fishing and the co-management approach, moving from pilots to policy 10\. Communities and Government (through the legal agreements signed with the Minister of Fisheries and Maritime Economy) have successfully built partnerships in fisheries resources management and local development which contributes to the achieving the PDO\. In a recent interview during a visit to a coastal fishing community (Mbour in July 2012), the newly appointed Minister of Fisheries and Maritime Economy was quoted as saying that he and the President would support co-management because he was reassured by its consultative approach which provides the fishing communities with a means to overcome challenges without waiting 7 These are due to: (a) the direct involvement of the MME and MENP staff at national, regional and local levels involved in the implementation of the Project; (b) the institutional strengthening of the DMF and the DPN through the implementation of Components 1 and 2, experience with project management, monitoring and control, (c) increased government interaction with local communities; and (d) direct involvement of ministry technical personnel providing input into the revisions of sector legislation in Senegal\. 8 The revised Fisheries Law has been submitted to Parliament for approval, and the Letter of Sector Policy was revised in 2008\. The revisions to the Fisheries Law is expected to address the difficult issues of open access to fishing\. The legislations demonstrate Government engagement at the national level and is an important step linking improved fisheries management with the sectoral policy framework\. These will also provide a channel for more effective aid and aid coordination in the fisheries sector\. 9 Historically, government regulation of artisanal fisheries has had little success and has been met with strong resistance from boat owners\. By end of project, however, boat owners are increasingly complying with the registration program and the number of boats registered have almost doubled (18,900 boats) over the number estimated at appraisal (10,000)\. 10 The co-management approach to fisheries resources management has contributed to the reduction in fishing efforts, elimination of unsustainable and harmful fishing gear and methods, and sustainable management of local resources through local enforcement and compliance with biological rest periods to allow fish stocks to recover, rehabilitation of reefs, and MCS activities\. Data collected at the local level are indicating that fish stocks around the pilot sites are showing signs of improvement in terms of size and catch volume\. 19 for the state to intervene\. 11 This illustrates that the project’s objectives for co-management has been fully accepted by the Government\. The justification for the GEO is that, the submission of the Biodiversity Framework Law to Parliament for approval established a base for future measures in conservation, and the establishment of Ecosystems Management Committees at two out three sites and the completion of eight out of 10 local level ecosystem management plans contributes to effective management of biodiversity because of the active participation of populations concerned\. However, to maintain the momentum, the DPN would need support through additional funding\. 3\.5 Overarching Themes, Other Outcomes and Impacts (if any, where not previously covered or to amplify discussion above) (a) Poverty Impacts, Gender Aspects, and Social Development The artisanal fisheries sector is an important source of employment for the rural sector where most of the fishing methods are traditional\. Women’s groups are involved mainly in the processing of fish products\. The Project’s objectives are focused on poverty reduction and the sustainability of local resources, by targeting small-scale, labor-intensive fisheries\. This is carried out through support to the organization of fishers and the allocation of user rights, the promotion of alternative livelihoods, and the establishment of protected marine reserves\. The protection of fisheries resources at the local, small-scale level remains important for providing food security for the poor fishing communities which depend on them for their livelihood\. Through the Project, the co-management initiatives used to gain the support of communities have been successful in controlling unsustainable fishing methods and reducing overfishing at pilot sites while ecosystems management initiatives have raised awareness and increased capacity of communities to also manage the use of natural resources at the protected areas and reserves on which they depend\. Relevant sector policies and regulations finalized under the Project provide support and strengthen the level of contribution of local fishing and harvesting activities to poverty alleviation and food security\. Although the participation of women in fisheries activities is limited, the provisions for identifying the impact of project initiatives on women were in the preparation of the fisheries management plans\. Women’s interest groups were well represented in Local Fisher Committees as well as the protected area management groups, including volunteer groups such as the Ecoguards\. The Project provided support also for women’s groups involved in fish processing and marketing in the form of project funding, technical advice and guidance, and procurement of goods and materials\. In terms of social development, the cohesion of groups targeted by the Project were strengthened through the co-management initiatives, and existing associations were supported with funding 11 “Mbour est le capital de la pêcheâ€? (Ministre), http://mbour\.info/economie/economie-maritime, jeudi, 12 juillet 2012\. 20 and procurement of goods\. The ecosystems and protected areas activities attracted volunteers to the Ecoguards groups which were mostly comprised of youth from the nearby communities\. (b) Institutional Change/Strengthening (particularly with reference to impacts on longer-term capacity and institutional development) The MFME was strengthened with technical assistance provided by national and international consultant services, training programs, workshops, office equipment and software, as well as vehicles and budget for operating costs during the life of the project\. The Bank teams provided substantial support and inputs into national level strategic, legal and regulatory documents such as the Fisheries Law revisions and the Letter of Sector Policy, as well as sector studies and strategies for relevant sectors, and provided technical inputs into the preparation and implementation of fisheries programs\. In this context, the MFME was strengthened to provide support and influence to changes in policy in the fisheries sector at the national level, and at the local level, changed the perception of local communities as partners and modified the traditional top-down approach\. Local communities also changed their perception of Government as partners\. In other areas, the establishment of the National Registration Program for fishing vessels provided Senegal with an effective means to control fishing effort in country with the potential for further collaboration with neighboring countries\. The Project also presented an opportunity to strengthen the capacity of a national level research institutions like ISRA and CRODT, despite reservations about its declining capacity\. The CRODT was contracted to carry out research on demersal species; however, due to lengthy contract preparations, the research experienced important delays but was completed\. Funding was also provided for the LFCs to collaborate with the CRODT to prepare co-management initiatives\. Funding was also provided to ISRA, the national agricultural research agency, to conduct participatory research and for setting-up a monitoring system to support local co-management initiatives for artisanal fisheries\. Such contracts exposed national research institutions to participatory research methods and offer alternatives to the top-down research and data collection approach\. With regards to the Ministry of Environment, Component 2 funded by GEF aimed at strengthening and restructuring units within the ministry to better manage and conserve Senegal’s biodiversity through the restructuring of the DNP and supported its operations in implementing the Ecosystems management component, the revisions of the Biodiversity and Protected Area Law, the National Action Plan for iconic fauna, and strengthening the National Biodiversity Committee\. Support and awareness raising activities strengthened local level associations (ecosystems management committees and Ecoguards) and was successful in building ownership of local populations in protected area management initiatives\. (c) Other Unintended Outcomes and Impacts (positive or negative) The success of piloting local level initiatives in co-management provides a starting point for dialogue at a policy level with the government to support the sensitive and difficult discussions on open access\. 21 Some Local Fisher Committees revolving funds established for operating costs have developed into a broader social fund /safety net type of community fund (e\.g\. , Ngaparou)\. 3\.6 Summary of Findings of Beneficiary Survey and/or Stakeholder Workshops (optional for Core ICR, required for ILI, details in annexes) Not available\. 4\. Assessment of Risk to Development Outcome and Global Environment Outcome Rating: High Senegal shares its fisheries resources with the neighboring countries of Mauritania, The Gambia and Guinea-Bissau\. Therefore, a regional or wider approach to fisheries management is imperative if Senegal is to manage such resources sustainably\. The Project did not focus on industrial fishing, which also plays a major role in the depletion of fisheries resources\. This area was already being supported by other donors (EU, France, and Japan)\. While the Project’s objectives focus on artisanal fishing communities in an attempt to raise awareness and improve the management of such resources, it does not address industrial deep sea fishing\. Therefore, for the efforts to have a sustainable impact, the community level efforts must be accompanied by regional or international initiatives, including close coordination with other donors, to strengthen sustainable management of such resources\. The likelihood that the two ministries at the political level will continue to work in silos following the separation of the project into two themes is high, although their staff cooperate on the technical level\. As such, the capacity-building aspects of the project strengthened the capacity of each technical ministry but failed on the collaboration at the national levels\. As a result, the vision of managing resources across sectors, including the ecosystem approach, remains premature as long as political will is lacking\. At the local level, communities seem to adjust better to the approach and vision but lack the capacity and need the reinforcement of accompanying measures at the national level measures\. Sustainability of certain Project activities such as local level initiatives, particularly with regards to alternative livelihood options, operating costs of community MCS initiatives, is unsure, unless it will be supported under follow-up operations which will explore these aspects\. 5\. Assessment of Bank and Borrower Performance (relating to design, implementation and outcome issues) 5\.1 Bank Performance (a) Bank Performance in Ensuring Quality at Entry (i\.e\., performance through lending phase) Rating: Moderately Unsatisfactory\. Project preparation was carried out with an experienced team of experienced and consultants to address the technical aspects, with quality input and guidance from peer reviews and management\. The Bank provided adequate resources to ensure quality preparation and appraisal work\. The team ensured consistency with the CAS and Government priorities in the sector and compliance with the Bank’s environmental protection and safeguards strategies\. Lessons of 22 experience were drawn from best practice in the sector and similar projects in other countries, but piloted for the first time in Senegal the integrated, eco-system management approach to fisheries management\. The project benefited from strong Government ownership having been prepared by the experts at the Ministries of Environment and Fisheries and Maritime Economy, with strong donor collaboration and participation from NGOs, civil society, and communities\. The Project was designed to coordinate efforts across ministries and sectors to manage a broad range of activities on sustainable fisheries management and biodiversity conservation along the coastline of Senegal stretching from Mauritania to the Gambia, but at strategic pilot sites spread along the coast\. However, the design proved to be too complex and ambitious for the project timeframe and taxed the limited capacities of the implementing agencies in terms of manpower and resources\. Insufficient validation of the ownership and mandate of the PCU within the Government before establishing the unit within the Ministry of Environment caused problems in implementation; and more attention could have been paid to establishing the monitoring and evaluation (M&E) system and setting realistic targets for the timeframe and capacity of implementing agencies\. The Project could also have built in a stronger support for developing the capacity for research with such institutions as the CRODT which was already identified as weak\. (b) Quality of Supervision (including of fiduciary and safeguards policies) Rating: Moderately Unsatisfactory Supervision was carried out on a regular basis for most of the project, with at least two missions a year\. Resources allocated for supervision under IDA were modest for a complex operation and blended project\. GEF resources allocated averaged $17,000 - $35,000 per year\. Implementation of project activities were followed closely by Bank task teams from the start of the project and substantial efforts made to react to implementation problems in a timely manner (MTR, project restructuring)\. However, the skills mix for the site visits was adequate for fisheries management but inadequate for addressing ecosystems and biodiversity conservation\. Consequently, results on essential aspects such as annual reporting, M&E, and the social dimensions were overlooked\. In terms of safeguards, expertise was provided irregularly, particularly on environmental safeguards, and briefly for social safeguards (MTR)\. On fiduciary compliance and project management issues, the Bank issued firm recommendations for improvement as needed, with regular follow-up after formal supervision missions\. However, fiduciary missions were not carried out at the same time as those of the Bank implementation missions and consequently, findings were sometimes lagging those of Bank implementation missions and create discrepancies in ratings in the given by the team\. Early in implementation the Bank was intent on getting the project started but was plagued by the institutional arrangement problems of the PCU\. However, the mission teams could have received more guidance from management in handling some of the more difficult issues of coordination and collaboration between the ministries, particularly with regards to Government interference in project management as project performance rating began to decline early in implementation, and towards the end of the project as the two ministries began to operate two separate projects\. Maintaining Government commitment through turnover in ministers would 23 require a higher level policy dialogue in the context of poverty alleviation strategies and sector reviews\. 7\.3 Overall (c) Justification of Rating for Overall Bank Performance Rating: Moderately Unsatisfactory Although there were adequate resources and skills mix during the preparation phase, resources were seriously lacking for supervision to properly monitor progress after project restructuring, particularly in ecosystems management\. Technical input for fisheries management was adequate and provided when needed\. The Project was four years into implementation with little results on the ground before a decision was made to restructure the Project\. It had underestimated the cooperation needed of the Ministries concerned on project arrangements\. Following restructuring, the Bank made a serious attempt to save the Project by addressing some of the institutional arrangements issues of the PCU and resetting the targets to a more realistic level\. However, supervision post-restructuring lacked attention to M&E, results on essential aspects, and their follow-up\. Fiduciary supervision was effective when carried out, but was late in identifying the issues\. 5\.2 Borrower Performance (a) Government Performance Rating: Moderately Unsatisfactory Although the Government prepared the project with ownership and enthusiasm, it implemented with mixed success a set of complex activities\. The performance of the Government was satisfactory on the updated Letter of Sector Policy in 2008 and on the revision to the Fisheries Law which has been submitted to Parliament, an important development for the sector in Senegal and a significant development under the Project\. The Biodiversity Framework Law was submitted to Parliament for approval ahead of the target date and is expected to passed in 2012\. However, when the design of the project was too ambitious for the capacity of the DNP and DMF and for the timeframe involved, the Government tried to salvage the Project by requesting the dissolution of the original PCU and, despite the lack of capacity within its departments, proposed to mainstream the management of a complex operation into its ministry agencies\. As a result, some of the essential activities of the project coordination was divided and not followed up, e\.g\., M&E, IEC, research, annual biodiversity reporting\. Following restructuring, indications are that the Project lacked sustainable ownership on the part of the Government\. The Government’s performance in project start-up was slow in establishing functional committees and declining commitment in maintaining the structures and supporting or strengthening their mandates (Special Commission, Steering Committee, Ecosystems management Committees)\. The National Biodiversity Committee (NBC), which had oversight of biodiversity monitoring and reporting to the U\.N\. Convention on Biological Diversity (CBD), was not effective and played a passive role in promoting biodiversity monitoring\. The Operational Coordination Committee (OCC), however, played an important role in coordinating with the Ministry of Environment the transmission of the Biodiversity and Protected Areas Act and submitting the Act to Parliament for approval\. 24 (b) Implementing Agency or Agencies Performance Rating: Moderately Unsatisfactory The key PDO target for the national fisheries management plans was not met although substantial preparation for the plans have been completed and finalization funded under the Bank’s ongoing WARFP\. Targets for project activities at the local level, however, were met and the results from the co-management initiatives represent a key success of the Project\. The implementing agencies successfully used the consultation and negotiations methods, recruiting qualified and experienced individuals to work with communities (e\.g\., facilitators, co- management experts, national parks personnel, technical consultants, etc\.) to achieve objectives and reach targets\. Data on fish catch, weight and size show an increase and co-management implementation has yielded positive reaction from the local communities\. Participation rates from all pilot communities was high with strong ownership of measures undertaken on conservation and management of resources\. With the DNP-IU, initiatives to raise conservation awareness in protected areas and schools with the younger generation was impressive\. With the DMF-IU, co-management initiatives managed to change the perception and approach to traditional management at national, regional and local levels\. Both IUs contributed to building partnerships between fisheries and parks administration and local communities, an important development for the Project\. The DMF’s and DNP’s performances suffered, however, from the disruption of project restructuring and from a complex project design\. M&E lacks commitment and interest and the system is particularly weak\. Annual reporting of progress has been overlooked\. Key performance indicators and physical targets were partially met\. Project start-up experienced many problems due to the institutional arrangements, the restructuring improved performance to some extent (increasing the ownership of the components) but the capacity of each agency to manage the range of monitoring and follow-up activities across multiple project sites is limited\. Management of the agencies has improved in terms of a common shared vision, but still lacks a cohesion between the two ministries\. The Ministry of Environment lacked capacity to implement the project activities, the MFME fared better\. A stronger political will is needed to bring the operational areas together\. Instead, each is operating independently from the other\. M&E was weak, as was supervision of the research contracts with CRODT probably due to the lack of clarity of M&E arrangements,and research objectives\. Regarding local level Monitoring Control and Surveillance (MCS), law enforcement and prosecution of offenders is weak and inconsistently applied across the country which weakens the resolve to conduct effective and legitimate MCS\. The implementing agencies have a role to play in proposing an effective system nationally\. Compliance with Legal Covenants\. Most of the covenants were complied with but experienced the following shortfalls: (a) the long delay in getting the Fisheries Law revised and passed through Parliament; (b) the preparation of the two key fisheries management plans (substantially prepared but not finalized); (c) the 25 preparation of an incremental program of fisheries research and its implementation by CRODT (not carried out due to lack of capacity of CRODT); (c) CRODT evaluations of local fish stock programs prepared by DMF (not carried out due to lack of capacity); and (d) the preparation of management plans using an ecosystem approach (local ecosystem management plans were prepared), (e) timely submission of the UNESCO MAB Biosphere Reserve application for the Cap-Vert Peninsula (not carried out), and (f) annual updates to the State of Biodiversity Report during the life of the Project (not all received)\. 7\.7 Overall (c) Justification of Rating for Overall Borrower Performance Rating: Moderately Unsatisfactory Important legislations have been submitted to Parliament for approval and these are expected to have a positive impact on the perception and approach to natural resources management initiatives in the country\. The national fishing vessels registration program has been implemented for the first time in Senegal and has put in place a surveillance successful tool for managing artisanal fisheries in the sector\. However, although the Borrower prepared with project with strong ownership and reached many of the targets set, the complex operation seriously taxed the resources, time and skills of the implementing agencies which had difficulty maintaining the momentum\. M&E was weak in both the DMF and DPN which lacked the skills and resources to implement the system\. 6\. Lessons Learned (both project-specific and of wide general application) • The fundamental constraint of open access to the fisheries resources may remain the key obstacle to the sector achieving its potential\. However, the project did successfully pilot a model for local management of targeted fisheries that can help address this constraint in the coastal waters\. In this model, the project supported communities to establish private associations of fishers that were legally recognized, and then these associations developed regulations and plans for the management of targeted fisheries\. On the basis of these plans, the Government signed a legal agreement (i\.e\. the Minister of Maritime Economy) and passed an accompanying decree for the regulations developed by the association\. In this way, the Government successfully delegated responsibility for resource management to these private user associations of fishers in each of the sites, and then provided monitoring support to enforce the regulations\. These associations were supported to conduct a consultation and negotiation process for formulating co-management plans that was highly successful in soliciting the effective participation of relevant stakeholders\. The successful method used was to introduce initiatives in a pilot community was to apply the rapid result method, i\.e\., obtain rapid results on a commonly agreed-upon measure to encourage the community to adopt other, stronger or more difficult measures\. The result was that by the end of the project, fish catch volumes and prices had increased in all pilot sites, in many cases doubling\. • For this model to become truly sustainable and fully address the fundamental constraint of open access to the resources, the legal and institutional framework 26  will need to provide local users and associations not just the authority to manage (i\.e\. regulate) targeted fisheries, but also to limit access\. Unless there is some scope for control of access to these fishing grounds that are locally managed, their success will also be their downfall – as improved fisheries and higher catch rates will only attract more fishers from neighboring waters, so that overall exploitation increase to the point that the stock sizes and catch rates decrease to pre-project levels\. In fact, in a number of the pilot sites fishing activity has increased as a result of the success of local management measures, and this threat will become larger in the future\. Essentially, creating and allocating the right to manage targeted fisheries has been a very successful first step, but the country will need to take the next step to create and allocate rights to access the fisheries, in order for this progress to be maintained\. • The issues of open access to fisheries and other sectoral reforms should be addressed in the context of a policy dialogue and partnership discussion with the highest level of Government, while building a constituency at the local level for reform\. • The Bank underestimated the cooperation needed of the ministries with regards to the institutional arrangements (establishment of the PCU within the Ministry of Environment)\. It could not have predicted the high turnover of ministers nor the level of interference in project activities\. However, this could have been avoided through stronger institutional analysis during the preparation phase and commitment could have also been obtained up-front from higher levels in government\. • Greater community involvement in identifying issues and solutions ensured greater ownership of initiatives, enhancing prospects for sustainability of new approaches\. Formalizing the co-management proposals through legal agreements between community associations and government gave communities a voice and shared accountability with decision-makers\. However, the sustainability of certain activities launched under the Project such as operating costs for MCS activities, technical advice or assistance for marketing and market access, needs to be addressed in follow-up operations\. • M&E was weak and lacked attention on the part of the implementing agencies\. M&E arrangements and realism in setting targets are crucial in avoiding early problems in implementing project activities\. This is better achieved through obtaining agreements on clear, measurable indicators and targets through joint formulation of indicators (at project preparation workshops); implementation of the M&E system should followed up closely for early identification of constraints (e\.g\., institutional capacity, knowledge gaps, budget and time, technical); up-front/re-fresher M&E training should be given to project teams before implementation begins and repeated as necessary (in cases of staff turnover)\. Participatory M&E requires clear definition of the purpose and terms of the partnership accompanied by close follow-up on the part of donors and implementing agencies to ensure the involvement and momentum with local communities is not lost\. The dissolution of the PCU meant that project coordination and monitoring activities, including IEC, reporting, following up on research and assessments, etc\., needed to be continued at two separate implementing 27  agencies\. However, these were carried out sporadically by the agencies and as a result, insufficient data made it difficult to assess consistently final results\. Overall, the respective Ministries never conducted the work necessary to sufficiently monitor and evaluate project progress, despite multiple Aide Memoires recording agreement to do so\. • The ecosystems approach requires a long-term commitment over 10-15 years in a phased approach, particularly as it relates to biodiversity conservation\. In the shorter term, modest gains are to be expected\. In the longer term, donor assistance would need to build in appropriate incentives to keep communities engaged in conservation activities in the face of poverty placing pressure on the resources, and funding support for the cost of ecological works required for habitat and species conservation\. • The establishment of biosphere reserves requires broad and sustained consultation with stakeholders to engender a common vision\. This would have worked better if it was managed by an entity associated with the biosphere reserves\. The DPN was not well- suited to perform these functions, particularly in forming the EMCs which needed to cross administrative jurisdictions while the DPN’s jurisdiction was limited to protected areas and national parks 7\. Comments on Issues Raised by Borrower/Implementing Agencies/Partners (a) Borrower/implementing agencies (b) Co-financiers (c) Other partners and stakeholders (e\.g\. NGOs/private sector/civil society) 28 Annex 1\. Project Costs and Financing (as of June 30, 2012) (a) Project Cost by Component (in USD Million equivalent) Integrated Marine and Coastal Resources Management Project - Total Project Cost Appraisal Actual/Latest Percentage of Components Estimate (USD Estimate (USD Appraisal (%) millions) millions) 1\. Management of sustainable 6\.53 5\.67 87 fisheries 2\. Conservation of critical 6\.02 4\.35 72 habitats and species 3\. Program management, M&E 3\.94 3\.23 89 and communication Total Baseline Cost 16\.49 13\.25 80 Physical Contingencies 0\.00 0\.00 Price Contingencies 0\.00 0\.00 Total Project Costs 16\.49 13\.25 80 PPF Refinancing 0\.64 0\.53 83 Front-end fee IBRD n\.a\. n\.a\. Total Financing Required 17\.13 13\.78 80 Integrated Marine and Coastal Resources Management Project – P086480 - IDA Appraisal Actual/Latest Percentage of Components Estimate (USD Estimate (USD Appraisal (%) millions) millions) 1\. Management of sustainable 6\.00 5\.59 110 fisheries 2\. Conservation of critical 0\.50 0\.14 28 habitats and species 3\. Program management, M&E 3\.50 3\.08 88 and communication Total Baseline Cost 10\.00 8\.81 88 Physical Contingencies 0\.00 0\.00 Price Contingencies 0\.00 0\.00 Total Project Costs 10\.00 8\.81 88 PPF Refinancing 0\.64 0\.53 83 Front-end fee IBRD 0\.00 n\.a\. Total Financing Required 10\.64 9\.34 88 29 Integrated Marine and Coastal Resources Management Project - P058367 - GEF Appraisal Actual/Latest Percentage of Components Estimate (USD Estimate (USD Appraisal millions) millions) 1\. Management of sustainable 0\.00 0\.00 0 fisheries 2\. Conservation of critical 5\.00 3\.76 75 habitats and species 3\. Program management, M&E 0\.00 0\.00 0 and communication Total Baseline Cost 5\.00 3\.76 75 Physical Contingencies 0\.00 Price Contingencies 0\.00 Total Project Costs 5\.00 3\.76 75 PPF Refinancing 0\.00 0\.00 0 Front-end fee IBRD 0\.00 0\.00 0 Total Financing Required 5\.00 3\.76 75 (b) Financing IDA - P086480 - Integrated Marine and Coastal Resources Management Project Actual/ Appraisal Latest Percentage Type of Estimate Source of Funds Estimate of Appraisal Financing (USD (USD (%) millions) millions) Counterpart Borrower 1\.49 0\.69 46 Funds International Development Credit 10\.00 8\.81 88 Association (IDA) GEF - P058367 - Integrated Marine and Coastal Resources Management Project Actual/ Appraisal Latest Percentage of Type of Estimate Source of Funds Estimate Appraisal Financing (USD (USD (%) millions) millions) Borrower 2\.00 0\.69 35 GLOBAL ENVIRONMENT - 10\.00 8\.81 88 Associated IDA Fund Global Environment Facility (GEF) 5\.00 3\.76 75 30 (c) Other Financing IDA - P086480 - Integrated Marine and Coastal Resources Management Project Actual/ Appraisal Latest Percentage Type of Estimate Source of Funds Estimate of Appraisal Financing (USD (USD (%) millions) millions) PHRD (TF 53114) Trust Fund 0\.522 0\.117 22 Swiss Corporation (TF 90534) Trust Fund 0\.526 0\.468 89 PDF-B (TF 24759) (Cancelled) Trust Fund 0\.344 0\.0 0 PDF-B (TF 516622) Trust Fund 0\.344 0\.344 100 31 Annex 2\. Outputs by Component Component 1: Management of Sustainable Fisheries The implementation of this component is rated as moderately satisfactory\. The objective was to increase the sustainability of fisheries through actions at the national and local levels through the following three sub-components: (a) national-level activities to improve fisheries management, (b) promotion and coordination of local management initiatives, and (c) institutional strengthening and capacity building\. The key performance indicators have been substantially met (successful implementation of sub-projects at the pilot sites, positive results for specific years that participatory assessments were conducted), and physical targets substantially achieved (good results on sub-project performance and catch volumes)\. Fisheries management plans were not completed\. Sub-Component 1\.1: National-level activities to improve fisheries management The preparation of two selected fisheries management plans by COMO in cooperation with the CRODT were not completed\. This was a key performance indicator for the project\. The two target species, i\.e\., white shrimp (Penaeus notialis) and Yeet (Cymbium spp\.), were selected early in implementation but the procurement and formulation of the plans experienced significant delays from the start\. An international consulting firm, BRL Ingénierie (BRLi) was selected from the short-list of qualified firms\. However, the time from advertising for Expressions of Interests (January 26, 2005) to Bank approval and contract award (June 9, 2008) took about 3\.5 years whereas the usual procurement processing time for this type of contract, from advertising for expressions of interest (EOI) to consultant selection normally takes about 6-7 months\. Preparation for the management plans began a year later\. However, a substantial amount of preparation work has been carried out on the management plans under the Project which will now be completed under the ongoing West Africa Regional Fisheries Program approved by the Board in 2009\. During the preparation of the plans, BRLi’s team of fisheries experts changed three times\. Finding qualified replacements in a highly specialized technical fields, e\.g\., socio-economics modeling of tropical fisheries, was made more difficult by the requirement to have the approval of the Government and of the Bank to such changes\. These requirements further delayed the process by eight months\. Consequently, in August 2010, BRLi proposed a new timetable for activities which extended past the Project closing date of December 1, 2011\. A fisheries expert then fell ill and by the time the replacement arrived, it was too late to complete the assignment\. The Bank extended the closing date to May 1, 2012 to allow for the completion of the fisheries management plans, however, delays in approving the amendment to BRLi’s contract by the Government’s Central Procurement Department prompted the firm to officially notify the Bank on March 20, 2012 that it was suspending all remaining activities and cancelling the contract, citing insufficient time to complete the work before the Project closing date\. The management studies planned at appraisal to evaluate fisheries sector policy options were removed from project activities by 2008 because they were overtaken by national policy discussions dealing with similar concerns and ongoing at the time\. These included: (a) revisions 32 to the 1998 Fisheries Law which were a result of broad consultations between donors and the Government of Senegal; (b) revisions to the 2004 Letter of Sector Policy, and (c) the results of the 2007 Public Expenditure Review of the Fisheries Sector which was being conducted to identify the key policy options in the sector\. However, a consensus on the key policy options could not be reached and the Public Expenditure Review report was not finalized because of the diverse interests which were at stake\. Important policy decisions which did take place were: (a) revisions to the Fisheries Law which has been submitted to Parliament for approval and at the time of the ICR is still pending; (b) the revisions to the Letter of Sector Policy in 2008\. Although the policy revisions were completed towards the latter part of the Project, they represented key achievements under the Project\. The Bank team provided substantial inputs into the revisions of both documents\. The revised Fisheries Law provides for important innovations including the right of access and ecosystem management\. It provides the legal backing for the establishment of the LFCs, the linkages between the LAFCs, LFCs, and local fishermen, allows provisions for co-management, deals with artisanal fisheries permits, and sports fishing permits, among others\. Once the Fisheries Law is approved by Parliament, it will provide the basis for the strategic fisheries management framework\. The Special Commission which was established by the Government to determine the nature of any major reforms proposed by changes in fisheries sector policies did not function\. Its statute was not renewed after 2006 because the Government changed its mind regarding the usefulness of its mandate\. Although it may indicate a shifting priority on the part of the government, it also indicates the flexibility of the Bank in accommodating the priorities of the Borrower\. An Information, Education and Communications (IEC) plan was drafted and included in project documentation\. It was to be attached as an Annex to the Project Implementation Manual but was not finalized\. The IEC plan analyzes the country context in light of the new initiatives introduced by the Project, weaknesses in communication, needs and constraints, and lays out the vision, objective, and roll-out strategy, including timetable and budget requirements\. However, its dissemination and implementation was delayed well past the mid-term review\. The Bank supervision missions of 2006 reminded the Government executing agencies of the importance of disseminating project documents to those involved in implementation\. The supervision mission of February 2010, it was noted that the IEC plans along with other participatory research activities, were still not disseminated whereas they were meant to be launched at the same time as the co-management activities\. Following the Project restructuring, the IEC plan was not updated and following project restructuring on Component 3, funding for IEC activities were transferred to other components\. At the pilot sites, planned IEC activities were carried out with the assistance of a local firm, CAES-Consult, which included sensitization and awareness-raising activities with villages and CLPAs, printed materials (flyers, posters, etc\.) for distribution, exchange visits with neighboring villages, door-to-door communication with relevant establishments, radio spots and public information sessions with local stakeholders\. Although the local communities were aware and were actively participating in IEC events, an evaluation conducted as part of a beneficiary assessment would be needed to validate the effectiveness of the IEC campaign for the local level\. 33 The preparation of an incremental program of fisheries research targeting the life cycles of key demersal species by the COMO was dropped following the MTR and restructuring\. It was to be implemented in collaboration with the national fisheries research institution, CRODT (Centre de Recherche Océanographique de Dakar-Thiaroye) as part of the Project’s institutional capacity-building activities, but although a contract was signed between COMO and CRODT in 2005, in 2006 it became evident that CRODT was not capable of providing the needed services, its capacity having been weakened by departures of researchers towards other international organizations\. Subsequently, the Bank recommended exploring other institutions outside of Senegal but no replacement was identified\. The nationwide system of small fishing vessel registration (Programme national d’immatriculation (PNI))\. The objective of establishing a functional nationwide registration system for small fishing vessels was to provide a system for the government to control fishing efforts and reduce fishing over time, by location, for the long-term management and sustainability of fisheries resources\. At the time of appraisal, all industrial vessels in Senegal were locally registered and licensed, but not the artisanal pirogues and their fishermen owners\. To date, about 18,900 small vessels have been registered\. The PNI in Senegal began as a two-year program from 2006-2008 with the objective of registering an estimated 10,000 artisanal fishing boats (pirogues)\. Over the years since the PNI began, the number of fishing boats seemed to grow, partly because no census had been taken since the one conducted by CRODT in 1986; therefore, the beginning estimate was not accurate\. In addition, the number of boats fluctuated as new boats were being constructed and as fishermen moved from one neighboring country to another while the registration was being carried out\. The PNI received funding totaling CFAF1,948 million from various sources: Source of Funds (CFAF million) Swiss Corporation 239 EU 132 World Bank 489 Spanish Corporation 260 Government of 420 Senegal Total 1,948 Funding from the Swiss Corporation in the form of a Trust Fund (TF90534) of $526,829 (of which $468,516 was disbursed) from 2005-2010 was managed by the World Bank\. The Bank supported the program through three projects in various amounts: the Integrated Marine and Coastal Resources Management Project (IMCRM) (2004-2012), the Sustainable Management of Fish Resources Project (SMFR), and the West Africa Regional Fisheries Project (WARFP) (ongoing – 2014)\. 34 The PNI has been in implementation for six years and its closing date was extended four times from 2006 to January 2011\. It experienced technical difficulties and resource constraints resulting in considerable delay to its completion\. The technical constraints were: • Locating itinerant fishermen (migration to the interior of the country and to neighboring countries), reaching areas with limited access such as Fatick and Ziguinchor; • fading or disappearance of registration markings (lettering and numbering) through voluntary removal by the fishermen, normal wear and tear, or use of poor quality paint; • difficulty reaching fishing areas bordering another country, e\.g\., St\. Louis region, near Mauritania; limited means for personnel to travel to remote areas to follow-up on registration; • certain types of boats (senne tournante, Moudjass) which navigate in deep seas are more difficult to mark because of high water levels; • registration data issues such as equipment malfunctions and date entry management affecting reporting quality, shortage of registration number templates and materials; faulty placement of registration numbers on the boat; and • refusal by some fishermen to use certain assigned acronyms\. Administrative constraints were: • the lack of familiarity with the fishing boat sites/parc piroguier (inaccurate statistical data), • wrong application of registration procedures, non-compliance with administrative procedures for building new boats, and • lack of procedures and standardized sheet to delete non operating vessels from the database\. Financial constraints were: • insufficient compensation and delays in payments to the Economic Interest Groups responsible for marking the boats; and • frequent shortage of materials and supplies for printing the plastic registration cards\. Human resources constraints were: staffing personnel involved in the registration program include one Coordinator, 15 information technology professionals initially (five resigned since 2006), 58 Economic Interest Groups, and 60 technical field visit teams (including the DMF station chief, fishermen representatives, carpenter) spread across Senegal and one team per fishing port\. Some fishermen’s groups who were concerned about the administrative and fiscal implications initially rejected any form of registration\. However, this has improved in most fishing sites where fishing communities have been organized into co-management units under the Project\. At such sites as the Senegal River Delta where the fishing population is more mobile (moving between Mauritania and Senegal) and groups diverse and less cohesive, registration has been more difficult\. 35 Other Issues\. The PNI changed coordinators in 2010\. Under the Swiss TF, the cost of the contract for the national consulting firm consumed half of the fund’s resources, the quality of its data reporting was judged to be unsatisfactory by the PNI coordinator, and as result of the disagreements, the firm has not been paid\. The TF closed in December 2010\. In terms of donor funds, some were consumed quickly because of the ease of access to the funding\. Among the easiest donor accounts to access was the Spanish Corporation funds which was held at a commercial bank (CNCS)\. Withdrawals required the signatures of the Director and the Project Coordinator, whereas access to the other donor funds were managed by the financial management unit of the COMO\. By late 2009, most of the CFAF1,948 million had been spent, whereas the CFAF420 million in counterpart funding never materialized\. Another factor causing delays in the program’s implementation was the management problems at the COMO-Fisheries in July 2011 which stopped all project activities\. As a result, no field work or follow-up was carried out just as the program was about to move into its data consolidation phase\. Since August 2010, the PNI has been receiving funding support from the World Bank’s West Africa Regional Fisheries Program (WARFP) until 2014 when it is expected to complete the registration and transfer the process from the COMO to the MFME’s administrative services\. The next steps include completing the registration for the remaining boats, nationally and sub- regionally (Mauritania), consolidating the results of the program, ensuring the sustainability of the program, and progressively transferring the activities of the PNI to the local administration services by end 2014\. To date, about 18,900 fishing boats covering the seven maritime regions of Senegal have been registered electronically (registration numbers distributed to owners)\. Of these, 16,207 have been manually embossed\. The cost of marking a boat is estimated at CFAF3,000/boat\. The fishing boats of the continental fishing areas have not been included\. A data base for the registration program has been established by the MFME at (www\.bdpni\.gouv\.sn) as well as a website (www\.dpm-pni\.com) containing details on program\. The following is the list of registrations by region as of July 2012: No\. of canoes No\. of canoes No\. of % of Name of Total No\. registered embossed canoes to be Canoes Region of canoes electronically manually embossed embossed Dakar 4,119 4,119 3,619 500 87\.86 Thies 5,876 5,876 4,895 911 84\.50 St\. Louis 3,210 3,210 2,186 1,024 68\.10 Louga 223 223 163 60 73\.09 Fatick 2,105 2,105 2,051 54 97\.43 Kaolack 201 201 137 64 68\.16 Zinguichor 3,166 3,166 3,086 80 97\.47 TOTAL 18,900 18,900 16,207 2,693 85\.75 36 Sub-component 1\.2: Promotion and coordination of local management initiatives\. The key project performance indicator: that local fisheries management sub-projects are implemented in four pilot sites by the end of the project has been substantially met\. Building sustainable resources management through local management initiatives was the core of the project\. The formulation of sub-projects and co-management initiatives were well-received by the local population and the sub-projects have been implemented successfully in three pilot sites, while in the fourth site, Ouakam, delays in project start-up resulted in one incomplete conservation activity (placement of artificial reefs) by the end of the Project\. The selection and placement of facilitators into local communities worked particularly well; none were rejected by the communities and all remained until the end of their contracts\. Although there were delays in implementing some of the activities with some improvements needed in terms of quality of outputs, the co-management approach has been successful in building the ownership and participation of local communities in national conservation efforts in the pilot sites and in building the partnership with Government authorities in decision-making and accountability for the decisions\. It has also improved local governance of coastal and fisheries resources in the co- management areas resulting in encouraging data gathered by LFCs at the pilot sites and validated by the MFME\. Communities demonstrated at all pilot sites strong ownership and accountability for the initiatives they selected and managed with the help of facilitators and fisheries administration representatives\. These are key successes of the Project\. The main objective of this sub-component was to test in four pilot sites (Ouakam and Ngaparou around the Cap-Vert project area, and Foundiougne and Betenty around the Saloum Delta area), the empowerment of artisanal fishing communities to manage their marine and coastal resources while enhancing their livelihoods and building the capacity of local institutions to manage, monitor and evaluate together their resources\. The aim was to arrest the unsustainable use of natural resources and the decline in fisheries resources and related income for the fishing communities\. This was to be carried out through sub-projects formulated with the local communities with the assistance of a facilitator, a co-management expert, and fisheries administration representatives\. Sub-projects, containing proposed local-level initiatives, were subsequently endorsed and approved by the Government (through the signed agreement with the Ministry of Maritime Economy) and implemented through the Local Fisher Committees (LFCs) under the guidance of the DPM-IU\. The pilot sites were identified early before project effectiveness and the recruitment, training, and posting of facilitators at the pilot sites were carried out soon after effectiveness\. This ensured against a loss in momentum of project launch activities and that the main stakeholders, the targeted fishing communities and their associations, would stay engaged after the facilitators promoted the co-management initiatives\. As a result, preparation for fisheries sub-projects for the four pilot sites began one year after implementation\. However, they did not get finalized until well into 2007 because of the delayed arrival of an international co-management specialist who was to advise and guide the process, assist in building capacity of local experts, and oversee the formulation of local initiatives as well as the drafting of co-management manuals\. Together, the facilitator and the co-management specialist assisted the local fishing communities to form Local Fisher Committees (LFC) for each site\. Each LFC has several sub-committees 37 responsible for specific themes, e\.g\., administration and finance; monitoring, control and surveillance (MCS); information, education and communication (IEC); technical and scientific matters; a council of sages and conflict management\. The Project funded training in fabrication and management of artificial reefs, administrative and financial management, community awareness, participatory monitoring and surveillance, diving, conflict management, and basic data gathering skills needed for efficient implementation of the co-management activities\. Support to Local Fisher Committees (LFC) by the Project was successful in that as part of the co-management approach, the activities gave local communities a voice in decision making and for the first time in Senegal, the co-management approach was formalized through the legal agreement signed between LFCs and the Minister of Fisheries and Maritime Economy\. Although co-management did exist before the Project began, it was not successful; the Senegalese court ruled against it on a couple of occasions because the local community members took the law into their own hands to settle issues\. With the building of partnerships through participatory approaches, these incidents have decreased significantly\. The Project was also successful in changing the perception of some of the fishing population where the fishermen met the proposals with skepticism, fearful that the initiatives would limit access to fishing grounds, lead to loss of land territory, or lead to additional taxation\. Where cohesion was already present, either through prior experience with similar initiatives in capacity- building or through pre-existing group cohesion due to existing associations, e\.g\., in Betenty and Ngaparou, the Project built on such base, reinforced the existing capacity, strengthened the cohesion and improved on its management and structure\. By the end of the Project, all pilot sites managed to successfully implement most sub-project activities except for Ouakam\. The Project also provided an organizational structure and forum which managed to represent all stakeholders, particularly, in those communities previously divided by different fishing interests\. It provided a means to defuse tensions between fishing community members and local administration services by reversing top-down decision-making\. In the past, fishing seasons were determined by the authorities without sufficient consultation with fishing communities\. This resulted in confrontations and challenges to local authority decisions\. Another achievement under the Project is that unsustainable use of fishing gear and methods (small –size fishnets, over fishing, or wastage, e\.g\., fish caught which could not be sold were often discarded), have been reduced\. The process of engaging fishing communities in co-management was based on broad consultations with regional administration authorities (préfet), the PCU, COMO-DMF, Artisanal Fisheries Division of MEM, local fisheries administration and stakeholders\. Decisions to restructure existing community committees which were no longer effective and replace them with the Local Fisher Committees which had a larger representation base was based on such consultation to guarantee success\. Participatory diagnostic sessions were conducted with focus groups, parties concerned were interviewed to identify all those who may be impacted by the initiatives proposed, and the problems identified, e\.g\., the challenges of applying the Fisheries Law at the local level, provided useful feedback to higher levels of authority to consider\. 38 Among the more successful activities supported by the Project was the construction of the Fishermen’s Houses or “Maison de Pêcheursâ€? for local communities\. These contributed to building cohesion and community support for co-management at all pilot sites\. It was greatly appreciated by the communities at all sites because they provided working premises for Fisher Committee members and the facilitators, as well as a general meeting hall for gatherings and functions for the local population where previously none had existed\. The Project funded their construction and the purchase of office equipment and basic furniture, and provided technical assistance through effective facilitators and consulting services (construction of artificial reefs, fishing conservation techniques, communication, monitoring, etc\.)\. On a less positive note, two of the four Fishermen’s Houses (Foundiougne and Betenty) are in bad need of repair after only two years of being constructed, a result of poor quality materials and workmanship\. Furthermore, the local fisher communities have not been able to fund such repairs pending successes of income-generating activities\. Sub-projects and Co-management initiatives\. The implementation of co-management initiatives was one of the key successes of the Project\. The process is that for each pilot site, the selected fisheries management initiatives targeting rehabilitation of resources or income- generation are compiled into one document and becomes a sub-project of that site\. A co- management agreement is then signed with the Minister of Fisheries and Maritime Economy and the process is formalized into a legal agreement\. The most common initiatives selected by the fishing communities were the conservation of resources through imposed rest periods for fishing, and eliminating the use of unsustainable fishing methods and equipment\. Co-management activities often included the creation of restricted fishing zones and of no-fishing zones, the cleaning of sea beds, the placement of artificial reefs to encourage regeneration, and measures to improve the livelihoods of community members impacted by reduced fishing\. Accompanying measures included surveillance, monitoring, participation in research, and awareness-raising\. The conservation measures introduced in combination with the participatory community management approach was met with enthusiasm by all of the targeted communities because the measures dealt with their direct concerns\. In all pilot sites, there is strong support and enforcement of replacement of unsustainable fishnets and, in Foundiougne in particular, there was strong endorsement and compliance with the imposed biological rest periods for shrimp fishing\. Sub-projects for each pilot site have been submitted and approved by authorities for all pilot sites and initiatives are being successfully implemented (see tables below)\. 39  Initiatives under Implementation at the Co-management Pilot Sites Ouakam : 3 initiatives Targeted N° Initiatives Objective fisheries Rehabilitation of marine and coastal 1 Cleaning of sea bed areas for demersal species\. Coastal demersal Restoration of coastal demersal resources fish, mainly 2 Creation of no-fishing zone and rehabilitation of degraded marine grouper, green habitat\. crayfish, and the Reduce conflict between fishermen using cigale de mer Creation of controlled lines those using nets\. 3 lobster\. fishing zones Reduction in fishing efforts Improve quality and price of catches\. N\.B\.: The placement of artificial reefs for Ouakam are under preparation and therefore do not appear in the table above\. Ngaparou : 3 initiatives N° Initiatives Objectives Targeted fisheries Put in place measures for the Protect juvenile crayfish and 1 management of the green crayfish restore resources\. Green crayfish and other coastal Alternate closures to fishing in Reduce pressure on coastal 1 demersal species coastal zones zone fishing\. linked to the crayfish Placement of artificial reefs and 2 Resource replenishment\. other devices to attract fish Foundiougne : 2 initiatives N° Initiatives Objectives Targeted Fisheries Replacement of illegal fishnets Reduce juvenile shrimp catch 1 by improving means\. (bombardiers) Coastal white shrimp Impose biological rest period Protect immature shrimp and (Penaeus notialis) 2 (August) for coastal shrimp weak market prices related to fishing small size\. 40  Bétenty : 2 initiatives N° Initiatives Objectives Targeted Fisheries Replenish resources for large Impose biological rest periods size shrimp\. 1 (Niokoc) for coastal shrimp Improve quality of shrimp fishing in the Bétenty area Coastal White shrimp landings\. (Penaeus notialis) Replace illegal, small-size Protect immature shrimp and 2 fishnets (killi) with approved weak market prices related to fishnets of legal size (24 mm) small size\. Status of Sub-Project Activities in Pilot Sites Co-mgt Sub-Projects Pilot Site Agreement Signed Status at End of Project Established with MMF Completed December 2011 February Betenty March 7, 2008 Monitoring of co-mgt activities are 2006 ongoing Completed December 2011 Foundiougn June 2006 March 7, 2008 Monitoring of co-mgt activities are e ongoing Completed December 2011 Ngaparou June 2006 March 7, 2008 Monitoring of co-mgt activities are ongoing Placement of artificial reefs under February Ouakam March 7, 2008 preparation\. Monitoring of other co- 2006 mgt activities are ongoing\. N\.B\.: At project closing, co-management initiatives at the LAFC level were being expanded and scaled up around the pilot sites\. Legal endorsements of co-management initiatives\. The legal co-management agreements signed with the MFME provides important legal endorsements and legitimacy to co-management initiatives and increases the communities’ ownership of their proposals\. They are sometimes backed up at times by decrees issued by the ministers or by local authorities in the form of Codes of Conduct\. Such support from Government administration provides positive prospects for longer-term Government commitment to new approaches and for sustainability\. The process is as follows: the president of the LFCs signs a legal agreement on co-management with the Minister of Fisheries and Maritime Economy who then issues a Ministerial Decree acknowledging the co-management initiatives\. The local government authorities then sign a decree defining the terms of implementation of the initiatives\. In Ouakam, for example, the initiatives were discussed more widely with neighboring villages before being signed\. In the Dakar region, several meetings were held with stakeholders to share and seek consensus on how to implement the initiatives proposed, particularly concerning restricted fishing zones\. This, for example, would define sanctions defined in the area’s code of conduct\. Following the endorsements the LFCs formulate their annual work programs around the initiatives\. 41 For the Government the legal agreements also provides a means to negotiate and gain community support for related government initiatives and helps to decrease tensions\. In Foundiougne, a good example of such cooperation is that the local authorities (préfecture) renews the local decree on biological rest periods annually with the community\. Monitoring, Control and Surveillance (MCS)\. Communities participated actively in MCS activities and managed them with regular patrols by LFC members, initially with Project funds but at times with LFC funds\. The Project provided a surveillance boat for each of the sites to carry out control and surveillance activities\. In the past, fishermen imposed their own methods of deterrence which were at times violent\. Since the promotion of co-management initiatives, however, these have been conducted with minimal conflict\. Surveillance teams or patrols are usually made up of local fishermen and some were conducted with the collaboration of the DPSP\. When infractions occur, warnings are given and sanctions are escalated through the council of sages and local prefectures although fines do not go over the limit allowed by the Fisheries Law\. However, the inconsistency between the low level of fines permitted under the Law compared to the commercial value of the catch is often a weak deterrent for the offender\. The communities have often cited this as a challenge in sanctioning repeat offenders\. At most of the pilot sites, the surveillance patrols are funded out of LFCs funds, this includes not only cost for fuel but also for work time, food for those on patrol\. Fines collected are not kept by the communities but go back to the Treasury at the Ministry of Finance\. Thus, generating sufficient funds to run the surveillance patrols as well as funding the operations of the fishermen lodges can be costly and is a sustainability issue\. At project closure, most of the pilot sites, except for Ngaparou, have not generated sufficient operating funds to maintain such operations over the long term, and have not sufficiently explored alternative arrangements, e\.g\., partnerships, fees and contributions, to address the sustainability issue\. In addition, such surveillance activities should not be administered on a community-by-community basis but, to be sustainable in the long run, be built into local government administration, and be consistent with national laws which dictate terms and conditions for fishing activities to take place\. Conversely, national laws should support the local level if the measures and methods imposed do not deter repeat offenders\. Information Education and Communication (IEC)\. The IEC activities were important in building collaboration and cohesion in the local fishing communities and should be continued\. However, its implementation by the consulting firm CAES-Consult,was less successful in soliciting the involvement of the migrant population\. Advisory Fisheries Councils\. Support to the Advisory Fisheries Councils generated mixed results\. At the national level, the National Council for Consultation on Fisheries (NCCF) (Conseil National Consultatif des Pêches Maritimes) which were established through the 1998 Fisheries Law to provide a framework for consultation at the national level on fisheries did provide effective support to the fisheries management proposals of the LFCs\. However, the contribution of the Local Artisanal Fisheries Councils (LAFC) (Conseils Locaux de Pêche Artisanale) were variable\. The LAFCs were part of the framework structure for fisheries consultation at the local level\. They were being established nationally at the same time as the Project was being prepared and not as part of the Project\. Some were established as a result of 42 decentralization of several sectors in Senegal in 1996 while others were established later\. However, as the fisheries sector was not decentralized, LAFCs were used as part of the framework for fisheries consultation at the local level\. Some of the LAFCs were not effective in supporting LFCs in the management of fish resources and in approving sub-project proposals because they were either not yet functional (regulations governing their mandate and operation were not finalized), did not have the right representation, or did not cover the same jurisdictions as those of the fishing communities\. The LAFCs were public administrative structures whereas LFCs were private associations\. On one occasion, some LFCs by-passed the LAFCs by submitting their fisheries management proposals directly to the national level for approval by the NCCF\. Production and Catch Volume\. Support from the Project for improving this area received strong support and solicited active involvement from communities, particularly the women\. Throughout the Project, a good standard of consultation and animation was maintained for decision-making process by the facilitators and central and regional staff of the fisheries administration\. As a result, awareness and accountability has increased among local communities and news of positive results are spreading into surrounding communities\. Activities which have had a positive impact are: (a) fishing and processing of small shrimp has ceased; (b) use of small-size fishnets has decreased; (c) the capacity of actors strengthened (administrative and financial skills, control and surveillance, monitoring and evaluation), and (d) demonstrated greater ownership and accountability for initiatives selected by the communities through the LFCs\. Co-management initiatives have yielded visible results which local fisher communities have confirmed through visual observation and data collected: (a) catches have increased (although they vary with rain levels); (b) the average catch size has increased, (c) there has been a small rise in producer price, (d) there is a better redistribution of fish resources, and (e) there are impressive results from participatory surveillance program and reduction in conflict despite the drop in the level of interventions by the authorities\. In Ngaparou, co-management pilot site for the green crayfish, the average weight for the crayfish increased from 1\.5 kg in 2005 to 3\.5 kg in 2011\. In Bétenty, co-management pilot site for shrimp, the average count of shrimp decreased from 226/kg to 141/kg\. In Foundiougne, the average catch has increased for shrimp, mullets, tilapia and barracuda, from 2007 to 2011, with accompanying doubling of the number of fishers and small boats, indicating a regeneration of fish resources\. Commercial prices for various catch also show a rise\. At the pilot sites of Bétenty, Ngaparou, and Ouakam, the data collected locally also show a relatively stable number of small fishing boats which could indicate that the communities have been able to monitor the number of registered boats at their sites\. Selected data for pilot sites are shown in the tables below\. 43  Change in Catch Volume and Market Price over time in co-management pilot sites (2005-2007) Ouakam Year Targeted 2005 2006 2007 2008 2009 2010 2011 species Quantity of N/A N/A 10,100 13,960 22,200 17,200 23,300 catches (Kg) ‘‘Thiof’’ Commercial Epinephelus N/A N/A 38\.020,000 52,431,000 76,250 55,540,000 85,511,000 value (FCFA) aenus Average price/unit N/A N/A 3,670 3,980 3,380 3,620 4,500 (FCFA/Kg) Ngaparou Year Targeted 2005 2006 2007 2008 2009 2010 2011 species Quantity of 770 700 1,575 1,561 1,645 2,835 4,095 catches (Kg) Commercial Green 5,075,000 4,515,000 11,200,000 11,161,500 11,322,500 13,272,000 28,962,500 value (FCFA) Lobster Average price/unit 4,900 6,000 6,270 6,850 5,727 5,700 6,725 (FCFA/Kg) Betenty Year Targeted 2005 2006 2007 2008 2009 2010 2011 species Coastal Quantity of 365,700 336,200 340,700 328,900 296,900 237,200 229,400 shrimp catches (Kg) Commercial 146,280,000 184,910,000 204,420,000 197,340,000 207,830,000 213,480,000 183,520,000 value (FCFA12) Average price/unit 400 550 600 600 700 900 800 (FCFA/Kg) Source: Data collected at the pilot co-management sites by the fishing communities in partnership with the local fisheries administration, and data validated by the Fisheries Authorities at regional or central level\. 12 The total commercial value of coastal shrimp caught in Betenty has declined by a small amount from 2010 and 2011 due to the drop in the number of active fishermen targeting this species (from 693 fishermen in 2010 to only 649 in 2011)\. 44  Bétenty: Detailed Catch Data for Shrimp and fishing vessels (2005-2011) Year Catch (‘000 No\. of Price Market Price Shrimp No\. of kg) Fishermen (FCFA) (CFAF) count/kg fishing vessels 2005 365\.7 831 400 146,280,000 226 65 2006 336\.2 768 550 184,910,000 179 59 2007 340\.7 784 600 204,420,000 184 62 2008 328\.9 672 600 197,340,000 175 53 2009 296\.9 727 700 207,830,000 144 57 2010 237\.2 693 900 213,480,000 138 51 2011 229\.4 649 800 183,520,000 141 59 N\.B\.: A majority of shrimp harvesters work on foot; those on boats normally are two to a boat\. Prices quoted are landing price/kg for fresh shrimp\. Ngaparou: Fishing vessels (2005-2011) Year 2005 2006 2007 2008 2009 2010 2011 Local fishing vessels 103 140 83 90 103 105 103 Seasonal fishing vessels 88 46 34 35 29 43 40 TOTAL 190 186 117 125 131 148 143 Year 2005 2006 2007 2008 2009 2010 2011 Local fishermen 410 558 330 360 410 418 410 Foreign fishermen 350 184 136 140 114 172 160 TOTAL 760 742 466 500 524 590 570 Foundiougne: Catch Volume Data for Various Species (2007-2011) Shrimp Ethmalose Mullet Tilapia Barracuda Total 2007 343,370 770,650 212,050 193,500 10,250 1,529,820 2008 287,190 742,400 292,550 275,250 10,700 1,608,090 2009 362,835 630,300 180,450 171,350 22,600 1,367,535 2010 274,232 815,660 252,521 307,336 44,622 1,694,371 2011 431,625 631,940 416,780 709,530 140,830 2,330,705 Market Prices 2007 2008 2009 2010 2011 Landing Price (CFAF) 473,341,600 486,081,000 449,300,836 476,866,035 982,549,250 45  Fishing Vessels No\. of fishermen 1,600 1,700 1,710 1,750 2,650 No\. of vessels 127 120 142 160 300 Average Shrimp Count/kg 2007 2008 2009 2010 2011 Number of shrimp 178 96 92 88 115 (count) / kg Change in Average Market Price (CFAF) at landing for Various Species Shrimp Ethmalose Mullet Tilapia Barracuda 2007 600 100 300 350 900 2008 600 100 300 350 950 2009 550 100 250 300 1,000 2010 500 100 300 200 1,750 2011 750 150 300 200 2,000 On the negative side, the project’s successes were hampered by the slow endorsement of co- management initiatives once sub-projects have been identified; this took about two years to be approved through the administrative procedures of the Government and of the Bank\. While all the pilot sites had finalized their sub-projects February 2006, the legal agreements on co- management were signed much later in August 2008 which was demotivating for the main actors and posed a risk to maintaining the momentum of a new initiative\. Furthermore, the procurement procedures were not well understood by the communities and perceived to be slow and cumbersome\. Combined with the administrative and financial procedures, these requirements slowed down further the implementation of activities between 2008 and 2010\. The consulting contracts with essential institutions such CRODT for demersal research, ISRA for participatory research, and CAES-Consult for communication campaign (IEC) experienced problems and yielded weak results having used what the communities perceived to be traditional top-down approaches not in line with the approaches promoted under the Project\. The poverty level of the communities also limited the greater success of such activities as the biological rest initiatives which deprived an already poor community of a source of income\. Although all initiatives were implemented successfully, in the case of Foundiougne, the diverse population of certain communities made cohesion more difficult, the topography of the area (nine out of 10 are islands) also posed a challenge for implementing sub-projects where the budget was under-estimated for the area to be covered\. A similar constraint affected the MCS program\. Efforts to involve migrant fishermen in co-management activities have been less successful\. Reconversion Fund\. During preparation, the Bank team had provided for funding to offset the impact of reduced fishing on fishing communities’ level of income and livelihood\. This was removed on recommendations from Bank management to ensure synergy across operations with another project under preparation, the Senegal Social Investment Fund\. A cash fund type of 46 facility was proposed to offset the negative impact to support alternative livelihood activities for fishermen to alleviate overfishing under the second phase of the Bank-funded Social Investment Fund, which was managed by the Agence de Financement pour le Développement Social (AFDS)\. However, even though the PCU had signed a Memorandum of Understanding with AFDS management to incorporate a fisheries window in the follow-up project to support the “reconversionâ€? of the fishermen, the arrangement did not materialize because the Social Investment Fund was later merged with the National Infrastructure Project into a new operation – the National Local Development Project\. With the merger, the fisheries reconversion fund window no longer fit into the priorities of the new operation\. Subsequently, previously anticipated funds for this activity became unavailable early in implementation\. At the MTR the establishment of the reconversion fund was discussed and broadly redefined to accompany the co-management initiatives and provide a safety net for members of communities affected by the reduction in fishing, or who wish to leave fishing to explore alternative livelihoods\. The Fund was to be financed through project cost savings from the institutional streamlining proposed for project restructuring (the dissolution of the PCU)\. However, feedback from the fishing community representatives indicated resistance: that restricting access to fishing was not accepted to date and that reducing the capacity for fishing even less so; reconversion was not seen as plausible, particularly among the older generation (insufficient time to begin a new trade); however, among the younger generation, particularly the marginalized (divers) they welcomed the idea\. Although the detailed preparation for the fund was outlined at the MTR, the timeframe did not allow sufficient time for the reconversion fund to be implemented and it was transferred under the Sustainable Management of Fisheries Resources (SMFR) Project approved in 2008\. Sub-component 1\.3: Strengthening institutional capacity of the Ministry of Marine Economy and the National Research Institute (CRODT) Participatory Research and CRODT\. Participatory research yielded mixed results\. It succeeded in raising awareness of local communities on research needs and introducing its members to basic data collection and monitoring but was inconsistently applied and perceived as top-down\. CRODT, a department of the Institut Sénégalais de Recherche Agricole (ISRA) was contracted to carry out demersal species research, but because of lengthy contract preparation and lack of capacity (available personnel) the study was not completed\. It will be funded under the Bank’s ongoing West Africa Regional Fisheries Program\. Under the Project, funding was provided for the LFCs to collaborate with the CRODT to finalize the co-management initiatives\. A contract on participatory research was signed between the DMF and CRODT\. Activities included the study of baseline estimates for artificial reefs and placement zones, how to add value to products with weak commercial value, and participatory/community data collection\. Following the results of the study, Ouakam was found to be a major fishing site and, consequently, CRODT has placed a researcher on site to carry out further work with the fishing community\. CRODT also funded a contract with a local fisherman, selected by the LFC, as part of the participatory research activities\. In Foundiougne, there was disagreements between the community and the research institution on the research results regarding when the biological rest period for shrimp was to begin\. Consequently, the results were not unanimously accepted by the 47 local community, which also perceived the research to be a classic, top-down approach rather than a participatory one\. Capacity-building of the Ministry of Fisheries and Maritime Economy (MFME)\. The Project supported capacity-building for the MFME through the provision of technical experts and advice through international and national consultant services\. The Project funded training programs, workshops, office equipment and software, specialized equipment for the national boat registration program, vehicles, and a budget for operating costs during the life of the project\. The Bank teams provided substantial inputs into national level strategic, legal and regulatory documents such as the Fisheries Law revisions and the Letter of Sector Policy, as well as sector studies and strategies for relevant sectors, and provided technical inputs into the preparation and implementation of fisheries programs\. Impact Overall, significant results have been obtained in the sector through the contributions of the Project\. Although the design reflected higher expectations than could be accomplished in the time span of the Project, progress has been made in the sector and in Senegal compared to when the Project began\. The pilots were an opportunity to test new approaches in Senegal in order to provide viable options to fisheries resources management and biodiversity conservation and build sustainable strategies for the future\. The gaps and weaknesses in the management of the fisheries sector, including governing and management structures has been narrowed due to: (a) the direct involvement of the MFME and MENP staff at national, regional and local levels involved in the implementation of the Project; (b) the institutional strengthening of the DMF and the DPN through the implementation of Components 1 and 2, experience with project management, monitoring and control, (c) increased government interaction with local communities; and (d) direct involvement of ministry technical personnel providing input into the revisions of sector legislation in Senegal\. The knowledge base for policy decision making and accompanying measures has been strengthened through the revisions to the Fisheries Law which has been submitted to Parliament for approval, and the Letter of Sector Policy revisions in 2008\. The revisions to the Fisheries Law is expected to address the difficult issues of open access to fishing\. The legislations demonstrate Government engagement at the national level and is an important step linking improved fisheries management with the sectoral policy framework\. These will also provide a channel for more effective aid and aid coordination in the fisheries sector\. The successful establishment of a nationwide system for registering small fishing vessels is an important step towards regulating artisanal fisheries for the government; historically, government regulation of artisanal fisheries has had little success and has been met with strong resistance from boat owners\. By end of project, however, boat owners are increasingly complying with the registration program and the number of boats registered have almost doubled over the number estimated at appraisal\. 48 Opportunities were also provided for strengthening national research institutions (ISRA/CRODT) through partnerships with local communities in participatory research, data collection and monitoring, and through research contracts for national studies which were to provide input to policy decisions\. However, the institutions did not have the capacity to carry out the contracts fully and results did not meet expectations under the Project\. At the community level, successful interventions in co-management have already begun to gain a reputation and is being replicated across the country in other donor interventions\. Communities at all pilot sites have demonstrated ownership and commitment in carrying out sub-project initiatives and conduct surveillance and basic monitoring of such resources\. The Government of Senegal is now fully supportive of local initiatives to manage and limit fishing and the co- management approach\. The system which has been successfully pilot at the local level is now contributing to the reduction in fishing efforts, elimination of unsustainable and harmful fishing gear and methods, and sustainable management of local resources through local enforcement and compliance with biological rest periods to allow fish stocks to recover, rehabilitation of reefs, and MCS activities\. Data collected at the local level are indicating that fish stocks around the pilot sites are showing signs of improvement in terms of size and catch volume\. Communities and Government (through the legal agreements signed with the Minister of Fisheries and Maritime Economy) have successfully built partnerships in fisheries resources management and local development\. In a recent interview during a visit to a coastal fishing community (Mbour July 2012), the new Minister of Fisheries and Maritime Economy was quoted as saying that he and the President would support co-management because he was reassured by its consultative approach which provides the fishing communities with a means to overcome challenges without waiting for the state to intervene\. 13 This illustrates that the project’s objectives for co-management has been fully accepted by the Government\. 13 “Mbour est le capital de la pêcheâ€? (Ministre), http://mbour\.info/economie/economie-maritime, jeudi, 12 juillet 2012\. 49 Component 2: Conservation of Critical Habitats and Species The implementation of this Component is rated moderately satisfactory\. The Borrower met most of the physical targets: establishment of biosphere reserves in two out of three project areas, eight out of 10 local management plans have been formulated, and the Biodiversity Conservation Framework Law submitted for approval by the Government (earlier than the target date)\. Performance on the IEC, outreach to communities, and results on community participation were strong, while the establishment of Ecosystem Management Committees, and compliance with biodiversity reporting was weak\. Overall capacity for biodiversity management, a key performance indicator for the Project, has improved over the baseline\. The purpose of this component was to improve the long-term management of ecosystems in the three designated pilot areas: the Senegal River Delta, the Cap-Vert Peninsula, and the Saloum River Delta to be carried out through: (i) supporting ecosystem management in each of the pilot areas, according to an ecosystem approach, and (ii) restructuring the biodiversity management framework, to overcome the constraints that have limited the effective management and protection of ecosystems nationwide\. The effective management of biodiversity in three pilot areas to be increased by at least 50 percent by end of project was a key performance indicator for the Revised Global Environment Objective\. Compared to the baselines for management effectiveness measured with WWF/World Bank Protected Areas Management Effectiveness Tool 14 in 2006, the results at end of project (2011) indicates an improvement (see table below and Results Framework Analysis in Annex 5)\. The mean score increased from 46 percent in 2006 to 61 percent in 2011, although the target set by the DPN itself was actually 69 percent\. For 2009 – 2011, the Rapid Assessment and Prioritization of Protected Area Management (RAPPAM) 15 methodology developed by the WWF was used because it gives more information for habitat and species evaluation than the tool used in 2006\. 14 This tool is simple and basic, and is designed to measure management effectiveness over time, i\.e\., in line with project capacity-building objectives\. The tool is used as a cost-effective proxy to determining impact and has been used in over 85 countries, primarily by donor agencies and NGOs, and is now mandatory for World Bank, GEF and WWF projects\. The methodology uses a rapid, site level assessment based on a score-card questionnaire which includes all six elements of management effectiveness identified in the international Union for Conservation of Nature / World Commission on Protected Areas (IUCN/WCPA) Framework: context, planning, inputs, process, outputs and outcomes\. It enables park managers and donors to identify needs, constraints and priority actions\. 15 The Rapid Assessment and Prioritization of Protected Areas Management (RAPPAM) methodology is based on the WCPA/Protected Areas Management Effectiveness (WCPA PAME) Framework\. It was developed by the WWF between 1999 and 2002 and is designed to identify management strengths and weaknesses, analyse the scope, severity, prevalence and distribution of threats and pressures; identify areas of high ecological and social importance and vulnerability; indicate areas of urgency and conservation priority; and help develop appropriate policy interventions and follow-up actions to improve protected areas management\. It is similar to the WWF/World Bank tool above but provides additional information on habitat and species evaluation\. The methodology is best implemented through interactive workshops with policy makers, PA managers, and relevant stakeholders\. RAPPAM has been implemented in some 40 countries and over 1,000 protected areas in Europe, Asia, Africa and Latin America\. 50  Key indicator results from the Rapid Assessment and Prioritization of Protected Areas Management (RAPPAM) 16 Tracking Tool for IMCRP Protected Area Sites\. Q9 Q9 Q12 Q12 Q13 Q13 Q15 Q15 Total Total Area/Reserve Name (2006) (2011) (2006) (2011) (2006) (2011) (2006) (2011) (2006) (2011) le Parc National des Oiseaux du Djoudj 6 11 15 17 13 17 9 17 56% 75% (PNOD) le Parc National de la Langue de Barbarie 3 11 15 15 8 15 1 6 42% 63% (PNLB) la Réserve Spéciale de Faune de 3 11 11 11 8 14 5 5 43% 60% Gueumbeul (RSFG) le Parc National des Iles de la Madeleine 6 11 7 9 10 23 10 13 41% 58% (PNIM) la Réserve Naturelle 7 11 11 11 8 17 13 15 54% 64% de Popenguine (RNP) la Réserve Naturelle d’Intérêt 3 11 7 11 8 21 9 11 38% 61% Communautaire de Somone (RNICS) Réserve Communautaire de 9 13 9 11 6 13 3 3 42% 57% Palmarin (RCP) le Parc National du Delta du Saloum 11 13 15 11 9 10 7 7 52% 55% (PNDS) The above table presents aggregate scores (out of 25 points for the best score) of five sub-questions related to Q9: Staffing; Q12: Funding; Q13: Management planning; Q15: Research, monitoring, and planning\. Overall RAPPAM effectiveness score for all protected areas increased from 46% IN 2006 to 61% in 2011\. Sub-component 1: Managing Ecosystems Managing ecosystems in three pilot areas, Senegal River Delta, the Cap-Vert Peninsula, and the Saloum River Delta\. The management of Senegal’s ecosystems through national parks and reserves has been a responsibility of the Department of National Parks (DNP) (Direction des Parcs Nationaux: DPN) within the Ministry of Environment for over fifty years\. Currently, about ten percent of Senegal’s terrestrial territory and eight percent of Senegal’s marine territory is now protected\. 16 For further information on RAPPAM, please refer to: Ervin, J\. 2003\. WWF: Rapid Assessment and Prioritization of Protected Area Management (RAPPAM) Methodology\. World Wildlife Fund\. Gland, Switzerland\. 51 This coverage brings Senegal close to its commitment to Aichi Target 11 of the Convention on Biological Diversity which aims for at least 17 percent of terrestrial and ten percent of marine territory under protection by 2020\. To strengthen the management of Senegal’s protected areas, the Project was to update and coordinate the management plans under DNP’s authority using UNESCO’s Man and Biosphere (MAB) Reserve model\. In total, the Project identified ten coastal pilot sites already under DNP’s management\. Existing sites consisted of four national parks, four national reserves, and two community reserves\. The sites were selected instead of establishing new reserves because it was envisioned that the Project would be able to maximize synergies between sustainable fisheries objectives and biodiversity conservation objectives through an ecosystem approach\. Furthermore, each of identified Project sites had draft management plans and varying degrees of community participation in place\. Biosphere Reserves\. The establishment of Biosphere Reserves was designed as the key instrument for managing ecosystems in the three designated pilot areas\. Of the three biosphere reserves planned under the Project, only the Cap-Vert Peninsula reserve was not established\. The Project’s COMO-Ecosystem acted as the national MAB committee and is the unit responsible for preparing the UNESCO MAB Biosphere Reserve application for the Cap-Vert Peninsula\. At MTR, it was decided that the establishment of the Cap-Vert Biosphere Reserve was not feasible before the end of the Project and it was removed from Project activities\. The processes for submitting the necessary documentation to UNESCO for the Biosphere Reserve program took longer than expected for the Cap-Vert Peninsula because of the numerous stakeholders involved\. In 2006, COMO-Ecosystem recruited a consultant to lead the preparation of the biosphere reserve\. The Cap-Vert Biosphere was partitioned into four sub-regions (Îles de la Madeleine, Rufisque, Popenguine/Somone, and Dakar) due to the different types of ecosystems that comprise the reserve\. Two workshops were held within each zone to let all the stakeholders discuss and then agree on management priorities\. Two additional workshops were held to bring the four sub-regions together to discuss and agree on the management of the biosphere reserve\. The process was also delayed by an incident that occurred in 2010 on Îles de la Madeleine, one of the four sub-regions of the reserve, which resulted in a poor relationship between DNP and the local fishing community of Soumbédioune, a key stakeholder\. Because the MAB Biosphere Reserve program only accepts applications for new reserves in April of each year, DNP plans to submit the application for the Cap-Vert Peninsula in April of 2013\. The Senegal River Delta Biosphere Reserve is the second of kind in Africa and was a model in the management of natural resources\. It was formally recognized by the UNESCO Man and Biosphere Programme in 2005\. The reserve consists of 641,768 hectares of which 26,198 hectares are marine\. The Project assisted development of the UNESCO proposal, including workshops with authorities in Mauritania who are part of the Senegal River Delta Biosphere Reserve because of the inclusion of the Diawaling National Park and the Chat TBoul Reserve, both of which are also recognized Ramsar Wetlands\. The Saloum River Delta Biosphere Reserve was established in 1980 and consists of 72,000 hectares marine areas, 23,000 hectares of flooded areas, and 85,000 hectares of terrestrial islands\. Prior to the project, no local management plans existed within the parks\. The Project assisted revising the regional management plan for the Biosphere Reserve and established local 52 management plans of the respective Project sites within the reserve, including the Parc National du Delta du Saloum (PNDS) and the Réserve Naturelle Communautaire de Palmarin (RNCP)\. This Biosphere Reserve is also transboundary because it shares with the Gambia a rich ecological complex composed of the Niumi National Park\. Ecosystem Management Committees (EMC)\. The Project assisted in the establishment and operation of Ecosystem Management Committees (EMC) which were designed to bring together representatives of local management committees, including management committees for protected areas\. The EMC would oversee the preparation and implementation of ecosystem management plans for each of the pilot areas\. Such a structure was to reflect a model of sustainable economic use of natural resources, and biodiversity conservation\. The establishment of ecosystem management committees, as designed under the Project, yielded mixed results and functioned better at the local level than at the national level\. Originally, the purpose of establishing the three UNESCO Biosphere Reserves was to consolidate existing protected areas and serve as anchor sites for ecosystem management activities and contribute to the preparation of ecosystem management plans\. In each of the anchors, EMCs were to be established to foster co-management from the multiple protected areas and their respective stakeholders\. EMCs had difficultly managing at the regional scale\. Because DNP was the point of entry for the EMCs, they lacked legal jurisdiction outside the park’s boundaries\. The biggest challenge was faced by the Cap-Vert Peninsula EMC which spanned two legal regions\. For this EMC to function properly, its management plans needed to be approved by contiguous local government bodies\. However, not all communities within the planned biosphere reserve agreed to the EMC’s management plan\. The EMC for the Senegal River Biosphere Reserve was established in 2006 - one year after the Biosphere Reserve was recognized by UNESCO – but is also no longer functioning by the time the Project closed\. It was decided at MTR that the Project would no longer support the EMCs\. Instead, ecosystem management was to be managed locally at the of the Project sites without regional committee oversight\. A common problem encountered in the design of the EMCs was its size\. Memberships frequently exceeded 50 stakeholders and resulted in conflicting interests\. Many of the stakeholders had little or no experience with the concept of natural resource management and, as a result, participated in the EMCS with personal interests in mind\. The Senegal River Biosphere Reserve tested sub-committees to manage the various interests at stake and attempted to reduce the size of EMCs in 2008, but with limited success due to the lack of funding needed for conduction needed workshops\. The three EMCs that were established and then dropped by the Project were, for the most part, the first time all the various stakeholders had an opportunity to discuss co-management of the natural resources within the Biosphere Reserves\. The workshops that provided this forum for discussion were well received by the community\. The DNP staff noted that in recent years many of the key community stakeholders, including local governments, showed a great interest in EMCs, inquiring about their status of the EMCs, and requesting additional fora and workshops\. Most importantly, EMC workshops provided a new way for stakeholders to think about natural resources co-management\. Thus, while the EMCs did not succeed in forming a new means of ecosystem-based co-management, they nevertheless had a positive impact 53 Community participation\. Local community participation was strong and efforts to integrate parks and reserves with local communities were successful\. In many cases, community members were actively involved in park management\. The two most common means of community participation were as nationally recognized “Ecoguardsâ€? and as active members of local management committees\. In both cases, communities involved lived within or near to the protected areas\. Although no beneficiary assessment was conducted and the monitoring and evaluation data is lacking, the ICR mission took note that discussions with local Ecoguard volunteers reflected the enthusiastic participation and ownership in protected areas management activities which would contribute to meeting the key indicator for the GEO: effective management of biodiversity in the project areas\. Ecoguards are local volunteers responsible for a variety of duties associated with national parks\. The Ecoguard program started in 2001 as a DNP pilot program in the Poponguine Community Reserve and has since expanded to all national parks and community reserves in Senegal\. Their activities range from park surveillance and biological monitoring, to tour guide and ecolodge operations and restauration\. Through the Project, many of the Ecoguard groups at the pilot sites have obtained legal status which provides them with access to bank accounts and loans, and the ability to receive payments for services\. All profits earned by Ecoguard operations are returned to cover operating costs of the program to better manage the parks\. In many communities, Ecoguards are usually selected by the village chief and are often young adults from their communities\. About half of the Ecoguards are women\. The Ecoguard service is well organized with a local president for each park, and affiliation with a regional and national level organization\. Since the service is voluntary, communities have at times found it difficult to keep the volunteers engaged\. As part of the strengthening of DNP, the Project funded training for biodiversity monitoring for Ecoguards, including SCUBA diving training, biodiversity monitoring and collection\. The sustainability of the Ecoguard service was highlighted as an issue in the MTR and requested that the COMO-Ecosystems discuss within the ministry solutions for more permanent financing opportunities\. No permanent solution was found but there are plans to assist the Ecoguards in finding international funding (GEF SGPs for example)\. It should be noted that all parks visited on the final mission had active Ecoguards who were typically dynamic individuals\. It is within DNPs best interest to promote this service to: (a) nurture the mindset of younger generations towards environmental conservation; (b) strengthen monitoring and management of parks, and; c) strengthen community co-management and relationship with parks\. Lastly, the Project also built capacity for local management of biodiversity conservation and protected areas through the rehabilitation of infrastructure, construction of work stations and office space for park rangers, as well as parks operation equipment, observation towers and other structures\. The Project enabled local management committees to purchase equipment such as binoculars and GPS units to aid in monitoring and park surveillance\. Unfortunately, management issues which surfaced during the latter half of Project implementation detracted from achievements\. A Financial Management report issued shortly 54 before Project closure identified instances of financial mismanagement\. At four of the Project sites for Component 2, construction of buildings were either incomplete or never started\. Furthermore, the poor relationship with the fishing community of Soumbédioune and the local staff of PNIM due to an incident in 2010 resulted in the local fishermen destroying a concrete pier, an observation tower, and a DNP patrol boat, which were funded under the Project\. Ecosystem Management Plans\. An important achievement under the Project is that local ecosystem management plans have been prepared for eight out of the ten pilot sites\. This an intermediate outcome indicator under this Component\. The preparation of such plans was an important input to the preparation of the Biodiversity and Protected Area Framework Law\. The eight locations are the: • Parc National des Iles de la Madeleine (PNIM) • Parc National des Oiseaux du Djoudj (PNOD), • Parc National de la Langue de Barbarie (PNLB), • Réserve Spéciale de Faune de Gueumbeul (RSFG), • Réserve Naturelle de Popenguine (RNP) • Réserve Naturelle d’Intérêt Communautaire de Somone (RNICS), • Parc National du Delta du Saloum (PNDS), and • Réserve Naturelle Communautaire de Palmarin (RNCP)\. The Marine Protected Area of Bamboung and the Réserve Spéciale de Faune du Ndiaël obtained the assistance of other donors in developing or revising their management plans\. Most of the management plans were already under preparation before the Project intervened; but since the project supported the strengthening of the DNP, it facilitated this preparation process\. Where the Project fell short was in the coordination of the local management plans into the larger UNESCO Biosphere Reserve model\. EMCs were established as sectoral associations to facilitate coordination of the ecosystem management plans; however, since the point of entry for establishing the EMCs was the DNP whose authority did not reach beyond the parks, obtaining collaboration across administrative boundaries or jurisdictions was challenging and did not work well\. However, with the co-management approach and collaboration with fishing communities the EMCs may have found a more conducive environment within which they can operate\. The preparation process for the local ecosystem management plans was slow and cumbersome, and would have been better staged in two, five-year phases: a first phase for negotiations and consensus building with the key stakeholders, and a second phase for establishing the foundations for the rehabilitation of the ecological functions of the nature reserves and empowering local communities to have active and adaptive management of the natural resources\. Allowing communities to manage their own procurement and disburse their own funds would have accelerated procurement and avoided the delays from cumbersome processes required by the Central Procurement Department of Senegal and by the Bank’s own procedures\. 55 Sub-component 2\.2\. Strengthening of the biodiversity conservation framework The Biodiversity Conservation Framework Law has been drafted and submitted to the Government for approval\. This was an intermediate indicator under this component and has been completed satisfactorily\. The Law was prepared and submitted to Parliament in September 2011, ahead of the target date of “end of projectâ€? set for this indicator\. The Project played an essential role in facilitating the preparation and timely submission of the law, and funded consultants for the preparation and national stakeholder workshops\. The DNP- IU (COMO-Ecosystème) and parent Operational Coordination Committee (OCC) also played a lead role in working with the parliamentary-level committee on environment to promote the law among lawmakers, and to organize three intra-ministerial meetings to discuss the framework\. Preparation of the Biodiversity and Protected Area framework law began in late 2006 with the establishment of a steering committee within the Ministry of Environment\. In early 2007, a consultant was hired to do a comparative analysis of similar framework laws in Cameron, Côte d’Ivoire, Guinea Bissau, and South Africa\. The results of the comparative analysis led to the drafting of the framework law for Senegal in December of 2008\. At the 2008 Project restructuring, the key performance indicator monitoring the framework law was modified to read “Biodiversity and Protected Area framework law is prepared and submitted to Government before end of projectâ€? - allowing the Project more time to prepare the bill\. In March 2009, the drafting of the bill began and circulated to all stakeholders for comments in October of 2010\. The review process concluded with a national workshop held in February 2011 for all interested stakeholders where a consensus was reached on the text of the framework law\. In May of 2011, the framework law was submitted to the Government of Senegal for review, all comments incorporated, and the law was resubmitted for consideration by Parliament in September 2011\. A new parliament has since been in place (July of 2012) causing some delay, but is expected to pass the law shortly\. Strengthening the Department of National Parks (DNP)\. The conservation of biodiversity in Senegal is the responsibility of the Ministry of Environment\. The second subcomponent is aimed at strengthening and restructuring units within the ministry to better manage and conserve Senegal’s biodiversity\. Within the Ministry, the DNP handles the day-to-day operations\. Because the DNP staff were for the most part armed park rangers responsible for enforcing anti- poaching laws, the concept of biodiversity and ecosystem-based management were not well understood\. The capacity of DNP needed to be strengthened to manage the expanding network or parks, reserves, and marine protected areas while employing a collaborative process with the local population\. The strengthening of DNP was addressed through: (a) modernizing the legal and regulatory framework of biodiversity conservation; (b) institutional restructuring of DNP, and; (c) establishing and operationalizing the management, monitoring, evaluation, and public awareness of the state of biodiversity\. The Biodiversity and Protected Area Law if it was already in effect, would have provided the DNP with a national mandate and directed the capacity- building efforts towards that mandate\. However, under the Project, DNP’s capacity was strengthened though its role with the OCC in contributing to the formulation of the Framework Law; the OCC organized three workshops to highlight the importance of biodiversity and ecosystem management to other units within DNP; the process of revising and submitting the 56 Framework Law provided the DNP with an opportunity to dialogue with Senegal’s lawmakers including new members of parliament who entered into office in July 2012\. The Project also funded advisory and technical services for the DPN-IU, and training and workshops as follows: (a) ten DNP staff obtained an advanced degree in marine and coastal ecosystem management from a local university in Dakar; (b) four DNP staff were trained in Project management, human resources, forestry, and natural resource management and (c) ten workshops were conducted for DNP field staff on various thematic topics including waterbird and wetland management, preparation of local co-management plans, and Geographic Information System (GIS) software\. The workshops were well attended with over one hundred participants from the DNP’s staff\. At each of the ten Project sites, the Project financed goods and equipment including: a vehicle, a boat for transport for DNP staff and Ecoguards to carry out their monitoring and surveillance responsibilities, and each project site received a computer, GPS, and binoculars to aid monitoring and surveillance\. At DNP headquarters, the Project provided the M&E unit with several computers, a network server, office equipment (desks, chairs, etc), as well as a full-time secretary\. National Biodiversity Committee (NBC)\. The NBC was established in 2006 with Project funds\. The NBC typically met before and after every CBD COP\. The Project funded four workshops of the NBC before and after the 2008 and 2010 COPs and travel for the president of the NBC and one DNP staff to the 2008 COP in Bonn, Germany\. However, the NBC is not well suited for monitoring and evaluating the state of biodiversity in Senegal\. It suffered from poor management and has not met since 2010; the Committee consisted of too many stakeholders to function efficiently\. While DNP serves as the permanent secretary for the NBC, the committee is headed by the Agriculture and Environment advisor to the prime minister who was often too busy to lead and had limited incentives to promote biodiversity conservation\. It is unlikely the NBC will be sustainable now that the Project has closed, particularly since the Government has not allocated funding for the NBC secretariat in the DNP’s budget\. Biodiversity Monitoring\. The submission of annual Biodiversity update reports, an intermediate outcome indicator for the Component was partially met\. Biodiversity update reports were produced in 2005, 2007, and 2010\. A fourth report is expected to be completed by the end of 2012\. Delays in annual reporting is due to several factors\. The unit within the DNP in charge of monitoring was not sufficiently resourced to carry out the yearly reporting\. The unit only has a staff of three for the entire country, and from 2010 until 2012, two of the three staff members were not permanently located in Senegal (one was in the United States and the other was in France)\. Furthermore, approximately only 25 percent of their time was dedicated to the Project and updating the State of Biodiversity reports\. Because the unit was not well staffed, the DNP was unable to complete a national biodiversity monitoring plan with indicators defined by the CBD that would produce consistent data for the annual State of Biodiversity report\. Although the Project provided funding to build the capacity of this unit, (office equipment, a secretary staff position placed within DNP, training for staff in biodiversity monitoring and collection), with only one to three staff in charge of a national campaign, it was unlikely that the DNP could maintain the collection, processing, and compiling of such annual updates\. 57 National Action Plans\. National action plans serve as internal strategy documents within DNP to achieve a coordinated effort in conservation and monitoring of specific species\. An important achievement under Component 2 was the establishment of National Action Plans for several iconic fauna: (a) in 2008, the DNP completed a national action plan for African manatees (Trichechus senegalensis), and (b) in 2012, a national action plan was completed for marine turtles\. In both cases, the Project provided the funds for consultants to prepare the national action plans\. IEC\. The DNP had modest success with increasing the awareness of biodiversity and integrated ecosystem management nationally\. As part of the International Waterbird Census held every January 15th, the Project funded the Training of trainers programs from 2006 until 2011 to spread awareness of the importance of Senegal’s migratory waterbird population\. The annual event is a success with increasing participation from the general public and tourists as well as from the DNP staff and local Ecoguards\. A similar program is done on May 22 of each year for the International Day of Biodiversity\. In 2010, DNP used the opportunity to use Project funds to spread awareness of the importance of biodiversity\. From 2008 through 2012, the DNP tested a pilot community education program to teach students basic environmental concepts with Project funding\. Four pilot schools in the communities of Yoff, Ngor, Ouakam, and Soumbedioune were targeted because of the large concentration of fishing families and were received enthusiastically by the students as well as the teachers\. Outreach was launched by dynamic and committed parks personnel (mainly women rangers and officers)\. The goal of the community education program was to mainstream environmental concepts and stewardship into future generations\. The curriculum was not specifically focused on coastal and marine issues, but rather provided an overview of more broad environmental concepts (e\.g\. biodiversity, water management, pollution, recycling)\. However, school masters and teachers tried to adjust the curriculum to address local issues\. The target age range for the program was nine to 11 years old as it was felt by DNP that is the most receptive age for children to be introduced to these concepts\. The result of the program led to a more environmentally- conscious young population in one of the most populated areas of Senegal\. In some cases, DNP noted that the children now have a better understanding of how their actions can affect the environment than their parents\. Sustainable Financing for Biodiversity Conservation\. The feasibility study and consultations regarding the establishment of a trust fund for biodiversity conservation in Senegal was completed in April of 2007\. The study suggested it follow similar approaches of other African francophone countries, like Madagascar, and establish a foundation to manage a trust fund\. The study outlined a number of next steps, but no significant action was taken and no trust fund for biodiversity conservation had been establish by the end of the Project\. Sub-Regional Coordination Efforts\. The building of sub-regional partnerships and linkages under the Project with other projects in the region was weak\. This was an intermediate outcome indicator for the Component\. Of the three partnerships that were to be established with other GEF-funded projects, one was established while no others provided any meaningful partnership support\. 58 The sub-committee for the Senegal River Basin Project held two workshops in 2007\. However, closure of the IMCRM Project also brought closure to the sub-committee\. Other than some sharing of Project information no significant results were attained from the workshops\. The sub-committee for the GEF-funded Canary Current Large Marine Ecosystem (CCLME) Project (funded by the Food and Agriculture Organization (FAO) and UNEP) met but was never established\. The preparation of the IMCRM Project began in 2007 while the CCLME Project was not implemented until April of 2010, by which time, the IMCRM Project was close to completion\. However, the technical staff of the DNP and DMF were involved in the preparation of the CCLME project\. The sub-committee for the Project to enhance the conservation of the critical network of sites required by migratory waterbirds on the African/Eurasian Flyways was not established; however, Component 2 includes activities which promote the protection of migrating bird reserves in the Saloum River Delta and the Senegal River Delta Biospheres\. Impact Prior to the project, there was little in the way of formal collaboration between DNP and DMF, although the two departments often worked in the same locations and shared information\. Although the original vision under the Project was the coordination of efforts between the Ministry of Maritime Economy and the Ministry of Environment resulting in an ecosystem-based fisheries and coastal management approach, the restructuring divided the implementation of the Project into two separate sectors and removed the opportunity for long-term integrated ecosystem-based management between the two ministries\. Coordination of activities between the DNP and DMF at project sites was also a challenge\. Under Component 2, the pilot sites for reserves were identified during Project preparation with stakeholders by 2005, whereas the identification of fishing community pilot sites under Component 1 were not completed until 2007 due to a lengthier selection process\. This left only one year - from 2007 until the restructuring in 2008 - for the DNP to work with fishing communities to integrate an ecosystem-based management plan\. When the restructuring divided the responsibilities of the two components under the respective Ministries, the integration stopped and Project collaboration effectively ended\. The restructuring also ended the EMC approach to regional ecosystem-based co-management\. While the EMCs were not operating as originally planned, they were making modest progress and provided a forum for many stakeholders to discuss conservation of shared resources and an opportunity to learn about ecosystem-based management of resources\. As a result, EMCs were quite popular at the community level, to the extent that communities and local government officials have asked the DNP to continue holding workshops\. The DNP has been unable to comply due to lack of funds\. The annual State of Biodiversity reports were not provided regularly because the DNP did not have sufficient staff or capacity in its monitoring unit\. When the DNP was restructured in 2000, 59 a monitoring and evaluation unit was created but was given no strategy\. It was not until the establishment of the NBC in 2006 that a monitoring strategy was formulated, and another four years in 2010 before a Biodiversity Monitoring Plan was established\. In terms of capacity, only three DNP employees were responsible for coordinating the monitoring of Senegal’s biodiversity\. Of these three, two were pursuing higher education in Europe and North America during the most of the Project implementation period\. Funds allocated for strengthening the monitoring unit was used for a secretarial position, office equipment, and monitoring equipment for park staff at the ten pilot sites, while there was a lack of DNP technical staff at headquarters\. With only one full time staff member and a secretary in the unit, much of the analysis and report writing was given to a local university\. With a shortage of staff, it is unlikely that biodiversity monitoring will become an important aspect of DNP or the Ministry of Environment\. Through the Project, however, the DNP was strengthened to provide and explore different methods for training and raising the awareness of stakeholders in eco-system management and conservation of natural resources\. Local communities, students, ministries and politicians have been sensitized about integrated natural resource management through Project activities such as the establishment of EMCS, the process of drafting the Biodiversity and Protected Areas Framework Law, school education programs and outreach activities, and younger and older generations are beginning to think more about their impact on the local environment\. Communities are actively participating in local management of the parks, and schoolchildren from fishing families are explaining to their parents about the effects of overfishing and depleting resources\. As such, the Project has helped to establish an active community as a base to implement further reforms\. In April 2012, a new Government was elected into office in Senegal\. The new Minister of Environment was the president of a dynamic national NGO focused on environmental conservation known as “Oceaniumâ€?, a member of Senegal’s Green Party, and a well-respected environmentalist acclaimed for his conservation efforts\. In the area of environmental management and conservation, a committed leadership and political will are essential for bringing the vision and the reforms to reality\. 60 Annex 3\. Economic and Financial Analysis (including assumptions in the analysis) The Project implemented, from 2005 to 2012, two separate but complementary groups of activities: (i) activities aiming to empower coastal communities and fishers to sustainably manage the coastal demersal fisheries resources through an area-based co-management system, and (ii) activities aiming to strengthen the protection of coastal ecosystems that support these resources through strengthened or created network of coastal protected areas\. In the PAD at Project appraisal, the annex on summary economic analysis presents only a description of the likely costs and benefits, and the likely fiscal impacts due to weakness of data collection in Senegal and the difficulty of measuring and valuing many of the effects involved, especially the likely off-site benefits (positive externalities) of the three proposed Biosphere reserves\. In this ICR, the team will use the same approach (analysis of costs and benefits of the project) with the available data collected through the local Posts of control of fisheries and the Local Fisher’s Committees in the four co-management pilot sites, which have been subsequently validated by the Fisheries Administration at central/national level, and through the units of management of the parks/reserves in the area of implementation of the project (under the Authority of the Directorate of National Parks)\. Costs The PAD evaluated the costs of implementing the project and the opportunity costs from use of areas concerned by the project (for the area-based co-management of demersal fisheries and for the enhancement of the management of the network of coastal protected areas)\. For the ICR, the financial costs after project completion (amount of total disbursement) were $13\.25 million (80 percent of appraisal) (2005 - 2012) (with two extensions of the closing date occurring in 2008 and 2010)\. Regarding the opportunity costs, no data could be gathered for them at project completion\. As mentioned in the PAD, the coastal demersal fisheries are currently overexploited; the rent from the fishery has already been dissipated\. Consequently, the opportunity cost for other alternative use of the same areas should be very low\. Benefits From the PAD, the three main benefits of the project are: (i) increased fisheries rent some years after the project implementation as a consequence of stock recovery and reduced fishing effort, (ii) increased recreational/ecotourism rent and, (iii) better preservation of marine and bird biodiversity, both in the short term and long term\. All these benefit can either give a qualitative analysis (no available data) or a quantitative one (with available data)\. (i) Fisheries benefits From the PAD, the fisheries benefits of the project are the rent of the coastal demersal fisheries, where the remaining fishers would see their Catch Per Unit Effort (CPUE) increase due to the 61 project\. In fact, for the overexploited fisheries stocks, the area-based co-management activities aimed to reduce the fishing effort in the short term and consequently to allow the stocks to rejuvenate and be replenished\. So, the fish yield and production will increase in the medium and long term through the increased CPUE of the remaining fishing vessels and finally to lower costs and greater revenues per vessel (which means an increase of the artisanal fishery rent)\. For the purpose of the ICR, the team could not calculate this rent for the targeted fisheries due to lack of data related to the operational small-scale vessels for them\. Hence, the team has analyzed the CPUE for the targeted fisheries in each of the four pilot sites and has calculated the total revenue per year and per vessel as an indicator of more healthy stock and better management through the project intervention\. Table 3\.1 summarizes the results of this analysis\. From 2005 to 2011, the CPUE of green lobster fisheries in Ngaparou has increased from 7 kg through 40 kg per vessel, and in Ouakam, the same CPUE has increased from 10 kg to 34 kg between 2007 and 2011 and the CPUE of Thiof has reached 166 kg per vessel (against only 75 kg per vessel in 2007) during the implementation of co-management fisheries measures for the declining stock of these species in these areas\. Consequently, the total revenue per vessel per year for the two species has increased also in these two pilot sites through the project implementation\. For the coastal white shrimp stocks in Foundiougne and Betenty, the activities to implement area-based co-management for the fishery, especially the reduction of the fishing effort, has not resulted in the immediate increase of the CPUE\. The pluviometry also has its influence on the fluctuation of the coastal shrimp stock\. As for the fisheries co-management measures/initiatives undertaken by the LFCs in the four pilot sites, there was no specific target to reduce the fishing capacity yet; however, the reduction of fishing effort has been carried out through area restriction and fishing time restriction measures and also limitation and selection of fishing engines (mesh size)\. The sudden increase of number of vessel observed in Foundiougne would be due to the fact that the seasonal vessels would not be taken into consideration for some of the years of the evaluation\. But the implementation of fisheries management initiatives by the LFCs in these localities has allowed the stock of shrimp to begin to rejuvenate and to recover\. In Betenty, for example, the number of individual shrimp per sample increased by 38 percent from 2005 through 2011, i\.e\., the average size of individual shrimp has increased, an indicator of higher quality fisheries product)\. (ii) Ecotourism benefits In the PAD, ecotourism benefits of the project depend on the additional number of visitors that would come with the project over time (compared to the scenario without the project) and on the economic rent from tourism captured by Senegal from the additional visitors\. Rents can be captured in a variety of ways, including through park entrance fees, airport and visa fees, and hotel taxes\. For the ICR, the team, given the availability of data, has calculated the additional benefits generated by the additional number of visitors at the parks and reserves concerned by the IMCRP through the project implementation\. Table 3\.2 summarizes the results of this analysis by 62  comparing the situation with and without the project\. The team has then made the comparison of the evolution of Table 3\.1\.: CPUE and the revenue per vessel in the four area-based co-management pilot sites (2005-2011) Targeted, high- commercial Sites 2005 2006 2007 2008 2009 2010 2011 value demersal species Thiof n/a n/a 10,100 13,960 22,200 17,200 23,300 Ouakam Green lobster n/a n/a 1,300 1,500 1,850 5,050 4,800 Total Ngaparou Green lobster 770 700 1,575 1,561 1,645 2,835 4,095 harvest per year coastal white Foundiougne n/a n/a 343,370 287,190 362,835 274,232 431,625 (Kg) shrimp coastal white Betenty 365,700 336,200 340,700 328,900 296,900 237,200 229,400 shrimp Thiof n/a n/a 135 133 142 140 140 Ouakam Number of Green lobster n/a n/a 135 133 142 140 140 operating Ngaparou Green lobster 103 140 83 90 103 105 103 small- scale coastal white Foundiougne n/a n/a 127 120 142 160 300 vessels shrimp coastal white Betenty 65 59 62 53 57 51 59 shrimp Total Thiof n/a n/a 75 105 156 123 166 Ouakam harvest Green lobster n/a n/a 10 11 13 36 34 per vessel Ngaparou Green lobster 7 5 19 17 16 27 40 and year coastal white (Kg/small- Foundiougne n/a n/a 2,704 2,393 2,555 1,714 1,439 shrimp scale vessel)(CP Betenty coastal white 5,626 5,698 5,495 6,206 5,209 4,651 3,888 UE) shrimp Thiof n/a n/a 3,670 3,980 3,380 3,620 4,500 Ouakam Green lobster n/a n/a 8,500 8,340 5,000 5,000 5,500 Average Ngaparou Green lobster 4,900 6,000 6,270 6,850 5,730 5,700 6,730 landed prices coastal white Foundiougne n/a n/a 600 600 550 500 750 (XOF/Kg) shrimp coastal white Betenty 400 550 600 600 700 900 800 shrimp 63  Thiof n/a n/a 37,067,000 55,560,800 75,036,000 62,264,000 104,850,000 Ouakam Green lobster n/a n/a 11,050,000 12,510,000 9,250,000 25,250,000 26,400,000 Total Ngaparou Green lobster 3,773,000 4,200,000 9,875,250 10,692,850 9,425,850 16,159,500 27,559,350 revenue per year coastal white Foundiougne n/a n/a 206,022,000 172,314,000 199,559,250 137,116,000 323,718,750 (XOF) shrimp coastal white Betenty 146,280,000 184,910,000 204,420,000 197,340,000 207,830,000 213,480,000 183,520,000 shrimp Total Thiof n/a n/a 274,570 417,750 528,423 444,743 748,929 Ouakam revenue Green lobster n/a n/a 81,852 94,060 65,141 180,357 188,571 per Ngaparou Green lobster 36,631 30,000 118,979 118,809 91,513 153,900 267,567 small- coastal white scale Foundiougne n/a n/a 1,622,220 1,435,950 1,405,347 856,975 1,079,063 shrimp vessel per year coastal white (XOF/ Betenty 2,250,462 3,134,068 3,297,097 3,723,396 3,646,140 4,185,882 3,110,508 shrimp vessel) Source: Local offices of Department of Fisheries Control and the LFCs\. It was assumed that the number of ecotourists without project would be the lowest\. The additional number of ecotourists was about 44,172 which generated a total additional revenue of the ecotourism in these protected areas during the project implementation (between 2006 and 2010) is about US$96,532\. Table 3\.2: Benefits generated by the ecotourism and would be made by the project implementation Total Group of sites 2006 2007 2008 2009 2010 (2006- 2010) Difference of the number of ecotourists with and 369 470 920 -46 -595 1,118 PNOD/PNLB/ without project RSFG Difference of ecotourism revenues with and without 8,152 9,394 -182 -5,430 -684 11,250 project (US$) Difference of the number of ecotourists with and 846 7,478 9,834 9,898 12,927 40,983 PNIM/RNP/ without project RNICS Difference of ecotourism revenues with and without 846 14,469 17,749 17,203 24,593 74,860 project (US$) Difference of the number of ecotourists with and 8 31 2,037 -78 73 2,071 without project PNDS/RNCP Difference of ecotourism revenues with and without 16 62 3,842 2,894 3,608 10,422 project (US$) Source: Department of National Parks\. 64  (iii) Biodiversity preservation benefits The Biodiversity preservation benefits by the implementation of the project can be evaluated by the effectiveness rate of management of biodiversity in the three pilot areas (biosphere) and by the rate of participatory involvement of the local communities in the management of biodiversity in these three pilot areas through the project implementation\. So, regarding the effectiveness rate of management of biodiversity has been measured with the World Bank/WWF Protected areas Management effectiveness Tool improved in 2008\. This tool has been improved with the Rapid Assessment and Prioritization of Protected Area Management (RAPPAM) Methodology also developed by WWF and it gave more information for habitats and species evaluation\. As results of such assessment, all the three zones have reached the target fixed by the end of the project: Cap Vert 61% (if the target at appraisal was 65%), Senegal Delta 62% (if the target at appraisal was 70%) and Saloum Delta 57% (if the target at appraisal was 60%)\. The difference of rate between the achievements and the targets is due to the lack of financial resources to implement the activities identified in the established management plans for these protected areas\. As for the rate of participatory involvement of the local communities in the management of biodiversity, the participatory assessment was done using the same tools\. According to the WWF/CATIE scale, and between 2006 and 2011, this score has increased from 76% to 79% for Cap Vert zone, from 64% to 75% for Senegalese river Delta zone and from 65% to 73% for the Delta of Saloum zone\. 65 Annex 4\. Bank Lending and Implementation Support/Supervision Processes (a) Team Members Names Titles Unit IDA GEF P086480 P058367 Lending Alliali, Solange A Senior Counsel LEGES   Browning, Brantley Consultant, Policy  Burbridge, Peter R\. Consultant, Coastal Zone Mgt   Carret, Jean-Christophe Natural Resources Economist AFTA1   Crepin, Christophe Sector Leader, GEF EASER   Diaite, Bourama Senior Procurement Specialist AFTPC   Diarra, Dieneba Social Development Specialist   Doetinchem, Nina Carbon Finance Specialist ENVCF  Guazzo, Caroline Language Program Assistant AFTCS  Kotschoubey, Nicolas Consultant, Environmental MNSHD   Safeguards Ndiaye Lixi, Marie Program Assistant FGIDB  Poirier, Lucie Procurement Specialist AFTPC   Prevost, Yves André TTL, Environmental Advisor PA9SS   Seck, Aissatou Programs Assistant AFTCS   Sissoko, Fily Lead financial Mgmt\. Specialist AFTMW  Strengerowski-Feldblyum, Operations Analyst AFTN3   Liba C\. Toure, El Hadj Adama Senior Agricultural Economist AFTA1  Van Santen, Gert Consultant   Virdin, John Sr Natural Resources Mgmt\. Spec ENV  Wilson, Wendy Operations Analyst AFTA1  Supervision Agwe, Jonathan Operations Officer ARD   Balde, Demba Senior Social Development Spec\. AFTCS   Boisrobert, Cedric Consultant, Fisheries AFTEN   Brito, Laurent Mehdi Procurement Specialist AFTPC   Cipriani, René Consultant, Operations   Chu, Jingjie Natural Resources Economist AFTN3   Diaite, Bourama Sr\. Procurement Specialist AFTPW   Diop, Sidy Sr\. Procurement Specialist AFTPW   Faye, Mbaye Mbengue Consultant, Env\./Social Safeguards  Follea, Salimata D\. Operations Analyst AFTN1  Hume, Andrew JPA, Environment GEF  Ioniarilala, Radonirina Consultant, Fisheries Specialist AFTN3  Kanungo, Gayatri Environmental Specialist AFTN3  Keita, Abdoulaye Senior Procurement Specialist MNAPC  Kristensen, Peter Lead Environmental Specialist ENV  Lee, Marcus John Jin Sarn Urban Economist FEUUR  Ndiaye, Mademba Senior Communications Officer AFRSC  Page, Hawanty Language Program Assistant   Prevost, Yves André Environmental Advisor PA9SS   66 Romao, Osval Rocha And\. Financial Management Specialist AFTMW  Samba, Fatou Financial Management Specialist AFTFM   Sanoussi, Ibrah Rahamane Sr Procurement Specialist AFTPW  Santley, David John Sr\. Petroleum Specialist SEGEI  Sarno, Francesco Consultant, Procurement Specialist   Sene, Manievel Sr\. Rural Development AFTA2  Strengerowski-Feldblyum, Operations Analyst AFTN3   Liba C\. Talla,Takoukam, Patrice Counsel   Tran, Huong-Giang Lucie Consultant, ICR AFTN1  Tynan, Ellen J\. Sr\. Environmental Specialist  Vaselopulos, Virginie Language Program Assistant AFTN1  Vincent, Xavier F\.P Senior Fisheries Specialist AFTN1   Virdin, John TTL, Sr\. Natural Resources Mgt\. ENV   Specialist Winter, Carolyn Sr Social development Specialist MNSSO   Yoboue, Eric Jean Sr\. Procurement Specialist  b) Staff Time and Cost ï?¶ IDA P086480 Staff Time and Cost (Bank Budget Only) ($’000)(includes labor, Stage # Staff weeks travel and consultant costs) Lending FY04 14\.24 87,485 FY05 7\.48 28,330 Subtotal: 21\.72 115,815 Supervision/ICR FY05 13\.82 44,823 FY06 14\.59 58,835 FY07 34\.43 133,900 FY08 38\.63 191,884 FY09 65\.40 177,037 FY10 56\.51 94,484 FY11 27\.40 79,102 FY12 44\.92 61,062 FY13 0 6,263 Subtotal 295\.70 847,388 Grand Total 317\.42 963\.203 67  ï?¶ GEF P058367 Staff time and Cost (Bank Budget Only) Stage ($’000 )(Includes labor, # Staff Weeks travel and consultant costs) Lending FY00 5\.25 25,241 FY01 4\.24 30,674 FY02 4\.86 22,931 FY03 6\.90 38,231 FY04 35\.42 171,475 FY05 7\.59 56,409 Subtotal: 64\.26 344,961 Supervision/ICR FY05 0\.00 1,297 FY06 7\.03 55,270 FY07 6\.60 31,922 FY08 2\.28 35,090 FY09 16\.39 79,243 FY10 11\.50 53,391 FY11 4\.21 30,282 FY12 0\.00 0 Subtotal 48\.01 286,495 Grand Total 112\.27 631,456 68 Annex 5\. Results Framework SENEGAL: Integrated Marine and Coastal Resources Management Project Results Framework (EOP) Original Project Development Revised Performance Indicators Comments at ICR Objective: To increase the sustainable Local fisheries management sub-projects are Completed satisfactorily by LFCs\. Sub-projects have been management of marine and coastal implemented in 4 pilot sites by End of Project (EOP)\. approved and substantially implemented satisfactorily in 4 pilot resources in 3 pilot areas by sites\. Delays in completion for 1 co-management initiative in communities and the Government\. Ouakam due to late start in project activities\. Capacity of LFCs as private sector organizations strengthened as a result with changed perception towards resources management, decision- making structure alternatives\. Positive results in co- management of green lobster, mussels and shrimp in terms of increased average weight and size\. National management plans for 2 key fisheries are Almost completed\. Most of the work on the plans completed, prepared, and approved by the National Consultative and the remaining consultative workshops and document Council for Maritime Fisheries\. finalization to be funded under the Bank-funded West Africa Regional Fisheries Program (2009-2014)(US$46\.30 million)\. Participatory assessment of local community Could not be measured fully since no beneficiary assessment involvement in the management of biodiversity in the was conducted at EOP\. However, a participatory assessment three pilot areas rated as satisfactory at the end of the carried out in 2006 by the PCU, and between 2009 to 2011 by Project\. the DNP using the same tools, indicated a mean score variation from 67% in 2006 to 75% in 2011 which indicates satisfaction\. Popular demand by communities with regards to some services provided under the project indicate that such activities have been successful in encouraging and strengthening local community involvement in biodiversity management\. Revised Global Environment Revised Global Environment Objective Objective: To strengthen the conservation Effective management of biodiversity in the three pilot At appraisal, this was measured using the World Bank/WWF and management of Senegal’s areas increased by at least 50% by EOP\. Protected Areas Management Effectiveness Tool which was marine and coastal ecosystems, upgraded in 2009 with the Rapid Assessment and Prioritization which are globally significant and of Protected Area Management methodology developed by the vital to the sustained livelihoods WWF to improve habitats and species evaluation\. The mean of coastal communities\. score improved from 46% in 2006 to 61% in 2011\. Evaluation carried out by DNP from 2009-2011\. The completion of 8 local level ecosystem management plans will contribute further to effective management of biodiversity because of the active participation of populations concerned\. 69  Intermediate Outcomes: Revised Intermediate Outcome Indicators Component 1: 60 percent of Local Fisher Committees implementing Beneficiary assessment needed\. However, all sub-projects Local communities sustainably sub-projects comply with sub-project performance submitted have been approved by the national level fisheries manage coastal and marine targets by end of project\. advisory councils and local level councils and are completed in fisheries\. 3 out of 4 sites satisfactorily\. Positive catch volume results in co-management of green lobster, mussels and shrimp in terms of increased average weight and size\. Component 2: Biodiversity and Protected Area framework law is Met satisfactorily\. The framework law was submitted to Local communities participate in prepared and submitted to Government before EOP\. Parliament for approval in September 2011 before EOP\. the conservation of critical coastal and marine habitats and species\. State of biodiversity update reports produced on an Partially met\. Reports were prepared and submitted for 2005, annual basis\. 2007, 2010, and pending for end 2012, due to lack of capacity in DPN to carry out a national biodiversity monitoring plan, and the procedures and slow approval process required to establish national biodiversity indicators to be included in the report\. Coordination sub-committees established with the Met with adjustments to changing circumstances\. Protocol Senegal River Basin Project, the Protection of the signed with Senegal Basin River Project signed in May 2006\. Canary Current Large Marine Ecosystem (LME) Project, The EMC (COGEM) of the Senegal River Delta and the Project to enhance the conservation of the Transboundary Biosphere Reserve designated as a sub- critical network of sites required by migratory waterbirds committee to participate in sustainable biodiversity on the African/Eurasian Flyways\. conservation and development of water resources efforts\. Meetings and discussions held with the Large Marine Ecosystem of Canary Current Project (CCLME) to explore synergies\. An MOU signed in May 2006 established a framework for collaboration, but was negated by delays in the preparation of the CCLME\. Subsequently, it was replaced by a protocol signed with Wetlands International as implementing agency of the Project Wings Over Wetlands in October 2006, which focuses on conservation of the critical network of sites required by migratory waterbirds on the African/Eurasian Flyways\. Wetlands International reinforced the capacities of DPN and projects staff through training on migratory birds and wetlands monitoring\. 70 Project Outcome Indicators Baseline Baseline (2008) End of Project End of Project Actual (2005) Target Local fisheries management sub- No sub-projects 4 pilot sites selected and sub-project Sub-project implementation completed in 3 projects are implemented in 4 implemented sub-projects implementation pilot sites (Bétenty, Foundiougne, Ngaparou), pilot sites by End of Project implementation completed in 4 sites partially completed in 1 project site (EOP)\. underway in 4 sites; (Ouakam)\. 4 local co-management plans and initiatives prepared, and signed into legal agreement between communities and Government\. National management plans for No national fisheries Contracts for national National fisheries Two national fisheries management plans 2 key fisheries are prepared, and management plans fisheries management management plans substantially prepared\. They will be approved by the National prepared plans under finalization approved by Council\. completed under the Bank-funded WARFP\. Consultative Council for Maritime Fisheries\. Participatory assessment of local Cap Vert 38%, 75% 100% Unable to be measured fully since no community involvement in the Senegal Delta 49%, beneficiary assessment was conducted at management of biodiversity in Saloum delta 44% EOP\. However, a participatory assessment the three pilot areas rated as carried out in 2006 by the PCU, and between satisfactory at the end of the 2009 to 2011 by the DNP using the same Project\. tools, indicated a mean score variation from 67% in 2006 to 75% in 2011 which indicates satisfaction\. Lack of M&E data for EOP comparison to baseline estimates for the fisheries component\. However, popular demand by communities with regards to some services provided under the project indicate that such activities have been successful in encouraging and strengthening local community involvement in biodiversity management\. Effective management of 0 20% 50% At appraisal, this was measured using the biodiversity in the three pilot World Bank/WWF Protected Areas areas increased by at least 50% Management Effectiveness Tool which was by EOP\. upgraded in 2009 with the Rapid Assessment and Prioritization of Protected Area Management methodology developed by the WWF to improve habitats and species 71  evaluation\. The mean score improved from 46% in 2006 to 61% in 2011\. Evaluation carried out by DNP from 2009-2011\. The completion of 8 local level ecosystem management plans will contribute further to effective management of biodiversity because of the active participation of populations concerned\. Intermediate Outcome Indicators 60 percent of Local Fisher 0 N/A 60% 75% Committees implementing sub- projects comply with sub-project performance targets by end of project\. Biodiversity and Protected Area 0 BPAF currently in BPAF law submitted BPAF law submitted to GVT before EOP\. framework law is prepared and progress\. to GVT submitted to Government before EOP State of biodiversity update 0 1st report not yet All update reports Reports were prepared and submitted for reports produced on an annual produced\. completed\. 2005, 2007, 2010\. 2012 report pending\. basis\. 72 Annex 6\. Summary of Borrower's ICR REPUBLIQUE DU SENEGAL Un Peuple – Un But – Une Foi ******* MINISTERE DE LA PECHE ET DES AFFAIRES MARITIMES ******* DIRECTION DES PECHES MARITIMES ------------------------------------------------------------------- RAPPORT D’ACHEVEMENT DU PROJET DE GESTION INTEGREE DES RESSOURCES MARINES ET COTIERES (GIRMaC) PREFACE: Identification du projet 1\. Contexte du projet, conception de l’objectif de développement et de l’objectif global environnemental Le programme de Gestion Intégrée des Ressources Marines et Côtières (GIRMaC) est né de la volonté du Sénégal d’asseoir les principes d’une gestion durable des ressources marines et côtières comme éléments de base du développement et principalement de la lutte contre la pauvreté des communautés littorales\. Il vise ainsi à matérialiser l’intégration entre les objectifs de développement, d’utilisation durable et de conservation de la biodiversité marine et côtière\. Pour la pêche maritime, le contexte est marqué par l’avènement de projets et programmes axés sur gestion durable des pêcheries et portant sur la gestion paritaire du secteur de la pêche maritime, l’évaluation et la gestion des ressources halieutiques du Sénégal, l’immersion et la surveillance de récifs artificiels, la création et la mise en place des Conseils Locaux de Pêche Artisanale (CLPA), etc\. Dans le secteur de la conservation de la biodiversité, les bailleurs de fonds se sont focalisés sur la préparation de plans de gestion de sites communautaires et des principales aires protégées\. L’adoption d’une vision ou d’une stratégie globale de gestion durable des ressources marines et côtières du Sénégal était devenue indispensable pour arriver à une synergie entre la pêche et la biodiversité\. Pour optimiser la valeur ajoutée du Projet, il a été ainsi retenu de limiter le nombre de composantes et de rechercher une synergie entre elles afin d’augmenter la contribution de la conservation de la biodiversité à la pêche durable et vice versa\. Les ressources du projet ont ainsi été mobilisées autour de deux composantes opérationnelles : (i) la composante « Gestion durable des Pêcheries » financée par un accord de crédit de l’IDA pour lequel un objectif de développement a été formulé, et (ii) la composante « Conservation des habitats critiques et des espèces » financée par un accord de don du FEM qui a justifié l’objectif global environnemental\. 1\.1\. Contexte à la phase de conception et d’évaluation préalable Les ressources halieutiques et l’industrie de la pêche sont en phase de déclin à cause de la surexploitation des principaux stocks due pour l’essentiel au libre accès aux ressources\. Au 73 même moment, la Stratégie de Croissance Accélérée (SCA) du Gouvernement considère la pêche et l’aquaculture comme un des piliers de la croissance accélérée\. La phase de conception et d’évaluation préalable de ce projet a été ainsi une période où plusieurs chantiers stratégiques ont été finalisés ou en cours de lancement : (i) les concertations nationales sur la pêche et l’aquaculture, (ii) les travaux sur le Cadre intégré pour l’Assistance au Commerce extérieur, (iii) la mise en vigueur du programme de Gestion de la Biodiversité Marine et Côtière (PBMC), (iv) le processus d’élaboration des documents de politique sur la Stratégie de Croissance Accélérée et le DSRP, et (v) l’Etude économique sectorielle sur la pêche (ESW) réalisée par la Banque Mondiale pour le Sénégal\. Parallèlement, les secteurs de la Pêche et de l’Environnement devaient faire face, pour le moyen et le long terme, (i) à une crise environnementale, sociale et économique grave qui frappe la Pêche et qui compromet la survie des communautés littorales en accentuant la pauvreté dans les zones côtières où se concentrent plus de la moitié des populations et l’essentiel des activités économiques du pays; et (ii) à une augmentation des risques bioécologiques, sociaux et environnementaux qui font craindre un appauvrissement des écosystèmes marins et côtier à un niveau tel qu’ils ne puissent plus supporter une exploitable durable des ressources\. Les problématiques auxquelles devait s’attaquer en priorité le projet correspondent aux facteurs qui sont à la base de cette crise de la Pêche et de l’Environnement et qui risquent de saper les bases de la viabilité et de durabilité des activités socio-économiques de la zone marine et côtière\. Le Gouvernement du Sénégal et la Banque Mondiale ont en conséquence décidé de renforcer le programme de Gestion de la Biodiversité Marine et Côtière (PBMC) en 2003, par l’introduction d’un volet « Gestion durable des pêcheries », donnant ainsi naissance au projet GIRMaC\. Celui-ci serait donc en phase avec les orientations stratégiques du Document de Stratégie de Réduction de la Pauvreté (DSRP-Sénégal) et recoupe les préoccupations exprimées dans le Country Assistance Strategy (CAS Sénégal) selon lesquelles « la croissance rapide et le manque de capacités nationales de gestion exposent la biodiversité marine et côtière du Sénégal à la fois à une surexploitation des ressources et à une menace sérieuse sur la durabilité des exportations des produits de la mer»\. 1\.2\. Objectif de développement originel du projet et les indicateurs clés de performance L’objectif de développement du Programme est d’améliorer la gestion durable des ressources marines et côtières par les communautés et le Gouvernement du Sénégal, dans trois zones pilotes\. La gestion durable implique à la fois l’exploitation responsable des ressources et la protection des écosystèmes et des processus écologiques critiques pour leur régénération\. Les indicateurs de performance des résultats/d’impact du programme sont définis comme suit : • Les captures par unité d’effort de pêche (CPUE) augmentent de 10 à 30% dans la plupart des pêcheries gérées par les communautés, à la fin du Projet\. • les mesures d’atténuation de l’impact de la réduction de la capacité de pêche sont jugées satisfaisantes par au moins 75% des communautés ciblées\. Les indicateurs de performance pour la composante 1 sont définis comme suit : • Nombre de sous projets de cogestion locale des pêcheries mis en oeuvre dans les 4 sites pilotes initiaux au cours des 18 mois suivant le démarrage du Projet, et le nombre de sous projets dans les 8 sites pilotes additionnels pendant les 18 mois suivants\. • 60% de Comités Locaux de Pêcheurs ont mis en oeuvre leurs sous projets, à la fin du Projet, conformément aux performances ciblées par lesdits sous projets ; • Plans d’aménagement nationaux préparés pour au moins deux (2) pêcheries clés et approuvés par le Conseil National Consultatif des Pêches Maritimes (CNCPM)\. 74  1\.3\. Objectif global originel en matière d’environnement et les indicateurs clés de performance L’Objectif global en matière d’environnement est de renforcer la conservation et la gestion des écosystèmes côtiers et marins du Sénégal, qui sont globalement significatifs et vitaux pour les moyens d’existence durables des communautés côtières\. Les indicateurs des performances attendues à la fin du projet sont : • Une évaluation participative indique que l’implication de la communauté locale dans la gestion de la biodiversité dans les 3 zones pilotes est jugée satisfaisante à la fin du Projet; • L’efficacité de la gestion d’espèces menacées clés (tortues marines, lamantins et 5 espèces oiseaux d’eau) est améliorée de 50% à la fin du Projet; • La Réserve de Biosphère de la Presqu’île du Cap-Vert est créée avant la fin du Projet; • La Loi- Cadre sur la Biodiversité et des Aires Protégées est promulguée avant la fin du Projet, et est en phase avec les engagements pris dans les conventions internationales\. 1\.4\. Objectif de développement révisé du projet et les indicateurs clés de performance L’objectif de développement du Projet a été maintenu pendant la restructuration du programme GIRMaC\. Par contre, les indicateurs de performance retenus pour la composante « Gestion durable des pêcheries » sont les suivants : • 60% des Comités Locaux de Pêcheurs ont mis en œuvre leurs sous projets de cogestion locale avant la fin du Projet, conformément aux performances ciblées par ces sous projets; • Les plans d’aménagement pour les deux pêcheries sont préparés puis approuvés par le Conseil National Consultatif des Pêches Maritimes (CNCPM) avant la fin du Projet\. \. 1\.5\. Objectif global révisé en matière d’environnement et les indicateurs clés de performance L’objectif global n’a pas été modifié dans l’accord de don amendé du 26 février 2009\. Les indicateurs de performances ont été révisés et réduits à deux : • L’efficacité de la gestion de la biodiversité dans les trois zones d’intervention prioritaire est améliorée de 50%, au moins, à la fin du Projet; • La Loi- Cadre sur la Biodiversité et des Aires Protégées est préparée et soumise au gouvernement avant la fin du Projet\. 1\.6\. Principaux bénéficiaires Pour la composante 1 du Projet : (i) les pêcheurs et autres usagers des ressources halieutiques des sites d’intervention (mareyeurs, transformatrices …), des agents des pêches et ou de surveillance, etc\. Pour ce qui concerne spécifiquement la pêche industrielle, les bénéficiaires sont principalement les marins et équipages des navires de pêche, les gestionnaires et personnels des établissements de transformation et ou d’exportation des produits de la mer\. Les bénéficiaires peuvent également être impliqués ou impactés à travers leurs organisations professionnelles (GIE, Groupement, associations, comités, fédérations, etc\.) ou leurs structures administratives (DPM, DPSP, CRODT, etc) Pour la gestion des écosystèmes (Composante 2) : (i) les volontaires du réseau des parcs nationaux qui proviennent de la périphérie des aires protégées, (ii) les écogardes qui sont volontaires qui appuient régulièrement les agents des gestionnaires des aires protégées dans leurs activités régaliennes\. Ils sont organisées en GIE et mènent des AGRs, (iii) les écoguides qui sont des écogardes qui ont acquis une expertise au fil du temps\. Ils servent de guides aux visiteurs des aires protégées, (iv) les GIE de femmes pour la protection de la nature\. Elles sont issues de la 75 périphérie des aires protégées et mènent des AGRs, (v) les élèves de la périphérie des aires protégées qui bénéficient d’un programme d’éducation et de sensibilisation relative à l’environnement, (vi) les gestionnaires des aires protégées dont les sites sont équipés et aménagés, en plus d’être formés ; Pour le renforcement du cadre de conservation de la biodiversité (Composante 2) : (i) la DPN et les autres directions du Ministère chargé de l’environnement, (ii) le Comité National sur la Biodiversité, et (iii) le Comité National MAB (Man and Biosphere)\. 1\.7\. Composantes originelles du projet (comme approuvé) Le programme GIRMaC est structuré en 3 composantes comme suit : La Composante 1 « Gestion Durable de la Pêche » qui a pour objectif d’améliorer la durabilité de la pêche à travers l’application de la cogestion locale, notamment territoriale\. Cette composante est constituée de trois sous-composantes : • La mise en œuvre d’activités au niveau national pour améliorer la gestion des pêcheries en facilitant l’application des initiatives de cogestion ; • La promotion et la coordination des initiatives locales de cogestion dans les sites pilotes situés dans la Presqu’île du Cap Vert et le Delta du Saloum ; • L’appui institutionnel et le renforcement des capacités pour superviser, appuyer et suivre la mise en œuvre notamment des initiatives de cogestion\. La Composante 2 « Conservation des Habitats et des Espèces Critiques » qui a pour objectif d’améliorer d’une façon durable, la gestion des réserves de biosphère et du réseau des aires protégées côtières par : 1\. La gestion des écosystèmes des zones prioritaires d’intervention • La préparation des plans de gestion selon l’approche par écosystème et leur mise en œuvre dans les zones d’intervention prioritaires sélectionnées : (i) la réserve de biosphère du delta du Saloum, (ii) la presqu’île du Cap Vert, et (iii) la réserve de biosphère du delta du fleuve Sénégal ; et • L’installation de comités de gestion des écosystèmes opérationnels dans les processus de prise de décision concernant la préparation et la mise en œuvre des plans de de gestion des sites d’ancrage ; 2\. Le renforcement du cadre de conservation de la biodiversité • La révision du cadre juridique et réglementaire ; • L’appui institutionnel à la Direction des Parcs Nationaux, incluant : (i) le renforcement des capacités de certaines catégories d’agents dans les techniques de gestion de la biodiversité, les stratégies de communication et de planification participative, (ii) l’acquisition d’équipements, (iii) des conseils techniques pour la gestion fiduciaire, un système de suivi et d’évaluation de la mise en œuvre de la composante 2 ; • L’appui à la mise en place et au fonctionnement : (i) du Comité National Biodiversité, (ii) du processus de révision du cadre juridique et réglementaire, pour assurer le suivi, l’évaluation et la diffusion des informations sur l’état de la biodiversité au Sénégal, (iii) d’un système d’information et d’une base de données pour le suivi et l’évaluation de l’état de la biodiversité\. La Composante 3 « Gestion du Programme, Suivi et Evaluation et Communication » a pour objectif la gestion efficace du programme par les activités suivantes: • Assurer le Suivi et évaluation\. L’Unité de coordination du projet gère les contributions des donateurs et des partenaires, assure la passation de marchés et suit la performance du projet à l’aide d’indicateurs et réalise des évaluations périodiques ; 76 • Assurer le fonctionnement du Comité de Pilotage du Programme GIRMaC (CP-GIRMaC) et du Comité Scientifique et Technique (CST-GIRMaC) ; • Assurer la Communication\. L’UCP développe et met en oeuvre un plan de communication pour une bonne circulation de l’information entre les acteurs sur les activités du projet ; • Assurer la coordination avec les structures sous régionales et régionales impliquées dans des initiatives similaires ; • Assurer le suivi des activités financées par le PPF (Project Preparation Facility)\. La fermeture de l’UCP-GIRMaC a eu comme conséquences (i) la suppression de la composante 3 « Gestion du Programme, Suivi et Evaluation et Communication », (ii) la réforme du Comité de Pilotage et la mise en veilleuse du CST-GIRMaC, et (iii) la prise en charge des fonctions fiduciaires (suivi-évaluation, gestion financière, passation des marchés) par les COMOs\. 1\.8\. Composantes révisées du projet Les objectifs initiaux de la composante 1 n’ont pas fondamentalement changé\. Toutefois, seuls deux indicateurs de performance plus réalistes ont été adoptés, respectivement pour la cogestion et pour les plans d’aménagement\. L’indicateur lié à l’augmentation de 10 à 30% de la CPUE a été jugée peu réaliste en raison notamment des délais restants pour la mise en oeuvre des initiatives de cogestion et des plans d’aménagement, ces deux activités ayant enregistré des retards très importants\. Le contenu de la composante 2, notamment la sous composante gestion des écosystèmes, a connu une évolution à la suite de la revue à mi-parcours\. Face au constat que les aires protégées et la conservation de la biodiversité au Sénégal étaient dans une situation précaire, l’option a été prise de considérer les aires protégées comme partie intégrale d’un écosystème, afin que les décisions sur l’utilisation des terres soient prises à une plus grande échelle\. Ainsi, bien que l’approche écosystème telle que proposée dans le PAD demeure valide, sa mise en œuvre dans le cadre de réserves de biosphère, en consultation avec les COGEMs, a rencontré des difficultés, liées surtout à l’incompétence de la DPN, hors du domaine classé\. Il a été convenu que le projet se focalise en priorité dans les zones de conservation, pour avoir des résultats tangibles\. C’est la préparation du plan de gestion de l’écosystème a été abandonnée au profit de celle de niveau site d’ancrage\. 1\.9\. Autres changements significatifs A l’issue de la revue à mi-parcours et surtout de la restructuration du GIRMaC, des changements significatifs ont pu être opérés au niveau des activités et de l’ampleur du projet (sites d’intervention)\. Il s’agit particulièrement : • De la réduction du nombre de sites pilotes, de 12 à 4 par le transfert des 8 sites additionnels au projet GDRH en cours de préparation ; • De la suppression du volet « information et communication » de la composante 3 du Projet ainsi que du poste d’expert correspondant ; • De la suppression de certaines activités au cours de la mise en œuvre (i) l’Evaluation des Options de Politique Sectorielle , activité remplacée par la révision du Code de la Pêche Maritime et la finalisation de la Lettre de politique sectorielle et de son Plan d’action, (ii) le programme de recherches sur les démersaux côtiers négocié avec le CRODT; • La prorogation du chronogramme de mise en œuvre du Projet GIRMaC jusqu’au 1er décembre 2011 (avant la revue à mi-parcours) et jusqu’au 1er mai 2012 (après une demande de prolongation de 5 mois introduite en 2011 par le Gouvernement)\. • Le passage d’une tutelle administrative unique et d’une double tutelle technique à une autonomisation des deux directions techniques (DPM et DPN) et leurs COMOs\. 2\. Facteurs clés affectant la mise en œuvre et les résultats 77  2\.1\. Préparation du projet, Conception et Qualité de la préparation La préparation de la composante « Gestion durable des pêcheries » a tiré toutes les leçons positives et négatives des expériences de gestion locale enregistrées par les communautés de Kayar\. Il en est de même des expériences des projets financés par l’Agence Française de Développement (AFD) sur les concessions de droits d’accès (Kayar, Mbour)\. Les leçons de la surveillance du récif de Bargny, enregistrées par OFCA/JICA, ont été notées\. Des concertations avec les communautés de pêche des sites concernés par ces initiatives et avec les leaders des organisations professionnelles (GAIPES, FENAGIE-Pêche, CNPS, etc) ont accompagné la préparation du projet\. Beaucoup d’études de base ont également été conduites afin d’établir une bonne situation de référence mais surtout pour capitaliser d’autres expériences au niveau national et international en vue d’une définition appropriée des activités du Projet\. Tirant des leçons d’autres projets de la Banque, une partie du personnel-clé a été recrutée depuis la phase de préparation du Projet afin d’atténuer les risques de déviation durant la mise en œuvre des activités du Projet\. 2\.2\. Mise en œuvre La revue à mi-parcours, tenue du 17 au 31 janvier 2008, s’est surtout focalisée sur les problèmes institutionnels qui ont perturbé le fonctionnement du projet GIRMaC et gangréné les relations entre les deux ministères de tutelle du Projet mais aussi entre les COMOs et l’UCP-GIRMaC\. L’option d’une tutelle administrative unique assurée par le ministère chargé de l’Environnement et une co-tutelle technique assurée par les ministères chargés de l’Environnement et de la Pêche a nettement montré ses limites avec la création de nombreux dysfonctionnements\. Par ailleurs, à partir de 2008, la majorité des fonds décaissés ont été utilisés pour financer la seule Unité de Coordination (UCP) au détriment des activités à conduire dans les sites pilotes\. L’UCP malgré les pouvoirs fiduciaires et techniques jugés exorbitants par l’Administration n’a pu mettre en place des passerelles entre la Pêche et l’Environnement pour faciliter une gestion intégrée des ressources marines et côtières au Sénégal\. La revue à mi-parcours du GIRMaC a ainsi recommandé la restructuration du projet, option nettement préférable à une fermeture du projet\. La restructuration, a permis aux deux parties prenantes de s’accorder sur les mesures suivantes : (1) la fermeture de l’Unité de Coordination du Projet (UCP) dont l’existence n’a pas été jugée nécessaire pour que le Projet atteigne ses objectifs, (2) le transfert des missions fiduciaires de l’UCP-GIRMaC aux services de l’Etat (DPM, DPN) ainsi que la conduite des opérations des composantes pour faciliter l’appropriation du Projet et la pérennisation des acquis, (3) le transfert de la gestion du crédit IDA à la COMO-Pêche (DPM) et de la gestion du don FEM à la COMO- Ecosystème (DPN), (4) la réallocation des ressources libérées par catégorie de dépenses, (5) un inventaire et une réaffectation dans les COMOs des ressources matérielles (véhicules, matériels et mobilier de bureau, fournitures de bureau)\. D’autres mesures ont également été prises : • Le suivi et évaluation (S&E) de la composante 2 a été transféré à la division concernée de la DPN alors que la COMO-Pêche a recruté un nouveau spécialiste en S&E\. • Le spécialiste en Gestion Financière et celui en Passation des Marchés, nouvellement recruté, sont chargés d’appuyer les deux COMOs\. La réallocation budgétaire effectuée n’a pas eu les effets escomptés au niveau de la COMO- Ecosystème du fait d’un déséquilibre de provisions entre les catégories de dépenses\. La structure via son ministère de tutelle, a sollicité sans suite, des mesures correctives\. 78 Il faut rappeler qu’avant la restructuration, l’Expert en Conservation de la Biodiversité, le Spécialiste en Participation Communautaire et le Spécialiste en Aménagement des Pêcheries ont été mis à la disposition des COMOs, par arrêtés ministériels, pour renforcer leurs capacités\. 2\.3\. Conception, mise en œuvre et utilisation du système de suivi-évaluation (S&E) Dans le cadre de la préparation du Projet GIRMaC, un Manuel de suivi-évaluation (S&E) a été produit par un Consultant spécialisé\. Par la suite, un Cabinet international fut chargé de concevoir, développer et mettre en œuvre un système de suivi évaluation opérationnel (bases de données et rapports) pour l’ensemble du Projet GIRMaC\. Malgré tout, la mise en œuvre du système global de S&E du Projet GIRMaC, y compris le suivi- évaluation de la cogestion locale, n’a jamais été effective avant la revue à mi-parcours\. A la date de clôture du projet GIRMaC, malgré le recrutement d’un nouveau spécialiste en S&E en 2010, le manque voire l’absence de données fiables pour mesurer les résultats enregistrés par le Projet, de la base (sites de cogestion) jusqu’au niveau central (DPM, COMO-Pêche), a beaucoup handicapé le Projet dont les indicateurs de performances sont difficilement mesurables avec la fiabilité requise\. 2\.4\. Conformité et respect des procédures fiduciaires et de sauvegarde\. 2\.4\.1\. Problèmes rencontrés dans les procédures fiduciaires La passation des marchés du projet GIRMaC a connu des difficultés liées à l’instabilité du poste de spécialiste en passation des marchés, d’une part, et à des lourdeurs et lenteurs de la passation des marchés particulièrement avec la double application des procédures nationales et de la Banque, d’autre part\. Ces problèmes ont gravement perturbé la bonne mise en œuvre du Projet\. Le Projet a connu cinq (5) spécialistes en passation des marchés (SPM) en 7 ans d’existence\. Leurs délais de sélection et de remplacement se sont traduits par des ralentissements voire des arrêts d’activités\. De même, la lourdeur et la longueur des procédures de passation des marchés ont été une cause importante de retard des activités au regard du chronogramme originel\. Les activités qui ont le plus souffert de cette situation ont été: (i) le recrutement de la firme en charge des plans d’aménagement, (ii) le recrutement du consultant chargé de l’étude de base des sites pilotes, (iii) la sélection de CAES Consult pour la sensibilisation (IEC) et le renforcement des capacités en cogestion et en recherches participatives, (iv) le recrutement et le démarrage de la mission du spécialiste international en cogestion (SICOPE), et (v) la contractualisation avec le CRODT par entente directe (recherches participatives)\. L’arrêté n° 02884 portant reconnaissance des initiatives de cogestion locale a été signé et enregistré le 31 mars 2008 alors que cette approbation du Ministre chargé de la Pêche maritime était inscrite pour le 15 avril 2006 dans le chronogramme originel du Projet\. De même, la construction des « Maisons du Pêcheur » a connu des retards dus aux procédures administratives nationales en matière d’acquisition du foncier dans le domaine public maritime\. L’avènement du Code des marchés publics et les cadres institutionnels chargés de sa mise en œuvre (DCMP, ARMP, Commissions et Cellules de passation des marchés, etc) s’est traduit par la mise en vigueur de procédures nationales de passation des marchés avec l’intervention de cellules de passation qui ne maitrisaient pas les procédures applicables\. Le respect des procédures nationales et l’exigence de conformité avec les procédures de la Banque Mondiale rallongent encore les délais de contractualisation, notamment dans le cas des firmes\. Les procédures de gestion financière, y compris les DRF, ont occasionné moins de contraintes et sont plus régulièrement améliorées que la passation des marchés\. 2\.4\.2\. Problèmes rencontrés dans les procédures de sauvegarde environnementale et sociale 79 Lors du montage du projet GIRMaC, il avait été retenu de mettre en place un Fonds d’Investissement Social pour la prise en charge des pertes de revenus et d’emplois que les initiatives locales de cogestion de la composante « Gestion durable des pêcheries » vont entraîner chez les communautés de pêcheurs\. Ce Fonds Social devait être confié à l’Agence du Fonds de Développement Social (AFDS)\. Un protocole d’accord n° 001/2004 a ainsi été signé conjointement par l’AFDS et l’UCP-GIRMaC dès 2004\. La décision de la Banque Mondiale et du Gouvernement de fusionner l’AFDS et le PNIR a signé la disparition de l’AFDS et l’avènement du Programme National de Développement Local (PNDL) dont le mode de fonctionnement n’a pas permis la prise en charge d’un tel fonds dédié à la pêche\. En définitive, un Fonds d’Investissement Social (FRAP) a été mis en place par le projet GDRH\. Dans le cadre de la gestion des Ecosystèmes, des ouvrages de franchissements (radiers) ont été réalisés au niveau de Fatala et Salanding dans le Parc National du Delta du Saloum avec l’appui du projet\. Ces ouvrages ont soulevé des inquiétudes au niveau de certains acteurs\. Les mesures correctives ont été apportées par la COMO-Ecosystèmes pour assurer la pérennité de l’écoulement des eaux basses permettant ainsi à la faune aquatique (alevins, crevettes) de migrer aisément en période de marée basse\. 2\.5\. Opération post-achèvement/Phase suivante\. La Banque Mondiale a accordé un avis favorable à la composante 2, pour le financement d’un service de consultants pour la préparation d’un document de projet pour une nouvelle phase\. Un montant d’un million de dollars US a été alloué au projet dans le cadre du programme STAR du FEM-V\. Il reste à trouver une nouvelle agence d’exécution\. Il faut également noter la prorogation de cinq mois de la clôture du projet GIRMaC, accordée par la Banque Mondiale au Gouvernement afin de permettre au consultant recruté de finaliser le processus de préparation des plans d’aménagement des pêcheries de crevette blanche et de volute (Cymbium spp\.)\. Cet arrangement n’ayant pas permis la finalisation des plans d’aménagement, l’activité a été transférée dans le projet PRAO restructuré\. 3\. Evaluation des résultats\. 3\.1\. Pertinence des Objectifs, de la Conception et de la Mise en Œuvre • Cohérence du Programme avec les politiques nationales de Pêche et d’Environnement et celles de la Banque mondiale L’analyse des composantes 1 et 2 du Projet GIRMaC et de leurs sous-composantes montre qu’elles s’inscrivent toutes dans l’une ou l’autre des objectifs stratégiques de développement de la pêche\. Par ailleurs, le projet GIRMaC contribue aux axes stratégiques du DSRP II relatifs à la « création de richesse» et à la « bonne gouvernance et développement décentralisé et participatif»\. Il est en conséquence en accord avec la Stratégie d’Assistance au Sénégal (CAS) de la Banque Mondiale\. Les activités du projet demeurent encore cohérentes avec les priorités actuelles de la Pêche et de l’Environnement\. • Pertinence des objectifs et des orientations stratégiques du Programme Au regard de la situation actuelle de crise du secteur de la pêche et d’érosion de la biodiversité marine et côtière, les objectifs du Projet GIRMaC (objectif de développement et objectif global en matière d’environnement) sont encore très pertinents\. Tous le monde continue à s’accorder sur la pertinence et l’importance des objectifs du Projet GIRMaC\. Toutefois, beaucoup de contraintes n’ont pas permis au projet d’atteindre l’objectif de développement et certains des indicateurs de performance et de résultats dans les délais restants pour la mise en œuvre des activités clés\. Malgré les avancées obtenues dans certaines réformes 80 sectorielles, des efforts restent à être déployés dans la gouvernance de la Pêche et de l’Environnement\. 3\.2\. Réalisation des Objectifs de développement du projet et des Objectifs Globaux environnementaux La mise en œuvre d’une approche de gestion intégrée des ressources marines et côtières n’a pu être opérationnalisée, les deux composantes ayant fonctionné comme deux projets distincts alors que le GIRMaC avait pour vocation la promotion de la politique de gestion intégrée telle qu’approuvée par les Ministres chargés respectivement de la Pêche et de l’Environnement\. Pour la composante 1, la mise en œuvre des initiatives de cogestion dans les 4 sites pilotes initiaux a changé positivement la perception et la prise de conscience des bénéficiaires dans la gestion durable des ressources halieutiques\. Ces changements ont permis d’améliorer, selon les sites, la gestion des ressources ciblées au niveau local : réduction même limitée de l’effort de pêche (repos biologique), augmentation ou maintien des quantités débarquées, augmentation de la taille moyenne des espèces-clés capturées, participation effective des communautés dans l’identification des mesures de gestion, dans les opérations de surveillance et dans la conduite de recherches participatives, etc\. Toutefois, les impacts réels des initiatives sur l’abondance de la ressource restent difficilement mesurables en l’absence d’un dispositif opérationnel de S&E\. Les capacités d’organisation des communautés ont été renforcées avec le regroupement des populations au sein d’une seule instance, le Comité Local des Pêcheurs (CLP)\. Certaines communautés ont amélioré leurs relations, autrefois conflictuelles, dans le sens d’une meilleure cohésion sociale (pêcheurs de poisson et pêcheurs de crevette à Foundiougne, pêcheurs et mareyeurs à Foundiougne, plongeurs et pêcheurs à Ouakam, par exemple)\. Certaines communautés se sont fortement engagées dans la cogestion en participant financièrement à la surveillance participative (cas de Ngaparou)\. Les résultats obtenus dans ce site ont fortement contribué à la sensibilisation des communautés des sites voisins sur les bénéfices d’une gestion durable des ressources adjacentes à leurs terroirs\. D’une manière générale, les communautés se sont appropriées les concepts et les processus prônés par le projet en matière de cogestion locale\. Il en est de même des membres des Comités Techniques Régionaux (CTRs), du Comité Technique National (CTN) et du CNCPM en ce qui concerne l’aménagement des pêcheries de crevette blanche et de volutes (ou yeet)\. En outre, le Projet a contribué à faire évoluer les mentalités des populations en matière de gestion des ressources halieutiques et surtout leurs rapports avec l’administration des pêches dans ce domaine (cas de Bétenty)\. Les membres des Comités Locaux de Pêcheurs (CLP) sont ainsi devenus plus influents auprès des autorités administratives locales des régions concernées\. Au niveau politique, le Projet GIRMaC a impulsé des réformes à travers la lettre de politique sectorielle, le Code de la Pêche maritime, la redynamisation du CNCPM et des CLPA\. L’analyse du secteur a été améliorée avec les résultats de la revue des dépenses publiques et l’analyse économique de la filière halieutique\. Globalement, pour la composante 2, la préparation et le début de mise en œuvre de huit plans de gestion de sites d’ancrage a permis d’en améliorer l’efficacité de plus de 50% par rapport à la situation de référence\. Par rapport au suivi des espèces menacées, la préparation et la mise œuvre d’un plan d’action pour la conservation des tortues marines a permis d’identifier et de suivre plusieurs sites de ponte sur la côte\. D’une manière spécifique, les activités de recherche participative ou collaborative sur les habitats et/ou espèces, de décomptes mensuels ou annuels de l’avifaune, de surveillance participative et de suivi écologique dans les sites d’ancrage ont permis une amélioration des connaissances sur l’état de la ressource\. Les aménagements participatifs ont permis de réduire les 81 pertes de biodiversité\. Le renforcement des capacités techniques et institutionnelles a amélioré les performances des parties prenantes dans la gestion de la biodiversité (formations individuelles ou collectives, mise en place et fonctionnement de comités de gestion de sites, visites d’échanges inter-sites, éducation et sensibilisation relatives à l’environnement, etc)\. Enfin, la mise en œuvre de sous projets d’AGRs a permis de valoriser certains produits des aires protégées pour le bien-être des communautés locales de leur périphérie\. 3\.3\. Thèmes généraux, Autres résultats et Impacts (a) Impacts sur la pauvreté, Aspects genre, et Développement social • Le développement d'AGRs dans les 4 sites a impulsé une nouvelle dynamique sociale avec le développement des capacités d’autofinancement de la communauté, facilitant ainsi des actions sociales envers les familles les plus vulnérables à la pauvreté\. • Dans certains sites comme Ngaparou, l’appui à la commercialisation par le Fonds de Reconversion du Projet a solutionné les problèmes d’écoulement des produits\. (b) Changement Institutionnel/renforcement (particulièrement avec référence aux impacts sur la capacité à long-terme et le développement institutionnel) • Renforcement des capacités techniques et opérationnelles des agents des pêches, des facilitateurs et des acteurs de la pêche artisanale ; • Renforcement des capacités institutionnelles et juridiques à moyen et long termes du secteur notamment par (i) la finalisation de la Lettre de politique sectorielle de la Pêche et de l’Aquaculture et de son Plan d’action, (ii) la révision du Code de la Pêche maritime, (iii) la revue des dépenses publiques du secteur et à l’analyse économique de la filière, (iv) les capacitations du CNCPM et des CLPA, (v) la mise en place de CLPA (Dakar Ouest, Missirah, Toubacouta, Sokone) pour améliorer la gouvernance des pêches artisanales, (vi) l’appui institutionnel à la DPM et aux organisations professionnelles (CONIPAS) par la mise en place d’un portail et d’un site Web, et (vii) l’impulsion donnée au programme national d’immatriculation (PNI) ; • Préparation et mise à disposition du Ministère chargé de l’Environnement d’un projet de Loi Cadre sur la Biodiversité et les Aires Protégées, avec l’implication des principales parties prenantes\. (c) Autres résultats et Impacts inattendus (positifs ou négatifs) • Un des résultats majeurs du Projet, en termes de réorientation politique, était d’obtenir une approche coordonnée de la gestion des ressources marines et côtières, qui intègre la pêche durable et la conservation de la biodiversité\. L’adoption d’une Lettre de Politique de Gestion Intégrée des Ressources Marines et Côtières fut pour cela une avancée appréciable\. Mais les résultats subséquents pour une gestion de la ressource qui accroît d’une part la durabilité de la pêche sénégalaise et la contribution des aires protégées au maintien des stocks, d’autre part, n’ont pas été obtenus ; • Le projet n’a pas pu proposer un mécanisme de financement durable\. La revue des dépenses publiques du secteur de la conservation qui était la première étape, n’a pu être finalisée\. L’analyse de la valeur ajoutée de la biodiversité devait être complétée afin de prendre davantage en compte d’autres modes de valorisation que le tourisme, en particulier la pêche\. Les orientations stratégiques en termes de financement de la conservation devaient être approfondies par le développement d’options alternatives à la création d’une fondation\. Le mandat initial des consultants n’a pas permis d’apporter de réponses suffisantes aux attentes du projet\. Un financement additionnel de 68 000 Euros était requis pour finaliser l’étude qui a été abandonnée avec la restructuration\. 82 4\. Evaluation de Risques aux Résultats de Développement et Résultats Globaux environnementaux L’évaluation des risques est indiquée à l’Annexe 1\.1\. 5\. Evaluation de la Performance de la Banque et de l’Emprunteur 5\.1\. Performance de la Banque La Performance globale de la Banque Mondiale a été jugée modérément satisfaisante (Détails à l’Annexe1\.2\.)\. 5\.2\. Performance de l’Emprunteur La Performance globale de l’Emprunteur a été jugée modérément satisfaisante (Détails à l’Annexe 1\.3\.)\. 6\. Leçons tirées Les leçons tirées du projet GIRMaC (composantes 1 et 2) et sur les performances de la Banque et de l’Emprunteur sont indiquées à l’Annexe 1\.14\. /- Annexe 1\.1\. - Evaluation de Risques aux Résultats de Développement et Résultats Globaux environnementaux Risques Notation Mesures d’Atténuation du Risques et commentaires à la fin du du projet\. Risque adopté dans le PAD Des résultats aux objectifs de développement et environnemental Les acteurs dans les H L’engouement suscité au sein des communautés de pêche par le pêcheries ciblées ne modèle de cogestion locale du Projet a facilité les consensus peuvent s’accorder enregistrés dans les sites pilotes autour des mesures de gestion durable sur les mesures de des ressources marines et côtières\. gestion durable des ressources marines et côtières\. Lenteurs dans la H Il était prévu que le projet appuie directement les institutions mise en œuvre des clés impliquées pour atténuer les lenteurs administratives\. Pour sous-projets (pêche la composante « Ecosystèmes » les risques sont relatifs aux et environnement) lenteurs provoquées par les procédures de passations de du fait de retards marchés\. Il faut prévoir à l’avenir, pour des projets de ce type, occasionnés par la des procédures communautaires de passation de marchés\. bureaucratie\. En ce qui concerne la composante 1, l’approbation des sous projets de cogestion locale par le Ministre chargé de la Pêche maritime n’est intervenue qu’en mars 2008 alors qu’elle était planifiée pour avril 2006 dans le chronogramme originel du Projet\. La gestion de la S La principale mesure d’atténuation était de fixer des attentes réalistes biodiversité ne en début de projet\. Malgré ces précautions, la durée relativement génère pas les courte du projet n’a pas permis d’atteindre un niveau de résilience des écosystèmes qui permette de générer des bénéfices\. Cinq ans, c’est 83 bénéfices attendus\. encore trop court pour l’espérer\. Les acteurs locaux S Pour éviter le risque, les acteurs locaux devaient être impliqués ne s’engagent pas à dans les processus de définition et de mise en œuvre gérer durablement des mesures de gestion durable\. Des accords ont été trouvés avec les la biodiversité\. GIE de bénéficiaires, sous forme de contrat\. Le score de l’implication des communautés dans la gestion est satisfaisant\. Le risque a été globalement contrôlé partout sauf au PNIM\. Les activités ont été pratiquement gelées dans ce site au cours des quatorze derniers mois, suite à des incidents\. Les procédures M Il a été décidé de sensibiliser les décideurs pour faciliter le processus bureaucratiques de création\. Le projet s’est appuyé sur le Comité MAB\. Cependant Retardent l’établis- c’est le processus de consultation publique qui a pris du temps\. Enfin sement de la les incidents intervenus au PNIM, pilier central du dispositif de concertation et d’animation, ont bloqué le processus de validation qui Réserve de était presque à son terme\. Biosphère du Cap Vert\. L’UCP peut M Les changements récurrents de spécialistes de passation de marchés, engager un très demandés sur le marché, ont accentué les lenteurs dans les personnel procédures de passation\. D’une manière générale, l’UCP a pu compétent pendant maintenir un noyau d’experts compétents dans leurs domaines\. la durée du projet\. Niveaux de risque - H (Haut Risque), S (Risque Important), M (Risque Modéré), N (Risque Négligeable ou Faible) Annexe 1\.2\. Evaluation de la Performance de la Banque Classement de l’action Notation Commentaires à la fin du projet\. de l’action Qualité de la phase S Très bonne collaboration entre le management du projet à la Banque de préparation et les équipes nationales chargées de la préparation\. Diligence des avis MS Il y a eu des lenteurs qui ont parfois ralenti les opérations (services de de non objection consultants)\. (ANO) Mission de MS La composante « Ecosystèmes » a souffert d’un manque de supervision supervision technique au cours des 18 derniers mois\. Les technique changements de responsables chargés du suivi de la composante ont constitué un handicap dans le suivi des dossiers notamment des réallocations budgétaires\. Mission de S Les missions de supervision de la gestion financière par la Banque supervision de la Mondiale se sont bien déroulées durant la mise en œuvre du projet\. gestion financière Elles ont permis de déceler des dépenses inéligibles qui résultent du manque de respect des Directives et du Manuel de procédures par la Coordination du Projet\. Le seul reproche qu’on peut faire à la Banque c’est le manque de suivi des recommandations issues des missions de supervision\. Politiques de S Elles ont permis de rectifier certains travaux dans les sites sauvegarde conformément aux directives édictées\. environnementale et Pour la composante 1, la Banque malgré les efforts déployés n’a pu sociale mettre en place à temps et exploiter les financements appropriés pour 84  le Fonds Social\. Politiques MS Le premier handicap est lié à la non prise en charge des procédures fiduciaires\. communautaires dans la passation de marchés\. Le second est l’option d’utiliser à la fois les procédures nationales de passation des marchés et celles de la Banque est également source de lenteurs et donc de retards dans les activités à conduire\. Performance globale MS de la Banque Mondiale Insatisfaisant (IS), Modérément Satisfaisant (MS), Satisfaisant (S), Très Satisfaisant (TS) 85 Annexe 1\.3\. Evaluation de la Performance de l’Emprunteur Classement de Notation de Commentaires à la fin du projet\. l’action l’action Qualité de la S Très bonne collaboration entre les différents services et Directions phase de techniques au niveau central ou déconcentré des ministères préparation concernés\. Mise à MS Hormis quelques retards au début tout s’est bien passé durant le disposition des projet\. Toutefois le niveau des indemnités allouées aux fonds de fonctionnaires impliquées dans la mise en œuvre des activités du contrepartie Projet est faible et mal réparti selon les charges de travail (Décret nationale n° 90\.600 obsolète depuis longtemps)\. Gestion de la IS Il y a eu un conflit de compétences et d’objectifs qui a été tutelle préjudiciable à l’intégration des deux secteurs « pêche » et administrative « environnement »\. Gestion de la MS Les COMOs ont fonctionné sous la tutelle technique des directions\. tutelle Cependant le niveau d’appropriation du projet reste insuffisant\. technique des Pour la pêche, les effectifs des agents réellement en charge de la composantes gestion, au quotidien, des pêcheries sont encore très faibles\. Pour l’essentiel, les tâches des agents sont administratives\. De même, de nombreux changements sont intervenus au plan institutionnel (Ministres de la Pêche, Directeurs, coordonnateurs de la COMO-Pêche, etc) qui ont entravé le suivi efficace du projet\. Le management du portefeuille « pêche » par la COMO-Pêche a été déficient au cours de ces 12 derniers mois, tant au plan technique que fiduciaire\. Performances MS globales de l’Emprunteur Insatisfaisant (IS), Modérément Satisfaisant (MS) Satisfaisant (S), Très Satisfaisant (TS) 86 Annexe 1\.4\. Leçons tirées COMO-ECOSYSTEMES : • L’approche écosystème telle que proposée dans le document de projet demeure pertinente\. Toutefois, sa mise en œuvre dans le cadre de réserves de biosphère, nécessite de larges et longues concertations ainsi qu’une vision partagée\. Ce processus doit être porté par un socle institutionnel rattaché à ces réserves de biosphère\. En effet, les COGEMs ont pêché parce la DPN en constituait la porte d’entrée alors qu’elle n’était compétente que dans le domaine classé\. • Cinq (05) années sont insuffisantes pour atteindre l’objectif global défini dans le cadre de ce projet\. Il faut au moins le double et prendre en compte, les grands travaux de génie écologique pour améliorer l’état de conservation des habitats et des espèces\. • Le caractère durable de la gestion de la biodiversité ne peut être garanti que par une autonomisation financière des structures communautaires impliquées dans la cogestion des ressources\. Autrement dit, la pauvreté engendre et accroît la pression sur la ressource\. • Le financement durable de la conservation nécessite des réformes pour un cadre institutionnel, législatif et réglementaire approprié\. Le statu quo actuel n’est pas viable\./ COMO-PECHE : • La motivation des fonctionnaires de l’Administration locale impliqués, dans la cogestion locale, est une nécessité\. Les fonds de contrepartie doivent prendre en charge cette question en priorité\. • Les expériences de cogestion locale conduites dans les 4 sites pilotes démontrent l’urgence de mettre en place un mécanisme de contrôle et de limitation de l’accès aux ressources cogérées\. • L’introduction des recherches participatives dans le système de cogestion locale n’a pas connu l’appropriation souhaitée par la DPM, le CRODT et les acteurs locaux\. • Le cadre organisationnel de concertation et de négociation, mis en place pour la préparation des plans d’aménagement, a permis une participation effective et efficace des divers acteurs aux échelles les plus pertinentes (locales, régionales et nationales) • Les mesures sociales de lutte contre la pauvreté (AGR, appuis à la commercialisation) initiées suite à la mobilisation du FRAP dans le cadre du projet complémentaire (GDRH) ont encouragé les communautés et renforcé leur participation à l’effort de gestion durable des ressources halieutiques • Les communautés, organisées en CLP, sont capables de s’investir pleinement dans la gestion responsable des ressources halieutiques si l’Etat leur fait confiance et met à disposition l’appui technique et financier nécessaire • L’impact des initiatives est optimal dans le cas d’application d’amende communautaire dissuasive, nonobstant leur non-conformité avec les dispositions des textes réglementaires\. • La cogestion des pêcheries par concession de droits d’accès, inscrite dans la Lettre de Politique Sectorielle (LPS), est souhaitée par certaines communautés mais non encore prise en compte par les textes légaux en vigueur\. • Les surveillants-pêcheurs issus du CLP (commission surveillance) semblent plus engagés et plus efficaces que les agents de l’administration dans la recherche de renseignements sur les infractions et dans la surveillance des aires de mise en œuvre de la cogestion\. • L’identification des initiatives locales de cogestion met en évidence la très bonne connaissance que les communautés ont de leurs pêcheries tant du point de vue bioécologique que socioéconomique\. • Une garantie du succès de la cogestion locale des pêcheries est de démarrer par l’application de mesures consensuelles qui puissent donner des résultats rapides et visibles afin d’encourager les communautés de pêche à être plus engagées dans l’application de mesures de gestion encore plus courageuses\. 87 • Une nette augmentation de la cohésion sociale des communautés est notée dans tous les sites de mise en œuvre de la cogestion suite à la création des CLP, cadre adéquat de concertation et d’échange de toutes les parties prenantes\./ SUR LA PERFORMANCE DE LA BANQUE • La Banque Mondiale a joué un rôle important dans le montage du Projet GIRMaC dont il est le principal bailleur avec un prêt IDA et un don du FEM\. • Le sentiment globalement partagé est que le retard dans la mise en œuvre effective des activités est dû en grande partie à des lenteurs observées dans les procédures de passation de marchés de la Banque (situation d’avant restructuration) mais également, et en plus, dans celles à dérouler au niveau national (situation d’après restructuration)\. • Le financement par le Crédit IDA de la Revue des Dépenses Publiques, initialement prévu sur les fonds PHRD, a été de nature à réduire substantiellement les fonds du Projet\. • Il en est de même du Fonds Social qui n’a pu être pris en charge par un organisme approprié de même nature que l’AFDS\. Les procédures internes de la Banque n’ont pas permis le financement par le Fonds Japonais de Développement Social (JSDF)\./ SUR LA PERFORMANCE DE L’EMPRUNTEUR • Les questions institutionnelles qui sont à la base de la restructuration du GIRMaC sont de la responsabilité de l’Emprunteur (Ministères de tutelle et Coordination du Projet)\. • Les nombreux changements de responsables opérés dans les Départements ministériels de tutelle (Ministres, Directeurs, Coordonnateurs de la COMO, Administration déconcentrée) ont retardé par moment la bonne conduite du Projet\. • Le taux élevé de décaissements réalisés pour le compte de l’UCP-GIRMaC, avant la restructuration, au détriment des activités de terrain\. • Le volume des dépenses inéligibles de l’année 2011, dont le remboursement a été exigé par la Banque Mondiale, témoigne du manque de contrôle de nos administrations compétentes\. \. • Les communautés des sites pilotes considèrent depuis le démarrage du GIRMaC que les équipements et infrastructures que leur fournit le Projet sont onéreux et de mauvaise qualité\. En tant que bénéficiaires, elles ont toujours souhaité être impliquées dans le processus de passation des marchés\. La mauvaise qualité des travaux et le coût élevé des « Maisons du Pêcheur », notamment à Bétenty et à Foundiougne, sont de l’entière responsabilité de la COMO-Pêche et donc de la Direction des Pêches maritimes\. • L’insuffisance des effectifs des agents de l’administration déconcentrée pour accompagner, d’une manière générale les processus d’aménagement et de cogestion des pêcheries côtières\./ 88 Annexe 2\. - Coûts et Financement du Programme (30 juin 2012) (b) Composante par Bailleur de Fonds (en Millions Francs CFA) Integrated Marine and Coastal Resources Management Project - Total Project Cost Document Cumul d’évaluation Décaissements à la Pourcentage de Composantes Coût du projet cloture du Projet décaissement (%) (CFA millions) (CFA millions) 4\. Gestion Durable des Pêcheries 3\.100,26 2\.832,12 91 5\. Conservation des Habitats et des 3\.022,47 2\.177,22 72 Espèces critiques 6\. Gestion du Programme, Suivi 2\.170,66 1\.616,29 74 Evaluation et Communication Total Coût Composantes 7\.930,40 6\.307,32 80 Divers et imprévus physiques 0\.00 Divers et imprévus en monnaie 0\.00 Total Coût du Projet 7\.930,40 6\.307\.32 80 PPF 363,00 318,32 88 Non Alloué IBRD & FEM 776,10 Total Financement demandé 9\.069,50 6\.625,64 73 Programme de Gestion Intégrée des Ressources Marines et Côtières Projet – P086480 Document Cumul d’évalution Coût Décaissements à la Pourcentage de Composantes du projet (CFA cloture du Projet décaissement (%) millions) (CFA millions) 4\. Gestion Durable des Pêcheries 2\.798,90 2\.793,87 99 5\. Conservation des Habitats et 275\.00 69,52 25 des Espèces critiques 6\. Gestion du Programme, Suivi 1595\.00 1\.220,37 77 Evaluation et Communication Total Coût Composantes 4\.668,90 4\.083,76 87 Divers et imprévus physiques 0\.00 Divers et imprévus en monnaie 0\.00 Total Coût du Projet 4\.668,90 4\.083,76 87 PPF 330\.00 318,32 96 Non Alloué IBRD 501,10 Total Financement demandé 5\.500,00 4\.402,08 80 89 Programme de Gestion Intégrée des Ressources Marines et Côtières Projet - P058367 Document Cumul d’évalution Coût Décaissements à la Pourcentage de Components du projet (CFA cloture du Projet décaissement (%) millions) (CFA millions) 4\. Gestion Durable des Pêcheries 0\.00 0\.00 0 5\. Conservation des Habitats et 2\.475,00 1\.879,00 75 des Espèces critiques 6\. Gestion du Programme, Suivi 2\.475,00 1\.879,00 75 Evaluation et Communication Total Coût Composantes 2\.475,00 1\.879,00 75 Divers et imprévus physiques 0\.00 Divers et imprévus en monnaie 0\.00 Total Project Costs 2\.475,00 1\.879,00 75 PPF 0\.00 0\.00 0 Non Alloué 275,00 Total Financement demandé 2750\.00 1\.879,00 68 (b) Financement P086480 - Programme de Gestion Intégrée des Ressources Marines et Côtières Cumul Document Décaissement Pourcentage d’évalution Type de s à la cloture de Source des fonds Coût du financement du Projet décaissement projet (CFA (CFA (%) millions) millions) Bailleur 819,50 344,54 42 International Development 5\.500,00 4\.402,08 80 Association (IDA) P058367 - Programme de Gestion Intégrée des Ressources Marines et Côtières A Cumul Document Décaissement Pourcentage d’évalution Type of s à la cloture de Source des fonds Coût du Financing du Projet décaissement projet (CFA (CFA (%) millions) millions) Bailleur 819,50 344,54 42 GLOBAL ENVIRONMENT - 5\.500,00 4\.402,08 80 Associated IDA Fund Global Environment Facility (GEF) 2750\.00 1\.879,00 68 90 Annexe 3\. Résultats par composante ( KPIs) - SENEGAL: Cadre des résultats (Projet et Composantes) Commentaires Objectif de Développement du Indicateurs de Commentaires (Equipe Gouvernement) (Equipe de la Projet (originel) performance révisés Banque) L’objectif de développement du Les sous projets de cogestion Les sous projets de cogestion locale ont été préparés par Projet est d’améliorer la gestion locale sont mis en oeuvre dans les les Comités Locaux de Pêcheurs (CLP) des 4 sites pilotes, durable des ressources marines et 4 sites pilotes avant la fin du avec l’appui des facilitateurs et d’un consultant recruté côtières par les communautés et le Projet\. comme spécialiste national en cogestion\. Ces sous projets Gouvernement du Sénégal, dans trois ont ensuite été validés puis finalisés par le spécialiste zones pilotes\. international en cogestion, avant d’être soumis à l’appréciation du Conseil National Consultatif des Pêches Maritimes (CNCPM)\. Les sous projets ont finalement fait l’objet d’Accords de cogestion signés entre les Présidents des CLP et le Ministre chargé de la Pêche maritime\. Un arrêté ministériel reconnaissant les initiatives de cogestion a été en définitive pris par le Ministre de tutelle\. Plus des 2/3 des tâches nécessaires à la finalisation des Les plans d’aménagement plans nationaux d’aménagement des deux pêcheries clés nationaux de deux pêcheries clés ont été réalisées et les livrables correspondants ont été sont preparés et approuvés par le approuvés par le Conseil National Consultatif des Pêches Conseil National Consultatif des Maritimes (CNCPM)\. Pêches Maritimes (CNCPM)\. Le Consultant BRLi a unilatéralement arrêté ses activités contractuelles du fait de la non approbation par la Direction Centrale des Marchés Publics (DCMP) de l’Avenant convenu avec la DPM et ayant un Avis de non objection de la Banque Mondiale\. Objectif non atteint dans le GIRMaC mais la finalisation des plans est inscrite dans le PRAO-Restructuré\. Objectif global en matière Indicateurs de performance d’environnement révisé révisés Renforcer la conservation et la Efficacité de la gestion de la Le score est mesuré avec l’outil de l’efficacité de la 91 gestion des écosystèmes marins et biodiversité dans les trois zones gestion des aires protégées de l’alliance côtiers qui sont globalement pilotes augmentée d’au moins WWF/Banque Mondiale\. Cet outil a été combiné en significatifs et vitaux aux moyens 50% à la fin du Projet 2008 avec la méthodologie d’évaluation rapide et de d’existence durable des priorisation de la gestion des aires protégées communautés côtières du Sénégal\. (RAPPAM) développée aussi par le WWF\. Cette combinaison donne plus d’information pour la description des habitats et des espèces\. La préparation des plans de gestion des sites a contribué à accroître l’efficacité de leur gestion et leur score\. Cependant aucune zone n’a atteint la cible fixée pour la fin du projet: Cap Vert 61 sur 65%, Delta du Sénégal 62 sur 70% et Delta du Saloum 57 sur 60%\. Cela s’explique par le manque de fonds alloués à la mise en œuvre des plans de gestion\. Résultats intermediaires Indicateurs de résultats intermediaries révisés Composante 1: 60% des Comités Locaux de Trois des quatre CLP ont mis en oeuvre leurs sous Les communautés locales gèrent de Pêcheurs (CLP) ont mis en projets de cogestion de manière satisfaisante : manière durable les resources œuvre leurs sous projets de - Site de cogestion de la langouste verte : la CPUE marines et côtières\. cogestion locale avant la fin du de langouste verte est passée de 1,5Kg par sortie en Projet, conformément aux 2005 à 3,5 Kg par sortie à Ngaparou en 2011 soit objectifs performances ciblées une augmentation de +133% par lesdits sous projets\. - Sites de cogestion de la crevette : Le moule moyen de la crevette à Bétenty est passé de 226 individus au kilo en 2005 à 141 individus au kilo en 2011 soit une amélioration de 38%\. Composante 2: La Loi Cadre sur la Biodiversité La Loi Cadre sur la Biodiversité et les Aires Protégées Les communautés locales et les Aires Protégées est est préparée et soumise au Gouvernement en fin 2010\. participant à la conservation des préparée et soumise au habitats et des espèces marines et Gouvernement avant la fin du côtières\. Projet\. La mise à jour des rapports sur Le projet a tenté de combler l’absence d’un système l’état de la biodiversité est faite de suivi en initiant la mise en place d’un programme chaque année\. national de surveillance des indicateurs de la biodiversité, tel que recommandé par le secrétariat de 92  la Convention sur la Diversité Biologique\. Ce processus a pris du temps mais devra contribuer à favoriser la production régulière du rapport sur l’état de la biodiversité\. Des sous-comités de Le protocole entre GIRMaC et le Projet du Bassin du coordination sont établis entre le Fleuve Sénégal a été validé et signé par le MEPN et le Projet GIRMaC et le Projet du Haut Commissaire de l’OMVS le 12 mai 2006\. Le Bassin du Fleuve Sénégal, le COGEM du Delta du Sénégal a été désigné comme Projet des « Grands sous-comité de coopération pour la gestion intégrée Ecosystèmes Marins du Courant des ressources en eau et l’utilisation durable de la des Canaries » (CCLME), pour biodiversité\. renforcer la conservation des réseaux de sites critiques pour Le GIRMaC et le CCLME ont eu une série de les oiseaux d’eau migrateurs rencontres et de discussions autour des synergies dans les couloirs de migration possibles\. Le GIRMaC a participé à la préparation du Afrique/Eurasie\. Projet CCLME\. Un memorandum d’entente a été rédigé en mai 2006 pour mettre en place un cadre commun de collaboration et de partenariat\. Sa mise en œuvre a été retardée par la longueur du processus de préparation du Projet CCLME dont l’Unité de Coordination ne sera mise en place qu’en fin 2010\. Le Protocole entre GIRMaC et Wetlands international comme Agence d’éxécution du Projet WoW (Wings Over Wetlands) a été signé le26 octobre 2006\. Avec cette convention, Wetlands a renforcé les capacités du staff de la DPN et du projet dans le suivi des oiseaux d’eau et des zones humides à travers un programme de formation\. 93 Annex 7\. Comments of Cofinanciers and Other Partners/Stakeholders No comments received\. 94 Annex 8\. List of Supporting Documents Accord de Cogestion, signed, Comité Local des Pêcheurs de Bétenty, Ministère de l’Economie Maritime des Transports Maritimes de la Pêche et de la Pisciculture, Dakar, Sénégal, 7 mars 2008\. Accord de Cogestion, signed, Comité Local des Pêcheurs de Foundiougne, Ministère de l’Economie Maritime des Transports Maritimes de la Pêche et de la Pisciculture, Dakar, Sénégal, 7 mars 2008\. Accord de Cogestion, signed, Comité Local des Pêcheurs de Ngaparou, Ministère de l’Economie Maritime des Transports Maritimes de la Pêche et de la Pisciculture, Dakar, Sénégal, 7 mars 2008\. Accord de Cogestion, signed, Comité Local des Pêcheurs de Ouakam, Ministère de l’Economie Maritime des Transports Maritimes de la Pêche et de la Pisciculture, Dakar, Sénégal, 7 mars 2008\. Aide-Memoire, ICR Mission of July 2012\. Rapport d’Achèvement du Projet de Gestion Intégrée des Ressources Marine et Côtières (GIRMaC), Direction des Pêches Maritimes, Ministère de la Pêche et des Affaires Maritimes; Direction des Parcs Nationaux, Ministère de l’Environnement, République du Sénégal, 24 septembre 2012\. Recherches participatives et suivi-évaluation en appui aux initiatives locales de co-gestion des pêcheries artisanales, Rapport final de recherches, Centre de Recherches Océanographiques de Dakar Thiaroye, Ministère de l’Agriculture, Institut Sénégalais de Recherches Agricoles, Dakar, Sénégal, novembre 2011\. Sous-projet portant sur l’Institution d’Arrêts Périodiques de la Pêche Crevettière et Utilisation de Filets Killy à Grandres Mailles à Bétenty, Comité Local des Pêcheurs de Bétenty, Bétenty, Sénégal, février 2006\. Sous-projet portant sur la Réglementation de la Pêche Crevettière dans les Eaux du Saloum, Comité Local des Pêcheurs de Saloum, Saloum, Sénégal, juin 2006\. Sous-projet Réglementation ds Activités de Pêche et Reconstitution des Resources en langouste Verte et Espèces associées dans les Eaux Adjacentes au Village de Ngaparou, Comité Local des Pêcheurs de Ngaparou, Ngaparou, Sénégal, juin 2006\. Réglementation de l’Exploitation des Zones Traditionnelles de Pêche de Ouakam, Nettoyage des fonds marins, Comité Local des Pêcheurs de Ouakam, Ouakam, Sénégal, février 2006\. 95 96  18°W 16°W 14°W M A U R I TA N I A SENEG AL SELECTED CITIES AND TOWNS Sénégal To Podor Nouakchott REGION CAPITALS Rosso Doue Dagana NATIONAL CAPITAL SENEGAL Ndiayène Richard-Toll Haïré Lao RIVERS Lac de Guier SAINT- To MAIN ROADS LOUIS Kaedi Mbout Saint-Louis RAILROADS 16°N 16°N Thilogne REGION BOUNDARIES Mpal Va Lagbar ll ée d u Fer INTERNATIONAL BOUNDARIES Léona lo Ndiaye Louga Matam Koki Tioukougne Peul This map was produced by the Map Design Unit of The World Bank\. Kébémèr Daraa Linguère The boundaries, colors, denominations and any other information shown on this map do not imply, on the part of The World Bank Fâs Boye Group, any judgment on the legal status of any territory, or any Va én S llée ég endorsement or acceptance of such boundaries\. Darou Khoudos du al F Mékhé Darou Mousti LOUGA Mamâri er lo Vélingara CAP- Kayar Tivaouane Bakel Mbaké VE VERT Thiès DIOURBEL La Ferdo M ATA M DAKAR Val Rufisque THIÈS Diourbel lée du Mboun To Kayes Gossas Mbour FATICK Payar Nayé Toubéré Bafal oum Fatick Guinguinéo Sal Falém KAFFRINE m lo u Kaolack Sa Kaffrine TAMBACOUNDA é Ndangane 14°N 14°N Sakone KAOLACK Niahène Koungheul Koussanar AT LAN TI C Keur Madiabel Nganda MALI Nioro du Rip Tambacounda OCEAN Karang Maka dou gou S an To Gambia Barra TH E Dialakoto To Banjul IA GAM B I A Meedina Gounas SÉDHIOU e KOLDA Vélingara M anc KÉDOUGOU Ko Diouloulou al am ink ulo Bounkiling as e unt ZIGUINCHOR C Diana Kolda Gam ou Malari bie Mako Saraya Bignona nga Kaya Casamance Tanaf Sédhiou Ziguinchor 419 m To Kédougou Goudomp Farim To To Diembéreng Oussouye Bafata Koundara To Ingore 0 25 50 75 100 Kilometers IBRD 33475R1 GUINEA-BISSAU To Balake AUGUST 2010 0 25 50 75 Miles GUINEA 12°N 12°N 18°W 16°W 14°W 12°W

REVIEW

P069165

Document of The World Bank FOR OFFICIAL USE ONLY Report No: 21555 IMPLEMENTATION COMPLETION REPORT (IDA-32990) ONA CREDIT IN THE AMOUNT OF SDR 18 MILLION (US$ 25 MILLION EQUIVALENT) TO BURKINA FASO FOR STRUCTURAL ADJUSTMENT CREDIT III December 27, 2000 This document has a restricted distribution and may be used by recipients only in the performance of their official duties\. Its contents may not otherwise be disclosed without World Bank authorization\.  CURRENCY EQUIVALENTS (Exchange Rate Effective Effective November 30, 2000) Currency Unit = CFA Francs (CFAF) CFAF 744 = US$ 1 US$ I = 1\.2892 FISCAL YEAR January 1 - December 31 ABBREVIATIONS AND ACRONYMS ARTEL Azence de r6gulation des telecommunications CAS Country Assistance Strategv CET Common Extemal Tariff CFAA Country Financial Accountability Assessment CPAR Country Procurement Assessment Report ECOWAS Economic Community of West African States EMRSO Economic Management Reform Suowrt Operation ESAF Enhanced Structural Adiustment Facility GDP Gross Domestic Product HIPC Heavily Indebted Poor Countries IASC Intemational Accounting Standards Committee IFAC Intemational Federation of Accountants IMF Intemational Monetary Fund INTOSAI Intemational Organization of Supreme Audit Institutions MTEF Medium-Term Expenditure Framework OHADA Orpanisation pour I 'Harmonisation du Droit des Affaires en Afrique PCS Prelevement communautaire de solidarit (community solidarity levy) PER Public Expenditure Review PRGF Poverty Reduction and Growth Facility PRSC Poverty Reduction SuppOrt Credit PRSP Poverty Reduction Strategy Paper SAC Structural Adiustment Credit SDR Special Drawing Rights SYGASPE Svst6me Intjgre de (iestion Administrative et Salariale du Personnel de l'Etat TCI Taxe conioncturelle a l 'importation TDP Taxe de6ressive de protection TPC Taxe prferentielle communautaire TPCNA Taxe sur les produits communautaires non agrees TUPP Taxe uniaue sur les produits atgroliers (petroleum tax) VAT Value Added Tax WAEMU West African Economic and Monetary Union Vice President: Callisto Madavo Country Director: Hasan Tuluy Sector Manager: Charles Humphreys Task Team Leader: Ce1estin Monga  FOR OFFICIAL USE ONLY BURKINA FASO Burkina Faso - SAC m CONTENTS Page No\. 1\. Project Data 1 2\. Principal Performance Ratings 1 3\. Assessment of Development Objective and Design, and of Quality at Entry 2 4\. Achievement of Objective and Outputs 4 5\. Major Factors Affecting Implementation and Outcome 11 6\. Sustainability 11 7\. Bank and Borrower Performance 12 8\. Lessons Learned 13 9\. Partner Comments 15 10\. Additional Information 26 Annex 1\. Key Performance Indicators/Log Frame Matrix 27 Annex 2\. Project Costs and Financing 28 Annex 3\. Economic Costs and Benefits 29 Annex 4\. Bank Inputs 30 Annex 5\. Ratings for Achievement of Objectives/Outputs of Components 31 Annex 6\. Ratings of Bank and Borrower Perfornance 32 Annex 7\. List of Supporting Documents 33 This document has a restricted distribution and may be used by recipients only in the performance of their official duties\. Its contents may not be otherwise disclosed without World Bank authorization\.   Project ID: P069165 Project Name: Burkina Faso - SAC III Team Leader: Celestin Monga TL Unit: AFTM4 ICR Type: Core ICR Report Date: December 27, 2000 1\. Project Data Name: Burkina Faso - SAC III LI/CTF Number: IDA-32990 Country/Department: BURKINA FASO Region: Africa Regional Office Sector/subsector: BB - Public Sector Management Adjustment KEY DATES Original Revised/Actual PCD: 08/15/1999 Effective: 12/16/2000 12/16/2000 Appraisal: 10/18/1999 MTR: Approval: 12/02/1999 Closing: 06/30/2000 06/30/2000 Borrower/Implementing Agency: GOVERNMENT OF BURKINA FASO/MINISTRY OF ECONOMY AND FINANCE Other Partners: STAFF Current At Appraisal Vice President: Callisto E\. Madavo Jean-Louis Sarbib Country Manager: Hasan A\. Tuluy Hasan A\. Tuluy Sector Manager: Charles Humphreys Charles Humphreys Team Leader at ICR: Cdlestin Monga ICR Primary A uthor: Jean-Claude Tchatchouang; Siaka Coulibaly 2\. Principal Performance Ratings (HS=Highly Satisfactory, S=Satisfactory, U=Unsatisfactory, HL=Highly Likely, L=Likely, UN=Unlikely, HUN=Highly Unlikely, HU=Highly Unsatisfactory, H=High, SU=Substantial, M=Modest, N=Negligible) Outcome: S Sustainability: L Institutional Development Impact: SU Bank Performance: S Borrower Performance: S QAG (if available) ICR Quality at Entry: S Project at Risk at Any Time: No  3\. Assessment of Development Objective and Design, and of Quality at Entry 3\.1 Original Objective: Rationale and Objective of Structural Adjustment Credit III (SAC III)\. The overall objective of the credit was to support a reform program aimed at: (i) enhancing the competitiveness of the Burkinabe economy to substantially raise growth rates over the medium term and alleviate poverty; (ii) improving public finance management, particularly with regard to tax policy and the use of public resources; and (iii) completing the third phase of the common external tariff (CET) adopted by the West African Economic and Monetary Union (WAEMU) on January 1, 2000\. While Burkina Faso's macroeconomic performance has been good since the 1994 CFA franc devaluation, it is fragile and below what is needed to reduce poverty substantially\. With the aim of increasing per capita income and accelerating the development of human resources and productive potential, the Government had formulated a medium- and long-term strategy in the context of several important policy papers, including the 1995 Letter on Sustainable Human Development Policy and the 1999 Sources of Growth and Competitiveness study\. To accelerate economic growth and generate employment, the strategy was to remove the constraints on economic activity and to foster the development of a dynamic and modern private sector, in particular by improving the business environment\. To address these challenges, the authorities outlined a growth strategy focused on the following policy areas: * Reducing significantly marginal effective tax rates on the formal sector while broadening the tax base and improving public expenditure management; * Reducing infrastructure, input, and trnsaction costs to improve the competitiveness of the private sector; and encouraging private sector investments in low cost, high quality basic infrastructure projects; * Reforming the legal system to provide appropriate protection and incentives to private investors and to attract informal sector businesses into the formal economy; * Enhancing human capital by raising the efficiency of public expenditures in education and health sectors\. Consistent with Bank policy governing adjustment lending (R96-55, R80-122) and with the 1996 Country Assistance strategy (CAS), the credit rationale was primarily to support one of the four pillars of the new policy framework, namely the necessary improvement in the overall public finance management system\. It was recognized that a pre-requisite to the success of the accelerated growth strategy will be to maintain sound Government finances-notwithstanding the short-term loss of revenue that would result from the reduction of income tax rates on the fornal sector of the economy and the implementation of the final phase of the CET-and to improve the efficiency of public expenditures\. The reforms supported by this operation, especially tax and trade reform, were described as essential to create an environment conducive to efficient private sector investment and growth\. Public finance reform and regional integration would benefit Burkina Faso's growth over the medium and long-term by: (i) improving the Government's resource mobilization system; (ii) stimulating private investment flows and external trade; (iii) improving efficiency and productivity; and (iv) providing Burkina Faso's economic agents with free access to the significantly larger WAEMU market\. By reallocating public funds toward priority activities in health and education, the reforms would further strengthen the country's growth potential while helping correct underlying factors that contribute to Burkina Faso's deep poverty\. Design\. SAC III followed up on the one-tranche Economic Management Reform Support Operation (EMRSO) which was approved by the Board in November 1998\. The EMRSO supported the consolidation of the first phase of reforms in Burkina Faso and laid the foundations for a new generation of reformns in the areas of public finance and public expenditure management, privatization, and the transport, -2 -  telecommunications and energy sectors\. SAC III was also designed as a one-tranche operation supporting a series of policy measures to be implemented prior to Board presentation: fi) Tax and Trade policv: * lowering the maximum tariff rate from 25 percent to 20 percent; * lowering the corporate income tax rate from 40 percent to 35 percent, and launching a study to further lower the tax rate to 30 percent or 25 percent by 2001; * introducing a withholding tax at customs and on purchases from wholesalers to be applied against the profit tax (I percent for basic consumption food and 2 percent for other merchandise); * removing the ban on hide exports; * ensuring that the two major tax offices (Kadiogo I and Houet I) are fully computerized and strengthened; (ii) Public expenditure management: * issuing the terms of reference and recruit consultants for the preparation of studies in the framework of the public expenditure review (education, health, financial decentralization, ancl public investment program); _ adopting a plan of action and timetable for the extension of the Medium-Term Expenditure Framework (MTEF) approach to all key Government ministries for the year 2001 budget; - completing and sending the year-end budget execution reports for the 1993 and 1994 budgets (lois de r, glement) to the Supreme Audit Institution (Chambre des Comptes de la Cour Supreme); (iii) Budgetarv procedures: * integrating the payroll management system (SYGASPE) into the Government's fmiancial management system (circuit de la depense); (iv) Regulatory framework: - establishing the regulatory authority for the telecommunications sector\. The use of a single tranche operation was justified by Burkina Faso's good track record in implementing two Enhanced Structural Adjustment Facility (ESAF) programs and the previous adjustment operation (EMRSO)\. The main advantage of single-tranching with ex-ante conditionality was that it enhanced political acceptability of the reform program\. It was expected that, after the successful implementation of SAC III, the Government would be able to formulate comprehensive medium-term programs in key sectors that could be supported by ordinary multi-tranche adjustment operations\. To guard against the risk of launching a series of one-tranche operations with different focuses, which would eventually lead to a reforn process lacking coherence, the 1998 EMRSO had provided a clear indication of links with future adjustment operations\. Policy areas to be covered in the follow-up credits (SAC III) were identified, and the progress benchmarks were identified\. A medium-term policy matrix was attached to the Board document\. While acknowledging that the details of the next credit were yet to be worked out with the Burkinabe authorities, the Memorandum of the President of SAC III indicated that the focus would remain on public finance reform, with an emphasis on efficiency, competitiveness and poverty reduction\. In addition to the maintenance of satisfactory macroeconomic program and overall reform effort, the next structural adjustment credit would be triggered by substantial progress, in particular, in the following policy areas: - 3 -  * adoption of program budgets (budgets programmes) in the six key Government ministries identified in the April 1999 budget guidelines (i\.e\., ministries of Health, Economy and Finance, Territorial Administration, Defense, Basic Education, and Secondary/Higher education); these program budgets should be sent to Parliament with the fiscal year 2001 draft budget bill; * local recruitment for contractual positions in education; * implementation of the public enterprise reform and privatization program as of June 2000, according to the schedule in the Policy Framework Paper for 1999-2002; * preparation of a Poverty Reduction Strategy Paper in close collaboration with the Bank and the IMF; * completion and transmission to the Supreme Audit Institution (Chambre des Comptes de la Cour Supreme) of year-end budget execution reports (Lois de reglements) for 1995 and 1996 fiscal years\. The operation was prepared over a seven-month period\. The borrower's input was substantial, as the Government carried out several studies-most notably the May 1999 Sources of Growth and Competitiveness study-prior to the appraisal mission\. The Bank also provided background analytical work on public finance management and the challenges and opportunities that the regional integration process would imply Burkina Faso\. The main risk facing the program was identified as political: the reform program could falter because of pressures in some political circles and some institutional weaknesses\. 3\.2 Revised Objective: Project objectives remained unchanged and project design was not modified\. 3\.3 Original Components: The reform program associated with this credit had four major elements: (i) tax policy and its supply side effects, including the implementation of the last phase of the WAEMU's CET on January 1, 2000; (ii) efficiency of public expenditures; (iii) budgetary procedures to increase transparency; and (iv) regulatory framework to improve domestic competitiveness\. 3\.4 Revised Components: Components were not modified\. 3\.5 Quality at Entry: The quality at entry is rated satisfactory\. The design and implementation arrangements incorporated key lessons from the EMRSO as well as the views of major stakeholders through a participatory preparatory process\. While there existed some concerns about the capacity of the Government to implement some of the main features of the public expenditure components (i\.e\., the MTEF), overall the program's timing and content were satisfactory\. The program's objectives and components were appropriate and consistent with enabling the Government to undertake an ambitious reform process\. The project was closely coordinated with the financial and economic measures supported by the IMF's Poverty reduction and growth facility (PRGF)\. 4\. Achievement of Objective and Outputs 4\.1 Outcome/achievement of objective\. The program successfully achieved its specific objectives and has maintained them after the closing date (June 2000)\. For each policy objective, a set of policy measures were defined and the outcomes have been satisfactory (see Table 1)\. -4 -  Table 1: Summary of the main outcomes of SAC III Policy Objective Key Actions Taken Status Outcomes Improving public Reduce tax rates Completed The shortfall in fiscal revenue was smaller than finance management Adopt measures to modemize the main tax anticipated; offices Tax revenue increased from CFAF 199\.5 billion in 1998 to 221 billion in 1999; in spite of the reduction in tax rates and the implementation of a new, lower extemal tariff regirne, tax revenue is estimated to reach CFA 209 billion in 2000 Adopt measures to rationalize expenditures - Public spending on education and health is up, and and reallocate funding to social sectors monitoring indicators are in place to assess its impact; Adopt measures to increase transparency Parliament and the Supreme audit institution are now involved in the auditing of Govemment accounts Opening up the Implement the CET Completed The Burkinabe economy is more liberalized and the economy regional integration process is moving forward Enhancing Create a regulatory authority Completed Telecommunications costs in Burkina have been competitiveness in reduced by 40 percent on average in a year the telecoms sector 4\.2 Outputs by components: Tax policy\. In the framework of the reform program supported by SAC III, the Burkinabe authorities took some decisive steps in 1999 and 2000 to reverse some features of fiscal policy that have had negative supply-side effects on the economy over the past decade\. Since the beginning of the stabilization program in Burkina Faso, the main objective of tax policy had been to raise public revenue\. While the upward trend was justified by the need to achieve fiscal sustainability and the rather low initial level of tax-to-GDP ratio in comparison to the country's acute needs for social infrastructures, various empiriical studies on fiscal policy concluded that increased taxation may have had negative supply side effects, thus undermining growth and the prospects of raising public revenues in a sustainable manner\. Table 2: Tax policy conditions Policy Measures Status Lowering the maximum tariff rate from 25 percent to 20 percent ])one Lowering the corporate income tax rate from 40 percent to 35 Done percent Launching a study to further lower the tax rate to 30 percent or The study is ongoing and should be completed by 25 percent by 2001 March 2001 ; Policy recommendations from the study should be adopted by the Govemment in 2001 Introducing a withholding tax at customs and on purchases from Done wholesalers to be applied against the profit tax (I percent for basic consumption food and 2 percent for other merchandise) Removing the ban on hide exports Done Ensuring that the two major tax offices (Kadiogo I and Houct I) On going are fully computerized and strengthened The implementation of policy measures included in the tax policy component of SAC III led to several important outcomes\. First, the reduction of corporate income tax from 40 percent in 1999 to 35 percent in - 5 -  2000 and the prospects for reducing the rate further over the next two years have contributed to improving prospects for private investment\. Results of a business survey carried out in Ouagadougou in early 1999, indicate that the high level of taxation on the formal sector over the past decade had reduced the expected after-tax profit and also reduced the availability of investmnent finance\. Furthermore, over the years, some ad hoc increases in tax rates were often relied upon for large consumption products like petroleum to achieve revenue targets adopted in the PRGF program, without prior analysis of the supply side effects\. And the private sector was receiving little value for their taxes because of the weak administrative capacity in place and the ineffective mechanisms for public service delivery\. By helping the Burkinabe authorities reverse those trends, the SAC III operation seems to have attracted very positive reactions from the business community\. Several prominent members of the private sector-including the Chairman of the Chamber of Commerce-have publicly expressed satisfaction with the shift in Govermment tax policy\. Although changes to improve the supply-side effects of fiscal policy always take a long time to yield results, one can already observe some positive developments\. The objectives for government revenue, current budgetary expenditure, and current primary surplus for 1999 were met\. Fiscal developments in 1999 were broadly favorable, in particular concerning revenue, which reached CFAF 238 billion (15 percent of GDP), exceeding the objective by about 0\.7 percent of GDP\. Current primary expenditure was consistent with program objectives (CFAF 165\.9 billion, or 10\.4 percent of GDP), but the budgetary contribution to investment slightly exceeded the program's projection\. Overall, the current primary surplus and the primary surplus (the latter of which excludes externally financed capital expenditure) exceeded the objectives by 0\.3 percent and 0\.1 percent of GDP, respectively\. The overrun of the revenue objective is the result of the good performances of the corporate income tax, the tax on property income, the value-added tax (VAT), and customs duties, which more than offset the introduction, in April 1999, of the common external tariff\. This favorable outturn is attributable to an increase in the taxable profits of enterprises in 1998 and, at the same time, to the strengthening of the tax and customs administrations\. Specifically, the monitoring of large enterprises by the General Directorate of Taxes was strengthened through an improvement in collection and management procedures (including the upgrading of software) and a more concerted staff training effort\. Economic growth decelerated in 2000 on account of the political malaise in Burkina Faso and in C6te d'Ivoire, combined with adverse exogenous shocks, including a lower cotton crop, the rise in oil prices, and the events in C6te d'Ivoire that significantly reduced workers' remittances (the latter two adverse external shocks are estimated at around 2\.5 percent of GDP)\. Real GDP growth for 2000 is now estimated to reach 4 percent against 5\.7 percent programmed\. These developments may result in a mixed budgetary performance in 2000\. Significant progress was made in 1999-2000 in completing the last phase of the common extemal tariff (CET) of the West African Economic and Monetary Union (WAEMU), which was introduced in stages between July 1, 1998 and January 1, 2000 (see Table 3)\. The good results achieved at customs in spite of the CET (the program's objective was exceeded by 7 percent in 1999) were a consequence of (i) the strict application of the compensatory measures adopted to accompany the new classification of products under the CET; (ii) the computerization of new customs offices; (iii) the elimination of the remaining exemptions on public contracts; and (iv) the enhanced monitoring of foreign-financed projects for which the indirect taxes are paid by the Treasury\. In particular, the introduction of the new classification of import products was accompanied by the elimination of special VAT payment procedures for importers of raw materials and for the enterprises registered under the Investment Code\. - 6 -  Table 3: External Tariff Conditions Until June 1998 From July 1998 From January 1, From January 1, 1999 2000 Customs rates/categories 1 I1 111 1 11 111 I 11 111 1 11 \. 1 External tariff rates Customsduty/Fiscalduty 5 9 31 5 9 25 5 10 25 5 10 20 Statistical tax 4 4 4 4 4 4 4 4 4 1 1 1 Special intervention tax 2 2 2 \. \. \. \. \. \. \. Total 11 15 37 9 13 29 9 14 29 6 11 21 Community solidarity levy (PCS) I 1 I 1 1 I 1 1 15 1\.5 1\.5 Intra WAEMU tariff rates Local primary products 0 0 0 0 Eligible industrial products of 60 percent 60 percent preference 80 percent preference 100 percent origin preference reference Non-eligible products of origin -5 percentage points -5 percentage points -5 percentage points -5 percentage points External Tariff Revenue 1997-2000 (In billions of CFA francs unless otherwise indicated) 1997 1998 1999 2000 Est Est Orig Prog Prog Est Prog Total extemal tariff revenue 49\.9 49\.7 44\.7 39\.4 43\.2 34\.9 as a percentage of GDP 3\.6 3\.2 2\.7 2\.4 2\.7 2\.0 Import duties 43\.0 43\.8 39\.8 37\.3 40\.4 31\.0 asapercentageofGDP 3\.1 2\.9 2\.4 2\.3 2\.5 1\.8 Customs duty/Fiscal duty 32\.6 32\.1 28\.0 26\.2 29\.0 27\.5 Statistical tax 10\.4 11\.7 11\.8 11\.1 11\.4 3\.5 Other import taxes 5\.9 4\.7 3\.5 0\.8 1\.6 2\.5 Special intervention tax 4\.9 2\.9 0\.0 0\.0 0\.0 0\.0 Special community tax (TPC + TCNA) 1 1\.8 1\.0 \. 1\.0 0 TDP/TCI \. \. \. \. \. 1\.5 Transfers from WAEMU 1/ \. \. 2\.5 0\.8 0\.6 1\.0 Other taxes on intemational trade 1\.0 1\.2 1\.4 1\.3 1\.2 1\.4 Contribution of livestock sector (on exports) 0\.6 0\.7 0\.8 0\.8 0\.6 0\.8 Penalties 0\.4 0\.5 0\.6 0\.5 0\.6 0\.6 Memorandum items: Nominal GDP 1390 1529 1645 1629 1589 1713 Transfers to WAEMU and CDEAO 0\.9 2\.4 2\.4 2\.4 2\.3 2\.3 (community solidarity levy) 1/ Single tax on petroleum products (TUPP) 9\.4 8\.3 12\.9 12\.9 11\.7 12 VAT on imports 24\.9 27\.4 26\.2 26\.2 32\.9 32\.9 (as a ercentage of GDP) 1\.8 1\.8 1\.6 1\.6 2\.1 1\.9 11 The WAEMU and the ECOWAS collect a solidarity levy onextracommunity imports, respectively of I percent since January 1, 2000 and 0\.5 percent of import value; the WAEMU transfers part of the receipts to member states to compensate for shortfalls in tariff revenue due to intercommunitv trade\. In order to improve the environment for private sector development and sustained economic growth, tax policy adopted in 2000 in the framework of the 2001 budget bill builds on the above achievements to pursue reforms\. For 2001, the original revenue target of 14\.4 percent of GDP is expected to be achieved through the adoption of a number of revenue enhancing measures, including (i) improving on the tax withholding mechanism on imports and purchases from producers and wholesalers creditable against the corporate income tax; (ii) a reform of real estate taxation, and (iii) abolishing the differentiation in the taxation of cigarettes according to origin (domestically produced or imported) while increasing the average duty rate\. The authorities will also implement an automatic monthly adjustment of petroleum product prices in line with movements in world prices as part of a reform in the taxation of petroleum products in line with regional guidelines\. Rating: Achievement of the tax policy component of SAC III was fully satisfactory\. - 7 -  Public expenditures\. The Burkinabe authorities have greatly improved their budgeting and expenditure practices over the past five years\. A comprehensive public expenditure review in 1995, and a public expenditure incidence analysis in the education, health, and water sectors in 1996 and 1997 contributed to the understanding of equity issues, although not of the rationale and efficiency of expenditures in those sectors\. Following the adoption by the Boards of the Bank and the IMF of the HIPC Decision Point document of the original HPC Initiative in November 1997, the Government defined budgetary monitoring indicators; adopted a program for regular consultations between the Bank and the authorities on all budgetary issues; and established a multi-year program to enhance staff capabilities on PER-related matters\. An interministerial committee was set up to coordinate the subsequent work on the public expenditure management\. Table 4: Measures to Improve the Efficiency of Public Spending Policy Measures Status Issuing the terms of reference and recruit consultants for the The four studies were actually carried out with Bank technical preparation of studies in the framework of the public expenditure asistance and their results were discussed during a seminar review (education, health, financial decentralization, and public involving other donors and civil society representatives; the investment program) key lessons were integrated in the preparation of the MTEF and the main Tecommendations of the studies should be included in the budget guidelines for 2002, to be released in May 2001\. Adopting a plan of action and timetable for the extension of the The Govemment completed its first MTEF for 2001-2003 and MTEF approach to all key Govemment ministries for the year 2001 presented it to Parliament in October 2000 with the 2001 budget budget bill\. Completing and sending the year-end budget execution reports for Done\. The budget reports for the 1995-98 period are due in the 1993 and 1994 budgets (lois de reglemen) to the Supreme March 2001\. Audit Institution (Chambre des Comptesde la Cour Supr6me); Progress was made in 2000 in improving the monitoring of public expenditure in health and education\. Four studies carried out by the Burkinabe authorities with assistance from the Bank focused on health, education, public investment, and budget procedures for financial deconcentration\. They were discussed in mid-2000 with civil society and representatives of the donor community, and were used to finalize the Government's Poverty reduction strategy paper (PRSP)\. As a result of these efforts, budget guidelines were significantly improved over the past three years: in conformity with the HIPC social targets, the share of actual public expenditure for health and education in the budget has increased\. Table 5: Govemrment Resources Allocated to the Socia I Sectors (in percent) Policy Measures 1997 1998 1999 2000 Taraet Actual Target Actual Target Actual Target Increase share of budget 12\.0 11\.9 12\.6 12\.2 13\.1 13\.9 12\.4 expenditure on health (*) Increase share of budget 14\.6 14\.5 14\.3 15\.8 13\.0 14\.2 15\.0 expenditure on basic education(*) (*) Excluding foreign-finance investment and interest expenditures A shift to performance budgeting was made for six key ministries (Health, Finance, Interior, Defense, Basic Education, and Secondary/Technical education), with outcome indicators to monitor efficiency, and increased accountability for line managers\. A medium-term expenditure framework for 2001-2003 was prepared in 2000 and presented to Parliament in October 2000 with the 2001 budget bill\. The MTEF led to major improvements in the process of budget formulation\. Designed as the linking framework that - 8 -  facilitates the management of tension between sectoral policies and financial constraints, it helped the Burkinabe authorities identify three phases of budget management: (i) a medium-term statement of fiscal policy goals with specific targets for the period 2001-2003; (ii) a statement of strategic priorities in terms of medium-term resources available-this provides a measure of budget predictability to line ministries and all spending agencies while respecting the fiscal discipline imperative; and (iii) the need for budget innovations to move towards output, or outcome-based budgeting\. In addition to reinforcing fiscal discipline and improving strategic prioritization, the MTEF preparation process and the 2000 PER studies highlighted the need for further reforns that seek to improve operational efficiency\. Service quality in the public sector is still low, unit costs high and outcomes disappointing, although improving slowly in the education and health sectors\. Following the recommendations of the PER studies carried out in the framnework of SAC III and in conformity with the findings of the analytical work underpinning Ten-year programs in social sectors, the authorities have adopted action plans to improve the efficiency of public expenditure\. These actions plans were found satisfactory by the Bank\. The costing and funding of these plans are properly reflected in the MTEF\. A Participatory Poverty Assessment under preparation with Bank support will also shed light on issues of expenditure efficiency from the beneficiaries' point of view\. Rating: Achievement of the public expenditure component of SAC III was fully satisfactory\. Budgetary procedures\. In the framework of implementing the policy reform program underpinning the EMRSO and SAC III, Burkina Faso has made efforts over the past three years to simplify budgetary procedures, improve governance and reduce corruption\. As a result of all these measures, including the decision to integrate the payroll management system (SYGASPE) into the financial management system in August 1999, the following improvements were observed: * The unified budget system has been completed and the implementation of a computerized expenditure management system (Circuit de la depense) was significantly advanced, which makes it possible to track the State's accounting and financial transactions (some ministries are currently decentralizing this facility)\. * Since 1998, the Govemment has carried out a systematic review of public expen(liture by a national team of experts under the supervision of an interministerial committee\. O For any given financial year since 1998, budget guidelines were improved to reflect lessons from PER and progress in the policy dialogue with the Bank and other donors on budgetary matters\. * Major improvements were observed in public procurement procedures, such as the periodic publication of bids received in public tenders\. * Trade liberalization and tariff reform have also reduced rents and increased revenues from customs administration\. * The privatization program has removed a large source of rents and patronage from the public sector\. The restructuring of the financial sector and related reforms have greatly reduced the role of Government in credit allocation decisions (delinquent borrowers are prohibited from obtaining new bank loans and from bidding on public procurement contracts and privatization)\. The Government has also carried out a major overhaul of its business laws by adopting new business laws under the OHADA treaty\. * In 1999 and for the first time in over a decade and thanks to the reform program supported by SAC III, budget execution reports laws (lois de reglements) for fiscal years 1993 and 1994 were enacted by the National Assembly; the Government is committed to completing reports for the 1995-98 period by March 2001\. * An independent Supreme Audit Court was created in 2000\. It will be given aL larger role in the preparation of audited budget laws\. -9-  * An audit of military expenditures for fiscal year 1999 is currently being completed and will be transmitted to the Supreme Audit Institution and to Parliament\. Rating: Achievement of the budgetary procedure component of SAC III was satisfactory\. Regulatory framework The promulgation of the law no\. 051/98/AN, establishing the regulatory authority for the telecommunications sector was one of the conditions for Board presentation of SAC III\. Together with several important reforms measures in the telecommunications, the creation of the regulation authority ARTEL has led to the improvement of domestic competitiveness in Burkina Faso\. Table 6 below indicates that the implementation of the reform program has already contributed to significant reductions in telecommunications costs in Burkina Faso\. Table 6: Decreasing Costs of Telecommunications 1999 2000 Variation Telephone costs Domestic city to city phone FCFAF 320-400 280 -22% calls (201 to 400 km) per minute International calls Africa Zone AI (West) FCFAlmn 780 480 -39%/o Africa Zone A2 (other FCFAlmn 780-2560 750 -4% a -77% countries) Europe Zone I (EU) FCFA/mn 1100-1500 750 -32% A 60%/o Europe Zone B3 (Spain, FCFA/mn 1500 1200 -20% Italy, Holland, Sweden, Switzerland) Asia FCFAlmn 2260-2560 1200 -47% A -61% America Zone Dl (USA, FCFAJmn 1100-1260 750 -32 A -74% Canada) Source: Burkina Faso, Provisional Report on the Government's remainingz portfolio of public enterprises Rating: Achievement of the regulatory framework component of SAC III was fully satisfactory\. 4\.3 Net Present Value/Economic rate of return: Not applicable 4\.4 Financial rate of return: Not applicable 4\.5 Institutional development impact: The institutional development impact of SAC III is rated substantial, mostly because the Burkinabe authorities exceeded expectations by completing a full MTEF\. The Bank strategy for institutional development consisted of using the SAC III operation as one of many instruments for developing consensus in favor of a larger reform agenda\. The credit served as a vehicle for the articulation of a comprehensive action plan for the new economic policy framework and institutional reform, and as a rallying device to help push through the preparation of a first medium-term expenditure framework that were central to this framework\. The credit lent impetus for the implementation of some important institutional measures (strengthening of tax administration through new equipment and changes in procedures, overhaul of the budget preparation process in key ministries, establishment of a task force in the Ministry of Economy and Finance to complete budget reports on a regular basis, modemization of the payroll management system - 10-  with the SYGASPE), some of which were subsequently endorsed in the Government's 1'RSP\. The adoption of a full MTEF to be updated every year is an important step in budget management\. 5\. Major Factors Affecting Implementation and Outcome 5\.1 Factors outside the control of government or implementing agency: SAC III was a one-tranche operation supporting policy measures that were all implemented prior to Board approval\. However, the final outcome of the reform program implemented may be affected in the medium-term by the deterioration of external economic prospects\. Given the heavy reliance of Burkina Faso's economy on cotton, gold, and livestock exports, the main factor that affected the outcome of SAC III was the depression of regional as well as global demand, which slowed export growth in 2000 and delayed implementation of the poverty reduction strategy\. Burkina Faso's economic success will substantially depend on external factors (demand for cotton, world prices, the dollar/CFAF exchange rate)\. The medium-term balance of payment projections for Burkina Faso, which will strongly influence the country's rate of economic growth and public finance performance, are subject to substantial uncertainties regarding export volumes and prices for cotton and gold\. 5\.2 Factors generally subject to government control: Implementation of SAC III was not hindered by the deteriorating political climate in the country and in the West African region\. However, the 1999-2000 period was marked by social tensions and growing political dissent, epitomized by student strikes that eventually led to the annulment of the university year, and boycott by the opposition parties of the September 2000 municipal elections\. This led to the resignation of the Government in November 2000\. These domestic political tensions did not delay the implementation of the SAC III program\. However, they may eventually affect the new Government's determination to push ahead with the next phase of reforms (administrative and civil service reform, decentralization) and the final outcome of the broader reform program\. 5\.3 Factors generally subject to implementing agency control: Not applicable 5\.4 Costs andfinancing: Not applicable 6\. Sustainability 6\.1 Rationale for sustainability rating: The sustainability of the reform program supported by SAC III is likely\. There is a new Govermment since November 2000 and the intent seems to be to continue with the institutional reforms\. Although there are questions about the pace of the desirable further reforms, particularly with respect to the decentralization of public finance management and some key reforms in the education sector, policy reversals on the specific reform measures that were supported by this SAC are unlikely\. The dialogue with the Burkinabe authorities has been very good over the past three years, and Burkina Faso has successfully implemented two three-year ESAF/PRGF programs; the current third PRGF program is on track\. Sustainability is enhanced by the fact that most reforms implemented in the framework of this operation are necessary for moving forward with the regional integration process, which is Government's overriding prioritv\. 6\.2 Transition arrangement to regular operations: Beside financing the gap created by the shortfall in fiscal revenue due to the implementation of the WAEMU's CET and supporting reforms to enhance the competitiveness of the Burkinabe economy, the SAC III operation, as well as the 1998 EMRSO, has built a foundation for further structural reforms to be carried out by the Government\. The series of adjustment credits (SAC I, EMRSO, SAC III) have prepared - 11 -  the ground for momentum toward further restructuring programs and for Bank's future assistance to Burkina Faso\. Since SAC III was approved in November 1999, the Bank has stepped up its work on public finance management in Burkina Faso, in close collaboration with the IMF and other development partners\. Recent PER studies and other analytical work carried out during the preparation of the 2001-2003 MTEF indicate that full implementation of sectoral strategies already adopted or currently being finalized in priority sectors (education, health, rural development) will require major improvements in public sector management\. The Country Assistance Evaluation noted that Bank projects in Burkina Faso, while quite comprehensive in coverage and broadly consistent with one another, have too often been conceived independently, with little explicit analysis of potential trade-offs among them\. In order to address the country's weak institutional capacity and to ensure sustainability of the reform program, the newly adopted CAS envisages a shift from project lending towards program lending, which will imply a gradual change in lending instruments\. The proposed Poverty Reduction Strategy Credit (PRSC) instrument would be consistent with the framework for programmatic adjustment lending\. It would provide an adequate framework for comprehensive public finance reforms that require simultaneous actions at the level of the Ministry of Economy and Finance, and at the level of line ministries\. Its flexibility would also provide a more effective mechanism to address sector-wide issues that cannot be dealt with under traditional, stand alone investment projects\. The PRSC would also facilitate the dialogue on the Government's overall use of public resources, regardless of their source\. Finally, by focusing directly on the four main pillars of the PRSP, the PRSC would help strengthen donor coordination and Government ownership of the reform program\. 7\. Bank and Borrower Performance Bank 7\. 1 Lending: Bank performance from identification to completion was satisfactory\. The reform program associated with SAC III was based on intensive analytical work carried out with the Government team\. Lessons from previous lending operations were fully taken into account\. The Bank has developed a close relationship with Burkinabe counterparts and now plays an effective supporting partner's role in the country\. SAC III played an important role, in conjunction with other lending and non-lending operations, in helping Burkina Faso enhance domestic competitiveness and meet its commitment to deeper regional integration at a critical phase of WAEMU history\. 7\.2 Supervision: Bank staff visited Burkina Faso five times in 2000 to supervise program implementation, participate in public expenditure reviews and in the preparation of the 2001-2003 MTEF, and prepare the following adjustment lending operation\. A key element of supervision was the seminar on the MTEF and the workshop on macro-modelling held in Ouagadougou in April-May 2000\. The timing of these two events- just before the 2001 budget guidelines were released and just before the kick-off of the 2001 budget preparation process-helped create the momentum for finalizing the Government's PRSP, and reach agreement with the authorities on the next phase of public finance reform\. An economist who had previously been involved in the preparation process of SAC III was recruited at the Resident Mission a few weeks after Board approval\. This allowed for close monitoring of the progress in the implementation of other actions stated in the 1999 Letter of Development Policy\. 7\.3 Overall Bank performance: Rating: Based on the above, the Bank's performance is rated satisfactory\. Borrower - 12 -  7\.4 Preparation: Government performance in the preparation of the operation was satisfactory\. At the very early stage of the preparation process, the Government team visited the Bank to discuss possible areas of policy reforms to be supported by the credit\. Background studies were then launched and funded by the Government\. 7\.5 Government implementation performance: The Government implementation of the program was satisfactory overall during a period of political tension and economic uncertainty due to losses in the terms of trade\. Given the delicate nature of some of the policy issues covered in the SAC III program (i\.e\. the reduction in corporate income taxes), the Government was successful in seeking the engagement and assistance of other donors, including the IMF, in its efforts to maintain macro-stabilization while setting the stage for economic and institutional reforms aimed toward long-term sustainable growth\. The Government performed well on all four components of the program-tax policy, public expenditure, budgetary procedures, and the regulatory framework-and confirmed its strong commitment to reforms\. All the major policy measures specified in the Letter of Development Policy were implemented as planned\. There was strong ownership from the Ministry of Economy and Finance and support by key sectoral ministries and all major donors (ADB, IMF, European Union, Denmark, Switzerland, and the Netherlands)\. The SAC III accounts should be audited in the framework of the preparation of the 1999 budget execution report\. 7\.6 Implementing Agency: Performance of the implementation units was adequate\. The four major divisions in the Ministry of Economy and Finance in charge of SAC III (Secretariat Technique pour la Coordination des Programmes de Developpement Economique et Social, the Direction Gene'rale de Imp6t, Direction Generale des Douanes, and the Direction Generale du Budget) achieved their goals as stated in the program\. They benefitted from their experience with the previous adjustment operation (EMRSO)\. 7\.7 Overall Borrower performance: Rating: Overall, Borrower's performance is rated satisfactory\. 8\. Lessons Learned The main lessons learned from this operation are specific to the adjustment credit or related to the broader, unfinished agenda for public finance reforms\. (i) Lessons from SAC III Design\. A single-tranche operation can be an effective tool to address specific issues and provide limited budget support to the Government in the context of a difficult policy dialogue\. Because of the important disagreements with the authorities on the content and pace of the reform program in the agricultural sector, the Bank decided in 1998 to cancel a large sectoral adjustment credit which had been under preparation for almost three years\. The EMRSO and SAC III were designed as transitional arrangements to contribute to the financing of the budget gap while completing the analytical work to inform the debate about the development strategy\. The positive results of these two one-tranche operations underline the importance of taking the time to build consensus on the reform agenda, and the need to avoid conditionality-driven operations (see above)\. Timing\. External financial assistance is more effective when provided at the start of the Govermment's fiscal year, so that the support is known in advance to be available and can be used as a basis for making domestic budget management more predictable\. SAC III was effective because it was tied to the budget cycle and provided compensatory financing for a reform program that was well defined in advance\. The - 13 -  single tranche was released in late December 1999 and, although the credit was partly used to finance the end-of the year financial gap, a large fraction of the funds was available to the Government at the beginning of their fiscal year 2000 and included in budgetary planning\. Focus\. Because public resources are fungible and given the nature of adjustment lending, it is more appropriate to focus on the Government's overall use of resources than on its specific use of Bank funds\. This points to the need for a sound knowledge of the country's public fnancial management arrangements\. A Country Procurement Assessment Report (CPAR) was recently completed in Burkina Faso and the preparation of a Country Financial Accountability Assessment (CFAA) will start shortly\. The adjustment instrument itself can be very effective in preparing the analytical work, in identifying the weaknesses in the system and in supporting the policy reforms and institutional changes needed to improve financial accountability\. Long-Term Approach\. The reforms supported by this operation, especially tax and trade reform, were described as essential to create an environment conducive to efficient private sector investment and growth, One needs to keep in mind, though, that transition to a more competitive economy is a long term process and there is a limit to what a single adjustment lending activity can achieve\. This SAC was one of the initial efforts of the Bank to support a new paradigm-the accelerated growth strategy- in Burkina Faso and it was expected that the reform process would be supported with subsequent lending\. Public finance reform and regional integration will benefit Burkina Faso's growth over the medium and long-term\. (ii) Lessons Learned to be Applied to Remaining Agenda Challenges of Public Expenditures Management\. Improved public expenditure management requires fundamental changes in the Government's range of commitments\. Efforts based on attempts to control expenditures strictly from an administrative perspective will have limited success\. As a result of SAC III, a MTEF is now recognized by the Burkinabe authorities as a necessary step for improving the overall effectiveness of budgetary management\. However, one important lesson learned from the operation is that some practical difficulties will need to be addressed in the near future: (i) Opportunities for obtaining extra-budgetary resources must be controlled\. This is not an easy task in a highly aid-dependent country like Burkina Faso, especially when aid coordination is sub-optimal; (ii) to achieve greater benefits of the MTEF and to ensure that it is welcomed by all line ministries, the process of financial decentralization and delegation of authority must move forward\. Budget-driven policy changes will be sustainable only if resource allocations become more predictable as a result of the adoption of the MTEF\. The credibility of the process will be undermined if the Ministry of Economy and Finance is unable to stick to its commitments; (iii) technical improvements to revenue and debt forecasting and measures to smooth the flow of foreign aid (especially grants) will constitute an important requirement for a rigorous MTEF\. After Board approval of SAC III, the Bank supported a Burkinabe team working on the medium-term macroeconomic framework and modellisation issues\. It is crucial that this task be carried out on a regular basis; and (iv) ensuring that program-costing is more accurate may take some time, as it requires a strong and reliable information basis for all key sector ministries--and the incentive for such efforts are not always there\. Capacity building and Knowledge\. Changes in Bank assistance to Burkina Faso over the next years--such as the progressive shift towards program support, debt relief through the HIPC initiative, increased lending to social sectors--will emphasize the importance of the effectiveness of Government institutions that manage these transactions, and will reduce the relative importance of tracking individual Government and Bank projects as a source of fiduciary assurance\. Because Government institutions will play an increasingly important role in providing assurance on the use of Bank funds, the Bank should continue to - 14 -  support programs to build capacity to manage public finances\. The Bank should therefore continuously improve its knowledge of Burkina Faso's public financial management arrangements through : (i) more systematic coverage and increased frequency of fiduciary analytical work ; and (ii) the use of information available from other international organizations-the IMF, IFAC, IASC, and 1NTOSAI-that issue standards, codes, and guidelines with respect to accounting, auditing, and financial management\. Reporting and Auditing\. The requirement to provide the Bank with ex-post informaticin on the Government annual accounts audited by the Supreme audit institution, and to transmit these budget reports to Parliament every year has proved to be very effective in improving transparency and in moving towards accountability in the use of public funds\. Even though these audited accounts are not intended to provide assurance on the specific use to which Bank funds have been applied, they shed light on the overall financial management performance of Government institutions\. It seems appropriate to keep this requirement-which is already embodied in Burkinabe laws-as a rule for future adjustment operations\. 9\. Partner Comments (a) Borrower/implementing agency: Below is an implementation completion report received from the Ministry of Economy and Finance in December 2000\. Burkina Faso has been engaged since 1991 in a vast program of economic reforms supported by the Bretton Woods institutions and the development community\. Three successive triennial programs, supported by agreements under the IMF's Enhanced Structural Adjustment Facility and by structural adjustment (SAC 1, EMRSO and SAC III) and sectoral adjustment credits (PASA, PASEC-T) from the World Bank, have also been implemented\. These programs were aimed at laying the groundwork for a liberal economy functioning according to market principles and in which the private sector would be the main engine of growth, and they led to profound alterations in the institutional and economic environment\. The country has, especially since the 1994 devaluation, resumed sustained growth (5,5 percent on average between 1994 and 1999), accompanied in particular by the adjustment of public finances, the modernization of the economic administration, the restructuring of the banking and public enterprise sectors, and the modernization and development of financial institutions\. The present document was produced by the Burkinabe authorities to report on the final status of the third Structural Adjustment Credit (SAC III) in the amount of 18 million SDRs (US$ 25 million excluding fees and taxes) granted by the World Bank during the 1999 fiscal year\. The first section reiterates the objectives of SAC III, the second relates the main results obtained, and the third states the main lessons to be learned from the operation\. Project objectives The SAC III is part of the World Bank's strategy to help Burkina Faso consolidate recent progress in macroeconomic management and to move from the stabilization phase on to a phase of enhanced structural reforms and sustained economic growth\. Its purpose is to support a reform program intended to: - enhance the economy's competitiveness so as to achieve significant acceleration of the medium term growth rate and a perceptible reduction in poverty in the country; - improve the management of public finances, and particularly tax policy and the use of public resources; - accompany implementation of the new phase of the common external tariff (CET) adopted by the - 15 -  West African Economic and Monetary Union (WAEMU), which went into effect on January 1, 2000\. Achievement of the main objectives Macroeconomic objectives Restoration of GDP growth The overall macro-economic objectives were achieved over the 1997-1999 period\. GDP in constant prices increased at an annual rate of 4\.5 percent between 1985 and 1999, rising from CFAF 663\.1 billion to CFAF 1,120\.1 billion\. Between 1985 and 1990/91 GDP trends were characterized by a series of growth and recession phases\. The economy was strongly dependent upon the primary sector, and mainly on agriculture\. Climatic conditions were unstable during this period, however, affecting agricultural yields and production in such a way that the sector's performance had a strong impact on overall GDP growth\. From 1990 to 1994, the annual growth rate was 2\.4 percent\. Although this situation could be seen as due to a sluggish international economy and unfavorable world prices for raw materials, the causes were deeper and specific to the economy of Burkina Faso: the terms of trade deteriorated steadily over the period, reflecting the economy's loss of competitiveness; implementation of reforms under the Structural Adjustment Program forced the economy to "adapt"; and, in particular, the rumors and expectations, in 1993, of a CFAF devaluation prevented an investment-friendly climate of confidence from establishing itself\. Following the 1994 devaluation, GDP (in real terms) fell by 1\.2 percent, due to a decline in activity in the secondary and tertiary sectors of 2\.4 percent and 2\.7 percent, respectively\. This drop is explained essentially by the contraction of domestic demand resulting from the loss of purchasing power on the part of households and the wait-and-see attitude adopted by economic operators\. On the other hand, GDP seems to be on the upswing since the devaluation: it increased by 4\.1 percent in 1995, 6\.2 percent in 1996, 5\.5 percent in 1997, 5\.7 percent in 1998 and 5\.8 percent in 1999\. Although the primary sector continues to drive economic growth, the two other sectors are also showing a respectable level of activity\. Price trends After the price hike that occurred in 1994 due to the devaluation, the consumer price index continued to rise, but less quickly\. Prices have been more or less under control since then: the inflation rate, which was 6\.1 percent in 1996, 7\.3 percent in 1997, and 4\.9 percent in 1998, stabilized at -1\.1 percent in 1999\. This last result is explained by an increase in cereals production in 1998 and 1999 (16\.8 percent and 1\.6 percent, respectively) following two consecutive years of good rainfall, which resulted in a decline in the price of agricultural products\. Public finances Improvements to the budget system since -1994, combined with the introduction of tools and instruments for budgetary management, have led to a definite improvement in the public finance situation\. The situation remains fragile, however, and the progress made needs to be solidified\. Since 1994, public fnances have improved as a result of improved budget revenues and firm control over public expenditures\. Over the 1997-1999 period, current revenues increased by 18 percent, and the share represented by tax revenues averaged 92\.6 percent \. Despite these favorable results, the tax/GDP ratio, although it increased in relation to what it was in 1990, stagnated at 12 percent between 1990 and 1995 before rising to about 13 percent - 16 -  or 14 percent in 1999\. The revenue/GDP ration also evolved in the same direction over the entire period\. However, a change has been occurring since 1996 in the structure of tax revenues, since taxes on goods and services rose from CFAF 37\.9 billion to CFAF 51\.3 billion between 1997 and 1999, for an increase of 35\.4 percent, whereas import revenues (i\.e\., taxes on external trade) have only increased by an average of 1\.6 percent over those two years (with, in addition, a deviation, since they declines by 7\.1 percent between 1997 and 1998, but then increased by 9\.4 percent between 1998 and 1999)\. Thus, the share of import revenues within tax revenues went from 51\.2 percent to 44\.2 percent between 1997 and 1999\. Grants increase most significantly during 1999, although their level has always been relatively high (on average 30 percent of total resources over the 1985-1996 period, excepting 1989)\. They represented 39\.8 percent of total resources in 1999, compared to 30\.1 percent in 1997; the observed increase consists of project-related grants which involved 83\.3 percent of the grant total in 1999, comipared to 32\.1 percent in 1998\. Budget ratios 1996 1997 1998 1999 Total revenues (excluding 12\.3% 13\.1% 13\.1% 15\.0% privatization)/GDP Tax revenues as share of GDP 11\.5% 12\.0% 12\.0% 14\.0% Cunent expenditures as share of GDP 10\.4% 10\.1% 10\.4% 11\.3% Investnents as share of equity/GDP 1\.2% 2\.7% 3\.1% 2\.6% Projects under extemal financing/GDP 9\.6% 9\.7% 9\.9% 12\.1% Source: TOFE, STC/PDES Regarding expenditures, it was only in 1994 that a clear improvement was noted: from 1990 to 1994 total expenditures increased by 73\.4 percent , current expenditures by 54 percent (despite containment of the wage bill) and capital expenditures by 111 percent\. Starting in 1995, budget ratios for public expenditures improved: in 1999 the wage bill had declined to only 46\.1 percent of current expenditures (although this level is still above the 40 percent maximum set by WAEMU as a convergence criterion), and current expenditures rose from an average of 10 percent of GDP between 1996 and 1998 to 11\.6 percent of GDP in 1999 (which was the level reached in 1995)\. Over the 1997-1999 period, considerable effort was made with regard to capital expenditures financed out of equity: their amount rose from CFAF 32\.8 billion to CFAF 41\.2 billion, for an increase of 125\.6 percent\. In relation to total investment expenditures, capital expenditures financed out of equity went from 22\.1 percent to 17\.5 percent between 1997 and 1999, for an increase of 159 percent in total investment expenditures over the same period, and the percentage of GDP went from 3\.3 percent to 3\.7 percent\. This result is attributable to marked progress in the area of budget savings\. Budget savings eroded steadily over the 1985-1994 period, dropping from CFAF 14\.2 billion to CFAF -22\.3 billion (or 2\.2 percent of GDP)\. On the other hand, between 1995 and 1999 the share of budget savings in GDP went from 0\.6 percent to 3\.1 percent\. As for the baseline cash deficit between 1997 and 1999 (which grew from 40 billion CFAF to CFAF 70\.5 billion), the increase is due to the explosive growth of capital expenditures, especially those associated with grant-related projects, and to growing investment efforts financed out of equity -- +10\.8 percent in 1998 and +43\.6 percent in 1999 -- as well as to - 17 -  continued efforts to reduce payment arrears\. Budget indicators 1996 1997 1998 1999 Budget savings (") 26\.87 42\.58 41\.20 58\.70 as %ofGDP 2\.1% 3\.1% 2\.7% 3\.7% Primary surplus(**) 21\.49 14\.84 6\.34 5\.11 as % of GDP 1\.7% 1\.1% 0\.4% 0\.3% Overall balance of commitments (**) 9\.99 3\.12 -6\.39 -8\.61 as % of GDP 0\.8% 0\.2% -0\.4% -0\.5% Overall baseline cash balance, excl\.grants -133\.61 -143\.46 -165\.59 -210\.02 (*) current revenues, minus operating costs including net interest payments on debt and loans (*): current revenues, minus net expenditures and loans, excluding restructuring, extemally financed projects and debt interest (***): excluding grants, restructuring costs and extemally financed investments Sources: TOFE STC/PDES Public debt Outstanding debt has increased steadily since 1985, and although it decreased in 1998 by 2\.5 percent, it still stands at 52\.4 percent of GDP, i\.e\., at CFAF 793\.1 billion (as against CFAF 178 billion in 1985), for an average annual growth rate of outstanding debt of over 12 percent\. Burkina has, however, benefited from important debt cancellations: CFAF 60\.2 billion in 1989 in connection with the Dakar Initiative, and CFAF 70 billion after the devaluation (Dakar II Initiative)\. Over the 1995-1998 period, the average annual growth rate was 4\.1 percent for external debt, and 7\.5 percent for internal debt\. Outstanding debt 1985 1990 1995 1996 1997 1998 1999 Public debt 178\.0 223\.8 699\.5 728\.7 813\.3 845\.9 930\.5 as %ofGDP 26\.8% 28\.8% 61\.1% 59\.3% 59\.1% 57\.4% 60\.3% Public extemal debt 165\.5 208\.6 667\.5 692\.6 768\.2 799\.5 888\.2 as % of total debt 93\.0% 93\.2% 95\.4% 95\.0% 94\.5% 94\.5% 95\.5% Public intemal debt 12\.5 15\.3 32\.0 36\.1 45\.1 46\.3 42\.3 Debt service and arrears Despite trend fluctuations linked to various debt arrangements, this indicator increased on average by 14\.6 percent per year between 1985 and 1999, i\.e\., at a pace lower than that of outstanding debt\. Lending conditions evolved towards more concessional loans\. In relation to GDP, debt service did not exceed 3 percent, except in 1994 and 1995 (prior to the Dakar II Initiative) and in 1999 (when it was 3\.4 percent of GDP)\. As a percentage of current revenues, the average over the 1995-1998 period was 22\.1 percent \. - 18 -  Although these levels are still "acceptable", they still require close surveillance, since budget revenues are still relatively unstable and debt service weighs heavily on the Government budget\. Debt service 1996 1997 1998 1999 Public internal debt 14\.16 8\.33 8\.98 17\.07 as %ofthe total 37\.5% 25\.0% 25\.2% 34\.5% Interest 2\.60 3\.02 3\.23 3\.36 Principal 11\.57 5\.31 5\.75 13\.72 Public external debt 23\.64 25\.03 26\.71 32\.35 as % of exports 19\.9% 18\.7% 14\.0% 20\.7% Interest 8\.90 8\.70 9\.50 10\.36 Principal 14\.74 16\.32 17\.20 21\.99 Public debt service 37\.81 33\.35 35\.69 49\.42 as % of GDP 2\.9% 2\.4% 2\.3% 3\.1% Interest 11\.50 11\.72 12\.73 13\.72 Principal 26\.31 21\.63 22\.96 35\.70 Here again, although external debt service outweighs internal debt service, the differential is less great compared to the earlier situation\. This trend is attributable to more restrictive and less concessional lending terms\. However, the ratio of external debt service to exports has tended to improve since 1995, rising from 21\.2 percent to 24\.5 percent in 1999\. This trend can be explained by the 17\.8 percent drop in the volume of exports in 1999, whereas external debt service rose by 24\.1 percent\. Regarding arrears, those having to do with external debt have been entirely cleared since 1996, with the exception of an unspent balance on loans granted by Libya and the former Soviet Union, which amount to less than CFAF 5 billion\. As for internal debt arrears, the situation has improved here also: since 1997 they have been stable at 16 billion CFAF\. - 19-  Structural reform measures Reform in tax policy Impact of WAEMU Burkina Faso is committed to the process of integration into WAEMU which began in 1994\. A major step in this process was the creation of a customs union in 2000\. Burkina Faso is in agreement with all the outlined prospects, namely the temporary preferential trade regime and the timetable for establishment of the common external tariff which involved some intermediate steps\. Thus, as of July 1, 1996, the Government adopted the 30 percent reduction in entry fees for industrial products of approved origin; exoneration of all fees and taxes for entry into member states for products originating in member countries and traditional handicrafts; and a 5 percent reduction in entry fees for non-approved products\. In addition, as of July 1, 1997, the exemption for approved industrial products was increased to 60 percent\. It was raised to 80 percent as of July 1, 1999\. Since January 1, 2000, all arrangement have been made to implement the common external tariff\. The fiscal system now has 4 categories of products and 4 customs duty rates: 0, 5, 10 and 20 percent\. The maximum rate was reduced to 20 percent and the statistical tax to 1 percent\. The adoption and implementation of these various measures has caused fiscal revenues to decline\. Simulations have shown that the loss of revenue is about 1 percent of GDP for the first two years of implementation of the TEC, and 2 percent for the third year\. The impact of the new customs tariff was appreciable over the 1998-2000 period, even after the reduction in debt service under the HIPC initiative\. 1996 1997 1998 1999 2000 2001 2002 Actuals FASR Program 1999-2003 Taxes on international trade 45\.8 50\.9 51\.6 45\.6 38\.3 40\.4 43\.4 As % of GDP 3\.5% 3\.7% 3\.4% 2\.9% 2\.2% 2\.1% 2\.1% Of which, external trade fees 45\.4 48\.6 45\.7 42\.1 34\.0 36\.2 39\.0 As % of GDP 3\.5% 3\.5% 3\.0% 2\.6% 2\.0% 1\.9% 1\.9% Current GDP 1298\.3 1390\.6 1524\.0 1591\.5 1712\.0 1897\.0 2060\.0 Estimated revenues excluding TEC (3% of projected GDP) 47\.7 51\.4 56\.9 61\.8 Over the 2000-2002 period, the effect will continue to be felt\. Revenue forecasts from international trade fees in the PRGF program indicate losses estimated at CFAF 17\.4 billion in 2000, 20\.7 billion in 2001 and 22\.8 billion in 2001\. Enlargement of the tax base Taking into account the anticipated impact of the common external tariff on budget resources, and in order to avoid increasing the tax burden on economic operators, the Government has undertaken an policy of enlarging the tax base\. Measures have been taken to strengthen tax collection and to combat tax fraud more effectively (Law N°38/98/ADP dated July 30, 1998)\. The Government has also taken measures, in connection with the Budget bill of 2000, to institute withholding at the source, at the point of customs -20 -  processing, and on wholesale purchases, deductible from corporate income taxes\. The various regulatory texts pertaining to this have been passed by the National Assembly\. Withholding at the source (i\.e\., of an installment of 2 percent ) was instituted as of January 1, 2000 (see Article 16 of the Budget bill of 2000), as was source withholding on payments made to non-residents for services rendered\. In addition, out of a concern to streamline the system of exemptions and attenuate its perverse effects on the economy, a study of exemptions was launched\. It analyzes the legal bases for the various exemption categories, assesses their financial cost and offers proposals to reduce exemptions to a maximum level of 10 percent of tax revenues\. These proposals include the simple elimination of exceptional exemptions, the reduction of exemptions granted under the Investment Code, and the retention of exemptions associated with externally financed projects and of those granted in connection with diplomatic privileges\. The measure aimed at stopping indirect tax exemptions and entry fee exemptions under the Investment Code cannot be implemented until the Investment Code within WAEMU is harmonized\. Finally, in order to combat fraud, the Government has reinforced the operational capacities of the agencies charged with preventing contraband and fraud, in particular by equipping the Coordination Nationale de Lutte contre la Fraude with offices and equipment\. Several arrangements have also been made with the customs administration, including: additional staff for customs brigades, and exchanges of information between customs services and other external services at the national and international levels with member countries of the International Customs Union\. To this end, a Regional Office for liaison with neighboring countries has been created within the customs service's fifth division\. Further efforts to combat fraud will include, in the near future, the assignment of customs officers to certain countries with a high rate of transit towards Burkina Faso and the creation of units for deferred and ex-post surveillance\. Reduction of 35 percent in the Corporate Income Tax and study of a 20 percent reduction The Government is aware of the burden that taxation imposes upon the productivity of enterprises and, in order to exploit the opportunities offered by economic integration into WAEMU and ECOWAS, it has undertaken a progressive reduction in the corporate income tax\. The drop to 35 percent takes effect under the Budget bill of 2000 (Article 11) as of January 1, 2000\. A study, for which terms of reference have been completed, will be completed in early 2001 in order to determine the macroeconomic impact of lower taxation of enterprises\. This study will allow the Government to ascertain the implications of the planned 20 percent reduction in the BIC rate\. Regulation lifting the ban on exporting hides and leathers The text issued by the Government is Bylaw N°99-004/MCIA/SG/DGC dated April 13, 1999, from the Ministry of Trade, Industry and Crafts\. This text was published in the local press\. Passage of a law on the organization of professional training A document providing guidelines on this subject was approved by the Council of Ministers in September 1999\. Increase in the threshold for enterprises subject to the simplified tax regime from CFAF 15 million to CFAF 30 million This issue will also be approached in the context of the planned study on the macroeconomic implications of lower taxes\. - 21 -  Improvement of customs and tax administration Within the Direction Geinirale des Impots (DGI) Rational administration of economic operators requires that financial administrations have a thorough familiarity with the taxable population\. In addition, taxpayer registration is an indispensable step in moving forward with the computerization of services\. The computerization of the DGI's activities, especially for taxpayer registration and integrated tax management (1998-1999), is nearing completion\. The DGI is now equipped with a software consisting of three modules covering the three main functions of a tax administration, namely: taxpayer identification and monitoring; determination of the tax base; and tax collection\. The central taxpayer registry has been purged, and the adjustment of the software for the tax base and tax collection is done\. All cable installation and renovation work has been completed\. Training of software users, scheduled for the second quarter of 1999, took place as planned\. A test is underway to check the software\. After the test, the DBASE IV software modules will be transferred to ORACLE\. The DGI's two main offices (Kadiogo I and Houet I) are henceforth computerized\. Within the Customs Service In order to increase efficiency and improve statistics, the Government has been in the process of computerizing customs offices since 1996, through the installation of the SYDONIA system\. The computerization of six additional customs offices (planned for December 1998), which was the follow-up to this measure, occurred during 1999\. Computerization of the processing of manifests is intended to boost the efficiency of the customs administration\. The computerization of this process (planned for December 1998) has been tested at the airport\. The test concluded in late November 1998\. The test at the airport yielded positive results, and is now being expanded to other customs stations\. Documents pertaining to each mode of transport have been drawn up\. Computerized processing of manifests has been operational since June 1, 2000\. Measures envisaged by WAEMU, especially regarding the free circulation of goods, require a strengthening of the system for verifying the value and the origin of merchandize\. Since 1992, Burkina has been relying on the SGS to perform the initial verification of imported merchandize\. This agency is cooperating in the establishment of a reference list of merchandize values within the Customs Service\. The Customs Service currently has a hard copy catalog compiled on the basis of data collected from the SGS and customs offices\. It is updated regularly by an ad hoc commission (the value commission created within the Customs Service)\. The system has been upgraded through the installation of new software for the computerized management of this data\. It was put in place with support from the SGS\. A first list of values became available in late 1998, and a second list was compiled during the second quarter of 1999 and made available to customs offices\. The telephone line that was needed was obtained during the first quarter of 1999\. The linkage with SGS is now operational\. File indexes are in place and are added to each week\. The introduction of a system for reconciling files of affidavits of value (SGS) with those of customs declarations (December 1998) experienced some technical difficulties\. Indeed, the inspectors' reports had not been copied into declarations submitted by the bureaus, which made it difficult to know which product has been inspected and which had not\. These initial technical problems have been resolved, and the merging of the two files is now complete\. Budget procedures and public expenditure management -22 -  Since the implementation of the Structural Adjustment Program, important measures have been taken to improve the budget system, its management and the composition of public expenditures\. Over the past few years, the authorities have developed numerous tools and instruments that are now operational, including: the computerized circuit for managing public expenditures; the new budgetary nomenclature adapted to budgetary practices; the system of administrative and salary management for Government personnel; and, very recently, integrated accounting of Government accounts\. In the context of a streamlining of budget management, the Government likewise adopted in 1998 the program budget approach as a new methodology for developing and implementing the State budget\. Six ministries, inclluding those charged with basic education and health, were selected to test the approach before it was expanded to all ministries\. When the 1999 budget was being drawn up, more targeted interventions were carried out; these were aimed at making participants in the budget process more aware of the goals of the new approach and at training them in the implementation methodology, including: definition of objectives to be attained during a given period in response to a need; identification of programs and activities to be implemented to fulfill those objectives; * assessment of activities to be carried out; * development of indicators required to assess the results of an intervention\. In order to increase the transparency of budget implementation and the efficacy of public expenditures, the Government opted to re-institute the practice of public expenditure reviews\. Budget procedures and management The public expenditure review Since 1999, the Government has undertaken, with help from the World Bank, to resume and systematize the Public Expenditure Review (PER) as an instrument for continuous improvement of budgetary policies\. In order to do this, it adopted a work program in 1999 aimed at internalizing the process and including it in the framework for consultation with development partners\. This approach made it possible to carry out two PERs in 1999, in the health and basic education sectors\. These two studies were able to incorporate results of two other studies undertaken in the same connection that concerned the institutional framework of the public investment program and the implementation of the State budget by regionalized structures of the Administration\. The PERs in the sectors of basic education and health made it possible to: i) gain an overview of the overall budget framework ; ii) study the budgeting system ; iii) analyze the distribution of credits; iv) assess the impact of public expenditures\. The PERs issued recommendations and were the subject of information workshops that gave the administration, development partners and representatives of associations and non-governmental organizations Parent/Teacher associations, labor unions, associations of physicians in private practice, etc\. an opportunity to discuss the relevance of the proposals and to validate the results obtained\. The Government approved a report on a timetable for implementation of the recommendations emerging from the studies\. See Annex 1 Medium Term Expenditure Framework (MTEF) The Government has become aware that the program budget can only be introduced gradually and that interventions must be programmed within an ever-changing framework, in such a way that the required - 23 -  change in mindset has time to take hold\. In order to support this approach, actions and reflections occurred during April 2000 to effectively shape the preparation of program budgets and of the annual budget\. Based upon these reflections, the working group charged with the PER was able to draw up a MTEF in collaboration with development partners and civil society (i\.e\., labor unions, private firms, NGOs, CESs, National Assembly, House of Representatives, etc\.)\. Sectoral budget allocations were determined for the next three years and the introduction of additional budget guidance instruments was planned\. While giving Burkina's Administration the additional capacity to handle the triennial programming of budget expenditures, the MTEF workshop made it possible at the same time to come up with a diagnostic of the current budget system, and then to make suggestions for improvement, taking into account the demands of a triennial budget framework\. The MTEF consists of the following elements: proposals for needed budget reform and a medium term vision for budget policy; * analysis of the macroeconomic outlook and growth prospects for the next three years an overview of the country's social welfare situation, with national priorities highlighted; a proposed budget policy for the next three years; proposed sectoral financing allocations for the 2001-2003 period\. This framework was approved by the Council of Ministers and will be henceforth expanded to include all Ministries and institutions\. This MTEF will be updated each year\. It applies to: (i) the public investment program; and (ii) operating expenditures, which must be in sync with objectives regarding social and infrastructural indicators (2000-2003)\. The goal of the MTEF is to limit public expenditures and progressively to modify their composition in favor of priority sectors such as health, education and infrastructure maintenance\. It should be stressed that this workshop also made it possible to expand the program budget system to all ministerial departments and to set sectoral budget allocations for Categories II, III, IV, and VI of the State budget for all ministries\. The budget for 2000 is a program budget\. It should be noted that the budget for 2001 now under preparation is in the same vein\. Implementation of the MTEF under the 2001 budget will support the process of program budgeting\. These program budgets, which propose medium-term budget plans, will be submitted to the National Assembly at the same time as the Finance Law for the 2001 fiscal year\. Circuits of expenditure In order to improve the efficiency of the State's financial management and budget preparation and monitoring, the Government has undertaken to computerize the services of the Ministry of Finance, with priority given to the unit responsible for monitoring investment expenditures and to the management of budget balances\. Regarding investments, the expenditure circuit for investments out of equity has been operational since 1996\. The expenditure review dealt with the education and health sectors, decentralization of budget implementation, as well as with improving the framework for presenting and monitoring the Public Investment Program\. Regarding the budget balance, the specific module in the expenditure circuit was included in the Integrated Administration and Salary Management System for Government Personnel (Systeme Integre de Gestion Administrative et Salariale du Personnel de l'Etat, SIGASPE)\. The system began operating in August 1999\. The computerization of the merged data files for the Civil Service and Budget Office is operational\. The integrated and automated system of administration and salary management of Government personnel has been introduced\. All administrative procedures relative to personnel management have been codified\. Arrangements have been made to strengthen the functional links between the DRH and the DAAF\. - 24 -  The system for managing public debt data with the SYGADE system was set up in 1998 with the purchase of computer equipment and software and their installation in a network\. Problems of information circulation among the various services involved (Direction de la Dette Publique, Direction Generale de la Coopiration pour les decaissements de crddits, Central Bank) remain to be resolved, however\. The interface of SYGADE with the circuit of expenditures has also not been accomplished yet\. Technicians have yet to be trained on the ORACLE software\. As regards the integration of Government accounting, some modules have been developed, but others remain to be finalized\. A consultant nmission is scheduled for November 2000 to complete the modules and train the users\. Preparation of budget closure laws for 1994-1996 A committee responsible for drawing up draft budget closure laws is now at work\. Draft laws for 1994 through 1996 have been finalized\. Line item checking is ongoing for 1996\. Reinforcement of the statistical apparatus The 1996 census is complete and the results were published in June 1998\. The work now underway deals with analysis of census results\. In this connection, 12 themes have been selected and the analysis entrusted to specialists\. The first draft of this work was submitted and examined at two workshops held in Ouagadougou and Tenkodogo during the first quarter of 2000\. Amendments emerging from these workshops will be taken into account and the results of the analysis published by late December 2000\. The definitive accounts series for 1989-93 were published in 1998\. Work on synthesizing the national accounts series for 1994-96 are underway\. The death of the Technical Assistant assigned to this task will likely slow down this work\. Although they were supposed to be available in March 2000, the provisional and partial accounts for 1994 through 1997, and possibly for 1998, will not be available until the end of 2000\. Work on revising the industrial production index (IPI), which involves revision of the industrial base and of the methodology, has been suspended pending the results of the effort to harmonize the IPI under WAEMU and AFRISTAT in such a way as to conform to their guidelines, as was done with the Harmonized Consumer Price Index\. The analytical plan for the priority household survey II is complete\. The two reports -- on statistical analysis of the priority survey II and development of the poverty profile -- were produced, re-read and amended in early August 2000\. The results should be published by September 2000\. Workshops for dissemination the results will be organized once the reports have been published\. A databank of socioeconomic information, especially for such priority sectors as education and health, assumed concrete form with the development of a social welfare performance chart\. Regulatory framework and sectoral policies The goal here is to improve the legal and regulatory framework for business, by creating an environment conducive to the development of the judicial system\. Restructuring ofpublic enterprises In the context of restructuring the telecommunications sector, two mobile wireless telephone licenses have been awarded to private operators\. The privatization of ONATEL has thus begun\. Bidding documents for -25 -  the recruitment of an investment bank to handle the study aimed at defining a privatization strategy were examined by the Privatization Commission in early September 2000\. A report and non-objection request were addressed to the World Bank for the recruitment of this investment bank\. Privatization of the management of the Ouagadougou and Bobo-Dioulasso airports is underway\. Regarding energy sector reform, laws are envisaged that will provide a regulatory framework for the electricity sector and open SONABHY's capital to private operators\. Creation of an environment conducive to private sector development The Government's efforts in this area have focused on establishing an entrepreneurs' center (underway), updating the private sector development strategy, developing the new private sector support program, and harmonizing national regulations with those of OHADA (Organisation pour I 'Harmonisation du Droit des Affaires)\. A mission from FIAS (a consulting service for foreign investment) visited Burkina Faso in May and June 2000 and made a series of concrete recommendations for simplifying the registration procedures required of enterprises in Burkina Faso\. The framework for Government/private sector consultation has also been revitalized for the monitoring of the new private sector support program\. Regarding the reinforcement of the judicial system, actions undertaken to put national and foreign private investment of solid footing include: the review (i\.e\., inventory and editing) of regulatory texts pertaining to enforcement of OHADA rules; training of magistrates and judicial support staff; and the establishment of a registry of business and equipment loans\. (b) Cofinanciers: (c) Other partners (NGOs/private sector): 10\. Additional Information Not applicable -26 -  Annex 1\. Key Performance Indicators/Log Frame Matrix Outcome IImpact Indicatoms: 111, 04 I I ~Proiecum I int PS AuaR$ _Estmt I~~~~~~~~~~~~~~~~~pl AdwN_¢ , mll Annual GDP per capita over 3 percent non applicable Estimated at 3\.0 percent in 1999 Inflation rate under 3 percent n\.a\. -1\.1 percent in 1999 Maintaining fiscal sustainability n\.a\. Govemment deficit (including grants) was 2\.9 percent in 1993 and 3\.4 percent in 1999 Improving domestic competitiveness n\.a\. Some input costs have decreased over the past two years (telecommunications) Attracting private investment n\.a\. Privatization revenue amounted to 6\.5 billions of CFA in 1998, 3\.7 billions in 1999, and is estimated at 14 billions in 2000 Output Indicators: ;___________ Proctd in last PSR AtEILtst Etmate Reduce tax rates: lowering the corporate n\.a\. The shortfall in fiscal revenue was smaller income tax from 40 percent to 35 percent than anticipated Adopt measures to modemize the main tax n\.a\. Tax revenue increased from CFAF 199\.5 offices billion in 1998 to 221 billion in 1999; in spite of the reduction in tax rates and the implementation of a new, lower extemal tariff regime, tax revenLie is estimated to reach CFA 209 billions in 2000 Public spending on education and health is Adopt measures to rationalize expenditures n\.a\. up, and monitoring indicators are in place to and reallocate funding to social sectors assess its impact: the share of Govermment spending on health and education (excluding foreign-financed investment and interest expenditures) increased from 26\.4 percent in 1997 to 28\.1 percent in 1999 Adopt measures to increase transparency n\.a\. Parliament and the Supreme audit institution are now involved in the auditing of Govemment accounts Implement the WAEMU's Common Extemal n\.a\. The Burkinabe economy is more liberalized Tariff: lowering the maximum tariff rate from and the regional iintegration process is 25 percent to 20 percent moving forward Create a regulatory authority for the n\.a\. Telecommunications costs in Burkina have telecommunications sector been reduced by 40 percent on average in a year End of project - 27 -  Annex 2\. Project Costs and Financing Project Cost by Component (in US$ million equivalent) \. j; \., :: r Etimate stiate ,Appraisall :: f Proct Cost By Copoent US f million: U$$ArWh milo _______:_ Credit Amount 25\.00 25\.00 Total Baseline Cost 25\.00 25\.00 Physical Contingencies 0\.00 0\.00 Price Contingencies 0\.00 0\.00 Total Project Costs 25\.00 25\.00 Total Financing Required 25\.00 25\.00 - 28 -  Annex 3: Economic Costs and Benefits Not applicable - 29 -  Annex 4\. Bank Inputs (a) Missions: Stage of Project Cycle No\. of Persons and Specialty Performance Rating (e\.g 2 Economists, I FMS, etc\.) Implemnentation Development Month/Year Count Specialty \. Progress Objective Identification/Preparation May-August 1999 2 Economists S S I Private sector development S S specialist I Education specialist S S 2 Health specialists S S Appraisal/Negotiation September-Oct\. 1999 2 Economists HS S I PSD specialist S S I Education specialist S S I Health specialist S S Supervision Dec\. 1999-Nov\. 2000 2 Economists S S I PSD specialist S S I Public Sector Management S specialist 3 Consultants (budget HS management specialists and macro-modelling) ICR Feb\.-Dec\. 2000 2 Economists S S I Consultant S S 3 Peer reviewers (economists) S (b) Staff: Stage of Project Cycle Actual/Latest Estimate No\. Staff weeks US$ (,000) Identification/Preparation 14\.42 48,946\.90 Appraisal/Negotiation 5 19,000 Supervision 4 15,200 ICR 6 19,284\.00 Total 29\.42 102,470\.90 - 30 -  Annex 5\. Ratings for Achievement of Objectives/Outputs of Components (H=High, SU=Substantial, M=Modest, N=Negligible, NA=Not Applicable) Rating Macro policies O H *SUOM O N O NA ZSector Policies O H OSUOM O N * NA E Physical O H OSUOM O N * NA O Financial O H *SUOM O N O NA 3 Institutional Development 0 H * SU O M 0 N 0 NA 2 Environmental O H O SU O M O N * NA Social F Poverty Reduction O H OSUOM O N O NA F Gender O H OSUOM O N * NA O Other (Please specify) O H O SU OM ON O NA I Private sector development 0 H * SU O M 0 N 0 NA F Public sector management * H O SU O M 0 N 0 NA Ol Other (Please specify) O H OSUOM O N O NA - 31-  Annex 6\. Ratings of Bank and Borrower Perfornance (HS=Highly Satisfactory, S=Satisfactory, U=Unsatisfactory, HU=Highly Unsatisfactory) 6\.1 Bank performance Rating * Lending OHS OS Ou OHU * Supervision OHS OS OU OHU Z Overall OHS OS OU OHU 6\.2 Borrowerperformance Rating Z Preparation OHS OS OU OHU N Government implementation performance O HS OS OU O HU X Implementation agency performance O HS OS OU O HU Z Overall OHS OS OU OHU - 32 -  Annex 7\. List of Supporting Documents Not applicable - 33 -

REVIEW

P073113

Page 1 Document of The World Bank FOR OFFICIAL USE ONLY Report No: 25736 IMPLEMENTATION COMPLETION REPORT ( SCL-46510; IDA-36160 ) ON A CREDIT IN THE AMOUNT OF SDR 101 MILLION (US$125 MILLION EQUIVALENT) AND A LOAN IN THE AMOUNT OF US$125 MILLION TO INDIA FOR THE ANDHRA PRADESH ECONOMIC REFORM PROGRAM 03/31/2003 This document has a restricted distribution and may be used by recipients only in the performance of their official duties\. Its contents may not otherwise be disclosed without World Bank authorization\. Page 2 CURRENCY EQUIVALENTS (Exchange Rate Effective ) Currency Unit = Rupees (Rs\.) Re\. 1 = US$ 0\.0210521 US$ 1 = Rs\. 47\.50 FISCAL YEAR April 1 March 31 ABBREVIATIONS AND ACRONYMS AG - Accountant General AFF - Annual Fiscal Framework APEGP - Andhra Pradesh Electronic Governance Project APERL - Andhra Pradesh Economic Reform Loan/Credit APERC - Andhra Pradesh Electricity Regulatory Commission APPFC - Andhra Pradesh Power Finance Corporation ARR - Annual Revenue Requirement CAG - Comptroller and Accountant General CGG - Center for Good Governance COPE - Commission on People's Empowerment CSR - Civil Service Reform DDOs - Drawing and Disbursing Offices GoAP - Government of Andhra Pradesh GSDP - Gross State Domestic Product HRM - Human Resource Management IFIS - Integrated Financial Information System MTEF - Medium Term Expenditure Framework MTFF - Medium Term Fiscal Framework OLTP - On line Transaction Processing O&M - Operations and Maintenance PAC - Public Accounts Committee PSAMU - Poverty and Social Analysis Monitoring Unit QAG - Quality Assurance Group RBI - Reserve Bank of India SERP - Society for Elimination of Rural Poverty SFAA - State Financial Accountability Assessment SSNP - Social Safety Net Program T&D - Transmission and Distribution Loss VRS - Voluntary Retirement Scheme Vice President: Ms\. Meiko Nishimizu Country Manager/Director: Mr\. Michael F\. Carter Sector Manager/Director: Mr\. Sadiq Ahmed Task Team Leader/Task Manager: Mr\. Vinaya Swaroop, Lead Economist Ms\. Rajni Khanna, Economist Page 3 INDIA Andhra Pradesh Economic Reform Loan/Credit CONTENTS Page No\. 1\. Project Data 1 2\. Principal Performance Ratings 1 3\. Assessment of Development Objective and Design, and of Quality at Entry 2 4\. Achievement of Objective and Outputs 3 5\. Major Factors Affecting Implementation and Outcome 19 6\. Sustainability 20 7\. Bank and Borrower Performance 20 8\. Lessons Learned 22 9\. Partner Comments 23 10\. Additional Information 31 Annex 1\. Key Performance Indicators/Log Frame Matrix 32 Annex 2\. Project Costs and Financing 36 Annex 3\. Economic Costs and Benefits 37 Annex 4\. Bank Inputs 38 Annex 5\. Ratings for Achievement of Objectives/Outputs of Components 40 Annex 6\. Ratings of Bank and Borrower Performance 41 Annex 7\. List of Supporting Documents 42 Page 4 Project ID: P073113 Project Name: Andhra Pradesh Economic Reform Loan/Credit Team Leader: Vinaya Swaroop TL Unit: SASPR ICR Type: Core ICR Report Date: April 30, 2003 1\. Project Data Name: Andhra Pradesh Economic Reform Loan/Credit L/C/TF Number: SCL-46510; IDA-36160 Country / Department : INDIA Region: South Asia Regional Office Sector/subsector : 80% BH Sub-national government administration, 20% LD Power KEY DATES Original Revised/Actual PCD: 12/13/2001 Effective: 03/20/2002 03/20/2002 Appraisal: 12/20/2001 MTR: Approval: 03/14/2002 Closing: 09/30/2002 09/30/2002 Borrower/Implementing Agency : GOVERNMENT OF INDIA/GOVERNMENT OF ANDHRA PRADESH Other Partners: Department of International Development, U\.K\. (Co-financier) STAFF Current At Appraisal Vice President: Mieko Nishimizu Meiko Nishimizu Country Manager : Michael F\. Carter Edwin R\. Lim Sector Manager: Sadiq Ahmed Sadiq Ahmed Team Leader at ICR: Vinaya Swaroop Mark Sundberg ICR Primary Author: Vinaya Swaroop; Rajni Khanna 2\. Principal Performance Ratings (HS=Highly Satisfactory, S=Satisfactory, U=Unsatisfactory, HL=Highly Likely, L=Likely, UN=Unlikely, HUN=Highly Unlikely, HU=Highly Unsatisfactory, H=High, SU=Substantial, M=Modest, N=Negligible) Outcome: S Sustainability: L Institutional Development Impact: SU Bank Performance: S Borrower Performance: S QAG (if available) ICR Quality at Entry: S Project at Risk at Any Time: No Page 5 3\. Assessment of Development Objective and Design, and of Quality at Entry 3\.1 Original Objective: a) State background: The Bank’s Country Assistance Strategy in India—discussed by the Board in April 2001—identifies focus states on the basis of demonstrated commitment to broad based reforms, particularly in the areas of fiscal management, power sector, and governance\. One of India’s leading reforming states, Andhra Pradesh (AP) is a focus state for the Bank\. AP is the first Indian state to articulate a far-reaching vision for its economic and social development through the Vision 2020 document in 1999\. It is a statement of intent to pursue economic growth, develop human capital and reduce poverty\. The process to attain this vision has been laid out in a series of strategy papers and implementation of these strategies is ongoing\. Moving forward on its development agenda, the Government of Andhra Pradesh has made progress on a number of fronts\. AP is the fifth largest state in India with a population of 76 million\. At US$390 in 1999, the per capita income of AP is 90 percent of the all-India average\. During the 1990s the state economy grew at 5\.3 percent per year, which was below the national average of 6\.2\. It is however expected that with reforms deepening, the growth rate will accelerate in the coming years\. While there has been a major debate on the absolute size of decline in poverty in the 1990s in India, the trend by all calculations has been downward and the overall achievement fairly good\. In AP, according to one study (Deaton and Dreze, 2002), the trend in the proportion of the population below the poverty line has moved as follows: 1987-88 1993-94 1999-00 AP Rural 35 29\.2 26\.2 All-India Rural 39 33 26\.3 AP Urban 23\.4 17\.8 10\.8 All-India Urban 22\.5 17\.8 12 Poverty Trends: Andhra Pradesh and All-India Average (percent of population below poverty line) Source: Deaton and Dreze, Economic & Political Weekly , September 7, 2002\. b\. Loan/Credit Objective: The main objective of the Andhra Pradesh Economic Reform Loan/Credit (APERL) is to support the fiscal and governance reform programs of the Government of Andhra Pradesh (GoAP)\. These programs are part of GoAP’s strategy to achieve the economic and social development goals set out in its Vision 2020 \. The overarching objective of the fiscal reform program—laid out in GoAP’s Fiscal Reforms Strategy Paper, January 2002 1 —is to improve public service delivery and expand development programs by increasing the efficiency and effectiveness of public resources\. The program aims at fiscal stabilization by reducing the overall debt burden, improving resource mobilization and restructuring public spending towards priority areas\. Specific fiscal targets are laid out in the State’s Medium Term Fiscal Framework, which is a five-year program to be rolled-over annually\. Also included in the fiscal reform program is a strategy to improve budgetary processes and strengthen financial management\. The program of governance reform includes strengthening anti-corruption efforts, improving civil service performance, expanding electronic governance, restructuring and/or privatizing public enterprises, and a program of poverty monitoring and analysis\. The APERL program had fourteen specific upfront action “triggers” designed to strengthen the government’s reform program\. All of these actions were completed prior to the loan approval\. Information on - 2 - Page 6 progress on these and related issues is provided in Section 4 below and indicators of performance are listed in Annex 1\. The Bank program also lists several related follow-up actions as measures for 2002-03, which would form the basis for a subsequent adjustment operation\. During 2002-03, GoAP has made progress on many of these fronts, which is also discussed in Section 4\. ENDNOTES: 1 This and other government strategy papers are available on the Web site of the Government of Andhra Pradesh ( http://www\.aponline\.gov\.in/apportal/index\.asp )\. 3\.2 Revised Objective: Not Applicable 3\.3 Original Components: The Andhra Pradesh Economic Restructuring Loan has three main components\. These are: I\. Fiscal and power sector issues; II\. Public expenditure and financial management issues; and III\. Governance reforms\. 3\.4 Revised Components: Not Applicable 3\.5 Quality at Entry: Not Applicable 4\. Achievement of Objective and Outputs 4\.1 Outcome/achievement of objective: This sub-section summarizes the achievements under APERL and lists the ongoing challenges that remain\. a\. Achievements Andhra Pradesh has made steady progress on most fronts in its reform program under APERL\. The State has been able to meet its key fiscal targets in 2001-02, as laid out in its Medium Term Fiscal Reform Program\. (Preliminary numbers for 2002-03, based on revised budgetary estimates, indicate that the overall fiscal performance has been satisfactory\.) Achievements in the area of public expenditure management and financial accountability are impressive; there are many lessons to be learnt from this experience\. Governance reforms continue to move forward in the e-governance area\. The GoAP’s agenda of public enterprise reform has made steady progress and the program is now in its second phase\. The work on institutionalizing the process of poverty monitoring has been initiated though its pace has been quite slow\. b\. Ongoing and future challenges The economics of power sector continues to be a major development challenge for GoAP\. Serious structural problems have affected power sector finances, which in turn, has had a significant impact on the overall fiscal situation of the State\. Fiscal gains achieved in the rest of the economy in 2001-02 were nullified by the increasing financial losses of the power sector\. Based on preliminary numbers, a similar story emerges for 2002-03\. GoAP continues to struggle with the difficult issue of power subsidy to the farm community\. The fact that 2002 has been a drought year has worsened the situation\. Since power sector finances form such an important component of the overall fiscal balance in the state, unless they improve in a meaningful way, the state’s fiscal situation would not stabilize\. In turn, power sector finances are not likely to improve on a sustainable basis unless the government adequately addresses the supply and pricing issues in the agriculture sector\. Other areas where there has been mixed progress are civil service reform, right to information and anticorruption\. Since May 2002, relatively little progress has been made, for example, in implementing the GoAP’s strategy for - 3 - Page 7 strengthening the capacity and independence of existing anticorruption institutions and streamlining disciplinary procedures\. The Revenue Reform Committee has been established by a Government Order, but it has not really done any meaningful work to provide assistance in revenue reform\. 2 4\.2 Outputs by components: The following paragraphs provide details of each of the three main components along which APERL is structured: I\. Fiscal and Power Sector Issues A key objective of the APERL has been to assist GoAP in reducing the fiscal deficit to a sustainable level, while restructuring expenditure allocation towards priority development outlays\. The fiscal objectives of the government are laid out in its Medium Term Fiscal Framework (MTFF) from 2001-02 through 2006-07\. The MTFF was published as part of the GoAP’s Fiscal Reforms Strategy paper in January 2002 and is in the process of being revised\. a\. Fiscal and power sector performance in 2001-02 The fiscal deficit target for 2001-02 in the MTFF was 5\.0% of GSDP\. GoAP achieved a stronger adjustment at 4\.5% of GSDP\. This cushion allowed GoAP to meet its “consolidated fiscal deficit” target of the year (5\.6% of GSDP), despite higher losses in the power sector\. 3 Both these fiscal targets were part of APERL milestones In order to understand the nature of fiscal adjustment, a break-down of revenue and expenditure categories is provided below: Revenue performance While GoAP’s own revenue was on target, transfers from the Government of India (GoI) were lower by 0\.05 percent point of GSDP\. This latter shortfall would have been higher (about 0\.3 percent point of GSDP) if the APERL assistance was not passed to the state in the standard 70 (loan)-30(grant) format that governs plan transfers from the central to state governments\. The MTFF had assumed that this assistance would come in the form of a 100% loan\. The 70-30 mix led to an increase in revenues (grants) by Rs\. 396 crore\. Expenditure changes The reduction in fiscal deficit of 0\.5 percent of GSDP was mainly achieved by a net reduction in expenditure\. An examination of revenue expenditure (see Table 1) shows that GoAP marginally exceeded the MTFF target on non-wage O&M, while savings were realized in interest, salaries and pensions and other expenditure\. A few details on the composition are as follows: Reduction in the interest expenditure from that estimated in the MTFF due to softer interest rate regime l and less borrowing\. This resulted in a saving of 0\.2% of GSDP\. The MTFF overestimated salary and pension expenditure by 0\.2% of GSDP\. Savings in salaries were l realized largely under the Grants-in-Aid to educational institutions and Dearness Allowance\. In the area of transfers and subsidies, GoAP’s spent 0\.15% (of GSDP) less than the MTFF estimate\. The l reduction in rice subsidy, however, was somewhat undermined by higher power subsidy\. The power subsidy in 2001-02 was 0\.1 percent point higher than the MTFF estimate\. More resources were spent on non-wage O&M than budgeted in the MTFF\. This was mainly due to l higher expenditure on maintenance of rural roads\. - 4 - Page 8 MTFF target Actuals Variation from MTFF REVENUE DEFICIT 3443 (2\.29) 2880 (1\.92) -563 (-0\.38) FISCAL DEFICIT 7481 (4\.98) 6722 (4\.48) -759 (-0\.51) CONSOLIDATED DEFICIT 8353 (5\.57) 8427 (5\.61) 74 (0\.05) REVENUE 20764 (13\.83) 20745 (13\.82) -19 (-0\.01) Own revenue 13307 (8\.87) 13368 (8\.91) 61 (0\.04) Transfers from GOI 7457 (4\.97) 7377 (4\.91) -80 (-0\.05) Shared Taxes 4049 (2\.70) 4062 (2\.71) 13 (0\.01) Grants 3408 (2\.27) 3315 (2\.21) -93 (-0\.06) SAL Grants 420 (0\.28) 816 (0\.54) 396 (0\.26) EXPENDITURE 28245 (18\.82) 27467 (18\.30) -778 (-0\.52) Revenue Expenditure 24207 (16\.13) 23625 (15\.74) -582 (-0\.39) Interest 5521 (3\.68) 5159 (3\.44) -362 (-0\.24) Salaries & pensions 10376 (6\.91) 10133 (6\.75) -243 (-0\.16) Non-wage O&M 2583 (1\.72) 2779 (1\.85) 196 (0\.13) Transfer & subsidies 5194 (3\.46) 4964 (3\.31) -230 (-0\.15) Other 533 (0\.36) 590 (0\.39) 57 (0\.04) Capital Outlay 3051 (2\.03) 3091 (2\.06) 40 (0\.03) Net Lending 986 (0\.66) 751 (0\.50) -235 (-0\.17) POWER SECTOR FINANCING REQUIREMENT 3244 (2\.16) 3970 (2\.64) 726 (0\.48) Notes : (i) Numbers in parenthesis are percentage shares of GSDP; (ii) Consolidated deficit is defined as the non-power fiscal deficit plus the power sector financing requirement\. * If MTFF targets are adjusted for the unexpected revenue impact of SAL grants, the target for revenue deficit becomes Rs\.3047 crore (2\.03% of GSDP), fiscal deficit Rs\.7085 crore (4\.72% of GSDP) and consolidated deficit Rs\.7959 crore (5\.30 % of GSDP) Table 1: Fiscal Performance in 2001-02 (in Rs\. crore) The power sector While the budgetary performance in 2001-02 was better than targeted, financial performance of the power sector has been a matter of serious concern\. Power sector losses for 2001-02 have been Rs 449 crore over and above the MTFF target of Rs 2437 crore\. 4 (See Table 2 below) The losses occurred mainly due to three reasons: (a) A shortfall in revenue due to additional supply to agriculture consumers, especially in the last quarter of the financial year; and (b) adverse changes in sales mix; (c) higher T&D losses\. Additional power was purchased during the year which was 1400 million units over the budgeted amount, imposing an additional cost of Rs 316 crore\. Of this 1400 million units, 900 was supplied to agriculture, which was 9% more than what was budgeted\. 5 To finance these losses, the Power Finance Corporation (APPFC) has issued bonds worth Rs 350 crore and the remainder is being carried as arrears on the books of APPFC\. - 5 - Page 9 Business Plan Provisional In Rs\. crore In percent Revenue 6,710 6523 -187 -3 Expenses Power purchase 7297 7614 317 4 Other cash expenses 923 907 -16 -2 EBIDTA -1510 -1998 -488 -32 Depreciation 432 434 2 0 Interest 495 454 -41 -8 Net Profit/Loss -2437 -2886 -449 -18 Table 2: Financial Performance (T&D) in 2001-02: Business Plan vs\. Provisional (in Rs crore) FY 2001-02 Variation In APERL’s Letter of Development Policy, GoAP had committed to universal metering in accordance with the directives of the AP Electricity Regulatory Commission (APERC)\. Moreover, it had indicated that a special task force has been set up “to design, implement and monitor pilot projects involving alternative subsidy delivery mechanisms for the supply of electricity to farmers…” On agricultural metering, the progress has been quite slow\. All new agriculture connections are now metered and in the current fiscal year about 30,000 agriculture commections have been metered\. GoAP’s plan for metering existing agriculture connections is back-loaded and spread over 2003-07\. On the work of special task force, there is some recent progress after initial setbacks\. Three pilot projects in four locations have been initiated by the Task Force\. Baseline data collection and analysis is underway\. At present, the discussions on alternate subsidy delivery mechanisms are restricted to examination of experiences in other countries and in other states to address the issue of subsidies and targeting\. Based on its initial deliberations, the task force agrees that measurement of electricity consumption would be essential for the success and robustness of any mechanism designed\. The issue of agriculture metering and targeting subsidy is a structural one and in the absence of a meaningful solution, power sector finances are unlikely to improve\. 6 Besides the increased subsidy to the agriculture community, there are a few other factors that have contributed to the higher than estimated power sector losses in 2001-02\. These include, among others, non realization of efficiency improvements in lowering T&D losses and inadequate tariff increases\. In turn, this will continue to impinge on the state’s ability to improve its overall finances\. The good efforts of GoAP in improving billing and collections by vigorously implementing anti-theft legislation, have been offset by the increasing cost of subsidized supply to agriculture\. As a result, the financial performance of the power sector has deteriorated\. b\. Fiscal and power sector performance for 2002-03: Based on preliminary numbers The MTFF targets a reduction in the consolidated deficit in 2002-03 to 4\.6% of GSDP (from 5\.6%, achieved in 2001-02)\. Preliminary fiscal information, as reflected in GoAP’s revised budgetary estimates, is reported below in Table 3\. The revised estimate for 2002-03 puts consolidated fiscal deficit at 5\.1%\. (All the deficit targets for 2002-03, including the consolidated deficit, were based on a SAL revenue grant of Rs\. 630 crore, which did not materialize\. If the deficit targets are adjusted to reflect this fact, the fiscal performance in 2002-03 appears to be quite favorable\. The consolidated deficit target becomes 5\.1%\.) Table 3 also indicates that in the face of a revenue shortfall, GoAP adjusted its expenditures to meet its deficit targets\. - 6 - Page 10 MTFF target Actuals Variation from MTFF REVENUE DEFICIT 2781 (1\.69) 3166 (1\.92) 385 (0\.23) FISCAL DEFICIT 7486 (4\.55) 7341 (4\.46) -145 (-0\.09) CONSOLIDATED DEFICIT 7674 (4\.66) 8389 (5\.09) 715 (0\.43) REVENUE 23660 (14\.37) 22782 (13\.83) -878 (-0\.53) Own revenue 15129 (9\.19) 14720 (8\.94) -409 (-0\.25) Transfers from GOI 8531 (5\.18) 8062 (4\.90) -469 (-0\.29) Shared Taxes 4575 (2\.78) 4708 (2\.86) 133 (0\.08) Grants 3956 (2\.40) 3354 (2\.04) -602 (-0\.37) SAL Grants 630 (0\.38) 0 (0\.00) -630 (-0\.38) EXPENDITURE 31147 (18\.91) 30123 (18\.29) -1024 (-0\.62) Revenue Expenditure 26441 (16\.06) 25948 (15\.76) -493 (-0\.30) Interest 6506 (3\.95) 6057 (3\.68) -449 (-0\.27) Salaries & pensions 11091 (6\.74) 10821 (6\.57) -270 (-0\.16) Non-wage O&M 2984 (1\.81) 2783 (1\.69) -201 (-0\.12) Transfer & subsidies 5291 (3\.21) 5578 (3\.39) 287 (0\.17) Other 569 (0\.35) 709 (0\.43) 140 (0\.09) Capital Outlay 3563 (2\.16) 3627 (2\.20) 64 (0\.04) Net Lending 1143 (0\.69) 548 (0\.33) -595 (-0\.36) POWER SECTOR FINANCING REQUIREMENT 2660 (1\.62) 2835 (1\.72) 175 (0\.11) * If the MTFF targets are adjusted for the unexpected revenue impact of SAL grants, the target for revenue deficit becomes Rs\.3411 crore (2\.07 per cent of GSDP), fiscal deficit Rs\.8117 crore (4\.93 per cent of GSDP) and consolidated deficit Rs\.8307 crore (5\.04 per cent of GSDP) Notes : (i) Numbers in parenthesis are percentage shares of GSDP; (ii) Consolidated deficit is defined as the non-power fiscal deficit plus the power sector financing requirement\. Table 3: Fiscal Performance in 2002-03 (in Rs\. crore) (Revised Budgetary Estimates) The power sector The consolidated Profit and Loss statement of the power generation, transmission and distribution companies for 2002-03 (as filed to the regulator in December 2002) projects a net loss of about Rs 2329 crore, which is 537 crore above the loss as estimated in the Business Plan\. (Revised projections available from GoAP in February 2003 puts this loss number as Rs\. 1,954 crore\.) Table 4 below shows a comparison of this projected performance against that of Business Plan estimates (as well as those approved by the regulatory commission)\. 7 The data show that revenues likely to materialize in the year are higher than ARR targets, but lower than the target projected in the Business Plan\. The change in revenue was due to higher share of power being sold to the subsidized tariff categories though higher revenue was realized from higher than predicted HT-1 sales\. On the expenditure side, more thermal power has been purchased due to lower than planned availability of hydro-power for drought related reasons\. According to GoAP’s calculations, the changed hydro-thermal mix increased the power purchase cost by Rs\. 464 crore\. Besides reducing the availability of less expensive hydro-power, the drought has increased power demand for irrigation\. Increased power supply to the agriculture sector is estimated to raise the power purchase cost by Rs\. 427 crore\. - 7 - Page 11 Business Plan ARR Projected Business Plan ARR Total Revenue 8,567 7,685 8,092 -6 5 Total Cash Expenses Power purchase 7,905 7,159 8,050 2 12 Other cash expenses 1,221 737 1,147 -6 -56 EBIDTA (559) (211) (1105) 98 424 Depreciation 533 509 531 0 4 Interest 700 789 693 -1 -12 Net Profit/Loss (1792) (1509) (2,329) * 30 54 2002-03 Variation in % from Note : * Revised projections available in February 2003 put the loss number to be Rs\. 1954 crore\. The numbers in the table are as filed to APERC in December 2002\. Table 4: 2002-03 Financial Performance (T&D): Business Plan and ARR vs\. Projected (in Rs\. crore) c\. Overall fiscal performance Analyzing the fiscal numbers for 2001-02 (actual) and 2002-03 (preliminary), and reflecting on trends from earlier years, a few broad conclusions can be drawn: GoAP’s overall management of deficits in the past couple of years has been satisfactory (see Table 5 l below)\. More specifically, in the last couple of years, the Department of Finance has been quite serious about tailoring expenditures to incoming revenues—when revenues fell below estimates, expenditures were adjusted to meet deficit targets\. Major financial losses in the power sector have nullified the fiscal performance and affected the l consolidated deficit targets\. There is a decline in losses, but not at the projected level (Table 6)\. In bringing the deficits down, total outlays on priority public spending like primary health and education, l and capital outlays have been protected (see Table 7 below)\. - 8 - Page 12 2002-03 2003-04 R\.E\. ** B\.E\. *** -3060 -1820 -2952 -1563 -1284 -414 (-2\.7) (-1\.5) (-2\.1) (-1\.0) (-0\.78) (-0\.23) -2680 -1170 -3595 -2880 -3166 -2132 (-2\.4) (-1\.0) (-2\.58) (-1\.92) (-1\.92) (-1\.17) -5710 -4920 -7306 -6722 -7341 -7338 (-5\.0) (-4\.0) (-5\.25) (-4\.48) (-4\.46) (-4\.02) -7650 -7100 -8556 -8427 -8388 -8413 (-6\.8) (-5\.8) (-6\.2) (-5\.6) (-5\.1) (-4\.6) where, Power Sector Financing Requirement = Capital Outlay – Net Profit (+)/Loss(-) excluding Depreciation and before Subsidy and, Gross Budgetary Support to Support = Power Subsidy + Capital Outlay + Net Lending to Power Sector) (i) Primary Surplus (+)/Deficit (-) = Total Revenue – Non-interest Expenditure; (ii) Revenue Surplus (+)/Deficit (-) = Total Revenue – Revenue Expenditure; (iii) Fiscal Surplus (+)/Deficit (-) = Total Revenue – Revenue Expenditure – Capital Outlays – Net Lending; (iv) Consolidated Surplus (+)/Deficit (-) = Fiscal Surplus (+)/Deficit (-) + Gross Budgetary Support to Power Notes: (i) * Extraordinary accrued liabilities (over 1% of GSDP) this year were shifted to the next year; (ii) ** Revised budget estimates; and (iii) Definitions: Primary Deficit Revenue Deficit Fiscal Deficit Consolidated Deficit Table 5: Fiscal Performance: An Evolution (in Rs crore and as a % of GSDP) 1998-99 1999-00 * 2000-01 2001-02 Business Plan ARR Provisional Business Plan ARR Projected Business Plan Budgeted Net Profit/Loss 2437 1561 2886 1792 1509 1954 1066 1500 Note: 2001-02 numbers are provisional not audited; 2002-03 numbers are preliminary and based on estimates available in February 2003\. Table 6: Power Sector Losses: Projected & Actual (in Rs crore) 2001-02 2002-03 2003-04 2001-02 2002-03 2003-04 (R\.E\.) (B\.E\.) 2200 2500 2668 2884 3448 4300 (1\.9) (2\.1) (1\.92) (1\.92) (2\.09) (2\.36) 1390 1990 2724 3091 3627 4793 (1\.2)  (1\.6) (1\.96) (2\.06)  (2\.2) (2\.63)  2060 1910 2421 2779 2783 3532 (1\.8) (1\.6) (1\.7) (1\.9) (1\.7) (1\.9) 6730 8340 10009 10133 10821 11278 (5\.9) (6\.9) (7\.19) (6\.75) (6\.57) (6\.18) Primary health + primary education Capital outlays Non-wage O&M Salaries & Pensions Table 7 Fiscal Adjustment over time (in Rs\. crore and as a % of GSDP)  Fiscal Indicators 1998-99 1999-00 2000-01 d\. Other fiscal issues - 9 - Page 13 The Revenue Reforms Commission constituted by GoAP has not made much progress so far\. 8 It was created in January 2002 by a Government Order and was required to submit a report within six months on a variety of state specific tax and non-tax issues including tax base expansion and revenue enhancement\. In the light of the fact that inputs from the Commission’s report were expected to help the Annual Fiscal Framework (AFF) for 2003-04, this has been a disappointment\. 9 The Fiscal Reforms Implementation Committee, which was also set up recently, has undertaken three studies\. These include a study on debt swapping to take advantage of lower interest rates, modifying the pattern of grant-in-aid to colleges and commodity wise contribution to sales tax revenue\. These reports are under consideration\. A Medium Term Expenditure Framework (MTEF) is under development in the primary health sub-sector, as a pilot for the introduction of medium term planning across all departments in future\. The MTEFs would estimate the total resource envelope (off budget and on budget) available in these sectors and develop appropriate strategies to meet the Vision 2020 targets\. II\. Public Expenditure Management and Financial Accountability GoAP’s reform program in budgetary and financial management area is laid out in its Fiscal Reforms Strategy Paper published in January 2002\. A number of the sub-components of this program are supported by APERL\. The following paragraphs provides a few details of achievements in the different components of their reform program a\. Public Expenditure Management As part of this program, significant progress was made during 2000-01 and 2001-02 in the establishment of a credible budget, in the orderly delivery of resources to line departments, and in starting to encourage greater efficiency in resource use\. The measures adopted have been further enhanced during 2002-03\. Some of these achievements are: Effective aggregate budget management \. The adoption of the Medium Term Fiscal Framework has l provided the tool for effective aggregate budget management\. This guides the preparation of the Annual Fiscal Framework (AFF), within which the detailed annual budget is then developed\. The idea is to widely disseminate (about a month in advance) this blue print of the budget and invite comments from all stakeholders\. Appropriate adjustments are then made in light of the suggestions/comments received\. The AFF for 2002-03 was posted on the GoAP’s Web site and comments were solicited from all stakeholders\. The budget that was eventually passed by the legislature, reflected several of the suggestions that were made\. GoAP has once again put out its AFF for 2003-04 in preparation of its annual budget, in addition to revenue and expenditures by economic classification, provided indicative sector expenditure ceilings\. Hard budget ceilings, and greater flexibility to Line Departments \. The AFF has allowed hard budget l ceilings to be set for the line departments at the beginning of the budget process\. A key component of GoAP’s reform program as well as an important milestone for APERL, this is one of the many successful features of AP’s improved public expenditure management\. Within these ceilings the line departments have been given greater responsibility and flexibility to prioritize their expenditures, 10 and to re-appropriate budgets within prescribed norms\. This has been aided by aggregating budget sub-heads for smaller schemes, 11 and by de-linking salary budgets from scheme budgets (this removes a major incentive to keep old/discontinued /completed schemes open)\. During a zero-based review of schemes during the 2001-02 budget process, 20,000 staff associated with non-performing schemes were identified for redeployment; it is understood that these constitute the major part of approximately 17,000 that have since been redeployed to local governments\. The process of rationalizing schemes is ongoing\. As a result, the Budget Book has been reduced from about 5200 pages in 2001-02 to about 4000 pages in 2002-03, and 2700 in 2003-04\. Improved budget release mechanisms \. The fiscal framework and the hard budget constraints have l - 10 - Page 14 enabled the Finance Department to make 6-month budget releases at the beginning of the financial year, and to make credible commitment to quarterly releases in the second half of the year\. The new budget release system also provides for accommodating line departments’ seasonal variations in expenditure\. The timing of budget releases is expected to become even more responsive to line departments’ requirements in 2003-04 when the latter begin providing information on their quarterly funds flow requirements to the Finance Department (as required by Government Order 506, May 2002)\. 12 The old system undermined planning, reduced efficiency in the use of limited resources available, and prevented line departments from being held accountable for performance\. Discussions with line departments indicate that the system is viewed as highly beneficial in providing a predictable flow of funds which is largely consistent with the budget and with the progress in implementing schemes, 13 and of the reduction in bureaucracy and discretion over releases that had been exercised by the Finance Department\. The system now provides the assurance to line departments that they will receive the funds budgeted, when they are required\. The new structured monthly payment schedule system (within each month) 14 however has increased the need for line departments, particularly those with substantial works expenditure, to plan better and be prompt in preparation and submission of bills to the treasury\. Improved cash management\. The improved budget release system indicated above, combined with the l new structured payment schedule system (within each month) have facilitated better cash management by the Finance Department, including better matching of receipt and expenditure cash flows\. In 2001-02, GoAP had resorted to substantial use of overdrafts from the Reserve Bank of India (RBI) as a cash management tool, while fully conforming to the RBI’s overdraft norms\. 15 This situation was in large part attributed to: (i) receipts from Government of India devolutions, and the Bank’s Adjustment Loan/Credit proceeds, being substantially delayed beyond the dates originally planned by GoAP; (ii) the Finance Department’s strategy that establishing credibility of the new budget release system (which started in 2001-02) and securing the confidence of the line departments in this system was extremely crucial\. The Finance Department deliberately chose overdrafts as the preferred option (instead of restricting payments or holding back releases to line departments)\. The Finance Department indicated that stabilization and initial success of the new system is demonstrated in: (i) a noticeable lack of the traditional ‘rush’ of expenditures towards the end of the last fiscal year (2001-02); and (ii) during 2002/03, the reduction in the number of days in overdraft to only 17 days in the first nine months of the year\. Incentives to provide better services and collect user charges: A new initiative \. The modified initiative 16 l to provide incentives (in the form of supplementary budgets) to line departments for providing enhanced quality of services and collecting additional user charges is reported to be steadily taking-off, particularly in departments such as transport, police, education, health, stamps and registration, excise, commercial taxes, horticulture and agriculture\. For 2002-03 the amount collected is reported to have been Rs\. 103 crore by January 2003\. None of these initiatives is fully complete, and work is ongoing to strengthen these institutions and processes, and to iron out remaining bureaucratic delays in the cash management system\. The system continues to be refined as experience increases on what works and what does not\. Nonetheless the progress so far provides the central foundations for effective public expenditure management and makes it possible for the focus to increasingly shift to improving the use of resources within the line departments, and to hold them more accountable for performance\. It is on this platform that new initiatives focusing on improving prioritization, effectiveness and efficiency of expenditures in line departments commenced in 2002-03 as described below\. Two new initiatives introduced in 2002-03\. First, the GoAP is seeking to better link the allocation of public expenditure to outputs and outcomes\. Performance indicators for the departments have been developed and are reviewed regularly (quarterly) by the Chief Minister, Ministers and senior officials\. Inevitably this has presented challenges: an attempt to link releases to achievement outputs was set aside during 2002/03, and instead the overall outcomes expected from programs and the expenditures on those programs are being identified\. - 11 - Page 15 Building upon this the GoAP Performance Budget was introduced as part of the 2003-04 budget preparation process\. Each line department was required to prepared a performance budget that identifies departmental objectives, the annual work plan and the performance indicators and targets (drawing on the performance monitoring system that has been established), and broadly linking these to the funds requested\. In addition, The Cabinet Sub-Committee (CSC) played the central role in considering the competing demands of the different line departments; this replaces a system within which the negotiation of individual department estimates was essentially the job of the Finance Department alone\. In addition, workshops were held at state and district levels to discuss the performance budgets prepared by the line departments with officials and the public\. These were facilitated by the performance budget format which is easier for people to understand and to relate the budget to what departments actually do, than the traditional budget estimates\. 17 This first time round, it is unlikely that the performance budget process has significantly impacted the content or quality of the budget itself, in part because of the very condensed period in which the budget was prepared and debated (effectively limited to a period of only one month)\. However, it did bring a performance orientation to the debate about resource allocation and supported increased political engagement in the budget process, and thereby provided the basis for improving the quality of budgets in future years\. Second, an initiative commenced involving the preparation of MTEFs in two pilot sub-sectors, namely primary health and primary education\. The aim was to introduce medium term expenditure planning, within the indicative ceiling of funds available, and to encourage more efficient allocation and use of resources\. The Education Department stalled, because the GoAP has not been able to obtain approval for the international consultants who were to assist the Department\. The Health Department is due to present its draft MTEF this month, though it is understood the process has been slowed by the need for further development of the Department’s strategy\. The aim remains, however, for a medium term approach to be adopted in all departments\. This medium term planning approach is likely to be fruitful if it is preceded by a clear sectoral strategy\. b\. Financial Management/Accountability In the past year, GoAP has taken several initiatives to strengthen public financial accountability systems in the state\. These include: Strengthening internal controls and follow-up/responses to audit reports\. Enforcement of internal l controls has been strengthened by linking release of funds to adherence to public financial accountability norms (See Government Order 507, May 2002)\. These cover: (i) responses to audit reports/paras (CAG’s Inspection Reports, and CAG’s Audit Report); (ii) responses to Public Accounts Committee (PAC) Reports; (iii) clearances of advances drawn for expenditures (Abstract Contingent Bills); (iv) reconciliation of amounts among DDOs’, Treasury’s and Accountant General’s books; (v) control over Personal Deposit Accounts and Bank Accounts outside the Consolidated Fund; and (vi) prompt completion of accounts and audits of local bodies, public sector enterprises, autonomous bodies and other Grant-in-Aid institutions\. Instructions have also been issued to tighten recovery of loans, advances, taxes and other dues to Government\. The Finance Department has started monitoring compliance (monthly), and has linked funds releases to adherence to these controls\. All this has sent a strong signal to line departments about the importance of compliance\. Data from progress reports indicates good progress on reconciliation, responses to audits and PAC reports, submission of bills/expenditure statements for advances, and progressive closure and write-back of Deposit accounts maintained outside the Consolidated Fund\. The results of the above measures will be confirmed in the Audit Report for 2002-03\. Information is awaited on the status of responses to the latest Audit Reports of the State Government, i\.e\., for the year ended March 31, 2001\. Computerization initiatives \. Several initiatives are underway: l Implementation of a new improved Treasury system (E-Khazana based on Oracle RBDMS) in 18 districts (District Treasuries and Sub-treasuries), and is expected to be implemented in the remaining 5 districts by end-March 2003\. Development of middleware to link the various financial systems and to form an Integrated Financial Information System (IFIS)\. This would link the various offices – Treasuries, Finance Department, AG’s Office, Reserve Bank, banks and departments, and is expected to - 12 - Page 16 become operational in the next few months\. Generation of individual employees’ account statements for employees Insurance and Provident Funds have been computerized\. A decentralized computerized system for salaries has been developed and is being operated in the Treasuries; this is based on monthly inputs from Drawing and Disbursing Offices (DDOs) of the various Departments\. This also provides for direct payment of salaries into their Bank accounts, at the option of employees; about 23% of all employees (55% of employees in the ‘notified areas’) have opted for this method of payment\. The payroll itself has not been entirely computerized yet\. Potential plans in the future could include a Human Resource Management System (which is being finalized) that could include elements of the recently completed civil service census and other human resource details, and that is linked to Treasuries\. Accounts and audit backlog\. The Status Report as on January 31, 2003 for Urban Local Bodies, Rural l Local Bodies, and Boards and Authorities and other institutions audited by the State Audit Department, indicates that overall progress is good vis-à-vis the 2002-03 Action Plan, although there are slippages on the Municipal Corporations (attributed to old backlog and problems with opening balances), Gram Panchayats, and Hindu Religious (HR) and Charitable Endowment (CE) Institutions\. The Status Report also indicates the targets for 2003-04, that includes completion in 2003-04 of all current audits (i\.e\., for 2002-03) and clearing of all backlog\. Information on the status of clearance of backlog of proforma accounts and audit of proforma accounts of the AP Government Life Insurance Department (AP Government Life Insurance Fund, and Group Insurance Scheme) has not yet been made available\. Updating and modernization of financial codes and rules \. Work on updating the Financial Manuals l (Financial Code, Treasury Code, Budget Manual and Accounts Code), being carried out by a Working Group consisting of officials of GoAP, Office of the AG, consultants and members of the Institute of Chartered Accountants of India, is nearly complete\. This will be sent to the Accountant General for concurrence shortly\. Internal audit strengthening \. Significant work has been carried out on initiating internal audit in the l State Government: (a) An Internal Audit Manual has been prepared by a Working Group that included officials of GoAP and Office of the AG, members of the Institute of Chartered Accountants of India, and consultants\. A training program was also conducted\. This Manual will be used, and will be periodically updated based on implementation experience and feedback received during subsequent training sessions; (b) work on internal audit will commence shortly, including the establishment of an Internal Audit Cell of 5-6 people in the Finance Department\. Improving transparency \. Measures to enhance transparency in government accounts and procedures l include the following initiatives: Publishing/Disclosure of half-yearly accounts : Receipts and expenditure for 9 months of 2002-03 (up to December 2002) were included in the draft Annual Fiscal Framework that was published on the web on January 22, 2003\. This was based on Monthly Accounts received from AG up to November 2002 and GoAP’s data for December 2002\. GoAP expects to start publishing monthly accounts on its Web site using the Monthly Accounts provided by the AG from April 2003 and proposes to tie-up with the CAG’s proposed corresponding initiative\. Guarantees and off-budget borrowings : GoAP is currently implementing the recommendations of the Reserve Bank of India’s report prepared by the Committee of Finance Secretaries\. Guarantees are divided into six groups and risk weights assigned\. GoAP will provide for meeting these risk weighted contingent liabilities in its ‘Guarantee Redemption Fund’\. 18 Information on government guarantees provided and off-budget borrowings (actuals) are provided as part of the annual budget documents, and aggregate - 13 - Page 17 figures were included in the summary budget document for 2003-04\. To further improve transparency, Government could consider publishing details of major government guarantees and off-budget borrowings in summary form including explanation of the individual guarantee risk ratings, as well as budgets for guarantees and off-budget borrowings, in the summary budget document (AP Budget in Brief)\. State Financial Accountability Assessment (SFAA) : The SFAA, commissioned by the GoAP from the l Centre for Good Governance, commenced in November 2002\. The Finance Department is considering the consultants’ draft report; and a final draft report is expected by end-March 2003\. This will be provided to the Bank for comments; and a process of consultation within Government, and with other stakeholders, is also expected to take place to determine the way forward\. The Department of Finance has stressed improving financial accountability within line departments as being the critical focus of PEM/FM efforts in the coming year\. III\. Governance Reforms Governance and public management has traditionally been an area of strength for GoAP\. Progress continues to be good in areas where GoAP has historically placed its greatest emphasis, such as e-governance and human resource development\. Additional progress is also being made in areas such as administrative deregulation to promote private sector growth, or the management of GoAP’s legal agenda\. However, advances in other areas, such as anticorruption or the reform of human resource management (HRM), have been mixed\. There has been limited progress in tackling systemic machinery of governance and HRM problems since May 2002, although there are signs that this agenda has gained momentum over the last two months\. The Centre for Good Governance initially became overly engaged in in monitoring the performance of line departments—a role that was not part of its original mandate—but it has recently reoriented itself and is focusing upon providing analytic support to reforms and disseminating examples of best practice\. The specifics of the reform program are discussed below\. Developing a strategy for reform\. GoAP has produced a White Paper on Governance Reform and made it l available on the Government website; it created an Administrative Reform unit within the General Administration Department to take this agenda forward; and it created the Center of Good Governence (CGG)\. The CGG is developing projects along six work streams and is likely to produce some 16 outputs by the end of the fiscal year\. The quality of some of these outputs, such as an assessment of the effectiveness of citizens charters or a breakdown of the cases coming before the Administrative Tribunal, is high\. GoAP has also recently created an Advisory Commission on People’s Empowerment (COPE), which has been charged with improving service delivery, combating corruption, increasing productivity and reducing administrative costs\. The implementation of two of these initiatives has been disappointing\. First, the office of Administrative Reforms functioned for only a few months with minimal staff and has few lasting accomplishments to its credit\. The recent identification of a talented senior officer to head this office, however, is a promising sign\. Second, there have been a series of on-going disputes surrounding the CGG that have significantly hampered its effectiveness, and the contract for the KPMG consultants recruited for this effort will be terminated at their request in March 2003\. The CGG initially became too heavily involved in monitoring implementation, but it is now in the process of stepping back to its original role and serving more as a think tank, a source of best practice, and playing a facilitator role\. Civil service reform\. This reform agenda is a broad one and is marked by areas where GoAP has made l progress, areas where it has not, and areas where progress has been mixed\. Areas where it has made progress include the conduct of a civil service census (although this effort has been repeatedly delayed and the Bank has still not received a copy of the final report)\. It includes efforts to establish a computerized human resource database\. 19 GoAP has also met the formal goals for developing and publicizing citizens - 14 - Page 18 charters in at least 25 departments\. GoAP is making a good faith effort to analyze its legal caseload to reduce the number of cases pending before the high courts, and the CGG has made impressive progress to date on this agenda\. 20 Work on HRD issues, including establishing training centers in all 23 districts and the identification and training of 10,000 “change agents,” is also proceeding in a highly satisfactory fashion\. There are three areas where GoAP has not made significant progress in implementing its civil service reform agenda\. One involves basic machinery of governance issues and the rationalization of organizational missions, structure and functions to eliminate overlap and redundancy\. (As a precursor, GoAP agreed to develop formal organizational charts for all major departments, clarify their reporting relationships, and disseminate it on the Internet)\. 21 The second is the review and simplification of HR procedures, which should be one of the functions performed by the new wing in the General Administrative Department (GAD) with responsibility for Administrative Reforms\. A number of measures could usefully be taken in this area, including: (1) the clear identification of GAD as the home for a comprehensive HRM function; (2) initiating an inventory of cadre and service rules as a precursor to their rationalization; (3) rationalizing the classification of employees according to the nature of their duties and responsibilities; (4) reviewing department-specific staff norms, and updating those laid down by the earlier Staff Review Committee; (5) initiating moves to restore credibility, transparency and objectivity to the annual confidential report (i\.e\. individual performance appraisal) process and to restore the ACR process for non-gazetted staff, drawing upon initial steps towards performance monitoring by the CGG; (6) resume the practice of screening for compulsory retirement for selected employees at age 50 and 55; and (7) streamline disciplinary and vigilance procedures\. The third is the development of policy analysis capacity within the GoAP Secretariat, which is a long-term objective that can be addressed through a combination of training and capacity building and lateral recruitment\. Electronic governance\. Progress along this dimension continues to be impressive\. A blueprint for l electronic governance has been drawn up for 35 major departments and its implementation is being discussed at the highest levels\. Skims (renamed SmartGov) was launched in November with 483 modules\. Twins/e-Seva has been expanded to involve 35 services in over 28 separate locations, and plans are underway to expand it to over 117 locations by June 2003\. Over 5 million transactions have taken place since the system was launched in August 2001, and the number of transactions has now crossed 50,000 per day\. Plans are also being developed for a pilot rural equivalent, the On Line Transaction Processing (OLTP) project, which will make over 65 services available to rural residents in a one stop shop facility\. GoAP has recently approached the Bank for independent support for this effort through the reallocation of some funds from the AP Economic Restructuring Project\. Deregulation\. Progress in implementing this agenda has been mixed but on balance positive\. GoAP has l enacted Act\. No\. 17 of 2002 to facilitate the speedy processing of applications for various licenses, clearances and certificates\. Proposals for the simplification of procedures for inspection have been prepared by Confederation of Indian Industry and Price Waterhouse Coopers, and enshrined in a Government Order in August 2002\. The AP Portal is also being designed with the goal of facilitating small business registration\. Some efforts are being developed to evolve a public relations/outreach strategy for the 29 departments involved in industrial and commercial clearances, as well as to improve procedures for grievance redressal\. The ultimate effectiveness of these measures is unknown\. Access to information \. GoAP has elected to implement the Government of India’s Freedom of l Information legislation, which was enacted in December 2002\. The latter is binding over the state government although the law in essence establishes a baseline, and Indian states are free to adopt more far-ranging legislation\. Significant progress remains in operationalizing this legislation in the state\. Anticorruption \. During 2001 and early 2002, the GoAP took some promising steps in developing an l - 15 - Page 19 innovative anticorruption strategy focusing on prevention, prosecution and public relations\. It also canvassed stakeholder views on critical anticorruption issues\. This strategy was placed before a Cabinet Committee, where little visible progress has been made for nearly a year\. Recently, there have been some signs that the issue has been revived\. The Committee has concluded its deliberations and a review meeting was held, in which it was decided that the former Commissioner of Hong Kong’s Independent Commission Against Corruption, would be invited back to suggest measures to strengthen the GoAP’s existing anticorruption organizations\. However, he has yet to return for the next phase of this work\. GoAP has moved forward in the area of e-procurement\. It initiated an e-procurement pilot project in four major departments in October 2002 (the Andhra Pradesh State Road Transport Corporation, AP Technology Services Ltd\., AP Health, Medical Housing and Infrastructure Development Corporation, and the Commission on Tenders), which account for Rs 2,000 crore annually in procurement transactions\. Another 10 departments will be brought on board by March 2003, with the goal of capturing the major share of GoAP procurement (around Rs 10,000 crore annually) and implementing e-procurement in all 150 departments by the end of 2005\. With the support of DFID and in consultation with Bank staff, GoAP initiated a multi-phased effort to reform its procurement policy and procedures\. Unfortunately, this effort has stalled and very little progress has been made over the last year\. Poverty and Social Analysis and Monitoring Unit\. In February 2002 GoAP issued orders to set up the l Poverty and Social Analysis Monitoring Unit (PSAMU)\. This unit will be housed within the Society for Elimination of Rural Poverty (SERP) that has been previously established\. The objective of the Unit is to strengthen poverty analysis and monitoring capacity in the state, and to effectively feed such analysis into core government functions of policy-making, planning, budgeting, service delivery and monitoring\. The Unit is also expected to facilitate the preparation of an overarching policy framework for poverty reduction in AP\. Since the Government Order was issued for the establishment of PSAMU, there has been an external consultancy input to help GoAP articulate the institutional responsibilities and possible initial work-plan of the Unit\. The World Bank has developed a Technical Assistance program to support GoAP in its poverty analysis, as part of its work to assist GoAP in operationalising the Vision 2020 program, and this work would be carried forward in close alignment with the PSAMU\. All in all, while the poverty monitoring unit has been established, the pace of the work program is slow\. In view of this delay, the timetable of preparing an overarching policy framework for poverty reduction is likely to be pushed back\. Public enterprise reform\. The public enterprise reform program continues to make good progress\. In l Phase I of the reform program, which started in 1999, 19 Units had been included though the target was only for 12 Units\. Of these, 16 have been privatized, closed or restructured\. The program has raised about $38 million in gross proceeds, with about $26 million received so far\. The bulk of the proceeds will be used to settle the outstanding liabilities of the enterprises\. Phase II of the reform program started in April 2002 and is to be implemented during 2002-06, covering a total of 68 enterprises\. The target of 15 units for this year has been achieved\. Ten units have been closed, two privatized, and three restructured\. Another ten units are in the pipeline, including six sugar units where a legal challenge to the privatization process has been recently upheld by the court\. In addition, a number of option studies have been completed or are underway for Units that are slated for change in the coming years of the program\. Implementation of the Voluntary Retirement Scheme (VRS) and the Social Safety Net Program (SSNP) continues\. During Phase 1, about 8,200 employees were given VRS; of whom about 5,000 were contacted under SSNP, counseling was provided to 4,336 and retraining assistance provided to 2,038 (1,749 trained and 334 under training)\. The SSNP unit estimates a redeployment rate of about 35%, but this will need to - 16 - Page 20 be substantiated during a proposed review of the Phase 1 SSNP program\. The proposed review of Phase I of the SSNP should highlight any lessons from Phase I which could be usefully fed into the Phase II program\. The SSNP program is expected to be scaled up to cover a larger proportion of workers taking VRS under Phase II\. It would be important to ensure the quality and effectiveness of the retraining and redeployment efforts as the program is being scaled up\. The IS has made progress in ensuring transparency and standardization of the bid process, and information on this has been put on the internet\. A more proactive communication strategy is planned for Phase II\. A manual has also been prepared on environmental auditing, and environmental audit is being carried out as part of the transaction process\. While good progress has been made under the program, the upcoming challenges will include continuing with the same momentum in the year ahead, and ensuring that lessons of SSNP from Phase I inform the Phase II program\. Other recent developments \. In January 2003, the GoAP announced that it was going to enact a l Performance Accountability Act, which will seek to advance reforms along a number of dimensions\. In an effort to improve employee accountability, amendments to the AP Civil Services (Conduct) Rules, 1963 and APCS (CCA) Rules, 1991 are expected to be tabled in the forthcoming session of the State Assembly\. The GoAP has also announced its intention to move towards performance budgeting\. According to Chief Minister Naidu, this will entail the funding outcomes rather than inputs; the assessment of results by available indicators; holding managers responsible for performance; providing flexibility to managers to innovate and manage; and adopting medium and long term view of use of resources\. The GoAP also announced new initiatives to garner suggestions for productivity improvements from government employees, and to establish a toll-free central call center to process citizen complaints\. ENDNOTES: 2 There is also an issue of expenditure composition\. Among the southern Indian states Andhra has the lowest per capita spending on education\. In 2001-02, part of the expenditure reduction—to achieve the fiscal deficit target—was achieved by not spending the targeted amount (per MTFF targets) on social sectors including primary education and health\. Responding to this issue of missed expenditure target, GoAP had indicated that no viable projects in these sub-sectors were denied funding\. It has also been mentioned that savings were made by hiring non permanent teaching staff in schools without affecting the quality of education\. More work is needed in this area to understand the resource constraints in social sector\. 3 The consolidated deficit is defined as the sum of non-power fiscal deficit and the power sector financing requirement\. For more information, see Table 5 below\. 4 The MTFF target mentioned here is the same as the target for GoAP’s Department of Energy presented in its February’02 Business Plan\. 5 What has been surprising is that no such information was available when the official targets were communicated to the Bank\. In fact, while GoAP was negotiating APERL with the Bank, it had asked the power utilities to increase the agriculture supply from 9 to 12 hours in February 2002\. 6 Besides the increased subsidy to the agriculture community, there are a few other factors that have contributed to the higher than estimated power sector losses\. These include, among others, non realization of efficiency improvements in lowering T&D losses and inadequate tariff increases\. 7 The official financial numbers for the power sector, being tracked for 2002-03, are those that were approved by the AP Electricity Regulatory Commission (APERC)\. These numbers are slightly different from the numbers that appear in the Business Plan which were communicated to the Bank during SAL negotiations\. According to APERC approved annual revenue requirement for the power sector, the net loss for 2002-03 is projected to be Rs 1,509 crore\. This is predicated on the assumption that the companies shall achieve efficiency gains of about Rs\.300 crore, receive wheeling charges of Rs 135 crore and a favorable share of power from hydro generation\. The net loss estimate in the Business Plan is Rs 1,792 crore\. In order to be consistent with the SAL document, this ICR compares the actual performance with those numbers that are listed in the Business Plan\. 8 Constitution of the Revenue Reforms Committee and issuance of terms of reference was a prior action requirement for APERL\. Setting up of the Fiscal reforms Implementation Committee was also a prior action requirement\. 9 The Annual Fiscal Framework of GoAP is a new initiative in promoting transparency in the budget making exercise in Indian - 17 - Page 21 states\. See below\. 10 It should be noted that currently there is limited room for prioritization and flexibility given the high proportion of ‘non-discretionary’ expenditure (e\.g\., salaries, regular operating costs, already committed expenditure)\. The ‘discretionary’ portion is estimated to be about 10-12% of the total budget\. 11 In the 2003/04 budget the number of budget sub-heads was reduced to 2676 from 3221 in the previous year\. The object heads were also reduced to 91, from 139\. 12 Line Departments have not yet started providing this information to the Finance Department\. 13 Revisions to estimates do, however, still take place during the year, as a result of shortfalls in revenue and the introduction of new schemes\. As far as possible, the reductions are made in areas where expenditure has been slower\. The allocation of cuts is approved by the Cabinet Sub-Committee, and generally is effected through the release in the 4th quarter\. In 2002/03, the total non-plan revised estimates (RE) were slightly higher than budget estimates (BE) while the total plan RE were lower than BE: within these totals the estimates went up for some up for some departments and down for others\. 14 Monthly payments are made on the followed schedule: salaries and staff costs: days 1-10; non-salary operational expenditure: days 11-20; and works (contractors/suppliers) payments: days 21-30 of each month\. Small works bills (less than Rs\. 200,000, or from self-help groups) are exempt from this system\. 15 In 2001-02, GoAP was in overdraft on Ways and Means advances for 336 days\. 16 The earlier announced initiative of authorizing line departments to retain the amounts the incremental user charges collected in Deposit Accounts and to use these, was modified\. Line departments are now required to deposit such amounts into the State’s Consolidated Fund, and are then provided supplementary budgets to use these amounts for authorized purposes\. 17 The performance budget has not ,however, changed the format of the budget estimates that are submitted for approval to the assembly\. 18 Making initial (aggregate) provision against government guarantees was a key prior action of APERL\. The Guarantee Redemption Fund was created with an initial contribution from the state budget and fees for government guarantees issues since its commencement have been added\. 19 While the initial target of June 2002 has proven overly optimistic, the SmartGov project has a major HRM component, and the system is now being developed on a pilot basis and will be ready for launch in four major departments totaling over 50% of the civil service by October 2003\. 20 This effort is proceeding along two dimensions\. The CGG has initiated a major study of 10,200 service related cases that went before the AP Administrative Tribunal between 1991 and 2002\. In addition, an analysis of GoAP’s cases before the High Courts has been supported by the Bank’s PRMPS Unit under the Dutch Trust Fund for Justice and Governance (TF024097) and should be completed by September 2003\. 21 Various elements of AP’s reform effort to date have touched upon certain aspects of this work, ranging from expenditure reviews of selected departments funded by DFID to a series of departmental reviews conducted by the GoAP in 2001 to work going forward under the SmartGov effort\. The CGG work program initially contained an assessment of the overall machinery of governance, as well as a more detailed functional review of the Department of Primary Education\. But a serious, comprehensive effort to streamline administrative structures and address problems of functional overlap and duplication has yet to be made\. 4\.3 Net Present Value/Economic rate of return: Not Applicable 4\.4 Financial rate of return: Not Applicable 4\.5 Institutional development impact: GoAP’s institutional development measures, supported by this operation, has been quite good\. In particular, the process of budget formulation has improved a lot\. As argued above, the links between the medium term fiscal framework, annual fiscal framework and the actual budget have been strengthened, and this allows the annual budget to be developed from a medium term perspective\. While it is a bit early to comment on its performance, the poverty and social monitoring unit is likely to provide valuable information on the goals of Andhra’s social development\. Finally, the e-governance initiative of GoAP has institutionalized transparency and improved - 18 - Page 22 efficiency\. 5\. Major Factors Affecting Implementation and Outcome 5\.1 Factors outside the control of government or implementing agency: A general country-wide economic growth slowdown and drought in the last couple of years have had a negative impact on state’s finances\. Drought continued in 2002 and it resulted in more subsidized power supply to the farm community\. In view of the water shortage, the state had to rely more on thermal power, the more expensive mode of power generation\. 5\.2 Factors generally subject to government control: The main factor that positively affected implementation and outcomes was that the program supported by the project was the client’s own program\. The Government of Andhra Pradesh had put together its own strategy papers and had designed it own action programs\. In implementing its reform program, it found the Bank and DFID as facilitating partners which were willing to provide technical and financial assistance\. A few factors, that were generally subject to government control, negatively affected the financial performance of the power sector\. These factors include supply regulation of subsidized consumer categories, measurement and metering of agriculture supply, and inadequate cost recovery for certain categories (e\.g\., cost recovery for the power supplied for irrigation is 10 percent and for residential consumers is 50 percent)\. The government could have vigorusly pursued its anticorruption agenda that would have yielded better results\. Similarly, the work of the Revenue Reform Committee could have been done on a firm timetable, which would have yielded important insights in improving the process of resource mobilization\. Finally, the work of Poverty and Social Analysis and Monitoring Unit could have been facilitated by giving it more attention\. 5\.3 Factors generally subject to implementing agency control: Same as 5\.2, as the government, represented by the Department of Finance, was the implementing agency\. 5\.4 Costs and financing: The project money (along with DFID support), in the form of budgetary support, filled a big financing gap in the state’s 2001-02 budget\. In the absence of APERL financing there would have been additional fiscal compression and many of the priority spending at the margin would have been cut\. If the government had to resort to market borrowing, it would have come at a much higher cost\. 6\. Sustainability 6\.1 Rationale for sustainability rating: One important reason why this project is likely to be sustainable is that it supports government’s own reform program\. The State has outlined its development vision; the process to attain this vision has been laid out in a series of strategy papers and implementation of these strategies is ongoing \. The commitment to reform and succeed continues to come from the top\. Many of the structural changes introduced are difficult, if not impossible, to reverse\. Some examples of these changes are: the anti-theft legislation and unbundling of generation, transmission and distribution in the power sector; programs to ensure education for all particularly at the school level; transparency in the budget process through wide dissemination of the Annual Fiscal Framework; e-governance initiatives, particularly e-seva, to improve public service delivery\. There are a few problem areas, particularly the financial performance of the power sector, that remain as challenges\. The sustainability of the overall fiscal reform program significantly depends on the actions taken in the power sector\. If not addressed adequately, the financial burden of the power sector will inflict more damage to the state’s fiscal health\. But if GoAP remains committed as it has been in the past, there is no reason to believe that - 19 - Page 23 such challenges will not be successfully tackled\. The important thing is that GoAP continues to move forward in pursuit of its development vision\. It has requested the Bank to provide a follow-up adjustment loan in support of its reform program\. With state assembly elections due in 2004, there is likely to be a period of uncertainty\. It is therefore likely that major reform actions could be postponed until the elections are over\. 6\.2 Transition arrangement to regular operations: Not Applicable\. 7\. Bank and Borrower Performance Bank 7\.1 Lending: The Bank’s lending performance is rated satisfactory \. The project was consistent with the nature of India CAS which focuses on states that have demonstrated a commitment to broad-based reforms, particularly in the areas of fiscal management, power sector reforms, and governance\. A number of Bank reports (as well as those done by other agencies) provided the necessary background information to help design the loan\. Looking back, one possible area where the Bank could have done better, was the monitoring of developments in subsidized power supply to the agriculture sector\. As discussed in Section 4\.2 (under the sub-heading of power sector), additional power was purchased during the first three months of 2002, the time when the loan was being negotiated, and over 60 percent of that was provided to the agriculture at the highly subsidized rates\. This led to a 20 percent increase in the net loss of the power sector, over and above the amount budgeted in the Business Plan\. 7\.2 Supervision: The Bank’s supervision of the project is rated satisfactory \. The client and the Bank (along with the co-financier, DFID) have been in regular touch on matters relating to the Government’s reform program supported by APERL\. Besides one regular supervision mission there have been several other occasions (after the loan became effective) when the Bank team was able to visit Hyderabad and carry out dialog with GoAP regarding the progress made in its reform program\. The supervision of another project, Andhra Pradesh Economic Restructuring Project, during May’02 provided one such opportunity\. Finally, the supervision of a power project during the year also provided relevant information related to the overall fiscal situation\. Through out this process the client has been very supportive in exchanging information\. Details on the financial performance of the power sector, along with other relevant information, have been regularly provided by the client\. 7\.3 Overall Bank performance: Based on the above ratings for lending and supervision, the Overall Bank Performance is rated satisfactory \. Borrower 7\.4 Preparation: The Borrower’s performance was satisfactory in project identification and preparation\. The overarching development vision of the state was articulated in the Vision 2020 document in 1999\. It is a statement of intent to pursue economic growth, develop human capital and reduce poverty\. The process to attain this vision has been laid out in a series of strategy papers\. All this work meant the state was in a very good position to identify and prepare for the project\. Besides, a number of studies and other analytical work were done by several external agencies including the Bank\. The Department of Finance, as the interlocutor, was fully - 20 - Page 24 prepared and was on top of all issues\. Finally, and perhaps most importantly, the strong support from the state leadership meant that the reform process had a strong forward momentum\. One area where the government did not do due diligence preparatory work was in supplying accurate information on the power sector\. In February 2002, when the loan was being negotiated, there has been a considerable increase in subsidized power supply to agriculture, but no information to this effect was supplied to the Bank\. 7\.5 Government implementation performance: The Government’s implementation performance is rated satisfactory \. One main reason for satisfactory implementation is that the reform program, supported by the project, is that of the government\. As noted in Section 4\.2, the government has made a lot of progress in implementing a variety of public expenditure management reforms, has improved the process of financial accountability, managed the public enterprise reform program well and has continued to reduce the fiscal burden of the Rice Subsidy Scheme\. Most important, despite the financial problems of the power sector (see below), it has managed to meet its fiscal target for 2001-02\. GoAP’s financial management in the power sector continues to be a source of concern\. As detailed in Section 4\.2, if power sector finances are not managed properly, given the magnitude of the problem, the government’s overall fiscal reform program could easily get derailed\. Admittedly, the issue of power subsidies to the agriculture sector is a difficult one, partly due to the associated political economy issues\. Nonetheless, the issue has to be addressed to avoid major financial losses to the sector\. There are a few other areas where the government could have implemented the agreed action program\. For example, while the Government had constituted the Revenue Reform Committee, the latter has not really done its job of preparing a strategy of reforming the structure and administration of the state’s tax and non-tax revenue sources\. The Government’s anti-corruption agenda, after its initial momentum, has not moved since May’02\. Also, the Right to Information Act is still to be implemented and the real work of the newly established Poverty and Social Monitoring Unit has not started\. 7\.6 Implementing Agency: Not Applicable (as the Government itself was the implementation agency)\. 7\.7 Overall Borrower performance: Based on the above ratings for lending and supervision, the Overall Borrower Performance is rated satisfactory \. 8\. Lessons Learned The first policy based lending program in Andhra Pradesh provides several lessons\. Some of them are similar to what was learnt from the two previous adjustment programs in Indian states of Karnataka and Uttar Pradesh; a couple of them are new lessons\. These lessons, in turn, will be helpful in designing better adjustment lending operations in the Bank in general and in the South Asia Region in particular\. A few broad lessons learned in the context of APERL are listed below: Research and experience suggest that reform programs are much likely to succeed when owned and designed by countries\. External agencies such as ours can help facilitate that process by providing technical and financial support\. The Andhra Pradesh adjustment lending experience clearly confirms that hypothesis\. A series of single-tranche adjustment operations is better suited for supporting a multiple-year reform process\. While this entails a higher administrative cost for the Bank, the process supports the required - 21 - Page 25 incentive mechanism\. It also helps in facilitating an exit strategy for the Bank if the reform program falters\. In the case of Andhra, like other states in India, a follow-up adjustment operation is to be based on a continuation of the government’s reform program\. As is to be expected, the pace of progress of different components of a government owned reform program l varies\. However, it is important to determine what are the critical elements of the program, where progress has to be made and the pace has to be sustained for the credibility of the overall program\. For example, it is clear in AP that unless the financial performance of the power sector is improved on a sustained basis, the overall fiscal reform will remain tentative\. One possibility could have been to agree on specific actions that would have helped in improving the financial performance of the power sector\. Real meaningful institutional reforms always take more time than envisaged\. It is easy to set up a l committee or two through a government order, but it is much more difficult and time consuming to ensure that these committee to the jobs that they are set up to do\. In AP, the experience of setting up of Poverty and Social Monitoring Unit and the Revenue Reforms Committee confirms this\. Working in partnership with other external agencies can bring useful technical and financial resources to l the client\. While with the involvement of several external agencies the transaction cost increases, the benefits to the client can be substantial\. 9\. Partner Comments (a) Borrower/implementing agency: - 22 - Page 26 Evaluation Report on APERL Borrower’s Perspective – Government of India - 23 - Page 27 A\. Fiscal Outcomes The progress in achieving the core outcome objectives of fiscal responsibility, have been satisfactory\. 1\. The fiscal deficit in 2001-02 was 4\.5% of GSDP as against the original target of 5% in 2001-02 and 5\.31% in 2000-01\. This cushion allowed the achievement of the Consolidated Fiscal Deficit (CFD) target of 5\.6% in 2001-02, despite higher losses in power sector\. The CFD in 2001-02 has also shown an improvement as compared to 2000-01 falling to 5\.6% from 6\.02%\. However, the fiscal deficit according to the Revised Estimate of 2002-03 is marginally worse at 4\.7% as against 4\.5% in 2001-02\. 2\. The Revenue Deficit has also gone down to 1\.92% of GSDP in 2001-02 as against the original target outcome 2\.3% in 2001-02 and 2\.61% in 2000-01 (Actual)\. However, the revised estimate of 2002-03 is showing a higher figure of 2\.02%\. The Consolidated Revenue Deficit (CRD) (including power sector) has also improved from 2\.98% in 2000-01 to 2\.37% in 2001-02\. It is further estimated to go down to the level of 1\.64% in 2002-03 (RE)\. This is a positive outcome\. 3\. Under the States’ Fiscal Reforms Facility, apart from CFD, importance is given to CRD as a % of Total Revenue Receipts (TRR)\. GoAP has brought down the ratio of CRD to TRR from (-) 26\.90% in 1999-00 to (-) 16\.30% in 2001-02 over the period of two years\. On the whole, therefore, the State Government has managed to reduce CRD/TRR by about 10% age points, in line with the broad scheme of things\. 4\. The Consolidated Debt Stock (including off budget borrowings & guarantees) has gone up to 39\.76% of GSDP in 2001-02 from 36\.37% in 2000-01 (Actual) and is further targeted to go up to 40\.46% in 2002-03 (RE)\. The debt stock may not be sustainable in the medium term as the ratio of interest payments to total revenue receipts for Andhra Pradesh is well above the thumb rule norm of 20%\.The Consolidated Debt Stock (including off budget borrowings & guarantees) is more than two times of total revenue receipts as shown in the table given below; and calls for further corrective action in 2003-04 to 2005-06\. Debt Sustainability (Rs\. in crore) Indicators 1999-00 (Actual) 2000-01 (Actual) 2001-02 (Actual) 2002-03 (RE) 2003-04 (BE) Interest Payments (IP) 3101 4354 5158 6136 6880 IP as % of TRR 20 24 25 27 26 Consolidated Debt Stock (CDS) (including off budget borrowings & guarantees) 42991 50045 59684 66639 75194 CDS as % of TRR 273 271 289 298 284 TRR – Total Revenue Receipts 5\. Outstanding guarantees have shown a declining path from the year 2001-02 from a level of 9\.9% of GSDP in 2001-02, they are likely to decline to 8\.73% in 2002-03 (RE) and further to 8\.61% in 2003-04 as per budget estimates\. This process, by incorporating guarantees as off-budget borrowings is a welcome trend\. B\. Process Milestones The Andhra’s Economic Reform Programme include three components : (i) fiscal reforms programme aims at fiscal stabilisation, (ii) public expenditure management reform to strengthen financial management and (iii) governance reforms which includes a program of poverty monitoring, public enterprise reform, civil service reform, etc\. Government of Andhra Pradesh had committed to take action on the fourteen components under - 24 - Page 28 APERL\. Government of Andhra Pradesh has made reasonable progress in fiscal, public expenditure management, and governance and public management reforms\. The upfront action on all the fourteen triggers of the APERL have been completed\. These are summarised on the next page: Key Triggers and progress of actions for APERL Triggers and Actions Progress Fiscal Policy Reform 1\. Budget execution in 2001-02 consistent with the corrective measures needed to reach the MTFF targets (1\.3% primary deficit, 5\.0% fiscal deficit and less than 5\.6% consolidated fiscal deficit) The FD fell in 2001-02 (PA) to 4\.5% of GSDP\. CFD remains almost at target of 5\.6% of GSDP despite higher losses in the power sector\. Primary deficit has also significantly reduced\. 2\. Annual Fiscal Framework targets significant deficit reduction for 2002-03\. MTFF targets a reduction in the CFD in 2002-03 to 4\.7% of GSDP as against the 5\.6%, achieved in 2001-02, which is unlikely to be achieved due to deteriorating financial performance of power sector\. 3\. GoAP's Fiscal Reform Strategy Paper (including the MTFF) finalised and published \. Published and disseminated in January 2002 on the GoAP website\. 4\. Tax reforms and cost recovery : sales tax floor rates unified, major progress in preparation of VAT implementation\. GoAP is in full preparedness to mitigate it VAT regime from 1st April , 2003\. Public Expenditure Management Reform 5\. Set hard expenditure ceilings for each line department at the start of the budget preparation cycle, beginning in 2002-03 GoAP has begun the practice of setting hard expenditure ceilings for each Line Department (LD) at the start of the budget preparation cycle consistent with realistic resource estimate and it has also introduced a system of mid term review of budgetary performance of LDs in part to establish a board qualitative link to the next budget\. 6\. Make initial aggregating provision against government guarantees, including full provisioning for selected guarantees\. GoAP has made a significant initial aggregate provision against potential government guarantee defaults, fully provisioned for selected guarantees, and intends to elaborate a comprehensive approach to the budgetary treatment of government guarantees\. The State Government will also implement comprehensive policy on public guarantees next year\. 7\. Initial rationalization of heads of account and periodic advance releases of spending authority to line departments\. GoAP has begun a rationalisation of heads of account and initiated the practice of quarterly or half yearly advance releases of spending authority to LDs\. 8\. Computerize pension payments and initiate computerisation of salary payments\. GoAP has computerised pensions and is also proceeding to computerise payrolls along the same lines\. Governance and Public Management Reform 9\. Continue de facto civil service hiring freeze in place and conduct comprehensive civil service census\. In response to the growth in civil service numbers and upward pressure on wage bill, the State Government has put in place a de facto ban on recruitment since 1993\. Since 1997, a target of net - 25 - Page 29 annual reduction of 1\.9% in the total number of civil servants is also met except in priority areas\. Gap has also substantially completed a civil service census and is establishing a computerise database\. 10\. Implement anti-corruption drive in the power sector, including carry out regularization drive, strengthen collection efficiency, enact power theft legislation, implement anti-theft legal sanctions through special courts\. GoAP's initiatives includes include a drive to clean up the power sector through regularising 2 million domestic consumers, improving collection efficiency to cover 98% and enacting a law to control theft and pilferage of electricity, along with special courts and police stations for dealing with power theft\. 11\. Closure/privatize 11 public enterprises\. Cabinet approval of phase II PE reform programme, with implementation sequencing and costing\. In phase - I , 11 units had either been privatized, closed or restructured and good progress has been made in the remaining 8 units\. In phase - II, 68 units are included under reform programme during 2002 to 2006\. Progress report of phase 2 of the programme will be prepared in each year\. 12\. Submit Right to Information Bill to Cabinet\. Right of Information Act was submitted to Cabinet in January, 2002\. 13\. E-Governance Implement public service access system (TWINs/eSEVA) in Hyderabad, streamline / computerise deed registration (CARD) to cut turn around time and public compliance burden\. GoAP will continue to roll out programs, such as Twin Cities Network Services which creates a "“one stop shop” for citizens to take care of 20 different services, to cover 50 municipalities within the State\. It will also give its highly successful Computer-aided Administration of Registration department program greater publicity to improve public knowledge and awareness regarding this facility\. The State Government will also establish a blueprint for electronic governance\. Power Sector Reforms The most critical sector for the State Government is the power sector, where reforms need to be accelerated to improve the fiscal position of the State and to justify continuing bank support to the State\. The State government’s broad strategy in this area consists of measures to significantly improve the efficiency of power generation, invest in system up-gradation and crack down on theft of power to minimize T & D losses, strengthen the provision of quality power supply in order to retain high paying industrial consumers on the power grid, ensure nine hours of supply to agriculture, introduce energy audit and take all effective steps to ensure supply, quality service delivery and payment compliance\. The GoAP also aims to privatize distribution in order to improve the management of the distribution l companies and cut system losses\. The ultimate objective of the power sector reforms would be gradually to reduce the difference between the average cost of power (on the basis of current liabilities) per kwh and average revenue (on cash basis) per kwh\. GoAP has estimated that the net support to power sector will go down from the level of 2\.5% of GSDP in 2000-01 to 0\.4% in 2004-05\. Universal metering of all electricity connections shall be completed within 2003-04\. - 26 - Page 30 No new electricity connections shall be given without meters\. While the State appeared to roll back some of the process in Power Sector Reforms in the current year, there is some indication that they intend to put in place correctives from 2003-04\. It is also unlikely that the State will meet its target outcome on loss reduction in the sector in the current fiscal\. In part, the severe drought has worsened the Hydel/Thermal mix, leading to an unanticipated increase in the Average Cost of Power supplied\. The inability to limit supplies to rural areas to contain cash losses at agreed levels, as well as their inability to increase tariffs in line with requirements would largely account for larger cash-losses of the sector Fiscal and Governance reforms as well as power sector reforms are expected to continue in remaining years of the reforms period in respect to the APERL\. We expect the State to take corrective steps in the Power Sector, to bring the reform outcomes back on track\. The future financial support for the program will be determined by the Government of India, GoAP , the World Bank and DFID on a year to year basis\. ******** - 27 - Page 31 - 28 - Page 32 - 29 - Page 33 (b) Cofinanciers: Comments from DFID: DFID co-financed APERL with a £65 million financial assistance provided to GoAP on a grant basis\. Complementing this financial assistance package are DFID-funded technical assistance programmes in the areas of governance reforms, power sector reforms, poverty reduction, and public enterprise reforms\. The APERL supports a strong reform agenda developed and driven by GoAP\. DFID’s rationale for supporting APERL is similar to that of the World Bank – assisting the government to achieve its goals, set out in Vision 2020, including the eradication of poverty\. This requires fiscal consolidation, reprioritisation of public expenditures to deliver on policy priorities, improved service delivery and modernisation of government (including greater accountability)\. A key objective is to ensure that poverty reduction is central in the reform agenda\. The first tranche was based on a set of completed actions, and since then DFID and the World Bank have initiated discussions with GoAP on a possible second tranche of support\. The key challenges while designing the future support under APERL would include: reducing the power sector losses and so strengthening the prospects for fiscal stabilisation; re-prioritisation of expenditure in alignment with the key policy priorities of the government; ensuring that the governance reform agenda leads to effective improvements in service delivery; and mainstreaming poverty – ensuring that poverty reduction is central to the APERL\. All this would need to be done within a multi-year framework as required under the new GoI policy guidance on sub-national adjustment lending\. DFID greatly values the partnership with GoAP, and the strong leadership and direction displayed by the government in taking its reform agenda forward\. A key challenge for the government in the days ahead would be to deepen and widen the base for reforms while ensuring that some of the more difficult reform tasks are being addressed\. DFID is very pleased with the close working relations developed with World Bank staff, and values the professional analysis and experience that Bank staff bring to bear on the discussions\. We look forward to deepening this relationship as APERL moves to future years of support\. - 30 - Page 34 (c) Other partners (NGOs/private sector): 10\. Additional Information Not Applicable\. - 31 - Page 35 Annex 1\. Key Performance Indicators/Log Frame Matrix Outcome / Impact Indicators: Indicator/Matrix Projected in last PSR 1 Actual/Latest Estimate Reform Area I\. FISCAL REFORMS 1\. Establish a sustainable medium-term fiscal framework 2\. Improve composition, equity and efficiency of public spending 3\. Reform revenue system to enhance revenue mobilization and efficiency Performance benchmarks Reduction in primary and fiscal deficit Containing debt and contingent liabilities Full support to power sector consistent with APERC ruling Enhanced transparency in budget formulation and execution Enhanced allocation to priority sectors Containing expenditures on salaries and pensions Elimination of bogus rice cards Constitution of Revenue Reforms Committee (RRC) with an overall objective of providing guidance on revenue reforms in AP Preparation for implementation of VAT Achievements till Date (March 1, 2003) Consolidated fiscal deficit below target in 2001-02 (5\.5% against a target of 5\.6%), debt and liabilities within the MTFF ceiling, full support provided to the power sector, draft budget publized widely and mid-term report on budget execution placed on the GoAP's Web site\. Spending on primary health and education was short of MTFF targets (1\.9% against a target of 2\.2%); expenditures on salaries and pensions were within targets and bogus rice cards have been eliminated from the system\. A medium term expenditure framework is under development in the primary health sub-sector, as a pilot for the introduction of medium term planning across all departments in future\. The RRC has been quite ineffective and has not contributed to revenue reforms in the state; AP, however, is one of the most advanced states in India as far as preparation for VAT is concerned\. II\. PUBLIC EXPENDITURE AND FINANCIAL MANAGEMENT 1\. Strengthen policy budget link and improve fiscal discipline 2\. Raise aggregate efficiency of public expenditure and enable sound operational management MTFF to guide budget policy Establish Fiscal Reforms Implementation Committee Hard budget ceilings on line departments Provisioning and capping of guarantees Review and rationalization of expenditures across schemes Staff redeployment Budget allocations have been more or less in line with MTFF targets, the Fiscal Reforms Implementation Committee has undertaken three studies\. These include a study on debt swapping to take advantage of lower interest rates, modifying the pattern of grant-in-aid to colleges and commodity wise contribution to sales tax revenue\. The reports are presently under consideration\. There is a mixed picture in terms of hard budget ceilings imposed at the beginning of the year\. For non-plan spending, the revised estimates are higher for Agriculture, Rural and Urban Development, Energy than budgeted, and lower for some other departments\. The reductions are understood to largely reflect the slower pace of expenditures in particular expenditure categories; increases generally reflect new schemes introduced during the year\. A guarantee redemption fund has been set up as a first step towards provisioning of guarantees\. A zero-based review of schemes undertaken wherein approx\. 20,000 staff associated with non-performing schemes were identified for redeployment; and about 17,000 have since - 32 - Page 36 3\. Budget execution, financial management and accountability Innovative user charges to be introduced, collected and retained by departments for enhanced expenditure on O&M Rationalization of budget heads Introduction of new cash management system Computerization of payroll Review of financial regulations and record-keeping procedures Doing a State Financial Accountability Assessment (SFAA) Clearing backlog of audits and accounts Improving internal controls Timely follow-up and responses to audit observations been redeployed to local governments\. The process of rationalizing schemes is ongoing and it is understood that there is an increased focus on the poverty reduction programs for the discretionary part (about 15%) of plan expenditures\. A performance monitoring system was put in place throughout GoAP in 2002-03 and performance budgets were prepared by each line department as part of the 2003-04 budget process with the aim of better linking funding to performance\. Line departments have been given the incentive to collect innovative user charges and retain them for O&M expenditure\. A detailed exercise was carried out wherein a number of budget sub-heads for smaller schemes were aggregated\. Further, salary budgets were de-linked from scheme budgets removing a major incentive to keep old, uncompleted schemes open\. Implementation of a new cash management led to more efficient use of resources as finances were available to line departments when required with greater predictability\. This systems also helped better fine tune receipts and expenditure cash flows\. Also, during 2002-03 the GoAP had only been in overdraft 17 days in the 9 months to December 2002\. Computerization of payroll has been incorporated into the larger integrated financial services system as a part of GoAP’s e-governance agenda\. Review of financial regulations and record keeping procedures is nearing completion\. Enforcement of internal controls and responses to audits have been strengthened by linking release of funds to adherence to public financial accountability norms (refer GO’s 506 and 507)\. Action Plan for clearing backlog of accounts and audits of Urban Local Bodies, Rural Local Bodies, Boards and Authorities and other institutions prepared, and being implemented\. The SFAA report should be finalized by end March 2003\. III GOVERNANCE REFORMS Develop strategy for Governance, public management and administrative reform 2\. Civil Service Reform Produce a strategy paper Set up a new wing Setting up and staffing of the Centre for Good Governance (CGG) Completion of civil service census Review of major departments addressing staffing, budget, schemes etc\. Publication and dissemination of Citizen’s Charters for 7 departments Establishing a computerized human resource GoAP’s strategy paper on governance, public management and administrative reform submitted to the assembly; the General and Administrative Department (GAD) set up to coordinate the Governance and public management agenda\. However, relatively limited progress has been made in developing a modern human resource management capacity within the GAD\. Center of Good Governance (CGG) set up has struggled, but it is now established and has initiated solid analytical work along several dimensions\. The civil service census has been completed\. Review of schemes, staff etc\. was undertaken under the expenditure management program discussed above\. Further functional review and rationalization agenda has been incorporated under the - 33 - Page 37 3\. Decentralization 4\. Electronic Governance 5\. Deregulation 6\. Access to Information 7\. Anticorruption Strategy 8\. Poverty analysis and monitoring for pro-poor policy formulation database Analyze GoAP’s legal case load and develop a monitoring system Establishing training centers in districts Identifying and training 10,000 change agents Strengthen capacity of Panchayti Raj Institutions (PRI's) A number of e-governance initiatives to improve service delivery Enactment of the legislation to enhance the effectiveness of Single Window Clearance system Overhaul of business inspection regime Single Window Services to be provided through AP on line portal Developing a public relations strategy to communications rules to business entities Overhaul grievance redressal mechanisms for inspections Preparation and submission of bill to assembly Cabinet approval of anticorruption strategy paper Setting up of an anti-corruption task force Review of public procurement process Launch e-procurement pilot Establishment of the Poverty and Social Monitoring Unit Finalization of GoAP’s poverty strategy paper Development of the State Poverty Eradication Mission to identify key poverty monitoring indicators, establish a baseline and set up a robust poverty monitoring system CGG’s work stream\. Citizen’s charters prepared and disseminated for all major departments\. GoAP and CGG have drafted an excellent study of the implementation of citizens charters in AP\. GoAP has made progress in completing the initial analytic work in legal case load\. Training centers have been established in all 23 districts and 10,000 change agents trained at the CGG\. A number of surplus staff redeployed as Panchayat secretaries to boost the overall decentralization agenda\. On-going dialogue on strengthening this area\. GoAP’s progress in the area of e-governance has been commendable\. A blueprint for electronic governance has been drawn up for 35 major departments\. E-Seva will be extended to all 117 municipalities in AP during 2003, and it will be complemented by the development of the On Line Transaction Processing (OLTP) system in rural areas in two target districts\. Much of this work is being implemented through a series of innovative public/private partnerships\. Single Window Clearance Act in place\. A number of GO’s issued to simplify labor laws and streamline inspections\. All the information placed on the GoAP's Web site\. GoAP has elected to implement the Government of India’s Freedom of Information legislation, which was enacted in December 2002\. The latter is binding over the state government although the law in essence establishes a baseline, and Indian states are free to adopt more far-ranging legislation\. Significant progress remains in operationalizing this legislation\. Anticorruption strategy paper approved by the cabinet and a task force set up\. E-procurement pilots have been initiated in four departments with 2000 crore in annual procurement\. The Government Order to set up the Poverty and Social Analysis Monitoring Unit (PSAMU) was passed in February 2002\. DFID, UK has agreed to support the Unit for the first year of its operations\. As of February, 2003, it has not been staffed\. Advertisements to fill the positions have been issued in the first week of March, and PSAMU is expected to be staffed by April, 2003\. Identification of indicators and setting up of monitoring mechanisms will follow once PSAMU is staffed\. - 34 - Page 38 9\. Public Enterprise reform and Privatization Implementation of phase I and II program Implementation of social safety net program Implementation of communications program Compliance programs for PEs with major environmental liabilities Measures to improve transparency in tendering and bidding procedures The public enterprise reform program has made good progress\. Phase I, which started in 1999, included 19 enterprises\. Of these, 16 have been privatized, closed or restructured, compared with the target of 12\. Gross proceeds from the sale of assets amounted to about $38 million, with about $26 million received so far\. The bulk if not all, of the proceeds will be used to settle the outstanding liabilities of the enterprises\. Phase II covers 68 enterprises and is to be implemented during 2002-06\. The target of 15 units for 2002-03 has been achieved\. Ten units have been closed, two privatized, and three restructured\. Another 15 units are in the pipeline, including six sugar units where a legal challenge to the privatization process has been recently upheld by the court\. In addition, option studies for most of the remaining Phase II enterprises have been completed or are underway\. Output Indicators: Indicator/Matrix Projected in last PSR 1 Actual/Latest Estimate 1 End of project - 35 - Page 39 Annex 2\. Project Costs and Financing Not applicable to Adjustment Lending\. - 36 - Page 40 Annex 3\. Economic Costs and Benefits Not applicable to Adjustment Lending\. - 37 - Page 41 Annex 4\. Bank Inputs (a) Missions: Stage of Project Cycle Performance Rating No\. of Persons and Specialty (e\.g\. 2 Economists, 1 FMS, etc\.) Month/Year Count Specialty Implementation Progress Development Objective Identification/Preparation April 2001-June 2001 2 2 3 1 2 1 Economists FMS/Disbursement Specialists Energy Specialist Private Sector Specialist Public Sector Specialist Research Analyst S S Appraisal/Negotiation January 2002-February 2002 1 1 1 1 2 1 2 2 2 2 Economist FMS/Disbursement Specialist Social Development Specialist Procurement Specialist Public Sector Specialist Private Sector Specialist Legal Research Analysts Energy Poverty Monitoring S S Supervision May 2002 - September 2002 2 2 1 1 3 Economists FMS/Disbursement Specialist Public Sector Specialist Research Analyst Energy Specialists S S ICR September 2002-March 2003 2 2 1 Economists PEM/FM Specialist Public Sector Specialist (b) Staff: Stage of Project Cycle Actual/Latest Estimate No\. Staff weeks US$ ('000) Identification/Preparation 115\.49 499 Appraisal/Negotiation 55 198 Supervision 54 198 ICR 7\.52 88 Total 232\.01 983 - 38 - Page 42 Annex 5\. Ratings for Achievement of Objectives/Outputs of Components (H=High, SU=Substantial, M=Modest, N=Negligible, NA=Not Applicable) Rating Macro policies H SU M N NA Sector Policies H SU M N NA Physical H SU M N NA Financial H SU M N NA Institutional Development H SU M N NA Environmental H SU M N NA Social Poverty Reduction H SU M N NA Gender H SU M N NA Other (Please specify) H SU M N NA Private sector development H SU M N NA Public sector management H SU M N NA Other (Please specify) H SU M N NA - 39 - Page 43 Annex 6\. Ratings of Bank and Borrower Performance ( HS=Highly Satisfactory, S=Satisfactory, U=Unsatisfactory, HU=Highly Unsatisfactory) 6\.1 Bank performance Rating Lending HS S U HU Supervision HS S U HU Overall HS S U HU 6\.2 Borrower performance Rating Preparation HS S U HU Government implementation performance HS S U HU Implementation agency performance HS S U HU Overall HS S U HU - 40 - Page 44 Annex 7\. List of Supporting Documents 1\. Report and Recommendation of the President, Report No\. P7508-IN, February 15, 2002\. 2\. Fiscal reforms Strategy Paper, Government of Andhra Pradesh, Finance Department, January 2002\. 3\. Annual Fiscal Framework, Government of Andhra Pradesh, Finance Department, January 2003\. - 41 - Page 45 - 42 -

REVIEW

P005750

 ICRR 13222 Report Number : ICRR13222 IEG ICR Review Independent Evaluation Group 1\. Project Data: Date Posted : 10/30/2009 PROJ ID : P005750 Appraisal Actual Project Name : Agricultural Support US$M ): Project Costs (US$M): 35\.46 24\.46 Services Project Country : Tunisia Loan /Credit (US$M): Loan/ US$M ): 21\.33 24\.97 Sector Board : ARD US$M): Cofinancing (US$M ): Sector (s): Agricultural extension and research (65%) Agricultural marketing and trade (19%) Animal production (15%) Central government administration (1%) Theme (s): Rural markets (50% - P) Small and medium enterprise support (25% - S) Rural policies and institutions (25% - S) L/C Number : L7063 Board Approval Date : 06/26/2001 Partners involved : Closing Date : 06/30/2007 12/30/2008 Evaluator : Panel Reviewer : Group Manager : Group : Hassan Wally John R\. Heath Monika Huppi IEGSG 2\. Project Objectives and Components: a\. Objectives: "The project is the first phase of a longer term (ten year) program that aims at improving production quality, competitivity [sic] and market access, particularly for smaller and medium scale producers \. To this end, the project objectives are to: 1\. Develop, on a pilot basis, organizational structures for producers that represent their needs and interests \. 2\. Improve the institutional capacity and quality of agricultural services delivered by public and private institutions and producer organizations \. 3\. Improve the flow of information for all sector stakeholders " (Project Appraisal Document, p\. 2)\. b\.Were the project objectives/key associated outcome targets revised during implementation? No c\. Components (or Key Conditions in the case of DPLs, as appropriate):  Component 1\. Building the capaci ty of agricultural producers and inter -professional organizations \. (Appraisal Cost US$ 5\.26 million, Actual Cost US$ 2\.31 million )\. Support a pilot project to strengthen the capacity of local and regional producer organizations to demand, manage and provide services \. Provide support to national inter-professional organizations (GIPs) to improve product quality and develop new markets and brand images for Tunisian produce\. Component 2\. Strengthening the supply of research, training and farming advisory services \. (Appraisal Cost US$ 10\. US$1010 \.03 million, Actual Cost US$ 9\.28 million )\. Strengthen and regionalize agricultural research including the introduction of a selective or competitive grant system, creation of a unified research institute and regional research centers, user participation in setting the research agenda, and creation of an information clearing house on agricultural technology\. Also, support a pilot project to improve producer access to training and farming advice through setting up a demand-driven advisory service in six pilot areas, reinforcement of women's extension; and strengthening of agricultural training \. Component 3\. Livestock and animal health \. (Appraisal Cost US$ 8\.74 million, Actual Cost US$ 4\.57 million )\. Support the improvement of services in animal production and health including : diagnostic services, animal identification, training, further transfer of services to the private sector; and increasing the share of producers in paying for certain services \. \.( Appraisal Cost US$ 6\.44 million, Actual Cost US$ Component 4\. Plant protection and seed and plant certification \.(Appraisal 4\.97 million )\. Strengthen the capacity for plant protection and seed certification by expanding the pesticide residue and seed testing capacity, development of monitoring and surveillance capability on trade in plant products; and improving awareness about cost effectiveness and sustainability of integrated pest management (IPM)\. Component 5\. Strengthening public interest services and project management support \. (Appraisal ( Appraisal Cost US$ 4\.98 million, Actual Cost US$ 3\.33 million )\. Increase the availability of agricultural statistics and information for all sector stakeholders; and provide support for project management \. d\. Comments on Project Cost, Financing, Borrower Contribution, and Dates: The project closing date was extended by 18 months\. The ICR (p\. 7) points to procurement delays among other factors as the main reason for the extension \. In March 2006, 11% of the original loan amount was cancelled due to cost savings related to exchange rate fluctuations and an overestimation of technical assistance and training costs at appraisal (ICR, p\. 4)\. The Government of Tunisia (GOT) was expected to provide US$ 16\.69 million counterpart funds but, by project completion, it had supplied only US$ 5\.8 million (ICR\. p\.28)\. 3\. Relevance of Objectives & Design: Objectives \. (Rating : Substantial )\. At the appraisal stage the project objectives were in line with the priorities of the Bank's Country Assistance Strategy (CAS) and a continuation of support to the agriculture sector development in Tunisia\. The project was intended to implement the integrated and coordinated reform process envisaged in the Government of Tunisia (GOT) action plan (ICR, p\. 1)\. The project objectives are also relevant to the current Bank's Country Assistance Strategy (2005-08) which states that in order to strengthen the business environment to support the development of a more competitive, internationally integrated private sector and improve competitiveness of the Tunisian economy six outcomes need to be achieved including "improved competitiveness of agriculture while ensuring that social and environmental concerns are properly addressed " \. ( Rating : Modest ) The project design simultaneously tackled infrastructure and capacity building gaps, Design \. (Rating following up on earlier agricultural service operations \. There were a number of persistent problems with the farming incentive regime, resolution of which lay beyond the scope of this project but could perhaps have been addressed through a complementary development policy operation \. In the absence of this complementary operation it could be argued that the various parts of the project would not be sufficient to achieve the overarching objective of enhanced competitiveness\. Also, the design did not make adequate provision for outreach to small and medium farmers \. The Bank did not conduct any agricultural sector work between 1986 and 2006, suggesting perhaps that the analytical foundations for the project were insubstantial \. The ICR (pp\. 5-6) identifies several other design failings \. First, the pilot launched in support of the first objective under estimated local conditions and made "unrealistic assumptions"\. Second, some of the key performance indicators were "too broad" and others were "not well related to the PDOs"\. Third, the project was hampered by the lack of a "stand-alone M&E component"\. Fourth, the project was arguably too complex, increasing the likelihood of implementation delays\. Fifth, the PAD did not contain " a very substantial definition of the activities to be carried out under each component"\. The design shortcomings were considerable (as reflected in the Quality at Entry rating in Section 8a below); considerable enough to outweigh the substantial relevance of objectives \. Overall, therefore, relevance is rated modest\. 4\. Achievement of Objectives (Efficacy): The overarching objective was to improve production quality, competitiveness and market access, particularly for smaller and medium-scale producers\. Achievement is rated substantial , based on progress made toward specific objectives (particularly the second of these which accounted for 75 percent of project costs)\. The project laid the necessary public sector foundations for an eventual private sector response\. Particular achievements were the strengthening of agricultural research infrastructure, enhanced controls for plant and animal health, and the development of improved procedures for product certification and traceability \. However, the ultimate impact on small and medium-size producers was unclear when the loan closed \. 1\. Develop, on a pilot basis, organizational structures for producers that represent their needs and interests, (Rating : Modest )\. The strengthening of the Groupement interprofessionnel (GIP) GIP ) was the first activity under this objective\. The ICR (p\.10) explains that the quality specialists received substantial training in Tunisia and Europe on what constitutes a quality product \. Also, 11 quality seals were approved and a decree was published specifically addressing wine origins\. However, some of the quantitative targets that measure performance (ICR, p\. 10) were not fully achieved\. For example, training targets were only about two -thirds realized\. The second activity was a pilot operation to support representative producer organizations (POs) POs ) by providing economic and technical assistance to existing cooperatives by private consulting firms \. The ICR (p\.11) states that technical assistance was provided to 44 cooperatives and 32 Groupement de Developpement Agricole (GDAs) to help them establish accounting and financial controls, financial diagnostics, general management advice and strategic investment planning \. However, the TA was not useful as most of the cooperatives did not genuinely represent the needs and interests of producers, many cooperatives were "not financially viable" and "not adequately staffed" to be able to benefit from the TA provided (ICR, p\. 11)\. Also, the financial and managerial advice provided did not respond well to the need and priorities of most cooperatives and GDAs (ICR, p\. 11)\. Moreover, the progress and results of the pilot were not monitored and evaluation was only carried out towards the end of the project \. The ICR (p\. 11) notes that the pilot focused more on technical training without enough attention to actual activities of cooperatives, and concludes that the pilot "did not substantially address the wider question of whether and how to provide TA to expand cooperatives for various products, and to offer a wider array of services useful to farmers \." 2\. Improve the institutional capacity and quality of agricultural services delivered by public and private institutions ( Rating : Substantial )\. Institutions and services targeted under this objective were and producer organizations \. (Rating agriculture research and extension services, plant and seed protection and certification, and livestock and animal health\. Agriculture research was successfully decentralized and regionalized with research planning responding better to farmers' needs (ICR, p\.12)\. Research results are better documented and posted on the intranet of MOA and shared with producer groups to get their input on research priorities \. The ICR (p\. 12) notes that number of consultations per year with the research database was 40,000 (target: 50,000) and the number of research results included in the research achievements library was 104 (target:104)\. Two regional research centers were established with financial and budget autonomy and multi -disciplinary teams responding to local needs (ICR, p\. 31)\. There is local buy-in: the GIP and the Regional Commissariats for Agricultural Development (CRDAs) participate in setting the research agenda and contribute to funding research (ICR, p\. 31)\. The ICR (p\. 12) notes that 149 research actions were initiated (target: 149)\. On the other hand, extension pilots for the development of private extension advisory services were " poorly designed and executed and had little impact " (ICR, p\.12)\.On the positive side, the ICR (p\.12) highlights that "training of extension agents and farmers improved services significantly, and the pilot to strengthen extension services to women farmers worked well \." That said, the lack of adequate M&E makes it difficult to assess the impact of the training and extension services \. Plant protection capabilities were improved with a new phytosanitary station at the container port of Rades, the extension of analytical laboratories for pesticides and the provision of equipment for three regional stations (ICR, p\.13)\. Also, the project activities established epidemiology systems for controlling pests in various horticultural crops, trained experts in integrated pest management (IPM) and facilitated a decree that established user fees (ICR, p\.13)\. "Most of the lab capability and related work originally planned was completed" (ICR, p\. 35)\. Some of the mid-project investments were not finished at closing but the prospect of enhanced access to EU markets provides government with a strong incentive to finish the job \. Furthermore, following passage of a law in April 2008, labs can now charge for their quality control services, enhancing the prospects for sustainability of these investments and reducing dependence on the government budget (ICR, p\. 35)\. With regard to veterinary control systems, the ICR (p\.14) states that "the diagnostic capacity of MOA has been greatly enhanced through the completion of the animal identification network for dairy cows and poultry, through improved computerization and communication of urgent problems and through expanded laboratory analytical capability\." As a result of the project activities reliable identification systems were put in place for traceability and food safety for fish, poultry and dairy and about 80% of the cows were identified with ear tags and records (ICR, p\. 34)\. However, there were problems in establishing a traceability system for red meat given that "half of meat animals were slaughtered outside of the official system " (ICR, p\.34)\. The project provided training for 313 (target 300) agents for animal identification, 231 (target 225) technicians for artificial insemination and 247 (target 240) milk system controllers (ICR, p\.15)\. 3\. ( Rating : Modest )\. The project activities supported the \. Improve the flow of information for all sector stakeholders \. (Rating creation of websites containing a variety of agricultural information including agricultural statistics and agricultural research as well as information from different offices at the Ministry of Agriculture \. The ICR (p\.15) argues that the information flow could have been better so as to reach more stakeholders, particularly private entrepreneurs who could benefit from detailed information on commodities and could provide feedback on analysis and proposals \. Also, contrary to expectations, the 23 commodity specific studies funded under the project were not posted on the internet \. If they had been posted on the website of the Agricultural Investment Promotion Agency (APIA), they would have provided invaluable information for foreign or domestic investors considering opportunities in the agriculture sector \. 5\. Efficiency (not applicable to DPLs): The PAD provides no specific ERR analysis \. Such analysis is not appropriate for an institutional development project of this type (although, under the private extension pilot, it would have been useful to compare the cost effectiveness of private and public provision of agricultural services )\. By loan closing total costs were 69 percent of appraisal estimates and yet delivery of expected outputs (infrastructure, goods and training ) averaged about 90 percent, warranting a substantial rating for efficiency\. ERR )/Financial Rate of Return (FRR) a\. If available, enter the Economic Rate of Return (ERR) FRR ) at appraisal and the re- re -estimated value at evaluation : Rate Available? Point Value Coverage/Scope* Appraisal No ICR estimate No * Refers to percent of total project cost for which ERR/FRR was calculated\. 6\. Outcome: A modest rating for relevance combined with a substantial rating for efficacy and efficiency yields an outcome rating of moderately satisfactory\. a\. Outcome Rating : Moderately Satisfactory 7\. Rationale for Risk to Development Outcome Rating: The continuing failure of the Tunisian government to address price distortions and other weaknesses in the incentive regime may undermine achievement of the overarching objective of the project \. Also, the sustainability of the research facilities and laboratories might be at risk if the Ministry of Agriculture is subject to budget cuts, although this not so far a significant concern \. The progress with product certification and traceability has a high payoff in terms of improved access to European markets and seems likely to be maintained \. a\. Risk to Development Outcome Rating : Moderate 8\. Assessment of Bank Performance: Quality at Entry \. The Bank successfully identified a project that is in line the with the Bank's CAS and reflects priorities of the Tunisian government for the agriculture sector \. However, there were shortcomings in ensuring quality at entry where the projects first PDO "paid insufficient attention to existing private sector farmer -to-market value chains and made unrealistic assumptions about the pace of development of representative producer organizations" (ICR, p\.20)\. This could partly be caused by the lack of sector work addressing Tunisian agriculture: the TTL explained that when the project was appraised in 2001 the most recent agricultural sector review was dated 1986\. Supervision \. The ICR (p\.21) notes that each supervision mission had 8 to 9 experts\. However, there was a lack of follow up on social aspects due to the absence of social development specialists or sociologists among the supervision team\. Also, pilot evaluations were not carried out except towards the end of the project \. The Bank supervision team should have given earlier attention to M&E, rather than waiting till the mid -term review\. The supervision team should have modified the content of the TA to assist GDAs since a 2004 law restricted their ability to market agricultural products \. The ICR (p\. 22) states that the project should have been restructured early on given the disbursement shortfalls and limited progress toward (poorly identified) targets\. at -Entry :Moderately Unsatisfactory a\. Ensuring Quality -at- b\. Quality of Supervision :Moderately Unsatisfactory c\. Overall Bank Performance :Moderately Unsatisfactory 9\. Assessment of Borrower Performance: Government \. The ICR (p\.22) notes that the Tunisian government was committed to the project and reforms in the agriculture sector\. In general the government seemed supportive of the project activities, but slow to act in some cases to adopt certain legal texts \. The ICR (p\.22) notes that establishing new laws proved to be "time-consuming extending beyond the loan closing date in some cases "\. Hiring restrictions by the Ministry of Finance restricted the ability of the Ministry of Agriculture (MOA) to recruit specialized staff which in turn led to implementation delays (ICR, p\.23)\. Also, there were shortfalls in counterpart funding (see Section 1d above)\. Implementing agencies \. The ICR (p\.23) describes the management and staff of the implementing agencies as "enthusiastic, energetic, and knowledgeable about implementing their respective portion of the project "\. But procurement difficulties delayed project implementation \. The ICR (p\. 23-24) provides details about the activities executed by each implementing agency and problems or shortcomings were candidly discussed \. In particular, the project management unit (PMU) was " too low in the MOA hierarchy to help implementing agencies sort out problems"\. The ICR (p\.24) states that the PMU had "too few staff" and did not have staff "specialized in procurement or M&E\." a\. Government Performance :Moderately Satisfactory b\. Implementing Agency Performance :Moderately Satisfactory c\. Overall Borrower Performance :Moderately Satisfactory 10\. M&E Design, Implementation, & Utilization: Design \. M&E design received limited attention given the complexity of the project with five components and 12 executing agencies\. M&E lacked quantitative indicators and baseline data making it difficult to assess progress towards meeting the PDOs or decide whether corrective measures are needed \. The ICR (p\. 7) suggests that M&E could have been a separate component of the project \. Implementation \. The ICR (p\.7) points out that MOA failed to hold a five day M&E workshop that the Bank recommended with the support of an international and a national M&E consultant \. The later adjustments to the M&E system "do not tell the extent to which the project achieved its overall PDOs and what the outcomes /impacts of the project where" (ICR, p\. 8)\. The ICR (p\.viii) notes that 8 original outcome/impact indicators in the PAD were not monitored or evaluated\. Outreach to small and medium-size farmers was not satisfactorily quantified \. Utilization \. The ICR (P\. 8) concludes that M&E was not well developed and it is not possible to evaluate the current utilization of M&E\. a\. M&E Quality Rating : Negligible 11\. Other Issues (Safeguards, Fiduciary, Unintended Positive and Negative Impacts): Safeguards \. The project was classified as environmental category "B" (PAD, p\.19)\. An environmental impact study (EA), carried out during preparation found that the project would positively contribute to environmental sustainability and public health (ICR, p\.8)\. Diagnostic and research laboratories were constructed according to environmental regulations and individual environmental assessments addressed the risks and the proper handling of laboratory waste\. Also, no pesticides were procured under the project \. The project supported and encouraged integrated pest management, the use of biological control methods and helped improve consumer food safety (ICR, p\. 8)\. Fiduciary \. Although financial management was reportedly sound, implementing agencies took longer than they should have to report to the PMU what contracts they had approved \. 12\. 12\. Ratings : ICR IEG Review Reason for Disagreement /Comments Outcome : Moderately Moderately Satisfactory Satisfactory Risk to Development Moderate Moderate Outcome : Bank Performance : Moderately Moderately Unsatisfactory Unsatisfactory Borrower Performance : Moderately Moderately Satisfactory Satisfactory Quality of ICR : Satisfactory NOTES: NOTES - When insufficient information is provided by the Bank for IEG to arrive at a clear rating, IEG will downgrade the relevant ratings as warranted beginning July 1, 2006\. - The "Reason for Disagreement/Comments" column could cross-reference other sections of the ICR Review, as appropriate \. 13\. Lessons: Building partly on the lessons in the ICR the following lessons are emphasized : Project design must include a sound M&E system\.system\. In complex projects with many components and multiple implementing agencies the presence of a sound and measurable monitoring and evaluation indicators is key towards successful management and implementation \. Projects should be formally restructured when there are major obstacles to achieving objectives \. At the objectives\. start, design flaws held up the progress of this project\. A formal restructuring might have provided renewed impetus and allowed objectives to be more fully achieved \. Privatization of agricultural extension requires a design that accommodates local conditions, establishes appropriate incentives and involves provision by specialized firms firms\. The substitution of public by private extension services is often difficult because farmers are often reluctant to pay for extension\. The introduction of a private service should be demonstrated first through pilots in which farmers interested in increasing productivity are chosen and appropriately organized\. The extension service should be provide by specialized firms with experienced advisors who understand local needs\. Finally, the government has to provide the proper incentive for the sustainability of private extension service until the system is established\. This could be in the form of temporary subsidies to the service providers during a transition period \. 14\. Assessment Recommended? Yes No 15\. Comments on Quality of ICR: The ICR is well organized and clearly written \. It provides thorough information on all components of the project and is candid about shortcomings\. a\.Quality of ICR Rating : Satisfactory

REVIEW

P009036

Document of The World Bank FOR OFFICIAL USE ONLY Report No\. 17233 IMPLEMENTATION COMPLETION REPORT TURKEY PRIVATE INVESTMENT CREDIT PROJECT LOAN 3346-TU December 16, 1997 Private and Financial Sector Development Unit Europe and Central Asia Region This document has a restrctd distribution and may be u'sed by recipients only in the| perfonmance of their official duties\. Its contents may not otherwise, be disclosed without World Bank authorization\.  CURRENCY EOUIVALENTS Currency Unit : Turkish Lira (TL) 1989 US$1 = TL 2,027\.0 1990 US$1 - TL 2,930\.1 1991 US$1 = TL 5,079\.9 1992 US$1 TL 8,564\.4 1993 US$1 TL 14,472\.5 1994 US$1 TL 38,726\.0 1995 US$1 = TL 59,650\.0 1996 US$1 = TL 94,756\.0 June 1997 US$1 TL 143,670\.0 WEIGHTS AND MEASURES Metric Svstem ABBREVIATIONS AND ACRONYMS EU European Union PICP Private Investment credit Project FE Foreign Exchange FERIS Foreign Exchange Risk Insurance Scheme FSAL Financial Sector Adjustment Loan GOT Goverm ent of Turkey TSKB Turkiye Sinai Kalkinma Bankasi (Industrial Development Bank of Turkey) SYKB Sinai Yatirim ve Kredi Bankasi (Industrial Investment and Credit Bank) TVB Turkiye Vakiflar Bankasi YKB Yapi ve Kredi Bankasi INTER Interbank KORFEZ Korfezbank GARANTI Turkiye Garanti Bankasi IEDP Industrial Export Development Project ERR Economic Rate of Return FRR Financial Rate of Return PCI(s) Participating Credit Institution(s) PFI(s) Participating Financial Institution(s) PCB(s) Participating Commercial Bank(s) TURKEY FISCAL YEAR January 1 to December 31 Vice President Johannes Lin Country Director Ajay Chhibber Previous Manager Franco Batzella Task Manager Gurhan Ozdora  FOR OFFICIAL USE ONLY IMPLEMENTATION COMPLETION REPORT TURKEY PRIVATE INVESTMENT CREDIT PROJECT (Loan No\. 3346-TU) Contents Preface Evaluation Summary Part I\. Project Implementation Assessment A\. Statement I Evaluation of Objectives B\. Achievement of Objectives C\. Major Factors Affecting the Project D\. Project Sustainability E\. Bank Performance F\. Borrower Performance G\. Assessment of Outcome H\. Future Operation I\. Key Lessons Learned Part II\. Statistical Tables Table 1: Summary of Assessments Table 2: Related Bank Loans/Credits Table 3: Project Timetable Table 4: Loan/Credit Disbursements: Cumulative Estimated and Actual Table 5: Project Financing Table 6: Economic Costs and Benefits Table 7: Compliance with Operational Manual Statements Table 8: Bank Resources: Staff Inputs Table 9: Bank Resources: Missions TablelO: Status of Legal Covenants Part III\. Borrower's Contribution to the ICR MAP NO\. 24903R This document has a restricted distribution and may be used by recipients only in the perfonnance of their official duties\. Its contents may not otherwise be disclosed without World Bank authorization\.   IMPLEMENTATION COMPLETION REPORT TURKEY PRIVATE INVESTMENT CREDIT PROJECT (LOAN NO\. 3346-TU) Preface This is the draft Implementation Completion Report (ICR) for the Private Investnent Credit (PICP),Turkey, for which Loan 3346-TU in the amount of US$ 200\.0 million equivalent was approved on June 13, 1991 and became effective on November 22, 1991\. The loan was closed on June 30, 1997, compared with the original closing date of December 31, 1996\. Final disbursement under the loan component took place on 07/30/1997\. An undisbursed portion of US $1\.8 million is being canceled\. Any funds in the Special Account already disbursed and not accounted for will have to be refunded, and subsequently canceled\. This issue is being addressed as of this writing\. The draft ICR was prepared by Gurhan Ozdora, Task Manager, RMT\. It was reviewed by Mr\. Tunc Uyanik and Ms\. Yvonne Jones\. Written contributions were provided by Undersecretariat of Treasury; Sinai Yatirim ve Kredi Bankasi (SYKB); Turkiye Vakiflar Bankasi (TVB); Turkiye Sinai Kalkinma Bankasi (TSKB); Yapi ve Kredi Bankasi (YKB); Interbank (INTER); Korfezbank (KORFEZ); Garanti Bankasi (GARANTI), and are included as appendixes to the ICR\. Preparation of this ICR had begun during the Bank's final supervision mission in May 1997\. It is based on material in the project file and data collected after the loan closing date \. The Treasury and the implementing agencies contributed to preparation of the ICR by providing views and evaluation reports on the Project's execution\.   IMPLEMENTATION COMPLETION REPORT TURKEY PRIVATE INVESTMENT CREDIT PROJECT (LOAN NO\. 3346-TU) Evaluation Summary Introduction 1\. The US $ 200\.0 million IBRD loan for The Private Investment Credit Project was approved in June 1991 and made effective in November 1991\. The Bank provided this loan to the Government of Turkey (GOT) for supporting GOT's program for export expansion and diversification efforts by providing long-term funds for private investments\. The Executing agencies were seven Participating Financial Institutions (PFIs)\. The loan was closed on June 30, 1997, 6 months after the planned completion date of December 31, 1996\. Project Objectives 2\. The project objectives were: (i) to assist the borrower in its efforts to increase the capacity to produce tradable goods and services through activities in which the borrower is economically efficient, especially export-oriented activities, but excluding agriculture; and to that end, (ii) to provide financing through PFIs for financially and economically viable private investments in such activities; (iii) to continue to assist TSKB and SYKB in their efforts to diversify their business and resources; (iv) to ensure PCBs' continued operation as financially sound and efficient institutions\. The project, building on the success of the Industrial Export Development Project-IEDP (Ln\. 2901-TU) was designed to help finance the expansion of Turkey's productive capacity needed to sustain its export drive by providing long-term funds, and improving the credit delivery system that can perform the investment financing on its own in the future \. Technical assistance component of the project was $ 1 million and this was geared to assist the PFIs in institutional strengthening, with particular focus on improving their project appraisal and supervision to strengthen their project finance capability\. 3\. The project was intended for supporting Turkey's export expansion and diversification efforts by providing long-term funds for private investments\. In doing this, the project would pursue sustained implementation of the Government's financial reforms at the intermediary level by ensuring that the participating financial institutions (PFI) continue to comply with prudential banking regulations and by improving the efficiency of the financial system especially in allocating investment credit\.  - 11 - Achievement of Objectives 4\. Although not stated explicitly in the legal documents, from the context of the SAR, the implicit development objectives of the loan can be interpreted as that of facilitating the implementation of the Government's program of financial sector reforms, which were supported by the FSAL II\. The development objective of this project is therefore measured against the improvements in the financial sector\. To this end the GOT since 1995 has been working on a number of reforms to meet the international, and in particular EU standards especially in the following areas; (a) appropriate restrictions to current blanket deposit insurance scheme; (b) improvement of the prudential regulations on loan provisioning, currency and interest rate risk, loan concentration and connected lending, and an effective enforcement system; and (c) reduction of the subsidized investment credit scheme\. 5\. As a result of these efforts: (i) consolidation of financial subsidiaries; (ii) application of inflation accounting; and (iii) regulations against money laundering, were introduced in 1997\. In addition to these changes, Turkish Banking Law is currently under revision and the new draft law contains many articles related to connected lending, bank ownership and loan provisioning\. These changes, are clear indications of an improvement in the financial sector\. 6\. Credit component of the project was to provide financing to private sector investments and operations in order to support their production capacities, financial structures and market competitiveness\. These objectives were fully achieved\. Overall, the Loan of $200 million financed 58 sub-loans with an average size of $3\.4 million\. At appraisal, it had been envisaged that sub-borrowers would contribute $200 million\. In the event the sub-borrowers provided $ 821 million, with the net result that total investment in sub-projects amounted to $1,019 million, some 154 % higher than the $400 million envisaged at appraisal\. These investments were generally viable, yielding average FRRs of 40 %\. Incremental output resulting from these investments is estimated at $788 million and incremental exports at $362 million at fuill capacity utilization\. 7\. The objective of assisting PCIs in improving their project appraisal-supervision capabilities, information systems and operating procedures related to investment lending, was not realized through this loan because PFIs had decided to finance this component with their own resources\. Although the PCIs did not utilize the technical assistance for improving their operating procedures, the requirements of the loan agreement relating to project preparation and appraisal and to the PCI audits, contributed substantially to the institutional improvement of the PCIs and their portfolio quality\. Major Factors Affecting the Project 8\. Commitments and disbursements of the loan were much below the appraisal estimates during the 1991-1994 period\. Starting with 1993 there was a decrease in the disbursements, and  - iii - in 1994 commitments came to a virtual standstill where there was an uncommitted balance of $167 million for the PICP\. 9\. As a result of this situation and in response to the Government's request, some amendments were made in the loan agreement in December 1994\. The loan was restructured for financing of permanent working capital, pre-shipment export finance and leasing\. In addition to these, there was another amendment which provided for single-currency lending in US Dollars as well as DMs, with an adequate premium over their respective LIBOR rates\. 10\. Following this restructuring, there was a significant acceleration in the loan utilization\. Disbursements made by the PCIs was 99\.0 % (98\.93%) of the total loan amount and cumulative disbursements amounted to $198\.0 million, with the final disbursement made in July 30, 1997\. The 1994 restructuring was followed by an improved investment climate which gradually developed throughout 1995\. 11\. In addition to the improvements in the investment climate, another reason for increased demand for the Bank funds, was the unavailability of other medium-term sources of finance\. Due to the uncertain macro-economic environment and high rates of inflation, the prospects for the banking system and foreign creditors to provide medium-and-long term finance to the private sector were very weak\. Given this situation, the availability of stable medium and long-term finance from the Bank proved to be very attractive to investors\. Project Sustainability 12\. Due to the high public sector borrowing requirement (PSBR) since 1990, the GOT has continued to finance its deficit mainly through the sale of Government securities\. The banks invested heavily in these instruments, which crowd out medium and long-term lending to private industry\. Another constraint for the banks was the unavailability of medium-to-long term funding resources\. Under these conditions, it would be unrealistic to expect commercial banks to provide MLT credit on a sustained basis as envisaged in the project objectives\. However, the success of the credit component in a narrow sense can be considered as sustainable because loans made in foreign exchange can be recycled; the PCIs can re-lend the foreign exchange repayments from their sub-borrowers which exceed their repayment obligations to GOT\. The current interest rates make project lending profitable for the PCIs, by providing protection against capital erosion\. Bank Perfonnance 13\. The Bank's performance at preparation and appraisal was satisfactory\. Bank's missions were able to translate the results and build on the successful experience of the earlier Industrial Export Development Project (IEDP) and to firther the initiatives started under the earlier project by pursuing sustained implementation of the GOT's banking reforms at the intermediary level by ensuring that the participating financial institutions (PFI) continue to comply with prudential regulations and by improving the efficiency of the financial system especially in allocating  -iv - investment credit\. Bank performance during the implementation phase was also satisfactory\. Supervision missions were fielded in regular intervals twice per year and the relationship of the Bank staff with the Treasury and PFIs' staff was excellent\. Treasury and the PPIs also rate the project implementation as highly satisfactory and maintain that, had the Bank accepted utilization of the loans in a blend with subsidized credit, the project implementation could have been much faster\. Borrower Performance 14\. The performance of GOT and the implementing agencies was highly satisfactory in some aspects, satisfactory in others and deficient in some\. The performance of the PCIs in carrying out the credit operations and their compliance with the financial covenants, agreed under the Project was satisfactory in general\. Treasury also contributed to a smooth operation of the credit line\. Two of the PCIs, Vakifbank (TVB) and Yapi ve Kredi (YKB) had some problems in meeting the eligibility criteria of the loan agreement in 1993, but later regained their eligibility after complying with the financial covenants\. Assessment of Outcome and Future Operation 15\. The Project achieved most of its objectives\. Its outcome is satisfactory, despite the delays in implementation caused to a large extent by the economic environment\. A plan for the project's future operation is attached as Annex A Key Lessons Learned 16\. Several lessons have been learned: (i) entrepreneurs like predictable debt service obligations and prefer assuming the foreign exchange risk rather than covering it at the cost of fluctuating relative and high interest rates; (ii) in an economy with a high rate of inflation, sound economic and financial returns can be obtained if lending activities are sheltered from the effects of inflation through appropriate interest rate mechanisms; (iii) free-standing permanent working capital loans with long-term maturities can be vital for the enterprises in an economy where banks are reluctant to provide medium-to-long term financing, due to macro-economic uncertainty; (iv) for export-oriented enterprises, borrowing in foreign exchange does not entail the same degree of FE risk as is the case for non-exporting firms; (v) lending mechanisms should be simple so that sub-borrowers understand their obligations; (vi) when problems arise between the Bank and the Borrower, solutions should be sought right after the emergence of the problems; (vii) a credit line can be highly satisfactory even in an inflationary environment if negative interest rates are avoided by lending in foreign exchange or indexing sub-loans to foreign currencies; and (viii) sub-project performance can be improved substantially through close ex-ante and ex-post review and supervision of the Bank\.  IMPLEMENTATION COMPLETION REPORT TURKEY PRIVATE INVESTMENT CREDIT PROJECT (LOAN NO\. 3346-TU) Part L Project Implementation Assessment A\. Statement/Evaluation of Objectives 1\. In the loan agreement, the project objectives were stated as follows: (i) to assist the borrower in its efforts to increase the capacity to produce tradable goods and services through activities in which the borrower is economically efficient, especially export-oriented activities, but excluding agriculture; and to that end; (ii) to provide financing through PFIs for financially and economically viable private investments in such activities; (iii) to continue to assist TSKB and SYKB in their efforts to diversify their business and resources; (iv) to ensure PCBs' continued operation as financially sound and efficient institutions\. The project, building on the success of the Industrial Export Development Project-IEDP (Ln\. 2901-TU), was designed to help finance the expansion of Turkey's productive capacity needed to sustain its export drive by providing long- term funds, and improving the credit delivery system that can perform the investment financing on its own in the future\. The project aimed to achieve these objectives by channeling the equivalent of $200 million through Participating Financial Institutions (PFIs) to finance eligible private sector investment projects\. A technical assistance component of $1 million to be contributed by the PFIs was geared to assist the PFIs in improving their project finance techniques, systems and procedures, was not realized through the use of loan funds\. Nevertheless, the requirements of the loan agreement relating to project preparation and appraisal and to the PCI audits contributed substantially to the institutional development of the PCIs and their portfolio quality\. 2\. The project was intended to support the Bank's strategy for: (i) assisting the GOT to achieve its "base case" macro-economic framework by focusing on priority sectors; (ii) strengthening the international competitiveness of the industrial sector by supporting export and technological development as the critical agenda for the long term; and (iii) developing a stronger and more diversified financial sector to facilitate the growth of a dynamic, competitive and export- oriented private industry\. In this framework, the project forms an integral part of the Bank's country and sector assistance strategy and contributed to the attainment of the developments in the industrial and financial sectors\. 3\. In the industrial sector, it aimed to support reforms that had been undertaken or were planned, by providing the private sector with long-term funds to adjust, by investing in, or restructuring activities that make economic sense under a reforming environment\. The Bank's involvement was called for to help ensure the required supply response by providing the additional resources needed as a consequence of the reform program in the industrial sector\. In the financial  2 sector, it was designed as a continuation of the sector assistance strategy (as successfully implemented under the IEDP) and complement the reforms that were undertaken under the FSAL II, by helping individual financial institutions to develop into efficient intermediaries in an increasingly competitive enviromnent\. 4\. The objective of this loan was not to substitute for the banks' own efforts to mobilize term resources\. Rather, the intention was that the proposed project would directly support the reform process by providing long-term resources in the transition period between policy changes and increased financial intermediation by the banking sector, and by strengthening the financial sector's institutional capacity to carry out prudent term transformation\. The project was to provide long-term funds to help fill the financial gap for private investments needed to help finance the private investments needed to sustain Turkey's export drive in the 1990s\. By channeling these funds through the private banking system the project aimed to support the process of strengthening individual financial institutions as a strategic complement to the on-going program to improve the efficiency of the financial system\. B\. Achievement of Objectives 5\. Building on the success of the Industrial Export Development Project (Ln\. 2901-TU) the project aimed to help finance the expansion of Turkey's productive capacity needed to sustain its export drive by providing long-term funds, and improving the credit delivery system so that it can perform the investment financing function on its own in the future\. Specifically, the project aimed at; (i) supporting financially and economically viable private investments in areas of Turkey's comparative advantage, especially export-oriented activities, excluding agriculture; (ii) to continue to assist TSKB and SYKB in their business and resource diversification efforts to enable them to grow in an increasingly competitive financial system; and (iii) to support the implementation of the Government's financial sector reforms at the intermediary level by ensuring that participating private commercial banks (PCBs) continue to be financially sound and develop into intermediaries capable of mobilizing and allocating long-term resources more efficiently\. 6\. Although not stated explicitly in the legal documents, from the context of the SAR, the implicit development objectives of the loan can be interpreted as that of facilitating the implementation of the government's program of financial sector reforms, which were supported by the FSAL II\. Furthermore the rationale behind the 1995 decision to restructure the project was predicated on the expectation that the Government would make substantial progress in reducing the scope and size of the subsidized investment credit scheme\. The development objective of this project is therefore measured against these standards\. The improvement of the situation in the aftermath of the financial sector crisis of 1994 was verified by previous missions\. This improvement was highlighted by a reduction in the banking system's short foreign exchange positions which have been brought in line with the legal ceiling, that is determined as a percentage of the equity, introduced by the Government in 1995\. Furthermore, the independent audit reports of most of the PFIs/PCBs are unqualified\. And, although it is not a legal requirement, all PFIs have applied IAS 29 (inflation accounting)\.  3 7\. These developments constitute a genuine improvement of the situation, but are not deemed sufficient to satisfy the criteria discussed above\. The actions that would satisfy the development objectives are the following; (a) appropriate restrictions to the current blanket deposit insurance scheme; (b) improvement of the prudential regulations on loan provisioning, currency and and interest rate risk, loan concentration and connected lending, and an effective enforcement system; (c) reduction of the subsidized investment credit scheme\. 8\. To this end since 1995, the GOT has been planning a number of reforms to meet international, and in particular EU, standards especially in the following areas: (a) revision and phased limitation in the deposit insurance coverage scheme; (b) establishment and enhancement of the legal framework to prevent money laundering operations through the banking system; (c) consolidation of the financial statements of the banks' subsidiaries (IAS 27 and 28) which would also increase accuracy of capital adequacy calculations; (d) amendments to auditing regulations to define the eligibility and operational standards for auditing firms in performing bank audits; (e) application of key accounting principles, especially those related to the development and application of the inflation accounting standards (IAS 29) ; (f) revisions to the loan provisioning methodology; (g) enhancement of the risk-weighted capital adequacy measurement methodology and standards; and (h) new measures and reforms in the banking law related to loan concentration and connected lending\. 9\. In 1997, GOT, in an effort towards harmonization of the Turkish banking regulations with EU standards, started to implement some changes in the banking regulations\. As a result of these changes: (i) consolidation of financial subsidiaries; (ii) application of inflation accounting; and (iii) regulations against money laundering, were introduced\. In addition to these, Turkish Banking Law is being revised and the new draft law contains many articles related to connected lending, bank ownership and loan provisioning\. These changes, are clear indications of an improvement in the financial sector\. 10\. The credit component of the project was to provide financing to private sector investments and operations in order to support their production capacities, financial structures and market competitiveness\. These objectives were fully achieved\. Overall, the Loan of $200 million financed 58 sub-loans with an average size of $3\.4 million\. At appraisal, it had been envisaged that sub-borrowers would contribute $200 million\. In reality, the sub-borrowers provided $821 million, with the net result that total investment in sub-projects amounted to $1,019 million, some 154 % higher than the $400 million envisaged at appraisal\. These investments were generally viable, yielding average FRRs of 40 %\. Incremental output resulting from these investments is estimated at $788 million and incremental exports at $362 million, at full capacity utilization\. 11\. The objective of assisting PFIs in improving their project appraisal-supervision capabilities, information systems and operating procedures related to investment lending, was not realized through this loan because PFIs decided to finance this component with their own resources\. Although the PFIs did not utilize the technical assistance for imnproving their operating procedures, the requirements of the loan agreement relating to project preparation and appraisal and to the PFI audits, contributed substantially to the institutional improvement of the PFIs and to their portfolio quality\.  4 12\. Of the 58 projects financed by the loan, 48 were for plant modernisation and/or expansion, 5 financed working capital and 5 were for pre-export financing\. Eighty percent of the investments were made in developed regions while 10% each were in semi-developed and underdeveloped regions\. ERRs and FRRs were calculated for individual sub-projects\. The appraisal reports prepared by the PCIs for individual sub-projects showed ERRs ranging from 17 % to 83% and FRRs ranging from 22 % to 87 %\. A post-evaluation exercise carried out by the PCIs on a sample of 14 sub-projects revealed that actual ERRs range from 29 % to 44 % and FRRs from 34 % to 46%\. C\. Major Factors Affecting the Project 13\. Commitments and disbursements of the loan were much below the appraisal estimates during the 1991-1994 period\. Overall, PICP implementation proceeded slowly since approval (June 13,1991)\. As of May 1993, subloan commitments were totaling only about $27 million, and disbursements only about $20 million, as compared to appraisal estimates of $80 million\. In addition to this, of the seven banks participating in PICP, only four had submitted subproject proposals during this period\. Of the 9 project proposals that were submitted, 3 did not meet the eligibility criteria and of the 7 participating banks (PFIs ) only 5 were found in compliance with the eligibility criteria of PICP\. Starting with 1993 there was a decrease in the disbursements, and in 1994 commitments came to a virtual standstill where there was an uncommitted balance of $167 million for the PICP\. The reasons for this were: (i) weak market demand for investment credits due to the uncertain macro-economic environment; (ii) The Bank requirement of non- blending of the Bank credit line with funding under the Government's subsidized credit program\. Since majority of PFIs clients were recipients of incentive certificates entitling them to funding at interest rates far below the inflation rate, expectations about the possibility using these subsidized credits significantly decreased the entrepreneurs' interest in using the Bank's credit lines; (iii) currency pool system whereby the Bank's currency pool was onlent by the Government to the PFIs and PFIs did not want to onlend in a single currency and take the cross currency risk, while the sub-borrowers were reluctant to borrow from the currency pool for variety of reasons; and (iv) availability of funding alternatives such as short-term foreign currency financing with rollover possibilities 14\. The crisis that emerged early in 1994 drastically limited debtor funding flexibility as domestic and foreign funding resources suddenly and unexpectedly dried up, with interest rates rising to historic highs\. Banks were forced to pay off large amounts of foreign currency lines which were not rolled over\. Additionally, the shift in deposits from small banks to the biggest banks induced a cut in the credit exposure of the less liquid banks, without a commensurate rise in the lending by the major banks\. These radically changed conditions in the financial markets created a situation which lead to a substantial demand for Bank funds\. 15\. As a result of this situation and in response to the Government's request, some amendments were made in the loan agreement in December 1994\. The loan was restructured for financing of permanent working capital, pre-shipment export finance and leasing\. In addition to these, there was another amendment which provided for single-currency lending in US Dollars as well as DMs, with an adequate premium over their respective LIBOR rates\.  5 16\. Following this restructuring, there was a significant acceleration in the loan utilization\. Disbursements made by the PCIs were 99\.0 % (98\.93%) of the total loan amount and cumulative disbursements amounted to $198\.0 million, with the final disbursement made in July 30, 1997\. The 1994 restructuring was followed by an improved investment climate which gradually developed throughout 1995\. This improvement was due to reactivation of investment decisions which were postponed because of the economic crisis and also due to new expectations arising from the Customs union with EU\. 17\. In addition to the improvements in the investment climate, another reason for increased demand for the Bank funds, was the unavailability of other means of medium-term sources of finance\. Due to uncertain macro-economic environment and high rates of inflation the prospects for the banking system and foreign creditors to provide medium-and-long term finance to the private sector was very weak\. Given this situation, the availability of stable medium and long- term finance from the Bank proved to be very attractive to investors\. 18\. Project implementation was also influenced by the macro-economic Factors\. The inflation rate which was 70 % in 1988 persisted at high levels through the 1990s, averaging over 60 % and reaching a level of 80% at the end of 1996\. The exchange rate also developed at a similar pace\. From TL 1,875 for one US dollar in January 1989, to TL 17,204 in January 1994 and in four months of 1994 to TL 33,408 and to TL 143,670 at the end of June 1997\. In addition to these, due to debt financing with very high real rates, investments became unattractive\. This, combined with the ineligibility of the projects benefiting from the Government's incentive program slowed the project implementation\. 19\. As a result of this situation and in response to the Government's request, in 1994, Government and the Bank agreed to restructure the loan to take into account the changed circumstances and to accelerate the loan disbursement\. Accordingly some amendments were made in the loan agreement in December 1994\. The amended Loan agreement, signed on December 29,1994 contained the following changes: (i) the interest rate base for foreign exchange loans for single-currency loans in US dollars or Deutsch Marks was made more market-oriented and no longer tied to the World Bank pool rate; (ii) Free-standing permanent working capital loans, and loans for equipment leasing and pre-export financing were permitted\. D\. Project Sustainability 20\. Due to the high public sector borrowing requirement (PSBR) since 1990, the GOT has continued to finance its deficit mainly through the sale of Government securities\. The banks invested heavily in these instruments, which crowd out medium and long-term lending to private industry\. Another constraint for the banks was the unavailability of medium-to-long term funding resources\. Under these conditions, it would be unrealistic to expect commercial banks to provide MLT credit on a sustained basis, as envisaged in the project objectives\. However, the success of the credit component in a narrow sense can be considered as sustainable because loans made in foreign exchange can be recycled; the PCIs can re-lend the foreign exchange repayments from their sub-borrowers which exceed their repayment obligations to GOT\. The current interest rates make project lending profitable for the PCIs, by providing protection against capital erosion\.  6 21\. The credit component of the Project can be rated sustainable\. The investments financed were profitable with FRRs averaging around 40% and the recovery rates were very high\. Unlike the FERIS (Foreign Exchange Rate Insurance Scheme - see para 47) scheme, the PCIs have the opportunity to re-lend part of the foreign exchange repayments from the sub-borrowers that exceeds their repayment obligations to GOT\. Recycled funds from these repayments will be used for the same purposes and since the subloans are nominated in foreign exchange, demand for these funds is expected to continue\. Since the interest levels provide protection against capital erosion and make project lending profitable the project is also sustainable for the PCIs \. The Project is also sustainable from the point of view of the sub-borrowers\. They have greatly benefited from the investments made under the Project by expanding and modernizing their plants, increased their outputs and capacity utilization rates and have developed a good sense of financial discipline\. E\. Bank Performance 22\. The Bank's performance at preparation and appraisal was satisfactory\. The Bank's missions were able to translate the results and build on the successful experience of the Industrial Export Development Project (IEDP)\. Missions were able to further the initiatives started under the earlier project by pursuing sustained implementation of the Government's banking reforms at the intermediary level by ensuring that the participating financial institutions (PFI) continue to comply with prudential regulations, and by improving the efficiency of the financial system, especially in allocating investment credit\. The PFIs involved in the project was selected on the basis of sound criteria such as financial strength and project financing expertise, in line with OD 8\.30 of the Bank's guidelines\. 23\. Bank performance during the implementation phase was also satisfactory\. Supervision missions were fielded in regular intervals twice per year and the relationship of the Bank staff with the Treasury and implementing agencies' staff was excellent\. Treasury and the PCIs also rate the project implementation as highly satisfactory and maintain that, had the Bank accepted utilization of the loans in a blend with subsidized credit, the project implementation could have been much faster\. F\. Borrower Performance 24\. The performance of Government and the implementing agencies was highly satisfactory in some aspects, satisfactory in others and deficient in some\. The performance of the PCIs in carrying out the credit operations and their compliance with the financial covenants, agreed under the Project was satisfactory in general\. Treasury also contributed to a smooth operation of the credit line\. Two of the PCIs, Vakifbank (TVB) and Yapi ve Kredi (YKB) in 1993, had some problems in meeting the eligibility criteria of the loan agreement but later regained their eligibility after complying with the financial covenants\. The major covenants related to the institutional development and financial strength of the PCIs were met and therefore compliance with the loan covenants must be rated as satisfactory\.  7 G\. Assessment of Outcome 25\. The project achieved nearly all of its objectives but project execution took longer than planned\. The delay was caused by the difficult economic environment and problems between the Bank and the Borrower concerning subsidized credit\. A project which had been earlier rated as unsatisfactory, made a significant turn around due to the successful restructuring and the positive investment climate\. As a result of these and improvements in the financial sector performance, the project can be rated as satisfactory\. H\. Future Operation 26\. A plan for the future operations has been agreed with the GOT and PCIs\. It contains the arrangements describing how the reflow of funds will be used in lending for similar purposes until all funds have been repaid to the Government as specified in the legal agreements 1\. Key Lessons Learned 27\. Several lessons have been learned: (i) entrepreneurs like predictable debt service obligations and prefer assuming the foreign exchange risk rather than covering it at the cost of fluctuating relative and high interest rates; (ii) in an economy with a high rate of inflation, sound economic and financial returns can be obtained if lending activities are sheltered from the effects of inflation through appropriate interest rate mechanisms; (iii) free-standing permanent working capital loans with long-term maturities can be vital for the enterprises in an economy where banks are reluctant to provide medium-to-long term financing, due to macro-economic uncertainty; (iv) for export-oriented enterprises, borrowing in foreign exchange does not entail the same degree of FE risk as is the case for non-exporting firms; (v) lending mechanisms should be simple so that sub-borrowers understand their obligations; (vi) when problems arise between the Bank and the Borrower, solutions should be sought right after the emergence of the problems; (vii) a credit line can be highly satisfactory even in an inflationary environment if negative interest rates are avoided by lending in foreign exchange or indexing of sub-loans to foreign currencies; and (viii) sub- project performance can be improved substantially through close ex-ante and ex-post review and supervision of the Bank\.  8 PART II: Statistical Tables Tables: 1\. Summary of Assessments 2\. Related Bank Loans/Credits 3\. Project Timetable 4\. Loan Disbursements: Cumulative Estimated and Actual 5\. Project Financing 6\. Economic Costs and Benefits 7\. Compliance with Operational Manual Statements 8\. Bank Resources: Staff Inputs 9\. Bank Resources: Missions 10\. Status of Legal Covenants  9 Table 1: Summary of Assessments A\. Achievement of Obiectives Substantial Partial Negligible Not applicable (4) (4) (4) (4) Macro Policies FlElEl Sector Policies i ]E]Z] Fl Financial Objectives E I E E Institutional Development El E ] [I Physical Objectives [ El El ] Poverty Reduction [ L [I] El Gender Issues L ] OI] Other Social Objectives E El E ] Environmental Objectives E [ E E Public Sector Management l El L] Private Sector Development E[ E I Foreign Exchange earnings [ El E El B\. Proiect Sustinabilitv Likely Unlikely Uncertain (4) (4) (4) ED C\. Bank Performance Satisfactorv Satisfactoi Deicient (4) (4) (4) Identification E [3 E Preparation Assistance e [ E Appraisal E [ E Supervision [I E E  10 Hfighly D\. Borrower Performance Satisfactorv Satisfactory Deficient (l) (V) (i4) Preparation E] EC LI] Implementation E] K] I-] Covenant Compliance K] I EI] Highly Highly E\. Assessment of Outcome Satisfactorv Satisfactor Unsatisfactory unsatisfactory (4 ) (4) (4 ) (4 ) K] I [II K]  11 Table 2: Related Bank Loans/Credits Loan/Credit Title Purpose Year of Status Approval Preceding Operations Loan 1754-TU and 1755-TU To assist financing of 09/04/79 Closed on 12/31/85\. Private Sector Textiles Project subprojects to contribute to ICR Issued the development, modernization, increase in productivity and expect capacity of the private textiles sector of the country Loan 1952-TU Labor Intensive To provide credit to support 03/03/81 Closed on 06/30/86\. Industry Project the development of Labor ICR Issued Intensive Small and Medium Scale Enterprises Loan 2714-TU First Financial To create a more efficient 06/10/86 Closed on 06/30/91\. Sector Adjustment Loan financial sector by developing ICR Issued\. a greater variety of financial instruments which would contribute to a revival of private investment Loan 2901-TU Industrial To support the efforts for 03/22/86 Closed on 06/30/93\. Export Development Project expanding industrial export ICR Issued\. by providing financial support to private export-oriented projects' and improving the institutional framework for export finance\. Loan 2964-TU Second To support the development 06/21/88 Closed on 12//31/92\. Financial Sector Adjustment of a more efficient and deeper ICR Issued\. Loan financial sector which would mobilize and allocate funds more efficiently thus generating a higher level of investments as well as a higher rate of return\. Following operations Guarantee for Development Bank support and guarantee 1997 Under preparation Banks (SYKB-TSKB) to assist the Development Banks SYKB and TSKB issue bond for equivalent of $200 million\. Funds to be used to finance industrial sector investments  12 Table 3: Project Timetable Steps in Project Cycle Date Actual Identification/Preparation 05/15/89 Appraisal 06/03/90 Negotiation 01/12/91 Board Presentation 06/13/91 Signing 06/28/91 Effectiveness 11/22/91 Project Completion 06/30/97 Loan Closing 06/30/97 Table 4: Loan Disbursements: Cumulative Estimated and Actual (US$ thousands) FY92 FY93 FY94 FY95 FY96 FY97 Appraisal 20,000 80,000 155,000 190,000 200,000 200,000 estimate - 20,900 26,180 28,340 164,870 198,045 Actual Actual as % of 26 17 15 82 99 estimate Date of final disbursement: July 30, 1997 Table 5: Project Financing Appraisal estimate Actual/latest estimates l US$imillion) \. (US$ million) Item Local costs Foreimn costs Total Local costs Foreign costs Total 1\. IBRD - 200\.0 200\.0 198\.0 198\.0 2\. PFIs 0\.5 0,5 1\.0 - - 3\. Sub-borrowers 200\.0 - 200\.0 821\.0 - 821\.0 Total 200\.5 200\.5 401\.0 821\.0 198\.0 1,019\.0  13 Table 6: Economic Costs and Benefits Economic Rates of Return (ERRs)\. Specific estimates of the project's ERR were not made at appraisal; PCIs were required to demonstrate the economic viability of individual projects which had to show ERRs in excess of 15% (except for projects specifically aimed at environmental amelioration)\. An analysis of the ex ante rates of return on investment projects for SYKB, TSKB and TVB which accounts for 69% of Investments indicated a weighted average ERR from 58 projects of 29%\. Ex post evaluation on 8 of these (which had ex ante ERRs of 34%) resulted in an average ERR of 38%\. Ex Ante ERRs and FERRs for investment Projects in SYKB, TSKB, and TVB (represents 69% of Loan and 82% of Project investment) No Investment Av\. ERR at Range Av\. FRR at Range (US$'000) Appraisal Appraisal SYKB 12 236,000 36% \.17%/6-83% 40% 220/-83% TVB 22 468,000 33% 200/o-73% 38% 19%-96% TSKB 11 189,500 32% 17%-50% 36% 160/6-61% Total 45 893,500 34% 38% Ex Post ERRs and FRRs for Sample Investment Projects in SYKB, TSKB and TVB (represents 36% of Loans for Investment) No Investment Av\. ERR at Av\. ERR Av\. FRR at Av\. FRR l_________ (US$'000) Appraisal ex Post Appraisal Ex Post SYKB 4 51,857 32% 41% 40% 41% TVB 2 24,325 48% 44% 48% 46% TSKB 2 10,513 31% 29% 40% 34% Total 18 86,695 370% 38% 43% 41% Estimates of Full Time Job Creation (at Sub Project Appraisal) No\. Disbursement Investment Jobs Cost/Job (US$'000) (U$$'000) (US$'000) SYKB 12 40,000 236,000 1,311 180,000 TSKB 11 49,953 189,500 906 209,161 TVB 22 47,918 468,000 1,925 243,116 YKB 6 29,904 98,500 608 162,006 INTER 4 10,270 27,000 225 120,000 KORFEZ 3 20,000 \. \. Total 58 198,045 1,019,000 4,975 204,824  14 Table 7: Compliance with Operational Manual Statements Basically, there was compliance with the applicable Bank Operational Manual Statements\. Table 8: Bank Resources: Staff Inputs Planned Inputs Actual Stage of project cycle SWS US$'OOO SWS US$'000 Through Appraisal 98\.9 262\.8 98\.9 262\.8 Appraisal Board 53\.9 142\.3 53\.9 142\.3 Board Effectiveness N/A N/A N/A N/A Supervision 139\.6 335\.0 139\.6 335\.0 Table 9: Bank Resources: Missions Performance Rating Stage of project Month/ No\. of Days Specialization(1) ImpL\. Dev\. Type cycle Year Persons in Status Obj\. of ______ Field Prob\. Through appraisal 06/90 7 - E,F,AD Appraisal Board 06/91 1 - F Supervision I 06/92 1 - F 2 3 - Supervision II 08/93 4 - C,E,F 3 3 - Supervision III 06/94 4 - C,E,F,AD U S - Supervision IV 06/95 4 - C,E,F,AD S U - Supervision V 09/95 2 - AC,F S U - Supervision VI 03/96 2 - AC,F S U - Supervision VII 06/96 2 1 F S U - Supervision VIII 10/96 2 20 F S U - Supervision IX 06/97 2 12 F S S - 1- Key to Specialized staff skills: 2- Key to Performance Ratings: 3- Key to Types of problems AC= Agricultural credit 1= Minor problems F= Financial Spec\. 2= Moderate problems T= Technical E = Economist 3= Major problems M= Managerial F = Financial Analyst C = Consultant AD= Advisor  Legal Covenant Report: Latest status of Covenant Compliance ECA - Europe & Central Asia Regional 0 ECS - Private/Financhtl Sectors Devt ECSPF - Private/Financial Sectors Devt Form 590 Date: 10/15/1996 Project ID: TR-PE-9036 -PRIVATE INVESTMENT C Covenant Status Original Fulfill Revised Description of Covenant Comments Class (s) Date Fulfill Date Text Reference: LA Section 4\.02 01 C 06/28//1991 Submission of annual audited financial statements\. Complied with\. Text Reference: LA Sec\. 4\.02(b) 01 C 06/28/1991 Auditors' certification of compliance with Received\. eligibility criteria\. Text Reference: LA Sec\. 4-c 02 CP 06/28/1991 Capital adequacy, loan loss provisioning, loan Substantial compliance\. concentration\. Text Reference: LA Sec\. 4-d 02 CP 06/28/1991 Positive real rate of return on equity Substantial compliance\. Text Reference: LA Sec\. 3\.06 02 C 06/28/1991 Debt-service coverage ratio (SYKB and TSKB) Complied with\. Text Reference: LA Sec\.4\.e; PA Sec\.3\.08 02 C 06/28/1991 Collection ratio on medium and long-term loan\. Complied with\. Text Reference: PA Sec\. 3\.05 02 NYD 06/28/1991 Debt/Equity ratio Legal agreement amended to replace this covenant with minimum 10% capital adequacy ratio for TSKB and SYKB\. Status: C - Complied with CD - Compliance after Delay NC - Not Complied with SOON - Compliance Expected in Reasonably Short Time CP - Complied with Partially NYD - Not Yet Due  Legal Covenant Report: Latest status of Covenant Compliance ECA - Europe & Central Asia Regional 0 ECS - Private/Financial Sectors Devt ECSPF - Private/Financial Sectors Devt Form 590 Date: 10/15/1996 Project ID: TR-PE-9036 -PRIVATE INVESTMENT C Covenant Status Original Revised Description of Covenant Conmnents Class (s) Fulflll Date Fulflll Date Text Reference: LA Sec\. 4-b 01 CP 06/28/1991 Unqualaified auditors' opinion\. Partial compliance\. Text Reference: LA Sec\. 4\.02 02 C Complied with Comnplied with\. Status: C - Complied with CD - Compliance after Delay NC - Not Comnplied with SOON - Compliance Expected in Reasonably Short Time CP - Comp NYD - Not Yet Due  Covenant Class I Accounts/audit 2 Finacial petfornance/generate revenue from beneficiaries 3 Flow and utilization of project funds 4 Countepart funding 5 Management aspects oftbe Project or of its executing agency 6 Environmental covenants 7 Involuntary tlement 8 digenous people 9 Monitoring, review and reporting 10 Implementation 11 Sectoral or cross-sectoral budgetary or other resource allocation 12 Sectoral or cross-sectoral regulatory/institutional action 13 Other  18 TURKEY PRIVATE INVESTMENT CREDIT PROJECT (Loan 3346-TU) Plan for Proiect ODeration after Closin! on June 30 1997 Project Objective 28\. The project objectives as stated in the loan agreement were: (i) to assist the borrower in its efforts to increase the capacity to produce tradable goods and services through activities in which the borrower is economically efficient, especially export-oriented activities, but excluding agriculture; and to that end, (ii) tqprovide financing through PFIs for financially and economically viable private investments in such activities; (iii) to continue to assist TSKB and SYKB in their efforts to diversify their business and resources; (iv) to ensure PCBs' continued operation as financially sound and efficient institutions\. The project, building on the success of the Industrial Export Development Project-IEDP (Ln\. 2901-TU) was designed to help finance the expansion of Turkey's productive capacity needed to sustain its export drive by providing long- term funds, and improving the credit delivery system that can perform the investment financing on its own in the future \. 29\. The institutional development objectives for the PFIs were to be achieved through the Technical assistance component of the project, with particular focus on improving their project appraisal and supervision to improve their project finance capability\. The objective of assisting PCIs in improving their project appraisal-supervision capabilities, information systems and operating procedures related to investment lending, was not realized through this loan because PFIs had decided to finance this component with their own resources\. Although the PCIs did not utilize the technical assistance for improving their operational procedures, the requirements of the loan agreement relating to project preparation and appraisal and to the PCI audits, contributed substantially to the institutional improvement of the PCIs and their portfolio quality\. 30\. The project was also complementary to the efforts to restructure the financial sector in Turkey assisted by the Second Financial Sector Adjustment Loan (FSAL II, Loan No\. 2964-TU) which became effective in June 1988\. The FSAL II contained covenants regarding: (i) the strengthening of the banking system through the introduction of prudential regulations that required specified levels of equity and provisions for bad debts, establishment of a mechanism to restructure insolvent banks and action programs to restructure state-owned banks; and (ii) improvement in the interest rate structure, including an increase in preferential lending rates to positive levels in real terms\. 31\. It was a sector policy objective specified in FSAL II to bring about positive interest rates and positive interest rates were to be attained by using the Foreign Exchange Rate Insurance Scheme (FERIS) mechanism\. Under FERIS, the Government converted the proceeds of foreign loans into TL-denominated loans with a variable rate set at the average of the proceeds of the  19 three-month Treasury bill rate over the preceding three months\. Additionally, the option of lending in foreign exchange through the Bank's pool rate was offered\. Previously, the funds under other Bank projects including IEDP were on-lent in local currency and the foreign exchange risk was assumed by FERIS\. In 1990 the Government decided to abolish FERIS and, according to an agreement with the Government, the PICP sub-loans were to be denominated in foreign currency\. Under this arrangement, the Government was fo on-lend the Bank funds to the PFIs on the same term and conditions as the Bank loans plus an on-lending fee\. Since there was no use of the foreign exchange option under the pool rate, Government agreed in 1994 to convert the pool of currencies to single-currency sub-loans to the PCIs\. 32\. These objectives remain valid after the implementation of the project and the full disbursement of the project funds\. Since the PCIs have the opportunity under foreign exchange lending (unlike FERIS) to roll over the funds obtained for a certain number of years, the reflow of funds will be used to support lending operations for similar purposes, until all funds have been repaid to Government, as stated in the Loan Agreement\. Equally important, the institutional development of the PCIs will continue along the lines that were started in this and other projects supported by the World Bank\. Future Project Operations 33\. The Loan was made to the Government of Turkey for 17 years, including five years of grace\. On-lending maturities to the PCIs depend on the type of investment financed\. For sub- loans in foreign exchange, maturities to sub-borrowers are up to eight years, including three years of grace for investment projects; and up to eight years with no grace period for financing of permanent working capital and leasing\. The PCIs have thus the opportunity to revolve the part of the foreign exchange repayments from client that exceeds their repayment obligations to Govermment\. 34\. The legal agreements stipulate that the reflows of funds will be used for similar purposes\. The PCIs confirm that they intend to follow this agreement and make loans to individual sub- borrowers for similar purposes until all funds have been repaid to Government\. It is likely that the bulk of funds to be reinvested will be used to finance permanent working capital and investment loans\. In this sense this Plan of Operation foresees that the Loan will continue to benefit the private sector\. PCIs intend to supervise the portfolio of sub-loans outstanding in accordance with the agreed procedures until all funds have been repaid\. 35\. Institutional development will remain one of the PCIs' main objectives\. They will aim to further strengthen their financial position and to maintain compliance with the financial covenants set out in the legal agreements\.  20 PCI Actual as of Total Allocation Allocation in 06l30/1997 06/30/1997 Percentage of (SS'000) (USSOOO) Total SYKB 40,000,000 40,000,000 21 TSKB 49,953,040 49,953,040 25 TVB 47,918,055 47,905,055 24 YKB 29,904,433 29,904,433 15 INTERBANK 10,270,000 10,270,000 5 KORFEZBANK 20,000,000 20,000,000 10 GARANTI -0 - -0- TOTAL 198,045,528 198,045,528 100 Afsaneh Farzin P:\!UNITS\ECSPF\ICRTURKDOC December 16, 1997 6:42 PM  IBRD 24903R GEORGIA Z BULGARIA \. _DI \.N E ®KIRKASEA I jASTAMONOU EX zC,-> m _ ; , ,, AN ARMENIA- G R E E C E - ,n E=RC A G \. S TA N EU\. (A,\.,7d- -SYA oi, & OAYBU' (D~~~~~~~~~~~~~~~~~~~~~~lD o -,~~~~~~~~~~~~~~~~~~~~~~~~t ~~flNAAkALE - ANKAFtA~~~~~~~~~~~~~~~~~~~~ ~ ~ ~ \\.20 ~~~~~ISLAMIC TONCE XS BAUKoSIRm \. \\. KISEHIR t O=l REP\. OF |OB, ,, ,/ 9 >'Jf 'i/ '' ~ E° < 'TIRAN SEA \. X 39D <;6f-\.@ISFARTA W t{KONYA \ 57NIGDE KA kAAhA /A i ONTO Y ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~~~~~~- NESEI 7, UGA \.K\.AYSERt\. , fR RO,k S A t O EK A' S \. i~ AFY '4 ANTALYA \. \. ' ICTj ®SIANRB rAK ARAB REP~ ~ ~ ~~~ARACE I TURKEY~~~~~~~~~~~~~~~~~~~~~EN |$Q; iwo SELECTED TOWNS AND VILLAGES -4 CZf WZ S r \. \. \. \. 1 ,\. _ \. \. \. _ S PROVINCE CAPITALS ) 't 'K-ON ' ; ' ' YAhu 6!3 NATIONAL CAPITAL ' Sd E ReANSif2E SEA ME: RRANMN - MAJOR ROADS ,IIIR A1, -S:Y::R- 2227 ) ( PROVINCE BOUNDARIES Th /ul' rRI'15f f -fOR 7 }AR t ' ",,9 - INTERNATIONAL BOUNDARIES -ud 0 ("' 0' '~ :rt,\.(j3j MARCH 1994

REVIEW

P008537

Document of The World Bank FOR OFFICIAL USE ONLY Report No: 25944 IMPLEMENTATION COMPLETION REPORT (CPL-37370) ON A LOAN IN THE AMOUNT OF US$ 26\.4 MILLION TO THE REPUBLIC OF LITHUANIA FOR POWER REHABILITATION PROJECT JUNE 17, 2003 This document has a restricted distribution and may be used by recipients only in the performance of their official duties\. Its contents may not otherwise be disclosed without World Bank authorization\.  CURRENCY EQUIVALENTS (Exchange Rate Effective February 11, 2003) Currency Unit = Litas (LTL) 1 LTL = US$ 0\.31 US$ 1 = LTL 3\.23 FISCAL YEAR January 1 December 31 ABBREVIATIONS AND ACRONYMS CBEM Common Baltic Electricity Market CHP Combined Power and Heat Plant EPC Energy Prices Commission ERR Economic Rate of Return FSU Former Soviet Union INPP Ignalina Nuclear Power Plant LE Lietuvos Energija (Joint Stock Power Company, LPC) LPC Lithuanian Power Company OPGW Optic Power Ground Wire QAG Quality Assurance Group SAL Structural Adjustment Loan SBA Stand-by Arrangements SDH Synchronous Digital Hierarchy Vice President: Johannes F\. Linn Country Director: Roger W\. Grawe Sector Manager: Henk Busz Task Team Leader: Gary Stuggins  LITHUANIA POWER REHABILITATION PROJECT CONTENTS Page No\. 1\. Project Data 1 2\. Principal Performance Ratings 1 3\. Assessment of Development Objective and Design, and of Quality at Entry 2 4\. Achievement of Objective and Outputs 5 5\. Major Factors Affecting Implementation and Outcome 11 6\. Sustainability 13 7\. Bank and Borrower Performance 14 8\. Lessons Learned 15 9\. Partner Comments 17 10\. Additional Information 18 Annex 1\. Key Performance Indicators/Log Frame Matrix 19 Annex 2\. Project Costs and Financing 21 Annex 3\. Economic Costs and Benefits 23 Annex 4\. Bank Inputs 26 Annex 5\. Ratings for Achievement of Objectives/Outputs of Components 28 Annex 6\. Ratings of Bank and Borrower Performance 29 Annex 7\. List of Supporting Documents 30 Annex 8\. Borrower's Contribution to the ICR 31 Annex 9\. Summary Financial Statements of LPC, 1994-2001 35  Project ID: P008537 Project Name: POWER REHAB Team Leader: Gary Stuggins TL Unit: EWDEN ICR Type: Core ICR Report Date: June 17, 2003 1\. Project Data Name: POWER REHAB L/C/TF Number: CPL-37370 Country/Department: LITHUANIA Region: Europe and Central Asia Region Sector/subsector: Power (98%); Central government administration (2%) Theme: Infrastructure services for private sector development (P); Regulation and competition policy (S) KEY DATES Original Revised/Actual PCD: 01/15/1993 Effective: 06/25/1994 11/21/1995 Appraisal: 01/24/1994 MTR: 05/10/1999 Approval: 05/24/1994 Closing: 06/30/1999 07/01/2002 Borrower/Implementing Agency: GOVERNMENT OF LITHUANIA/Lietuvos Energija Other Partners: STAFF Current At Appraisal Vice President: Johannes F\. Linn Wilfried P\. Thalwitz Country Director: Roger W\. Grawe Basil G\. Kavalsky Sector Manager: Henk Busz Dominique Lallement Team Leader at ICR: Gary Stuggins Achilles Adamantiades ICR Primary Author(s): Gary Stuggins 2\. Principal Performance Ratings (HS=Highly Satisfactory, S=Satisfactory, U=Unsatisfactory, HL=Highly Likely, L=Likely, UN=Unlikely, HUN=Highly Unlikely, HU=Highly Unsatisfactory, H=High, SU=Substantial, M=Modest, N=Negligible) Outcome:S Sustainability:HL Institutional Development Impact:H Bank Performance:S Borrower Performance:S QAG (if available) ICR Quality at Entry: S S Project at Risk at Any Time: Yes  3\. Assessment of Development Objective and Design, and of Quality at Entry 3\.1 Original Objective: Background At the time of appraisal of the project, Lithuania was three years into a program or political, social and economic reform following the restoration of national independence in 1990\. Substantial progress had been made in transition to a market economy, most notably in the areas of price reform, privatization, trade reform and social safety net design\. The decline in real GDP which followed Lithuania's separation from the Soviet Union was being arrested, and by the end of 1994 the economy was growing\. The hyper-inflationary rise in prices was starting to abate\. A new national currency had been introduced and was pegged to the U\.S\. dollar by means of a currency board arrangement\. The Government had made constructive use of standby agreements with the IMF and a Rehabilitation Loan from the World Bank\. However, as in other transition economies, the exposure of the various sectors of the economy to market conditions was painful, and the progress of reform was hindered by the weakness of the banking sector, the limited application of effective accounting standards and bankruptcy/liquidation provisions, the persistence of significant inter-enterprise arrears, and the widespread use of subsidies to protect the population from the short-term effects of transition\. As in other former Soviet Union (FSU) economies, the Lithuanian energy sector was both economically highly significant and politically very visible\. Lithuania has no significant indigenous supplies of primary energy and was at the time almost wholly dependent on Russia for supplies of oil and gas\. The ending of cheap supplies of primary energy at a time of stagnant or falling personal incomes placed predictable strains on the enterprises in the sector, on domestic and industrial consumers, and, particularly, on the State budget\. The difficulties of consumers were increased by Lithuania's historically high energy intensity and by the fact that there were few incentives for energy efficiency and conservation\. The electricity sub-sector was also distinguished by the lopsided structure of the supply/demand equation\. The restoration of independence found Lithuania in possession of two very large generating assets--the 1800 MW thermal power station at Elektrenai, commissioned in the 1960s, and the 2600 MW nuclear power station at Ignalina, whose two units were commissioned during the 1980s\. Both of these were constructed to serve the electricity needs, not of Lithuania, but of the north-west region of the USSR, and either was capable of serving Lithuania's entire electricity needs virtually unaided\. Indeed, even since 1990 Lithuania had continued to be a major source of power for neighboring countries, particularly Belarus, Russia and Latvia\. Given the relative cost structures, Ignalina Nuclear Power Plant (INPP) had been the base load plant at all times that it had been available, contributing about 80% of total electricity output, with supplies also being provided by the CHP plants at Vilnius, Kaunas and Mazeikiai\. Elektrenai has served primarily as reserve capacity\. The international community, represented by the G7 Nuclear Safety Account administered by the European Bank for Reconstruction and Development (EBRD), had focused for some years on finding modalities which would allow all reactors of the RBMK type (as in Chernobyl) to be closed down safely\. INPP has two such reactors, and agreement was reached with the Government of Lithuania that the older of these would be decommissioned by 1998\. It was in the light of this expectation that Lithuania's future generating needs were assessed in 1994\. The other critical factor in the electricity sector was the need to adapt institutional structures to the requirements of a modern market economy\. All the country's electricity generation, transmission and distribution assets belonged to the Lithuanian Power Company, except for Ignalina Nuclear Power Plant - 2 -  which was and remains a separately-held State company\. During project implementation, Lithuania's objective of membership of the European Union became an important objective\. Physical rehabilitation, therefore, would need to be paralleled by the unbundling and reform of what was, at the time of appraisal, a vertically- and horizontally-integrated, State-owned monopoly\. Thus, considerable legal and regulatory changes were required to permit the development of an efficient and competitive electricity sector\. The project concept, therefore, was based on the need to update thermal capacity and to put in place the improvements in dispatch, transmission, communications and institutions which would allow the electricity industry to function in the emerging market environment\. Objectives of the Project i\. Improve the operating safety, efficiency, reliability, and environmental performance of the electricity generating system, thus reducing the amount of imported fuel needed for its operation; ii\. Improve the safety, reliability and flexibility of the electricity transmission system, thus reducing power disruptions and facilitating economic load management; and iii\. Support the restructuring and commercialization of LPC (at the time of loan effectiveness, the corporate entity was Lietuvos Valstybines Energetikos Sistemos, or Lithuanian State Power System (LSPS)\. It was renamed Lietuvos Energija or Lithuanian Power Company (LPC) in 1995\. In this report the abbreviation LPC is used throughout, except when use of the legally exact name is necessary for clarity in explaining changes in corporate structure\.) The project objectives were clear and fully consistent with both the Bank's country assistance strategy and its 1994 Energy Sector Review (11867-LT)\. They were important for the electricity sector, representing an appropriate response to the critical priorities and changing situation in the sector, in particular the phased shutdown of Ignalina NPP which was expected to cause a significant change in the structure of generating capacities from 1998 onwards\. Furthermore, the modernization of dispatch and transmission in parallel with the restructuring of the power sector would be important elements in the development of national and regional power markets\. 3\.2 Revised Objective: The objectives of the project were not formally revised during its lifetime\. The deferral, subsequent to appraisal, of the Ignalina closure program was not judged to be a reason for revising project targets\. However, the reallocation of those portions of the loan originally intended to fund the Mazeikiai rehabilitation and the upgrading of the Dispatch Center permitted an increased focus on the upgrading of the communication and control systems to get the full benefit of the enhanced Dispatch Center\. 3\.3 Original Components: The Project included three components to be implemented under the direction of LSPS: i\. Rehabilitation of two thermal plants: unit 6 at the Elektrenai Thermal Power Station and two units (2X80 MW) at the Mazeikiai combined-heat-and-power (CHP) station\. It was intended that these measures should increase the operational efficiency, reliability, safety and environmental performance of these plants\. The scale of the benefits expected from the rehabilitation was predicated on the eventual closure of the Ignalina nuclear power plant and the consequent need for additional thermal units in the system\. The main packages for Elektrenai included: (a) control system modernization of Unit 6 (300 MW); (b) installation of low NOx burners for boilers 6A & 6B; and (c) installation of motor operated control valves for steam and water pipes\. Broadly similar investments were planned for Mazeikiai\. Technical assistance for the design and - 3 -  commissioning of these installations, as well as on site training, were also foreseen\. ii\. Upgrading of the electricity system, including upgrading of the dispatch center in Vilnius, system communications and control equipment, and replacement equipment at high-voltage transmission substations\. It was expected that the upgrading of the dispatch center would improve operational functionality by applying a state-of-the-art Supervisory Control and Data System (SCADA) with modern hardware and advanced software\. Upgrading of the communication system subcomponent with the removal of existing limitations was essential for the real-time control and operation of the power system\. The main packages in the communications subcomponent included installation of: (a) integrated voice/data wide area network; (b) microwave links (digital radio relay equipment); (c) optic power ground wire (OPGW) type optical cables on various 330-110 kV overhead electric lines with eventual ring of optical cables; (d) synchronous digital hierarchy (SDH) equipment and network\. The transmission subcomponent focused on the Kaunas 330/110/10 kV substation and included installation of: (a) 125 MVA power autotransformers - 2 units; (b) switchgear equipment with relevant current, voltage transformers and surge arresters; (c) protection relays and control equipment\. These transmission upgradings were well justified since replacement of existing old equipment was mandatory if service disruptions were to be avoided\. Technical assistance for the design, commissioning and training for these installations was also necessary\. iii\. Restructuring of LPC and other technical assistance for consultants' services to perform technical studies, project engineering, and management\. This component provided consulting services to LPC to assist in its transition from a centrally controlled entity in a command economy towards greater market orientation\. The restructuring would include the transfer of the district heating utilities to municipal ownership, the improvement of accounting and management information systems and the phased implementation of the Government's Energy Sector Action Plan\. Assistance would also be provided in the development of the regulatory framework, in an Electricity System Communications Strategy Study, and in project management and implementation\. 3\.4 Revised Components: The first amendment to the loan agreement (1997) was necessitated by a recognition that sales of heat by Mazeikiai Elektrenai to the neighboring oil refinery were, and were likely to continue to be, at such a low level compared to the level projected at appraisal that the economic justification for investment there had been undercut\. This part of the loan was therefore cancelled, and efforts in the generation area focused exclusively on Elektrenai\. Furthermore, in the same year, and following an abortive tendering exercise, LPC decided to finance the Vilnius Dispatch Center component from its own resources\. The funds originally provided for these two components were reallocated, firstly to a major expansion of the communication and control system component, and secondly to an increase in the transmission system element involving accelerated reconstruction of 110kV and 330kV substations\. 3\.5 Quality at Entry: At the time of appraisal, the Bank did not carry out prior QAG assessments of projects\. However, Bank management judged that the project objectives were consistent with the Bank's strategy in Lithuania in 1994, as well as with the Government's priorities at that time, and that project design took appropriate account of these and of lessons learned from other projects in the sector and region\. - 4 -  To a considerable extent the investments were predicated on an early shutdown of the INPP units--an Agreement with the Nuclear Safety Account (NSA) administered by the European Bank for Reconstruction and Development (EBRD) envisaged the retirement of Unit 1 as early as 1998\. In the event it was agreed during Lithuania's entry negotiations with the European Union that the closure date should be deferred by approximately seven years\. However, while this arguably rendered the Elektrenai rehabilitation premature, the project as a whole was well founded and appropriate to its time\. Perhaps most importantly, the rehabilitation model developed at Elektrenai and the experience of implementing it will be invaluable when the time comes to rehabilitate the other units\. The project was given a satisfactory rating based on the results\. The project was designed to help stabilize the reliability of power supply and move the company in the direction of commercial viability\. Both of these targets have been achieved, with the commercialization aspects exceeding the original expectation\. The proposed technical assistance was an important component in supporting both the company and the Government to achieve commercialization of the sector, enabling Lithuania to meet EU Directives early in its EU Accession process\. 4\. Achievement of Objective and Outputs 4\.1 Outcome/achievement of objective: The overall outcome of the project is rated as satisfactory\. All foreseen objectives and development outcomes were fully achieved, though with some changes and delays\. Generally, the project components brought the desired benefits and these will become more apparent in the coming years as the radical restructuring and unbundling of LPC carried out in 2001-2002 transforms the sector\. The new communications system enables the company to provide essential information for the operation of the Lithuanian electricity market and for the eventual Baltic common electricity market\. The project will contribute to the future interconnection of the electricity system with Western European networks\. At the same time the legal basis and regulatory framework of the power sector have been brought into line with European Union requirements\. Finally, the financial condition of the Lithuanian power system and of its various entities has improved significantly\. The detailed results are outlined below\. i\. Improve the operating safety, efficiency, reliability, and environmental performance of the electricity generating system, thus reducing the amount of imported fuel needed for its operation: rehabilitation of the Elektrenai thermal power plant contributed to the improvement of operating safety, efficiency, reliability, and the environmental performance of the electricity generating system\. Although control system modernization for unit 6 was the main investment (US$5\.1 million from total investment of US$8\.16 million), the main benefits achieved so far were due to the installation of low NOx burners\. However, as one unit of Ignalina NPP will be shut down in 2005, additional thermal power units will then be needed in the system\. The control system modernization for unit 6 is envisaged by LPC as a pilot project to be replicated for the remaining generating units at Elektrenai\. ii\. Improve the safety, reliability and flexibility of the electricity transmission system, thus reducing power disruptions and facilitating economic load management: the upgrading of the electricity system had a beneficial impact on the electricity sector by improving the safety, reliability and flexibility of the electricity transmission system, thus reducing power disruptions and facilitating progress in creating a competitive electricity market\. The improvement in communication systems comprised the installation of a new ring of reliable and high-capacity optical cables using 330-110 kV electricity transmission towers\. This allowed LPC to connect all major system components in an integrated information medium and also to provide additional data transmission services\. Before the project, the power transmission and distribution equipment was - 5 -  near the end of its life\. The replacement of equipment at high-voltage transmission substations was very beneficial in terms of enhanced reliability and helped reduce losses\. The duration of maintenance outages for switchgear has been substantially reduced\. Before the project, circuit breakers were shut down for maintenance for two weeks after every three years' operation, and for four weeks after every six years\. This has now been reduced to one day per annum\. Voltage fluctuations in the transmission system have been stabilized considerably\. iii\. Support the restructuring and commercialization of LPC: the electricity business of LPC has been unbundled and five new State-owned joint stock companies have been established: l AB "Lietuvos Energija" (AB=Akcinè Bendrovè, Joint Stock Company) which owns the transmission network and dispatching facilities as well as the hydropower plant at Kaunas and the hydro pumped storage plant at Kruonis; l AB "Lietuvos Elektrine" which owns the thermal power station at Elektrenai; l AB "Mazeikiu Elektrine" which owns the CHP station at Mazeikiai; l AB "Rytu ST" which is responsible for electricity distribution in the eastern portion of Lithuania; and l AB "Vakaru ST" which distributes electricity in western Lithuania\. The great majority of the shares in all five companies remain in State ownership (85\.7% of the shares of LPCE were in State ownership prior to the reorganization of the company on 1 January 2002, while 10\.9% were held by E\.ON Energie AG, 0\.1% by Municipalities, and the balance of 3\.3% by miscellaneous private shareholders\. These proportions have been maintained in the new companies\.) However, the privatization program for the two distribution companies and for AB Mazeikiu Elektrine is to be developed in the first quarter of 2003 and these companies are expected to be privatized by the end of 2003 (privatization of the distribution companies was intended to occur in 2002, but has been delayed (November 2002))\. The eventual sale of AB Lietuvos Elektrine is also envisaged\. AB Lietuvos Energija (LPC), as the national grid operator, will be retained in State ownership\. All of the non-core activities of the former company have been sold or liquidated or are on the list of entities for privatization (except for Kauno Energetikos Remontas, which will remain in the ownership of Lietuvos Energija until 2005)\. The six district heating networks owned by LE were transferred to municipal ownership in 1997, and negotiations for the sale of the CHP generating station in Kaunas are ongoing\. Private expertise has been introduced into the management of the district heating businesses in Vilnius, Kaunas and other cities through concession and leasing arrangements\. LPC has, particularly since 1996, made vigorous efforts to improve its management structures and processes\. These have included the establishment of commercial operational norms throughout the organization and the establishment of new functions--for example, an active international treasury capability\. Such developments have, in recent years, been supported by the Government's implementation of improved structures of governance, including the appointment of outside directors with relevant expertise\. Following repeated urging by Bank missions, the Government initiated a series of changes to the management board, supervisory board and shareholders' assembly arrangements at the end of 1997\. While these changes were initially negative in their impact, an effective non-executive Board has been in place since early 2000, peopled by outsiders with backgrounds in finance, law and other relevant fields, and chaired by the Director of the Lithuanian Energy Institute\. This Board has been prepared to stand up to political pressure and has given an important focus and consistency to reform efforts ever since\. - 6 -  Another crucial development was the restructuring in 1997 o f the State Commission for Pricing of Energy Resources and Energy Activity Control (commonly known as the Energy Prices Commission, or EPC) on the basis of enhanced independence and resourcing\. This change facilitated a progressive move towards economic pricing of all energy products\. The steady adherence to sound economic principles maintained by the EPC and its Chairman has provided an essential policy underpinning to unbundling and restructuring\. Further evidence of Government commitment to reform was provided by the decisive moves it made to deal with the problem of non-payment or slow payment of the energy debts of budgetary entities\. Taken together, these improvements have provided a solid basis for operating companies in the sector to develop strong management and financial structures, and will enhance the privatization revenues accruing to the Government\. The restructuring and commercialization of Lithuania's electricity sector, as described above, have taken place at a pace and with a determination which have fully met, and in some respects even exceeded, the Bank's expectations\. The initiatives described have been facilitated by parallel moves in the areas of regulation and market development\. A new Electricity Law came into force in July 2001, and a new Energy Law in July 2002\. The power market in Lithuania is being opened in stages with regulated transmission prices and provisions for the licensing of operators: in the first stage of market opening, customers purchasing more than 20 GWh per annum have been free since 1 April 2002 to contract directly with suppliers for power\. There are now 11 independent suppliers of electricity and for 2003, there will be 25 eligible consumers, accounting for approximately 26% of the electricity market\. At the same time, Lithuania is an active player in moves to establish a Common Baltic Electricity Market (CBEM) together with Latvia and Estonia\. Furthermore, the very real transformation which has occurred in the regulation, governance and management of the power sector has enabled the Government to terminate all production subsidies in the sector, with the consequent removal of what had been a continuing budgetary overhang\. In financial terms, the improvement in the financial status of the power sector has been striking\. In 1994, the company's auditors estimated that LPC incurred a net loss (calculated in accordance with International Accounting Standards) of LTL 513 million on sales of LTL1,500 million\. The outturn for 2001 (the last year for which LPC's financial statements represent an integrated picture of the industry) the company earned a net profit of LTL 180 million on revenues of LTL 1,664 million\. While the separation in 1997 of the heavily loss-making district heating business was a factor in the turnaround, evaluation of the company's recent financial statements reveals a stable organization with satisfactory financial ratios and the potential, through continuing attention to cost control and operational improvement, to be solidly profitable into the future\. The financial performance of LPC in recent years has been such that in May 2002 it was able to prepay $8 million of the World Bank Power Rehabilitation Loan\. The cost of debt has dropped from 450 basis points over LIBOR in 1999 to roughly 75 basis points today with a much-improved repayment profile\. At the beginning of the project the Government subsidized fuel import prices\. Now LPC is able to prepay debt, and the government is expecting to receive dividends from 2002\. (Annex 9 contains summarized financial statements for 1994 to 2001\.) The story of financial improvement was not without interruptions: in 1999 a combination of inadequate tariffs, non-performing sales to Belarus, and an expensive debt profile led to heavy losses in LPC and provoked the Bank to suggest suspension of the loan unless a satisfactory recovery plan were put - 7 -  in place: this was done, with positive results in 2000 and subsequently\. 4\.2 Outputs by components: The Project outputs were generally in line with the plan, with three exceptions: l The Mazeikiai CHP subcomponent of Component (i) (power plant rehabilitation) was cancelled as a consequence of the diminishing role of this plant in the power system; l Component (ii) (transmission system enhancement) was restructured as a result of LPC's decision to carry out the upgrading of the dispatch center in parallel with the Bank project by using its own resources\. In consequence, the dispatch center sub-component was removed from Component (ii) of the Bank loan; l Following a reallocation of the loan proceeds, Component (ii) was refocused to allow for an increased investment in the modernization of the communications system\. i\. Rehabilitation of two thermal plants: unit 6 at the Elektrenai Thermal Power Station and two units (2X80 MW) at the Mazeikiai combined-heat-and-power (CHP) station: the modernization of the supervisory control for Unit 6 at the Elektrenai thermal station together with installation of low NOx burners was satisfactory\. The control system was modernized using modern data collection hardware and software which allows real time monitoring and operation of power Unit 6\. There is a joint control room for Units 5 and 6, which makes it easy to compare the operation of the 40-year-old control system for Unit 5 with the new one for Unit 6\. New low NOx burners have modern fire protection systems, which is integrated with the modern control system of Unit 6\. Tests have confirmed 50% reductions in emissions (mg/Nm3) for the new burners compared with burners of the old type (from 850 to 425 mg/Nm3 for heavy fuel oil and from700 to 330 mg/Nm3 for natural gas)\. Since rehabilitation, emissions at Unit 6 have been within allowable limits\. Unfortunately, because of the substantial electricity generation overcapacity in Lithuania, the Elektrenai power plant operates for very short periods of time\. Since the new control system was installed in July 2001 Unit 6 has been in operation for only 292 hours in 2001 and 71 hours in 2002 (load factor 0\.03)\. Staff have therefore had very limited possibilities to gain operational experience with this system\. It is expected that this situation will change after closure of Ignalina NPP starts in 2005\. The cancellation of the Mazeikiai Power Plant upgrade has been fortunate\. As the sector has been unbundled it has become increasingly apparent that this is a stranded asset\. The government will address this issue as part of the privatization program\. ii\. Upgrading of the electricity system, including upgrading of the dispatch center in Vilnius, system communications and control equipment, and replacement equipment at high-voltage transmission substations: the upgrading of the system communications equipment, and the replacement of equipment at high-voltage transmission substations was satisfactory\. The old analogue type data equipment was replaced by modern open structure digital hardware and software, substantially contributing to very accurate and reliable real time monitoring and management of the power system, including the newly emerging electricity market\. The new ring of optical cables is linked with neighboring states, an essential for the development of the Baltic electricity market\. The data transmission system is integrated with the upgraded Vilnius dispatch center control equipment (information complex XA-21 of GE Harris Company)\. The upgrading of the dispatch and control systems is estimated to result in an annual saving of US$530,000 in staff and travel costs\. The installation of optical cables using of optic power ground wire (OPGW) technology has also facilitated the rehabilitation of HV transmission lines at the same time\. The replacement of 330 kV power transformers and switchgear equipment at Kaunas substation has had a very positive impact, as this equipment was nearing the end of its life\. In addition, new digital protection relays with self-test features were installed at key points of the substation, which - 8 -  reduced the fault rate and response time\. Generally, the reliability of Kaunas substation has increased markedly, while maintenance costs have decreased\. LPC has also been able to lease some of the bandwith in its fiber optic network to telecommunications companies\. iii\. Restructuring of LPC and other technical assistance for consultants' services to perform technical studies, project engineering, and management: Under the project, consultants were hired for several tasks\. l LPC Restructuring and Management Consultancy: In early 1995, following international restricted tendering procedures, Price Waterhouse Ireland, in association with ESB International, were appointed to provide Restructuring and Management Consultancy advice, financed by the EU-PHARE program\. The consultants' Interim Report, presented in October 1995, proposed radical restructuring of LPC and substantial internal management improvements\. This was accepted by the Government, but initially resisted by the company\. Following extensive discussions involving the Government, the World Bank, the European Commission and the local PHARE office, LPC management and the consultants, the Final Report was submitted to the Commission in September 1996\. The restructuring program set out in the Report provided a road map for much of the reform of the electricity sector which followed\. l In the meantime, following the acceptance by the Government of the Interim Report and the appointment of a new General Director, the company established a number of Working Groups, coordinated by a consultant hired by the World Bank to oversee the implementation of the Price Waterhouse report and financed by the Irish Consultancy Trust Fund at the World Bank\. The Working Groups analyzed and recommended on key issues of reorganization and management improvement, including how best to set up Business Units, as a precursor of unbundling, the improvement of management information systems, the development of corporate planning, the disposal of non-core activities, and the development of a power market\. l USAID provided funding for Regulatory Framework Assistance, under which Bechtel consultants worked within the Energy Prices Commission in the development of methodologies, coordinating this work within a Baltic framework\. l An Electricity System Communications Strategy Study was carried out by LPC's own experts\. l Project Management and Implementation Assistance was provided by various contractors, including Preussen Elektra in respect of the thermal power plant at Elektrenai and Electrotek Concept Inc\. for the dispatch center, and Pauwels for the Kaunas transformer element\. A consultant hired under the project was attached to TENA, the procurement subsidiary of LPC, and provided procurement assistance in 1996/97\. l Training was arranged by LPC itself for every component of the project\. In most cases, this included secondment of staff to overseas utilities for on-job learning purposes\. 4\.3 Net Present Value/Economic rate of return: At appraisal, the economic rate of return (ERR) for the whole project (including environmental benefits and associated investment costs) was calculated to be 21\.1%\. The ERR on the Thermal Power Plant Rehabilitation element was calculated at 16\.3% and that on the Electricity Dispatch System Upgrade 34\.5%\. The current recalculations of project ERRs are 32% for the Elektrenai thermal power plant rehabilitation without taking account of the costs and benefits of the environmental investments, and 26% when these are included\. The higher ERR for Elektrenai (compared to the estimate made at appraisal) reflects the - 9 -  significantly lower cost of the investments in burner and control systems--$8\.2 million (excluding related consultancy assistance, which amounted to about $0\.5 million) against $13\.2 million estimated at appraisal\. The life extension benefit estimated at appraisal (which remains unaltered) is by far the largest source of economic benefit from this component\. No recalculation of the economic rate of return from the dispatch and transmission system upgrade was possible\. However, in addition to the benefits foreseen at the time of appraisal, LPC has been able to earn extra revenue from the system by leasing capacity on its optical fiber network to telecommunications operators\. 4\.4 Financial rate of return: A financial rate of return for the project was not calculated at the time of appraisal\. At the time the project was appraised (1994), financial rates of return were usually not calculated for power projects\. Consistent with this approach, the project was assessed from the technical and economic standpoints\. The financial aspects were dealt with by projecting the future financial performance of LPC and by including legal covenants designed to ensure that the company's financial performance would be satisfactory\. 4\.5 Institutional development impact: In 1994, Lithuania was in the early stages of its transition from Soviet times, and the State's ability to face and deal with the challenges posed by an uneconomic energy sector was a key test of the strength of the re-established democracy\. LPC, at the time of appraisal, was not only the dominant entity in the Lithuanian energy sector, but also the largest State-owned asset and employer\. In the event, the Government of Lithuania met the challenge\. This is the more praiseworthy for the fact that there have been several changes of government in the intervening eight years, involving significant differences of social and economic ideology\. The outcome of the efforts made by government, regulators, LPC management, the World Bank and other international agencies--namely, the reform and restructuring of a key economic sector--demonstrated to Lithuanians, and to the citizens of other transition economies, that the results merited the effort, that reform need not mean the destruction or demeaning of the achievements of the past, and that substantial economic and political gains could be made through consistency of policy\. While this may have been the most important institutional development impact of the Power Rehabilitation Project, at enterprise level the project drove major improvements in the management of LPC--in project management, in procurement, in capital expenditure planning, and, particularly, in financial management\. The company moved to full implementation of International Accounting Standards, created separate revenue, cost and profit centers to support unbundled accounting, and established a Treasury Management capability which has enabled it to operate effectively in capital markets, with consequent savings in financial costs\. Additionally, the corporate governance aspect of LPC's operations was boosted when the Government decided in 2000 to expand its Management Board to include outside directors with appropriate knowledge and experience of law, finance, and energy\. Covenant Compliance: The Loan Agreement, Subsidiary Loan Agreement and Project Agreement required that the borrower and LPC meet target values in relation to certain financial ratios and other indicators\. The table below sets out actual performance for 2001 in relation to the target values\. - 10 -  Table 1: Covenants Indicator Target value 1 Actual value 2001 Collection period for domestic electricity bills 45 552 (days' sales) Debt service coverage ratio 1\.5 2\.0 Average domestic electricity tariff (net) Lc\. 11\.5/kWh 3 Lc\. 18\.6/kWh 1According to the projections prepared at time of appraisal, the loan would have been fully disbursed in 1999\. In the Table, the target values shown are those for 1999, or for the latest year specified (but see Note 7)\. 2The value for 2001 is not directly comparable with the target value, because of different calculation methods\. The collection for 2001 is accounts receivable, which includes a 30 day period for the customer to make their payments\. It is assumed that the target was designed as arrears and hence the intention of the collection target was met\. 3The Loan Agreement specifies the setting of an average domestic tariff of 11\.5 Lithuanian cents per kWh as a condition of effectiveness\. Adjusting for changes in the Consumer Price Index between 1994 and 2001 yields a target value for 2001 of 20\.3 Lc\./kWh\. 5\. Major Factors Affecting Implementation and Outcome 5\.1 Factors outside the control of government or implementing agency: Over the 1994-2001 period, the population of Lithuania declined by nearly 5%, to just under 3\.5 millions\. Real GDP rose by an average of 3\.7% p\.a\. and stood at 13\.4 billion euro in 2001\. Economic growth has been fairly consistent, except in 1999, when output was seriously affected by the economic crisis in Russia\. Table 1 below illustrates the trend in final energy consumption over the period\. The only sector to register growth is transport\. It seems reasonable to attribute a major part of the decline in household consumption to improved energy economy, whereas the declines in the productive sectors are likely also to reflect changes in scale and structure\. Overall, the energy intensity of the Lithuanian economy, which the World Bank measured as being quite high in the early nineteen-nineties, fell from 210 toe per million LTL in 1994 to 136 toe per million LTL of GDP in 2001 (at constant 1995 prices)\. Table 2: Final Energy Consumption 1994 million toe 2001 million toe Industry 1101 815 Transport 999 1279 Agriculture 248 104 Households 1814 1410 Commerce and public services 744 484 Total final energy consumption 4906 4092 A major factor in the electricity sector continued to be export demand, based on the productive potential of Ignalina\. In 1994, Lithuania had net electricity imports of 1,000 GWh (imports which Lithuania was compelled to accept from Russia in lieu of transit fees due on power wheeled to Kaliningrad), while there have been substantial net exports in every other year, peaking at over 6,000 GWh in 1998\. The development of electricity supply and demand is shown in Table 2 below\. The growth in household and commercial/public service demand has been quite striking\. At the time of project appraisal, the Bank's base case scenario was for GDP growth to average 5\.6% p\.a\. between 1994 and 2001 and for final - 11 -  electricity demand in 2001 to be approximately 7\.85 TWh\. Calculating as far as possible on the same basis, the actual outturn for 2001 was 9\.03 TWh, which, combined with substantially slower GDP growth than forecast in 1994, reflects a slower reform process, and a continuing higher electricity intensity, than in the base case (the figure of 9\.03 TWh is reconcilable with the amount of 6\.4 TWh shown in the table by adding to the latter 50% of the "system own use" consumption and 80% of the network losses estimated for 2001, in accordance with the Bank's 1994 methodology (Lithuania: Energy Sector Review, Report No\. 11867-LT))\. Table 3: Electricity Balance 1994 GWh 2001 GWh Generation: Ignalina 7706 11362 Thermal and CHP 1597 2674 Hydro 718 701 Total 10021 14737 Net imports/exports 1099 -3964 Losses, own use etc\. 4608 4326 Net domestic supply 6512 6447 Industry 2795 2347 Transport 102 91 Agriculture 574 197 Households 1541 1817 Commerce and public services 1500 1995 Total final consumption 6512 6447 The load factor in Ignalina recovered from its very low level (47%) in 1994 to consistent levels of 70% to 80% in the following years\. However, it fell to 58% in 1999 and to 50% the following year, recovering somewhat to 67% in 2001\. Apart from 1998, when exports peaked, Elektrenai's load factor has consistently been in the range 9% to 14%\. This has prevented the realization of the output levels projected for Unit 6\. 5\.2 Factors generally subject to government control: The policies adopted and actions taken by the Government of Lithuania were generally positive in their effects on the project's outcome\. The government has been responsive to the changing international environment, particularly the new responsibilities which it assumed consequent on Lithuania's application for membership of the European Union\. It has been ready to interact with and listen to the World Bank and other international agencies\. In general, it has created an environment in which the reform process has been less of an uphill struggle than it might otherwise have been, and indeed has been in so many other countries\. The steady commitment to an independent price regulator, often at times when the political pressures to compromise such independence must have been hard to resist, has been at the heart of reform in the energy sector\. The implementation of radical solutions to the overdue energy receivables problem and the separation of district heating from LPC (with consequent severe tariff increases for some communities) also required strong political will\. After some false starts, a Board has been installed in LPC which gives a fair degree of protection to the organization from possible governmental interference in operational matters\. (A notable issue which emerged during the supervision phase of the project was the direction by the Minister of Economy in 1998 and 1999 that power should be sold to Belarus even though LPC's prospects of receiving timely, or indeed any, payment were slim: it is unlikely that such a situation could be repeated - 12 -  under the governance structures now in place\.) On the other hand, it appears that key appointments to the most senior management positions in the company are still made by the Minister rather than the Board\. Also, the enactment of the new energy and electricity legislation was hampered and delayed by administrative and political problems, although it is now satisfactorily in place\. (Despite these difficulties, however, the power market has reached a more developed state than in some neighboring countries\.) 5\.3 Factors generally subject to implementing agency control: LPC implemented the project through its Procurement Department together with the company's technical and financial staff, including local specialists at project sites in Elektrenai and Kaunas\. In order to ensure that the project would be carried out with due diligence and efficiency and in accordance with best engineering practices, foreign consultants were appointed including a procurement adviser\. The main factor within the control of LPC that contributed to implementation delays was LPC's limited implementation capacity, especially at the initial project phase, and frequent turnover of higher management staff\. Despite delays, LPC ultimately successfully managed the project to completion, including the own restructuring and unbundling of its own operations\. LPC turned certain opportunities to its advantage, for example improving dispatch center facilities using its own resources, and rehabilitating HV electricity lines during the installation of optical cables on ground wires (OPGW technology)\. It also proactively sought to work with the Ministry of Economy and the Energy Prices Commission to develop economic tariffs\. After initial reluctance, LPC recognized the need to reform its operational and management structures\. It appropriately redesigned the company's organizational structure in the context of unbundling, and it achieved improvements in all key organizational, operational and financial areas\. The company also respected environmental issues in the implementation of the Project, especially in relation to Elektrenai thermal power plant\. Evidence of the improvement in operational performance is provided by the reduction in distribution losses from 19% in 1993 to 13\.5% in 2001\. In the same period, transmission losses were reduced from 4% to 2\.7% (losses split between transmission and distribution at 330 kV)\. 5\.4 Costs and financing: The total project costs amounted to $32\.5 million, compared to the appraisal estimate for baseline costs of $32\.90 million\. The details of costs and financing are given in Annex 2\. The main differences between the appraisal estimates and the outcome centered on the reduction of the power rehabilitation element arising out of the decision not to proceed with the upgrade at Mazeikiai power plant, thus reducing this component from $16\.78 million to $9\.50 million\. The transmission and electricity system upgrade component was increased from $5\.02 million at appraisal to $22\.50 million\. Technical assistance was less than envisaged at appraisal\. The overall financing required, at $32\.50 million, was slightly less than the appraisal estimate of $32\.90 million\. Disbursements from the World Bank loan totaled $26\.4 million, leaving a balance of $6\.1 million which was covered from LPC's resources\. 6\. Sustainability 6\.1 Rationale for sustainability rating: Looking towards the future, the project is clearly sustainable\. There is a firm date for the closure of at least one of the Ignalina units: this will increase the potential demand for the output of the rehabilitated Elektrenai unit\. The development of the power market (Baltic as well as Lithuanian) will also provide further underpinning of the investments in transmission and in communications and control\. The independence of the regulator and the transformed cost/revenue balance of LPC--now guided by well-structured governance arrangements--will substantially support the continued financial strength of the borrower\. The factors which drained that company's vitality in the past--below cost tariffs, the district heating millstone, forced sales of power to Belarus, unprofitable non-core subsidiaries--have been removed\. Further comfort that the reform process is irreversible is provided by the undertakings entered into by the government in its dealings with the World Bank and the International Monetary Fund during - 13 -  SAL and Stand-by Arrangement (SBA) negotiations\. There are uncertainties, of course\. Prime among these is the future of Ignalina--any decision to defer closure would have serious consequences for other units in the industry\. Also, the independence of the LPC Board may need to be underpinned by legislation in order to reduce the temptation to future governments to become involved in commercial issues\. 6\.2 Transition arrangement to regular operations: Even though generation, transmission and distribution operations have been separated, LPC retains almost all of the assets acquired under the Project as it continues to be responsible for transmission & load dispatch as well as for hydropower plant operations\. Of the entities benefiting from the loan, only Elektrenai thermal power plant became a separate company\. LPC and Lietuvos Elektrine (Elektrenai) have already commissioned the new facilities, which are fully deployed in day-to-day operations (within the limits imposed by the electricity overcapacity problem, referred to above) and regular operations are being carried out now\. Additionally, in order to expand the coverage of the power system improvements, similar investments are being made according to appropriate development plans up to 2006 for: i) transmission grid development; ii) dispatch center and communications system development; iii) modernization of Kaunas hydropower plant and Kruonis hydro pumped storage plant and iv) development of electricity metering and accounting between the transmission and distribution networks\. These plans were developed by LPC specialists taking into account the results of consultancy studies carried out by international experts and experience from visits to western companies\. Sustainable improvements, in relation to the establishment of the electricity market in January 2002, transmission system operator performance for national balancing services, private capital flows to the sector and financial performance of the sector, etc\., can be expected\. 7\. Bank and Borrower Performance Bank 7\.1 Lending: The Bank's performance in appraising and negotiating the loan was satisfactory\. The Bank team provided strong support both to the government's energy policies and to Bank/IMF programs in Lithuania\. Appropriate flexibility was shown in adapting the loan to the evolving needs of the electricity sector\. 7\.2 Supervision: The supervision of the project was satisfactory\. Supervision missions were conducted on a regular basis with competent staff who established productive relationships with LPC's project and general management and with Government representatives\. However, the company had some difficulty complying with the financial covenants contained in the Loan Agreement, Project Agreement and Subsidiary Loan Agreement\. Specifically, in several years net revenues were not adequate to provide the covenanted 1\.5 times cover of prospective debt repayments and the covenanted collection period for domestic electricity bills was not met\. In addition, in several years tariffs were not adequate to cover all costs\. The Bank, the Borrower and LPC engaged on these issues on several occasions\. However, on such occasions the Bank concluded that the general direction of financial progress was positive, and thus did not object to financing operations proposed by LPC\. There were three amendments to the project, reflecting primarily reallocations of funds between the various components\. In early 2000, following a significant deterioration in LPC's financial performance in 1999, the Bank suggested that the loan be suspended unless a satisfactory financial recovery plan was implemented\. LPC proposed the following set of actions: (a) a 20% price increase; (b) the cessation of electricity sales to Belarus because of non-payment problems; and (c) the restructuring of LPC's debt\. These actions were successfully implemented resulting in a considerable turnaround in LPC's financial status\. - 14 -  7\.3 Overall Bank performance: Overall the Bank's performance is rated as satisfactory\. A notable feature of the project was the close coordination which was maintained between the Bank's team on the project and other ongoing Bank operations in Lithuania, particularly the first and second Structural Adjustment Loans (SAL I and SAL II), as well as the IMF\. The conditionalities for both SAL operations included several clauses which reinforced the Bank's covenants and conditionalities in the Power Rehabilitation Project\. Conversely, the Bank's work to assist in the full implementation of the PRP materially assisted in the achievement of SAL objectives--for example, the ending of producer subsidies in the energy sector, and the control of inter-enterprise arrears\. Borrower 7\.4 Preparation: The project was prepared by LPC at a time of intense international interest in the future of the Lithuanian electricity sector, driven by safety concerns about Ignalina\. There had been a succession of strategy studies, including the Bank's 1994 Energy Sector Review and an Energy Strategy Study performed by a consortium of European contractors under financing by the EU-PHARE program\. In parallel, the US grant agencies USAID and USTDA provided technical assistance for feasibility studies of thermal plant rehabilitation and electricity system upgrading, and it was these which provided the basis for the preparation of the Power Rehabilitation Project\. Preparation was satisfactory and provided a strong basis for appraisal of the project and subsequent implementation\. 7\.5 Government implementation performance: Government performance, both at the level of financial management through the Ministry of Finance and (as already noted) at the level of institutional and policy development at the level of the Ministry of Energy (later the Ministry of Economy), was generally satisfactory\. Strong and positive relationships were established, which allowed implementation to proceed smoothly, and which furthermore materially assisted the dialogues underlying the first and second SAL efforts\. 7\.6 Implementing Agency: Implementation performance by LPC was excellent\. Adequate full-time local staff were selected to cover the procurement, technical and financial areas of the project\. Co-ordination of project activities and the procurement of goods, works and services for the project proceeded smoothly\. Experienced technical consultants were retained to assist with implementation, and a full-time procurement advisor was appointed\. The management structure of LPC evolved during the years of implementation: noteworthy was the development of a treasury function which facilitated much-improved management of the company's debt and cash resources\. 7\.7 Overall Borrower performance: Overall borrower performance is rated satisfactory\. 8\. Lessons Learned The Bank's experience in Lithuania since 1994 suggests a number of lessons which may be relevant to the energy sector reform process in other states\. l Given strong Government support, enabling good regulation and governance, and payment discipline on the part of budget entities, it is possible for a publicly-owned utility to be successful, well-run and financially robust, and to be a positive player in market reform, while remaining under state control; l Structural adjustment operations and project operations, if co-coordinated, are mutually - 15 -  supportive; l Reform policies should initially emphasize restructuring rather than privatization\. Excessive concentration on privatization as an objective can have negative effects on the reform process, particularly in the early stages: in the case of Lithuania, given the variety of governments which held power, too much emphasis on privatization could have been counter-productive, whereas the benefits of institutional reform, restructuring, unbundling and corporatization could be readily demonstrated and were acceptable to the key players; l Achieving improved governance of utilities smoothes the institutional reform process\. Good utility governance rests on the clear definition and separation of four pillars: policy, ownership, management and regulation\. The Board forms the bridge between the second and third of these, and a Board of individuals chosen for their individual merits, clearly briefed on the shareholders' objectives and working free of ministerial interference can help management to optimize operational performance; Most important of all, an independent, well-resourced regulator put in place at an early stage of the reform process can be a firm bulwark against back-sliding\. - 16 -  9\. Partner Comments (a) Borrower/implementing agency: - 17 -  (b) Cofinanciers: There were no co-financiers in the project, other than LPC itself\. (c) Other partners (NGOs/private sector): There were no other partners\. 10\. Additional Information For additional details see Annex 8 and Annex 9\. - 18 -  Annex 1\. Key Performance Indicators/Log Frame Matrix Outcome / Impact Indicators: 1 Indicator/Matrix Projected in last PSR Actual/Latest Estimate (i) Availability of the electricity system The power system has remained at a level of The availability of the power system is in line reliability above that envisaged at the time of with Western European standards\. This appraisal as the Ignalina Nuclear Plant outcome has been highly successful\. remains fully operational (at the time of appraisal an agreement had been reached with EBRD to close Unit 1 by 6\.30\.98)\. (ii) Restructuring and commercialization of LPC has been unbundled into five separate The Government has surpassed all of our LPC legal entities, consistent with the EU Directive expectations regarding sector restructuring\. 96/92 on establishing electricity markets\. The sector has been vertically unbundled in a The accounts have been separated, manner consistent with the EU Directive\. management and staff assigned and an Horizontal unbundling has taken place to application for unbundled tariffs has been foster competition\. The Government has issued\. taken the final step of legal unbundling, going beyond the current EU requirements\. (iii) Authority and independence of the The regulator has been established and is The regulator in Lithuania has been of the Energy Pricing Committee successfully undertaking its duties\. Its more successful instances of regulatory independence appears to be satisfactory\. reform in our client countries\. The independence and operating rules and pricing criteria are clear and consistently adhered to\. Output Indicators: 1 Indicator/Matrix Projected in last PSR Actual/Latest Estimate A\. Technical Indicators: The Elektrenai unit improvement has been Elektrenai 300 MW Thermal Power Plant - completed and is fully successful\. Improvement in plant operating efficiency; The upgrading of the Mazeikiai power plant improvement in plant reliability; reduction in was, fortunately, dropped\. As this unit is now NOx and particulate emissions; safety perceived as a potentially stranded asset, it improvements\. has been helpful that the Bank loan did not Mazeikiai 160 MW CHP Plant: improvement add to this burden\. in plant operating efficiency; improvement in plant reliability; reduction in NOx and particulate emissions\. Electricity dispatch and transmission system upgrade: loading of power plants; loss reduction; reliability; management information\. B\. Environmental indicators: This was reviewed by Bank environmental Completion and implementation of asbestos staff and was found to be fully satisfactory\. management plan\. Completion of PCB survey and, if needed, implementation of management plan\. Completion and implementation of oil spill prevention and management plan\. Completion and implementation of the environmental monitoring system\. C\. Financial and economic indicators: The Government and LPC made a Improvement in liquidity and working capital considerable turnaround in the financial (current ration in excess of 1\.6 and quick health of the sector in 2000 by increasing the ratio not less than 0\.8)\. electricity price, restructuring debt (replacing Compliance with covenants (debt service short-term debt with longer-term debt that ration not lower than 1\.5, electricity better matched the life of the assets) and receivables not greater than 45 days, and cut-off supply to non-payers (Belarus in heat receivables not greater than 70 days)\. particular)\. As a result, debt service is about Profitability (net income before tax 2\.0, enabling LPC to prepay its debt, further consistently positive)\. improving its balance sheet\. Fixed assets and depreciation (progress in Although the liquidity targets have not been bringing fixed asset values and depreciation met, LPC has managed its liquidity well and - 19 -  charges closer to realistic values as is able to pay its creditors on time (or early in measured by international industrial averages the case of some of its debt obligations)\. for the subsector)\. The EIRR for the project remains Recalculation of the Economic Internal Rate satisfactory\. of Return\. D\. Institutional restructuring indicators: Institutional restructuring has been Commercial operation of LSPS\. successfully completed well beyond the Improvement in the articles and operation of original expectations of the project\. the Regulatory Agency\. Progress in power sector restructuring\. 1End of project - 20 -  Annex 2\. Project Costs and Financing Project Cost by Component (in US$ million equivalent) Appraisal Actual/Latest Percentage of Estimate Estimate Appraisal Component US$ million US$ million 1\. Power rehabilitation 16\.78 9\.50 56\.6 2\. Transmission and electricity system upgrade 5\.02 22\.50 448\.2 3\. Technical assistance 1\.68 0\.50 29\.8 Total Baseline Cost 23\.48 32\.50 Physical Contingencies 2\.26 Price Contingencies 3\.39 Total Project Costs 29\.13 32\.50 Interest during construction 3\.77 Total Financing Required 32\.90 32\.50 Project Costs by Procurement Arrangements (Appraisal Estimate) (US$ million equivalent) 1 Procurement Method Expenditure Category ICB NCB 2 N\.B\.F\. Total Cost Other 1\. Works 0\.00 0\.00 0\.00 2\.10 2\.10 (0\.00) (0\.00) (0\.00) (0\.00) (0\.00) 2\. Goods 21\.20 0\.00 3\.50 0\.00 24\.70 (21\.20) (0\.00) (3\.50) (0\.00) (24\.70) 3\. Services 0\.00 0\.00 1\.70 0\.60 2\.30 (0\.00) (0\.00) (1\.70) (0\.00) (1\.70) 4\. Miscellaneous 0\.00 0\.00 0\.00 0\.00 0\.00 (0\.00) (0\.00) (0\.00) (0\.00) (0\.00) 5\. Miscellaneous 0\.00 0\.00 0\.00 0\.00 0\.00 (0\.00) (0\.00) (0\.00) (0\.00) (0\.00) 6\. Miscellaneous 0\.00 0\.00 0\.00 0\.00 0\.00 (0\.00) (0\.00) (0\.00) (0\.00) (0\.00) Total 21\.20 0\.00 5\.20 2\.70 29\.10 (21\.20) (0\.00) (5\.20) (0\.00) (26\.40) Project Costs by Procurement Arrangements (Actual/Latest Estimate) (US$ million equivalent) 1 Procurement Method Expenditure Category ICB NCB 2 N\.B\.F\. Total Cost Other 1\. Works 0\.00 0\.00 0\.00 0\.00 0\.00 (0\.00) (0\.00) (0\.00) (0\.00) (0\.00) 2\. Goods 27\.01 0\.00 0\.00 0\.00 27\.01 (25\.64) (0\.00) (0\.00) (0\.00) (25\.64) 3\. Services 0\.00 0\.00 0\.79 0\.00 0\.79 (0\.00) (0\.00) (0\.55) (0\.00) (0\.55) 4\. Miscellaneous 0\.00 0\.00 0\.00 0\.00 0\.00 - 21 -  (0\.00) (0\.00) (0\.00) (0\.00) (0\.00) 5\. Miscellaneous 0\.00 0\.00 0\.00 0\.00 0\.00 (0\.00) (0\.00) (0\.00) (0\.00) (0\.00) 6\. Miscellaneous 0\.00 0\.00 0\.00 0\.00 0\.00 (0\.00) (0\.00) (0\.00) (0\.00) (0\.00) Total 27\.01 0\.00 0\.79 0\.00 27\.80 (25\.64) (0\.00) (0\.55) (0\.00) (26\.19) 1/Figures in parenthesis are the amounts to be financed by the Bank Loan\. All costs include contingencies\. 2/Includes civil works and goods to be procured through national shopping, consulting services, services of contracted staff of the project management office, training, technical assistance services, and incremental operating costs related to (i) managing the project, and (ii) re-lending project funds to local government units\. - 22 -  Annex 3\. Economic Costs and Benefits Lithuania: Power Rehabilitation Project Demand Projections and Capacity of Power Plants Key assumptions Domestic Demand growth rate post 2001 3 % Exports p\.a\. post 2004 (TWh) 1\.7 System losses 10% Own Use 10% Hydro storage use p\.a\. (TWh) 0\.5 Actual demand 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 Electricity Demand and Generation Domestic Demand TWh 12\.68 9\.72 7\.45 7\.12 6\.79 7\.04 7\.30 7\.60 7\.25 6\.91 7\.24 7\.46 Exports TWh 12\.75 5\.30 2\.89 0\.00 2\.89 5\.24 3\.76 6\.47 3\.30 1\.48 4\.16 6\.80 Total Net Demand TWh 25\.43 15\.02 10\.34 7\.12 9\.68 12\.28 11\.06 14\.07 10\.55 8\.39 11\.40 14\.26 System Losses (%) % 5\.83 9\.15 13\.81 18\.47 14\.82 11\.06 10\.96 8\.78 9\.85 11\.52 9\.86 0\.10 System Losses TWh 1\.71 1\.69 1\.91 1\.98 2\.01 1\.78 1\.58 1\.52 1\.33 1\.28 1\.42 1\.58 Less: Loss Red\. From invest (2\.5% of thermal) TWh -0\.03 -0\.08 Net System Losses TWh 1\.71 1\.69 1\.91 1\.98 2\.01 1\.78 1\.58 1\.52 1\.33 1\.28 1\.45 1\.66 Own use (%) % 7\.53 9\.48 11\.42 15\.11 13\.79 12\.62 12\.28 9\.99 12\.00 12\.96 10\.76 0\.10 Own use TWh 2\.21 1\.75 1\.58 1\.62 1\.87 2\.03 1\.77 1\.73 1\.62 1\.44 1\.55 1\.58 Electricity Production TWh 29\.35 18\.46 13\.83 10\.72 13\.56 16\.09 14\.41 17\.32 13\.50 11\.11 14\.40 17\.51 Hydro Storage Use TWh 0\.00 0\.24 0\.28 0\.39 0\.54 0\.77 0\.67 0\.68 0\.64 0\.45 0\.55 0\.50 Total Electricity Production TWh 29\.35 18\.70 14\.11 11\.11 14\.10 16\.86 15\.08 18\.00 14\.14 11\.56 14\.95 18\.01 Average Demand, MW MW 3350 2129 1611 1268 1610 1919 1721 2055 1614 1316 1707 2056 Peak Demand, MW MW 3131 2777 2165 2117 1965 1984 2051 2077 1918 1779 1916 2419 Capacity for Peak +20% reserves, MW MW 3757 3332 2598 2540 2358 2381 2461 2492 2302 2135 2299 2902 Available Capacity with Ignalina, MW MW 5209 5589 5589 5779 5779 5789 5791 5791 6001 6001 6004 6004 Available Capacity without Ignalina, MW MW 2609 2989 2989 3179 3179 3189 3191 3191 3401 3401 3404 3404 Existing Available Capacity (reflecting down- time for rehabilitation) Ignalina #1 (Nuclear) MW 1300 1300 1300 1300 1300 1300 1300 1300 1300 1300 1300 1300 Ignalina #2 (Nuclear) MW 1300 1300 1300 1300 1300 1300 1300 1300 1300 1300 1300 1300 Elektrenai 1-8 TPP MW 1800 1800 1800 1800 1800 1800 1800 1800 1800 1800 1800 1800 Vilnius 1 & 2 CHP MW 364 364 364 364 364 364 364 364 364 364 364 364 Mazeikiai 1 & 2 CHP MW 99 99 99 99 99 99 99 99 99 99 99 99 Kaunas 1 & 2 CHP MW 178 178 178 178 178 178 178 178 178 178 178 178 Klaipeda CHP MW 11 11 11 11 11 11 11 11 11 11 11 11 Panevezys CHP MW 0 0 0 0 0 0 0 0 0 0 1 1 Kaunas Hydro MW 101 101 101 101 101 101 101 101 101 101 101 101 Kruonis (Pumped Storage--Peaking) MW 0 380 380 570 570 570 570 570 760 760 760 760 Small Hydro MW 5 5 5 5 5 5 7 7 15 15 15 15 Independent Producers MW 51 51 51 51 51 61 61 61 73 73 75 75 Excess (Deficit) Capacity MW 1452 2257 2991 3239 3421 3408 3330 3299 3699 3866 3705 3102 Excess (Deficit) Capacity without Ignalina MW -1148 -343 391 639 821 808 730 699 1099 1266 1105 502 Estimated demand 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 7\.70 7\.93 8\.18 8\.43 8\.70 8\.96 9\.24 9\.53 9\.82 10\.13 10\.44 10\.77 11\.10 5\.70 5\.70 1\.70 1\.70 1\.70 1\.70 1\.70 1\.70 1\.70 1\.70 1\.70 1\.53 1\.15 13\.40 13\.63 9\.88 10\.13 10\.40 10\.66 10\.94 11\.23 11\.52 11\.83 12\.14 12\.30 12\.25 0\.10 0\.10 0\.10 0\.10 0\.10 0\.10 0\.10 0\.10 0\.10 0\.10 0\.10 0\.10 0\.10 1\.49 1\.51 1\.10 1\.13 1\.16 1\.18 1\.22 1\.25 1\.28 1\.31 1\.35 1\.37 1\.36 -0\.07 -0\.07 -0\.18 -0\.18 -0\.18 -0\.19 -0\.19 -0\.27 -0\.34 -0\.35 -0\.36 -0\.37 -0\.37 1\.56 1\.59 1\.27 1\.31 1\.34 1\.37 1\.41 1\.52 1\.63 1\.67 1\.71 1\.73 1\.73 0\.10 0\.10 0\.10 0\.10 0\.10 0\.10 0\.10 0\.10 0\.10 0\.10 0\.10 0\.10 0\.10 Own use TWh 1\.49 1\.51 1\.10 1\.13 1\.16 1\.18 1\.22 1\.25 1\.28 1\.31 1\.35 1\.37 1\.36 Electricity Production TWh 16\.45 16\.74 12\.25 12\.57 12\.89 13\.22 13\.57 13\.99 14\.43 14\.81 15\.20 15\.40 15\.34 Hydro Storage Use TWh 0\.50 0\.50 0\.50 0\.50 0\.50 0\.50 0\.50 0\.50 0\.50 0\.50 0\.50 0\.50 0\.50 Total Electricity Production TWh 16\.95 17\.24 12\.75 13\.07 13\.39 13\.72 14\.07 14\.49 14\.93 15\.31 15\.70 15\.90 15\.84 Average Demand, MW MW 1934 1963 1456 1492 1529 1562 1606 1654 1704 1743 1793 1815 1808 Peak Demand, MW MW 2358 2373 1744 1741 1777 1837 1886 1973 2033 2060 2128 2157 2143 Capacity for Peak +20% reserves, MW MW 2830 2848 2093 2089 2132 2204 2263 2368 2440 2472 2554 2588 2572 Available Capacity with Ignalina, MW MW 6004 6004 4704 4704 4704 4704 4704 4054 3404 3404 3404 3404 3404 Available Capacity without Ignalina, MW MW 3404 3404 3404 3404 3404 3404 3404 3404 3404 3404 3404 3404 3404 Existing Available Capacity (reflecting down-time for rehabilitation) Ignalina #1 (Nuclear) MW 1300 1300 0 0 0 0 0 0 0 0 0 0 0 Ignalina #2 (Nuclear) MW 1300 1300 1300 1300 1300 1300 1300 650 0 0 0 0 0 Elektrenai 1-8 TPP MW 1800 1800 1800 1800 1800 1800 1800 1800 1800 1800 1800 1800 1800 Vilnius 1 & 2 CHP MW 364 364 364 364 364 364 364 364 364 364 364 364 364 Mazeikiai 1 & 2 CHP MW 99 99 99 99 99 99 99 99 99 99 99 99 99 Kaunas 1 & 2 CHP MW 178 178 178 178 178 178 178 178 178 178 178 178 178 Klaipeda CHP MW 11 11 11 11 11 11 11 11 11 11 11 11 11 Panevezys CHP MW 1 1 1 1 1 1 1 1 1 1 1 1 1 Kaunas Hydro MW 101 101 101 101 101 101 101 101 101 101 101 101 101 Kruonis (Pumped Storage--Peaking) MW 760 760 760 760 760 760 760 760 760 760 760 760 760 Small Hydro MW 15 15 15 15 15 15 15 15 15 15 15 15 15 Independent Producers MW 75 75 75 75 75 75 75 75 75 75 75 75 75 Excess (Deficit) Capacity MW 3174 3156 2611 2615 2572 2500 2441 1686 964 932 850 816 832 Excess (Deficit) Capacity without Ignalina MW 574 556 1311 1315 1272 1200 1141 1036 964 932 850 816 832 - 23 -  Merit Order Loading of Power Plants Actual 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 Generation for Domestic Demand TWh 15\.15 11\.95 9\.77 9\.51 9\.33 9\.48 9\.45 9\.68 9\.12 8\.65 9\.15 9\.52 Generation to meet total demand TWh 29\.35 18\.70 14\.11 11\.11 14\.10 16\.86 15\.08 18\.00 14\.14 11\.56 14\.92 17\.93 Minimum Thermal Generation (160MW) TWh 1\.30 1\.80 1\.40 1\.40 1\.40 1\.40 1\.40 1\.40 1\.40 1\.40 Energy Dispatch Projections (based on order of merit loading) Ignalina #1 (Max\. 70% CF) TWh 8\.50 7\.32 6\.13 3\.86 5\.91 6\.97 6\.01 6\.78 4\.93 4\.21 5\.68 6\.93 Ignalina #2 (Max\. 70% CF) TWh 8\.50 7\.32 6\.13 3\.86 5\.91 6\.97 6\.01 6\.78 4\.93 4\.21 5\.68 6\.93 Kaunas Hydro (36% CF) TWh 0\.33 0\.30 0\.38 0\.44 0\.36 0\.32 0\.28 0\.39 0\.39 0\.31 0\.28 0\.34 Kruonis Pumped Storage (5-17% CF) TWh 0\.00 0\.16 0\.19 0\.27 0\.38 0\.55 0\.47 0\.48 0\.45 0\.30 0\.38 0\.46 Klaipeda CHP (33-70% CF) TWh 0\.05 0\.03 0\.01 0\.03 0\.03 0\.03 0\.02 0\.03 0\.03 0\.04 0\.03 0\.04 Mazeikiai 1 & 2 CHP (45-60% CF) TWh 0\.61 0\.41 0\.48 0\.45 0\.47 0\.46 0\.44 0\.43 0\.37 0\.30 0\.33 0\.40 Vilnius 1 & 2 (5-35% CF) TWh 1\.74 0\.74 0\.16 0\.21 0\.22 0\.47 0\.65 0\.71 0\.82 0\.91 0\.96 1\.17 Vilnius HPP (35% CF)--small hydro and IPPs TWh 0\.12 0\.07 0\.03 0\.03 0\.05 0\.06 0\.07 0\.08 0\.08 0\.13 0\.11 0\.13 Kaunas 1, 2 CHP (0-35% CF) TWh 0\.77 0\.52 0\.02 0\.10 0\.01 0\.16 0\.20 0\.24 0\.42 0\.30 0\.44 0\.54 Elektrenai 1-8 TPP (3-75% CF) TWh 8\.75 1\.82 0\.58 0\.77 0\.55 0\.79 0\.69 1\.70 1\.09 0\.71 0\.82 1\.00 Total Dispatch TWh 29\.37 18\.69 14\.11 10\.01 13\.89 16\.78 14\.84 17\.61 13\.51 11\.42 14\.71 17\.93 Total Thermal Generation TWh 11\.87 3\.49 1\.24 1\.53 1\.25 1\.88 1\.98 3\.08 2\.70 2\.22 2\.55 3\.11 Electricity supplied by Elektrenai Unit 6 (after rehabilitation) Capacity needed to meet demand MW 1404 96 Supply from Unit 6 (300 MW)--max\. 50% of TWh 1\.31 0\.29 0\.01 0\.02 0\.00 0\.03 0\.02 0\.49 0\.00 0\.02 0\.29 0\.50 total Elektrenai Supply Estimated 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Generation for Domestic Demand TWh 9\.63 9\.90 9\.61 9\.90 10\.20 10\.51 10\.82 11\.15 11\.49 11\.84 12\.20 12\.54 12\.87 13\.21 Generation to meet total demand TWh 16\.87 17\.16 12\.58 12\.89 13\.21 13\.53 13\.87 14\.22 14\.59 14\.96 15\.34 15\.53 15\.47 15\.42 Minimum Thermal Generation (160MW) TWh 1\.40 1\.40 1\.40 1\.40 1\.40 1\.40 1\.40 1\.40 1\.40 1\.40 1\.40 1\.40 1\.40 1\.40 Energy Dispatch Projections (based on order of merit loading) Ignalina #1 (Max\. 70% CF) TWh 6\.52 6\.63 0\.00 0\.00 0\.00 0\.00 0\.00 0\.00 0\.00 0\.00 0\.00 0\.00 0\.00 0\.00 Ignalina #2 (Max\. 70% CF) TWh 6\.52 6\.63 4\.86 4\.98 5\.10 5\.23 5\.36 2\.75 0\.00 0\.00 0\.00 0\.00 0\.00 0\.00 Kaunas Hydro (36% CF) TWh 0\.32 0\.33 0\.24 0\.25 0\.25 0\.26 0\.26 0\.27 0\.28 0\.28 0\.29 0\.30 0\.29 0\.29 Kruonis Pumped Storage (5-17% CF) TWh 0\.44 0\.44 0\.32 0\.33 0\.34 0\.35 0\.36 0\.37 0\.38 0\.39 0\.40 0\.40 0\.40 0\.40 Klaipeda CHP (33-70% CF) TWh 0\.03 0\.04 0\.03 0\.03 0\.03 0\.03 0\.03 0\.03 0\.03 0\.03 0\.03 0\.03 0\.03 0\.03 Mazeikiai 1 & 2 CHP (45-60% CF) TWh 0\.38 0\.39 0\.28 0\.29 0\.30 0\.30 0\.31 0\.32 0\.33 0\.34 0\.34 0\.35 0\.35 0\.35 Vilnius 1 & 2 (5-35% CF) TWh 1\.10 1\.12 0\.82 0\.84 0\.86 0\.88 0\.91 0\.93 1\.79 2\.02 2\.26 2\.39 2\.39 2\.39 Vilnius HPP (35% CF)--small hydro and IPPsTWh 0\.13 0\.13 0\.09 0\.10 0\.10 0\.10 0\.10 0\.11 0\.11 0\.11 0\.11 0\.12 0\.12 0\.12 Kaunas 1, 2 CHP (0-35% CF) TWh 0\.50 0\.51 0\.38 0\.39 0\.39 0\.40 0\.42 0\.43 0\.88 0\.99 1\.10 1\.17 1\.17 1\.17 Elektrenai 1-8 TPP (3-75% CF) TWh 0\.94 0\.96 5\.56 5\.69 5\.84 5\.98 6\.13 9\.03 10\.80 10\.80 10\.80 10\.80 10\.80 10\.80 Total Dispatch TWh 16\.87 17\.16 12\.58 12\.89 13\.21 13\.53 13\.87 14\.22 14\.59 14\.96 15\.34 15\.53 15\.47 15\.42 Total Thermal Generation TWh 2\.92 2\.98 7\.04 7\.21 7\.39 7\.57 7\.76 10\.70 13\.79 14\.14 14\.51 14\.71 14\.71 14\.71 Electricity supplied by Elektrenai Unit 6 (after rehabilitation) Capacity needed to meet demand MW Supply from Unit 6 (300 MW)--max\. 50% TWh 0\.47 0\.48 1\.97 1\.97 1\.97 1\.97 1\.97 1\.97 1\.97 1\.97 1\.97 1\.97 1\.97 1\.97 of total Elektrenai Supply - 24 -  Project Economic Analysis Base Benefits Value Fuel Cost Savings $/MWh 0\.35 Non-fuel operating cost savings $/MWh 0\.10 Total base beneifts $/MWh 0\.45 Other benefits NOx emission reductions $/MWh 0\.13 Particulate reduction $/MWh 0\.01 Total other benefits $/MWh 0\.14 Heat efficiency improvement, BTU/kWh 1998 1999 2000 2001 2002 2003 2004 2005 2006 Supply from rehabilitated unit Capacity factor % 3% 19% 18% 18% 75% 75% Production GWh 87 500 470 478 1971 1971 Base incremental benefits 000$ 39 225 212 215 887 887 Other incremental benefits 000$ 13 72 68 69 284 284 Total benefits 000$ 52 297 279 284 1171 1171 Base costs--excluding environmental 000$ 42 1,874 2,549 1,020 Costs--environmental 000$ 556 1,871 250 Total incremental costs 000$ 598 3,744 2,799 1,020 - - - - - A\. Net base (costs) benefits 000$ (42) (1,874) (2,549) (980) 225 212 215 887 887 B\. Net total (costs) benefits 000$ (598) (3,744) (2,799) (968) 297 279 284 1,171 1,171 ERR, Case A 32% ERR, Case B 26% NPV, Case A 15,536 NPV, Case B 14,416 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Supply from rehabilitated unit Capacity factor % 75% 75% 75% 75% 75% 75% 75% 75% 75% 75% Production GWh 1971 1971 1971 1971 1971 1971 1971 1971 1971 1971 Base incremental benefits 000$ 887 887 887 887 887 887 887 887 887 887 Other incremental benefits 000$ 284 284 284 284 284 284 284 284 284 284 Total benefits 000$ 1171 1171 1171 1171 1171 1171 1171 1171 1171 1171 Base costs--excluding environmental 000$ -300000 300000 Costs--environmental 000$ Total incremental costs 000$ - - - - - - (300,000) - - 300,000 A\. Net base (costs) benefits 000$ 887 887 887 887 887 887 300,887 887 887 (299,113) B\. Net total (costs) benefits 000$ 1,171 1,171 1,171 1,171 1,171 1,171 301,171 1,171 1,171 (298,829) ERR, Case A -1% ERR, Case B -1% NPV, Case A 43,734 NPV, Case B 45,478 - 25 -  Annex 4\. Bank Inputs (a) Missions: Stage of Project Cycle No\. of Persons and Specialty Performance Rating (e\.g\. 2 Economists, 1 FMS, etc\.) Implementation Development Month/Year Count Specialty Progress Objective Identification/Preparation 06/19/1992 3 TASK MANAGER; ENERGY SPECIALIST; CONSULTANT 03/24/1993 3 TASK MANAGER; ENERGY SPECIALIST; CONSULTANT 07/03/1993 3 TASK MANAGER; ENERGY SPECIALIST; CONSULTANT 10/01/1993 8 TASK MANAGER; FINANCIAL SPECIALIST (2); ENVIRONMENTAL SPEC\.; OPERATIONS ASSISTANT; ENERGY SPECIALIST (2); CONSULTANT Appraisal/Negotiation 03/03/1994 7 TASK MANAGER; FINANCIAL SPECIALIST (2); ENVIRONMENTAL SPEC\. (1); OPERATIONS ASSISTANT (1); ENERGY SPECIALIST (2) Supervision 06/15/1995 4 OPERATIONS ASSISTANT (1); U S ENERGY SPECIALIST (2); FINANCIAL SPECIALIST (1) 12/13/1995 7 FINANCIAL SPECIALIST (2); S S DIVISION CHIEF (1); ENVIRONMENTAL SPEC\. (1); OPERATIONS ASSISTANT (1); ENERGY SPECIALIST (2) 03/29/1996 4 ENERGY SPECIALIST (2); S S ENVIRONMENTAL SPEC\. (1); OPERATIONS ASSISTANT (1) 07/19/1996 3 FINANCIAL ANALYST (1); U U OPERATION ASSISTANT (1); TASK MANAGER (1) 02/07/1997 3 OPERATION ASSISTANT (1); U U TASK MANAGER (1); FINANCIAL CONSULTANT (1) 05/07/1997 5 DIVISION CHIEF (1); S S OPERATION ASSISTANT (1); TASK MANAGER (1); FINANCIAL CONSULTANT (2) - 26 -  12/12/1997 4 TASK MANAGER (1); S S ENGINEERING CONSULTANT (1); FINANCIAL CONSULTANT (1); OPERATIONS ASSISTANT (1) 09/25/1998 4 TASK MANAGER (1); S S ENGINEERING CONSULTANT (1); OPERATIONS ASSISTANT (1); FINANCIAL ANALYST (1) 05/21/1999 3 ECONOMIST (1); FINANCIAL S HS ANALYST (1); RESIDENT REP\. (1) 02/09/2000 3 ECONOMIST (1); FINANCIAL S HS ANALYST (1); RES REP (1) 04/13/2001 2 ECONOMICS/TECHNICAL (1); S HS FINANCE (1) 04/13/2001 2 TEAM LEADER (1); S HS FINANCIAL ANALYST (1) 04/26/2002 2 TEAM LEADER (1); S HS FINANCIAL MANAGEMENT (1) ICR (b) Staff: Stage of Project Cycle Actual/Latest Estimate No\. Staff weeks US$ ('000) Identification/Preparation 294,366\.88 Appraisal/Negotiation Supervision 493,902\.26 ICR Total 788,269\.14 - 27 -  Annex 5\. Ratings for Achievement of Objectives/Outputs of Components (H=High, SU=Substantial, M=Modest, N=Negligible, NA=Not Applicable) Rating Macro policies H SU M N NA Sector Policies H SU M N NA Physical H SU M N NA Financial H SU M N NA Institutional Development H SU M N NA Environmental H SU M N NA Social Poverty Reduction H SU M N NA Gender H SU M N NA Other (Please specify) H SU M N NA Private sector development H SU M N NA Public sector management H SU M N NA Other (Please specify) H SU M N NA - 28 -  Annex 6\. Ratings of Bank and Borrower Performance (HS=Highly Satisfactory, S=Satisfactory, U=Unsatisfactory, HU=Highly Unsatisfactory) 6\.1 Bank performance Rating Lending HS S U HU Supervision HS S U HU Overall HS S U HU 6\.2 Borrower performance Rating Preparation HS S U HU Government implementation performance HS S U HU Implementation agency performance HS S U HU Overall HS S U HU - 29 -  Annex 7\. List of Supporting Documents 1\. Lithuania Power Rehabilitation Project - Completion Report, by Lietuvos Energija AB\. November 5, 2002\. 2\. Letter from Ms\. Kamarauskiene, Director of the State Debt Management Department, Ministry of Finance, Republic of Lithuania, dated April 30, 2003\. - 30 -  Additional Annex 8\. Borrower's Contribution to the ICR LITHUANIA POWER REHABILITATION PROJECT LOAN NUMBER 3737 LT COMPLETION REPORT VILNIUS 2002 1\. Basic Loan information The Loan Agreement between the Republic of Lithuania and International Bank for Reconstruction and Development for USD 26\.4 million was signed on the 27th January 1995, and became effective on the 21st November 1995\. The first General Procurement Notice was published in Development Business in November 1993, updated in February 1995 and the last updating was made in January 1998\. The first Amendment to the project scope was based on The World Bank Review Mission December 1-12, 1997 that approved the reallocation of loan funds and the project scope was revised as follows: Part A, (Rehabilitation) was decreased to focus it exclusively on Elektrenai Unit 6 and the rehabilitation of the Mazeikiai CHP was cancelled\. Part B1, (Upgrading the Dispatch Centre in Vilnius) will be financed by other lender\. Part B2, (Upgrading of the communication and control equipment) increased in communication system strengthening to accommodate the full capabilities of the enhanced Dispatch Centre\. Part B3, (Replacement of equipment at high voltage transmission substations) increased in transmission system rehabilitation to accelerate reconstruction of 110kV and 330kV substations\. The project, as revised, was expected to complete by December 31, 2000, i\.e\. two years behind the original schedule and the updated General Procurement Notice was published in January 1998\. The second Amendment to the loan Agreement was based on The World Bank Review Mission June 21-25, 1998 that approved the reallocation of loan funds considering the actual contract amounts and updated project implementation dates\. No changes in the project scope were introduced\. The third Amendment to the loan Agreement has been approved by The World Bank Review Mission September 21-25, 1998 updating the loan funds taking into consideration the actual contract amounts and the project implementation dates\. Considering the actual procurement finished up to date, the sufficient savings of the loan funds was foreseen\. As a result of the World Bank Mission discussions with JSC "Lietuvos Energija" two new projects were included to part 4 (Transmission and Substations Rehabilitation), namely: 4d 110kV Equipment 4e Control and Relay Protection The Loan closing date: The Loan closing date indicated in Section 2\.03 of the Loan Agreement by the World Bank's notice dated 12 February 1999 was extended from 30 June 1999 to 31 December 2000\. By a further notice, dated December 27, 2001 to Ministry of Finance Republic of Lithuania, the Loan - 31 -  termination date was extended to 30 June 2002\. Reallocation of the Loan Categories: In order to maximise the achievement of Project objectives, the reallocation of the amounts under the Loan Categories have been recorded and signed on 1st August 2001\. These amounts were reallocated in light of the Ministry of Finance request\. 2\. Project Implementation 2\.1\. Execution management In accordance with the provisions stated in the Loan Agreement Article III - Execution of the Project adequate full time local staff was selected to cover procurement, technical and financial areas of the project\. These persons had to co-ordinate, manage, monitor and evaluate all Project implementation aspects, including the procurement of goods, works and services for the project\. In order to cause the Project to be carried out with due diligence and efficiency in accordance with engineering and business standards and practices, the technical consultants were appointed\. PreussenElektra was engaged for preparation of three Technical Specifications for Lithuanian Power Plant and later implementation of the projects and Electrotek Concepts for preparation and implementation of Dispatch Centres project\. Further, for the local staff assistance through the execution of the Project, an expatriate procurement adviser was engaged\. 2\.2\. Procurement Information Procurement of goods, works and services, including consultants' services, required for the Project and financed out of the proceeds of the Loan were carried out in accordance with the requirements of Section 2\.02 of the Project Agreement\. It should be underlined that Guidelines for Procurement under IBRD Loans and IDA Credits were followed without any deviation during the Project Implementation process\. In accordance with provisions of Schedule 1 of the Project Agreement, a Procurement Plan was prepared\. All components indicated in this plan and procurement procedures applied for these components were reviewed and approved by the Bank\. The adjustments to the plan with the Bank's concurrence have been continued as needed throughout the duration of the project\. Several revisions of the Procurement Plant were experienced\. The overall Procurement Activities included thirteen (13) Open Single Stage Tenders, two (2) Open Two Stage Tenders, one (1) tender for consultants selection and two (2) single source consultants selection procedures\. All procurement procedures were carried out and successfully completed mainly by the end of the year 2001\. 2\.3\. Contracting On completion of competitive procedures, the evaluation of all tenders received was followed\. All tenders were compared on the basis of the evaluation criteria listed in the tender documents\. The tender evaluation process up to the award of the contract was confidential and a close collaboration with the evaluation committees was established\. This in fact helped to complete the evaluation process and submit to the Bank a report containing the results without any delay\. The Bank reviewed all findings and recommendations and confirmations were obtained as needed\. Further, the signing of 18 contracts took place\. - 32 -  3\. Financial Information Close relations with the Ministry of Finance were established in compliance with the Loan Agreement\. This successful co-operation resulted in correct reallocations of funds available and ensured timed extensions of the loan, quarterly reports and disbursements for the suppliers\. The first disbursement out of the Loan was made in July 1996 and the last disbursement was made in June 2002\. All disbursements procedures were completed within 71-month period\. No serious deviations or delays in payment procedures were experienced\. In compliance with the requirements of Section 3\.01 of the Loan Agreement, the Borrower's attention in respect of project's completion was directed at the solutions, which resulted promptly installation of almost all components procured\. 4\. Co-operation and reporting Good co-operation with the End-Users resulted successful Project Implementation process\. All requirements re necessary equipment, any technical details and other relevant information was closely discussed and agreed\. This in fact helped to procure components in a best efficient way\. A good collaboration with all consultants involved and with the IBRD ensured efficient monitoring on Project Implementation and resulted possibilities to avoid problems in advance\. 5\. Brief information on Borrower's status The Government policy has initiated the restructuring of energy sector and attracting private investments\. The law on the reorganisation of the JSC "Lietuvos Energija" and transfer of District Heating and its management to municipalities was approved\. This law defined the decentralisation of district heating by means of separating district heating from JSC "LE" and establishing a new special purpose JSC and transferring their property and share capital held by the state to municipalities\. Starting from 1997 the core activities of the company involve only electricity energy\. The separation of the JSC "Lietuvos Energija" into electricity production, transmission and distribution components were the next step initiated by the Government and implemented since year 2002\. The existing JSC "Lietuvos Energija" management structure is attached\. 6\. Achievement of the Loan Objectives The purpose of the Project was to improve the operating efficiency of the electricity system, improve the safety, reliability and flexibility of the electricity system and provide support for the restructuring and commercialisation of JSC "Lietuvos Energija"\. These objectives remained unchanged during the project implementation period and were completely achieved\. The Project consisted of the following parts: Part A: Rehabilitation\. Part B Upgrading of the Electricity System\. Part C Technical Assistance\. - 33 -  The equipment procured and the services provided were fully consistent with the international standards\. Yours sincerely, Rymantas Juozaitis General Director of SC "Lietuvos Energija" Report prepared by: Linus Lukosevicius, JSC "Lietuvos Energija" Procurement Specialist and Aldona Sasnauskiene, JSC "Lietuvos Energija" Procurement department - 34 -  Additional Annex 9\. Summary financial statements of LPC, 1994-2001 INCOME STATEMENT 1994 1995 1996 1997 1998 1999 2000 2001 Revenues Electricity-Domestic n\.a\. n\.a\. 1,128 1,141 1,190 1,131 1,289 1,358 Export n\.a\. n\.a\. 362 298 539 272 102 215 Total Electricity 718 1,220 1,490 1,439 1,729 1,403 1,391 1,573 Heat 543 - - - - - - - Other 239 62 78 119 185 140 107 91 Total Revenues 1,500 1,282 1,568 1,558 1,914 1,543 1,498 1,664 Operating Costs Electricity 810 Heat 980 - - - - - - - Other 272 Total Operating Costs 2,062 1,047 1,521 1,329 1,842 1,587 1,318 1,472 Operating profit (loss) Electricity (92) - - - - - - - Heat (437) - - - - - - - Other (33) - - - - - - - Total Operating Profit (Loss) (562) 235 47 229 72 (44) 180 192 Subsidies Received 86 95 819 132 284 (9) - - Other Income and Expenses (37) (545) (508) (295) (198) (64) (68) (12) Net Profit (Loss) (513) (215) 358 66 158 (117) 112 180 BALANCE SHEET 1994 1995 1996 1997 1998 1999 2000 2001 Fixed Assets 2,002 2,975 3,061 2,007 2,172 2,193 2,153 2,172 Current Assets 480 728 1,409 507 884 608 532 598 TOTAL ASSETS 2,482 3,703 4,470 2,514 3,056 2,801 2,685 2,770 Shareholders' Equity 1,445 2,105 2,477 1,601 1,759 1,593 1,713 1,842 Long-term debt and other long-term liabilities 512 700 754 572 311 341 406 414 Current Liabilities 525 898 1,239 341 986 867 566 514 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 2,482 3,703 4,470 2,514 3,056 2,801 2,685 2,770 Notes: (i) comparisons over the years 1994 to 1997 are complicated by the fact that over that period the company was withdrawing from the district heating business\. For the years 1995-97 the losses on this business are included under "Other Income and Expenses"\. (ii) large subsidy payments received by the company in the years 1996-98 related to district heating losses in the years up to 1997\. - 35 -  - 36 -

REVIEW

P066646

39206 GLOBAL ENVIRONMENTAL FACILITY (GEF) COLOMBIA Caribbean Archipelago Biosphere Reserve: Regional Marine Protected Area System GEF MSP Grant TF No\. 023881 PROJECT COMPLETION REPORT CORALINA San Andrés Island, December 22, 2005  Project Completion Report I\. Basic Data: (1) Date of Completion Report: December 2005 (2) Project Title: Caribbean Archipelago Biosphere Reserve: Regional Marine Protected Area System (3) GEF Allocation: US$1,000,000 (4) Grant Recipient: The Corporation for the Sustainable Development of the Archipelago of San Andres, Old Providence, and Santa Catalina ­ CORALINA (5) World Bank Manager/Task Team: Juan Pablo Ruiz (6) Goals and Objectives: The project's global development objective is to conserve biodiversity of global importance in the western Caribbean, identified as a major site of coral and fish diversity and considered a biodiversity "hot spot" (Roberts, 1998)\. The Archipelago's oceanic reefs, among the most extensive and productive reef systems in the Western Hemisphere, include 2 barrier reefs surrounding the main islands of San Andres and Old Providence, 5 large atolls, and other coral banks that extend for more than 500 km along the Nicaraguan rise\. Coral reefs are second to tropical rainforests in the numbers of species they contain (Cesar, 1996\.) Despite limited biological studies within the Archipelago, 57 coral and 273 fish species representing 54 families have been identified with 2 endemics (Diaz, 1999\.) The project development objective is to design and implement a system of marine protected areas (MPAs) zoned for multiple uses and managed to reduce human threats in cooperation with local communities\. Estimated benefits to local communities include: traditional artisanal fishers' regained access to time-honored fishing sites, job creation related to MPA management and maintenance, and stronger community networks organized around environmentally sustainable production activities\. The project's rationale is to conserve biodiversity and ensure sustainable use of coastal and marine resources in the Archipelago by improving equitable benefit distribution\. (7) Financial Information: Proposed commitments for this project were US$4\.3 million\. The initial co-financing estimate was US$3\.3 million including CORALINA's own contribution of US$2\.1 million\. Contributions from other donors were initially committed at US$1\.1 million and included contributions from technical partners, the Center for Marine Conservation (CMC, now known as The Ocean Conservancy) and Island Resources Foundation (IRF)\. It is worth noting that "in kind" contributions were not valued during the project and are therefore not included in the project execution figures\. As Table A shows, actual contributions increased during project execution to a total of US$5\.9m\. Worth noting is that all donors increased their contributions, providing additional resources to the project of US$1\.7m\. 1  Project Completion Report Table A: Co-financing Type/Source Co financing IA own Government Other* Total Total Type Financing (CORALINA) Disbursement /Source (US$000) (US$000) (US$000) (US$000) (mill US$) Proposed Actual Proposed Actual Proposed Actual Proposed Actual Proposed Actual Grants 1,000\.00 1,000\.00 2,133\.30 2,560\.30 1,144\.90 2,381\.40 4,278\.20 5,941\.70 4,278\.20 5,941\.70 Loans/Concessional/ market rate Credits Equity investments Committed in-kind support Other Totals 1,000\.00 1,000\.00 2,133\.30 2,560\.30 1,144\.90 2,381\.40 4,278\.20 5,941\.70 4,278\.20 5,941\.70 * Other is referred to contributions mobilized for the project from other multilateral agencies, bilateral development cooperation agencies, NGOs, the private sector and beneficiaries\. GEF contributed US$1 million to estimated incremental costs valued at US$1\.5 million (baseline activities were valued at US$2\.8 million)\. This contribution funded the following key activities: (i) biological and socio-economic characterizations; (ii) Marine Protected Areas design and ratification; (iii) participatory internal zoning and endangered species management plans; (iv) training and outreach, and (v) project management\. Additionally, GEF funded US$25,000 for Block A PDF activities, including meetings with user groups and other community sectors as well as consultations with several institutions including: Old Providence McBean Lagoon National Park; Departmental Secretaries of Agriculture, Planning, and Tourism; INPA (national fishing and aquaculture institute); DIMAR (maritime and port authority) which includes the navy and port captains' offices; and research institutions INVEMAR and the National University's Institute of Caribbean Studies\. Tables B1 and B2 provide a summary of global expenditures by category and project component from the respective sources\. B\. Expenditures by Category and by Project Components (initial and final allocations) Table B1: Expenditure by Category (in US$000) Expenditure Category GEF CORALINA Other Donors Total Initial Final Initial Final Initial Final Final PDF A 25\.0 25\.0 21\.0 21\.0 77\.0 77\.0 123\.0 Goods 78\.0 112\.1 295\.7 371\.2 62\.4 194\.8 678\.1 Works 98\.1 34\.6 211\.2 221\.2 24\.9 71\.0 326\.8 Services 67\.8 67\.2 506\.9 502\.5 37\.4 103\.8 673\.5 Workshops/ training 236\.0 287\.4 316\.8 393\.3 228\.8 875\.1 1555\.8 Technical assistance 343\.8 343\.8 422\.4 692\.6 714\.4 1059\.7 2096\.1 Operational costs 117\.0 129\.9 287\.7 358\.5 0\.0 0\.0 488\.4 Unallocated 34\.3 0\.0 71\.3 0\.0 0\.0 0\.0 0\.0 Total 1,000\.00 1,000\.00 2,133\.00 2,560\.30 1,144\.90 2,381\.40 5,941\.70 Table B2: Expenditure by Project Component (in US$000) GEF CORALINA Other Donors Component Total Initial Final Initial Final Initial Final Block A 25 25 21 21 77 77 123 1\. Information and Data Collection 130\.5 129\.8 537\.9 391\.5 243\.9 632\.3 1153\.6 2\. Legislation and Policy 68\.5 62\.8 160\.8 133\.2 107\.2 214\.3 410\.3 3\. MPA Management 412\.3 392\.9 643\.1 1038\.5 403 659\.2 2090\.6 2  Project Completion Report 4\. Capacity Building 246\.7 259\.6 482\.7 652\.4 313\.8 733 1645 5\. Project Administration 117 129\.9 287\.7 323\.7 0 65\.6 519\.2 Total 1,000\.00 1,000\.00 2,133\.20 2,560\.30 1,144\.90 2,381\.40 5,941\.70 Project execution resulted in a six-month extension from January to June 2005\. In addition to a series of external circumstances explained in more detail in Section 6, implementation was delayed by significant changes in the project team, including the original coordinator and project supervisor\. Much time had to be spent strengthening new project team members and regaining the sense of teamwork that had originally distinguished the project\. Specifically, activities related to internal zoning and legal MPA declaration ran behind schedule and would not have been completed without the granted extension\. Table B3 below shows annual resource implementation and includes, under the column titled "Year 4", the six-month extension granted for the culmination of project activities\. Table B3: Annual Implementation of Project Components (in US$000) Component Year 1 Year 2 Year 3 Year 4 Approved Carried Approved Carried Approved Carried Approved Carried out out out out 1\. Information and Data Collection 65\.3 51\.0 65\.3 78\.8 0\.0 0\.0 0\.0 0\.0 2\. Legislation and Policy 8\.1 5\.2 16\.2 17\.7 23\.4 23\.4 20\.8 16\.4 3\. MPA Management 46\.2 37\.5 38\.5 42\.9 171\.8 99\.4 155\.7 213\.1 4\. Capacity Building 58\.9 45\.9 71\.3 70\.2 63\.8 60\.4 52\.7 83\.0 5\. Project Administration 29\.3 22\.7 29\.3 34\.6 29\.3 28\.1 29\.3 44\.5 Total 207\.8 162\.2 220\.5 244\.3 288\.3 211\.3 258\.5 357\.1 Leveraged resources of US$1\.7m included in-kind and cash resources from CORALINA, various foundations and Protected Areas, such as The Ocean Conservancy, the Florida Keys National Marine Sanctuary and the Mangrove Action Project (see table C below for a full list of donors)\. Key activities financed included training in buoy repair and installation, training in monitoring and community surveillance, and other donations related to the MPA's design and implementation\. Table C\. Leveraged Resources (In US$000) AGENCIES PROPOSED ACTUAL PDF 77\.0 77\.0 CHRISTIAN UNIVERSITY 160\.0 160\.0 CMC-INVEMAR-CORALINA 53\.7 53\.7 COLCIENCIAS 41\.0 Ecoastur 107\.8 107\.8 Fishing Board 55\.2 55\.2 Florida Keys National Marine Sanctuary 35\.0 Island Resource Foundation 92\.0 99\.0 Mangrove Action Project 103\.2 National Fish and Wildlife Foundation 40\.0 National Oceanic Atmospheric Administration 46\.2 National Parks Administrative Unit 79\.2 79\.2 Partnership FE 20\.0 RECON/TOC 39\.3 3  Project Completion Report REEF 50\.0 Smart Foundation 75\.0 The Ocean Conservancy 520\.0 1,008\.2 TOC NOAA 64\.0 UNEP 26\.2 UNESCO 22\.7 University of Pereira 12\.0 Other donors 166\.6 CORALINA 2,133\.2 2,560\.3 TOTAL 3,278\.1 4,941\.6 TOTAL LEVERAGED RESOURCES 1,663\.5 II\. Project Impact Analysis (1) Project Impacts: The Caribbean Archipelago Biosphere Reserve Project successfully culminated in the establishment of a 65,000 square kilometer Marine Protected Area, one of the largest MPAs in the world, protecting globally outstanding marine species and coral reefs (see Annex 1 for maps of the Project zone and Annex 2 for a copy of the government's resolution)\. This valuable conservation initiative was implemented by CORALINA, a regional autonomous corporation based in Colombia's San Andres archipelago\. CORALINA's key success factor was to build upon its longstanding presence in the region and obtain strong community involvement during every step of project design and execution\. In addition to the MPA's establishment, this initiative generated a series of positive effects in the region\. First, comprehensive biodiversity and socio-economic assessments were undertaken of the Archipelago's northern, central and southern sections\. These assessments were essential inputs to the MPA's design; their findings were shared with local communities and international collaborators, contributing to local and global knowledge on the region's biodiversity importance\. Second, participatory zoning agreements were obtained with local stakeholders, demarcating no-take, no-entry, special use, and artisanal fishing zones\. Third, conservation action plans and monitoring action plans were written with high levels of community involvement to support the conservation of key species and MPA enforcement\. Fourth, CORALINA's team designed and taught a college-level MPA program, graduating 18 students from local communities, some of whom will work in the MPA's implementation and management\. A key contribution of this Project was the creation of an International Advisory Board (IAB) with various experts on MPA management and design\. The IAB met annually and supported the entire process of the MPA's design and implementation\. The IAB contributed valuable lessons learned and best practices, disseminated the Project in scientific circles, and provided support in the form of training and equipment donations\. According to IAB chair Cheri Recchia (Director of Marine Program, Wildlife Conservation Society): CORALINA has, with this project, done everything all the experts say is necessary for successful MPAs, and done it well\. They have led a truly participatory process, and they have gathered and used 4  Project Completion Report the best available biological and socioeconomic information, combined with stakeholder input, to design all aspects of the MPAs: objectives, external boundaries, zone types and placement, and regulations\. This is the best MPA project I have ever seen or heard about in 12 years of working in MPAs around the world\. It is unfortunate that impact indicators measuring socio-economic improvements were not included in the Project's initial logical framework\. However, preliminary data show that the Project has been successful in curbing key threats to natural resource degradation identified during project design, including: increasing difficulty of access to collective fishing grounds by artisanal fishers; failure to respect or acknowledge traditional fishing rights and sea tenure; demands for local autonomy in licensing and management; lack of benefit to the island community; severe over-fishing including exploitation of threatened and endangered species, and neglecting to enforce existing fisheries regulations that include gear restrictions and closed seasons\. Additionally, indicators measuring conservation impacts were not incorporated into the project's logical framework because the team did not consider that these impacts could be registered during the project's duration\. Actually, it will be impossible to measure effective impact on conservation until two or three years from now, when changes in use and more effective protection begin yielding true effects\. As a direct result of this Project, artisanal fishers have regained access to traditional fishing sites, artisanal fishing zones have been legally enacted in collaboration with the Departmental Fishing Board, and agreements have been established with industrial fishers and the tourism industry\. For the native community, sustainable access to the MPA is economically and culturally essential to survival\. The Archipelago's native communities derive both their cultural sense of identity and their traditional livelihoods from their relationship to the sea and its resources\. The main challenges ahead lie in the implementation and enforcement of what is the largest Marine Protected Area in the Latin American and Caribbean (LAC) region\. The Seaflower MPA's Northern Section contains a strong presence from off-island industrial fishers, with whom agreements have proven difficult\. The MPA's Central and Southern Sections also face a buoyant tourism industry and pressures from mainland immigrants\. Additionally, CORALINA must seek the MPA's long-term financial sustainability\. However, the MPA's implementation is expected to continue with the support of the GEF-INAP Climate Change project currently in the approval stage\. The upcoming project's M&E system will include indicators measuring impacts on biodiversity conservation in the MPA, which will be measured annually and will be submitted to the current project's files\. An analysis of project outcomes versus original objectives is provided below and a summary of key project indicators is found in Table D\. (1\.A)\. Project Rationale and Objectives Original objective indicators included: a minimum of 2,000 km2 of significant corals, mangroves and sea grass beds legally protected within a system of 4 larger Marine Protected Areas (MPAs); an endangered and threatened species conservation plan developed with indicators of change for 5 key species; the design of a resource monitoring program including a Coral Mortality index and indicators of 5 key species, and 5  Project Completion Report management agreements established with a minimum of 2 stakeholder groups, especially fishers (artisanal and industrial) and water sports operators\. All the above objectives were fulfilled\. The only indicator modified during Project execution was the declaration of one MPA with three Sections protecting 65,000 square kilometers, versus the original objective of protecting 2,000 km2 of significant corals, mangroves and sea grass beds within a system of 4 larger Marine Protected Areas (MPAs)\. The final approved MPA is estimated to contain 890 km2 of significant corals, mangroves and sea grass beds\. The project team worked arduously to obtain legal ratification of the Marine Protected Areas System\. Key activities related to this outcome included baseline socio-economic and biological assessments, social and GIS maps, community involvement and political presence unto the relevant authorities\. The team achieved the legal ratification in early 2005 of one Marine Protected Area spanning 65,000 square kilometers (see Annex 2 for a copy of the legal resolution)\. Of the total MPA, 116 km2 are zoned no entry; 2,214 km2 are no take; 2,015 km2 are artisanal fishing, and 68 km2 are special use for a total of 4,413 km2, while the remaining area is zoned as general use with restrictions to protect the integrity of conservation zones and objectives, including no industrial fishing in the Southern and Central Sections\. The MPA is divided into three sections (see Annex 1 for Maps), all of which contain zoning agreements signed by all primary stakeholders\. In accordance with the stakeholder agreements, zoning was approved by CORALINA's Board of Directors for all three sections\. Artisanal fishing zones in the three sections were approved by the Departmental Fishing Board, of which CORALINA is a member\. The Southern Section contains 14,780 km2 and includes San Andres Island, Bolivar and Albuquerque (ESE and SSW Cays)\. The Central Section spans 12,716 km2, includes Old Providence and Santa Catalina islands, and surrounds the Old Providence McBean Lagoon National Park\. Collaborative work is being undertaken with the National Park to enforce certain no-take zones\. The Northern Section contains 37,522 km2 and includes Queena, Serrana and Roncador Banks with their associated cays\. The final zoning alternative was agreed upon with industrial fishers, but enforcement will remain a challenge given the size of this Section and the ongoing presence of industrial fishers in some areas\. The Project Team obtained over 90% support from active fishers in the area\. This high stakeholder backing was achieved as a result of incorporating fishers in the Project's planning and execution\. Indeed, the fishers and other marine resource user groups agreed that establishing a marine protected area was their preferred management alternative even before the PDF A was designed\. Despite moderate levels of initial dissent from institutions, the team provided informal meetings and information and turned initially skeptical community leaders into MPA advocates\. Indeed, now the fishing cooperatives and watersports businesses are undertaking biodiversity-friendly practices, such as limiting the minimum size of fish and participating in community-based monitoring\. (1\.B)\. Component 1: Data Collection and Evaluation This project component initially supported the following objectives: physical, biological and socio-economic assessments made for each Marine Protected Area (MPA), including information on threats and vulnerability, a stakeholder analysis, and a Marine Protected Area information management system\. Key indicators for this component were an MPA 6  Project Completion Report system description and background document (Integrated Management Plan, Part 1) distributed and two information centers strengthened in San Andres Island (SAI) and Old Providence and Santa Catalina (OP/SC)\. Most indicators were amply met within the first two years of Project execution, during which time extensive socio-economic surveys were conducted and research expeditions were mounted to all MPA sites\. The baseline assessments and the first part of the Integrated Management Plan were also key inputs to the remaining Project components\. The information center in Old Providence and Santa Catalina islands was delayed during the Project's execution, but was equipped during the Project's last year of implementation\. Finally, the Integrated Management Plan Part 1 was written, but not fully distributed at the time of this report\. (1\.C)\. Component 2: Legislation and Policy This component's principal objective was to enact the MPA system and establish relevant legal and policy frameworks\. Outputs included: a legal declaration delimiting the external boundaries for the 4 MPAs, management regulations assuring equitable use established for interior zones of the 4 MPAs (no-entry, no take, artisanal fishing, special use and buffer areas), a management structure enacted by stakeholder agreement and an enforcement agreement with authorities realized and training program implemented\. Additional activities included: a legal diagnostic review and study, 12 inter-institutional meetings and 2 enforcement and policy training programs\. As mentioned above, the Project successfully enacted the MPA system\. The legal declaration (Ministry of the Environment Resolution 107/2005) ratifying the MPA is attached in Annex 2\. This system includes the most significant reefs, atolls, mangroves, and sea grasses in the Archipelago region, as identified in the Project Brief: 1) San Andres barrier reef and coastal waters (incorporating an existing regional marine reserve and mangrove park), 2) Old Providence and Santa Catalina barrier reef and coastal waters (coordination with an existing national park), 3) Southern Archipelago off-shore cays and marine area (including ESE Cay and SSW Cay), and 4) Northern Archipelago off-shore banks and marine area (including Roncador and Serrana Banks, Quitasueño or Queena Reef)\. The remaining outputs were also fulfilled\. Umbrella regulations for all zones were approved by CORALINA's board\. The MPA's management structure, detailed in Annex 6, has been designed with a signed stakeholder agreement and approved by CORALINA's board of directors\. Enforcement agreements have been established with key authorities and training programs have been undertaken\. Finally, Annex 4 lists the 13 inter- institutional meetings and workshops held in the final project year, including 191 attendees\. Other inter-institutional meetings included 8 in the first project year, 14 in the second, and 12 in the third\. (1\.D)\. Component 3: Marine Protected Area Management The Project's main outstanding risk is the MPA's implementation\. It is critical to execute a solid financial sustainability strategy and garner dependable financial support\. The MPA's operational guidelines must be revised and distributed\. The document was completed under the guidance of world-renowned MPA expert, Tom van't Hof, and is presently under review\. Enforcement must become operational\. Zoning agreements and newly enacted regulations have been highly successful in terms of community support and in terms of 7  Project Completion Report various communities consciously sacrificing their access to unrestrained fishing and other forms of use\. However, effective enforcement and management actions must promptly follow Project closing, in order to meet community expectations and secure the MPA's implementation\. As a member of CORALINA's team stated, "Everybody is expecting for us to take actions right now, so if we do not do anything right now we will lose that support\." This component's initial objective was to design and implement an integrated management plan with active stakeholder involvement\. Project outcomes included: a management document on issues and actions (Integrated Management Plan, Part II), zones demarcated in the 4 MPAs, a financial sustainability plan including mechanisms for revenue-generation, benefit-sharing and compensation mechanisms, an operational handbook completed for 2 MPAs (Integrated Management Plan, Part III), 2 community- based monitoring and 2 enforcement programs functioning in 2 MPAs, and 2 MPA offices opened in SAI and OP/SC\. Activity indicators included: the International Advisory Board functioning, 2 community commissions functioning, 50 mooring and marker buoy permits requested for 2 MPAs, and a series of stakeholder consultations incorporating conflict resolution and local empowerment realized (4 series: zoning for equitable benefit distribution, management planning to reduce threats, enforcement and monitoring, operational strategies to ensure biological conservation and financial sustainability)\. The Project fulfilled most key outputs, but failed to complete some according to the original timetable\. MPA zoning regulations were reached with wide stakeholder agreement, with 616 participants in various zoning workshops during the third and fourth project years (Annex 3)\. In the first and second project years, 35 zoning workshops were held\. A financial sustainability plan was designed, but is pending implementation\. The second part of the Integrated Management Plan (IMP II) is complete, but has not been printed or distributed\. Because of the delay in the legal declaration, it was not possible to complete the proper stakeholder review of this document before project completion\. IMP II is now in the review period for comment by all stakeholders\. The third and final section of the IMP, dealing with operational guidelines for the MPA, has been written and will be reviewed and finalized by MPA managers once internal zoning agreements become operational\. Activity indicators were fulfilled for this component, with one exception\. Rather than 50 buoy permits requested, during the project 32 mooring buoy permits were requested and all of these buoys were installed\. Volunteer stakeholder groups have been trained and are taking responsibility for maintenance of these buoys\. (1\.E)\. Component 4: Capacity Building The component's original objective was to train stakeholders (institutions, NGOs, cooperatives, businesses, etc) in resource management and ways to reduce human threats to marine and coastal ecosystems to ensure long-term biodiversity conservation and sustainable use\. Outcome indicators included 200 local stakeholders trained, a formal education program with the Christian University and 15 students enrolled, and the affiliation to 2 regional networks\. CORALINA was highly successful in this component's execution\. All output and activity indicators in Table D below were met or exceeded, including on- and off-island training, community outreach programs, attendance at regional conferences, and in the design and execution of a nationally-certified technical degree college program with the Christian University\. 8  Project Completion Report (1\.E)\. Component 5: Project Management Original component indicators included the project accounting system set up, the financial auditing reports and evaluations realized, and a project team with a coordinator to carry out project activities\. These indicators were fulfilled in a satisfactory manner despite several changes in the project team, described in more detail in Section 6\. These disruptions did cause delays in the execution of some activities, especially in Component 3\. However, it is worth noting that the assembly of the new team led to a rapid execution during the final months of project execution that allowed the project to close meeting most of its key objectives\. Table D: Project Output Execution Project Rationale and Indicators in Project Brief Results Objectives The rationale of the project is A minimum of 2,000 km2 of Completed to conserve biodiversity and significant corals, mangroves, and - Total MPA area: 65,000 km2 ensure sustainable use of sea grass beds legally protected within the Seaflower MPA, coastal and marine resources within a system of 3 larger MPAs\. divided into 3 Sections (Northern in the archipelago while 37,522 km2; Central 12,716 km2; enhancing equitable benefit Southern 14,780 km2) distribution for the community\. - 4,413 km2 total of: no-entry (116 km2), no-take (2,214 km2), The objective is to design and artisanal fishing (2,015 km2), and implement a system of marine special use (68 km2) zones protected areas (MPAs) zoned for multiple-use and managed Endangered and threatened species Completed to reduce human threats and to conservation plan developed with - General Conservation Action protect globally important sites indicators of change for (5) key Plan with indicators: conch of biodiversity in cooperation species\. (queen), sea turtle (hawksbill), with the local community\. sea turtle (loggerhead), coral (Acropora), nesting seabird (boobies Sula spp\.) - Specific Conservation Action Plans for shore and sea birds, lobster, sharks, and conch Resource monitoring program Completed including Coral Mortality Index and - Resource monitoring programs indicators of (5) key fish species (CARICOMP, SIMAC, and designed\. community-based), Coral Mortality Index with fish indicators: spiny lobster, yellowtail snapper, black sea urchin, coral (Monastrea, Siderastrea), shore bird (ruddy turnstone) - Water Quality Action Plan and monitoring programs (regular and special events) 9  Project Completion Report Management agreements Completed established with a minimum of (2) - Agreements signed with 2 stakeholder groups, especially fishers Stakeholder Advisory (artisanal and industrial) and water Committees (fishers, divers, sports operators\. other water sports, traditional users, marina and tourism) Project Outcomes Indicators in Project Brief Results 1\. Ecological and - Information centers (2) Completed socioeconomic information strengthened in San Andres and - New centers opened and fully needed for MPA design and Old Providence and Santa equipped management collected, Catalina\. systematized and available to - User-friendly information local stakeholders\. management system designed and installed - MPA system description and Completed background document distributed - CDs distributed, document in (50) (Integrated Management press Plan, Part I)\. 2\. MPA system legally enacted - Legal declaration enacted Completed with policies and regulations delimiting external boundaries for - Minister of the Environment established\. the system of 3 MPAs\. Resolution 107/2005 - CORALINA Accord 021/2005 - Management regulations that Completed assure equitable use established - Zoning agreements signed with for interior zones of the 3 MPAs stakeholders for 3 MPA sections, (no-entry, no-take, artisanal and approved by CORALINA's fishing, special use, and general Board of Directors (Accord use)\. 025/2005) - Policies established and Completed supported with regulations that - MPA umbrella regulation (over 40 reduce human threats, regulations unified in one particularly for fisheries, water administrative act), approved by sports, tourism, and water CORALINA's Board of Directors quality\. (Accord 025/2005) - Specific regulations operational: Resolutions 151 (beaches) and 170 (spear gun use), declarations of regional parks inside the MPA (Old Point, Johnny Cay) - Specific regulations in progress: Supreme Court legislation (breakwater), natural drainage and buffer zones resolution, implementation of water quality plan 10  Project Completion Report - Management structure of MPAs Completed enacted by stakeholder - Structure completed with agreement\. stakeholder agreements signed - Advisory Committees (4) functioning (stakeholders, institutions, international and national technical advisors) - Enforcement agreement with Completed authorities realized and training - Final agreement with authorities program implemented\. (i\.e\., signed by: Departmental Fishing Board, Secretary of Agriculture and Fisheries, Port Authorities, National Police, Coast Guard, McBean Lagoon National Park, CORALINA) Project Outcomes Indicators in Project Brief Results 3\. Integrated management and - Management document on 80% complete zoning plan designed in issues and actions distributed - Document complete, public review agreement with the community (50) (Integrated Management process (1 year) underway with and under implementation with Plan, Part II) stakeholders and administrative active stakeholder involvement advisory committees - Zones demarcated in the 3 MPAs Completed - Stakeholder agreements signed for all MPA sections; zoning approved by the Board and legal agreement (accord) designed and approved; marker plans and funding application completed 11  Project Completion Report - Financial sustainability plan 50% complete covering techniques of revenue - Financial sustainability plan generation, benefit-sharing completed (Southern and Central strategies, and evaluation of Sections) Y2 compensation mechanisms - Environmental Fund proposal Y3 completed\. - Conservation Trust Fund project in preparation Y4 (presentation scheduled 10/05) - Economic analysis of implementation of Article 19 (Law 47 of 2003) Y4 - Regulatory project for presentation to Assembly and Office of the President to implement Article 19 Y4 (7/05) - Model program of entrance fee collection implemented in MPA special management zone Y4 (Johnny Cay Regional Park) - Short-term funding (8-month and 2- year projects) from Netherlands Embassy Y4 ; other projects submitted Y4 (2); projects under preparation for 8/05 at the request of donors (3); projects pending preparation as requested from donors for 2005-6 (4) - Pending implementation of long-term financial mechanisms, including post-project budgets and financial sustainability assessment - Operational handbook completed 50% complete for 2 MPAs (Integrated - Preliminary version completed\. Management Plan, Part III)\. Will be revised and the final version produced when zoning agreements and regulations become operational (training 9/05) - Community-based monitoring (2) Completed and enforcement (2) programs - Monitoring: 4 programs (REEF, functioning in 2 MPAs\. RECON, ReefCheck, COSALC) - Enforcement: 2 volunteer inspector programs - MPA offices (2) opened in San Completed Andres and OP/SC\. - New offices opened and fully equipped Project Outcomes Indicators in Project Brief Results 4\. Stakeholders trained in - Local stakeholders (200) trained\. Completed 12  Project Completion Report resource management and - Formal educational program with Completed ways to reduce human threats the Christian University to marine and coastal - 38 students enrolled Y2 accredited and students enrolled ecosystems to ensure long- (15)\. - 18 students graduated Y4 term biodiversity conservation - Steering Committee established and sustainable use and meeting Y1-4 (institutions, NGOs, cooperatives, businesses, etc)\. - Program accredited by ICFES Y1 - Affiliations with regional networks Completed (2) realized\. - Participation in 6 networks (CaMPAM, COSALC, CSI-SIV, CARICOMP, WIDECAST, MAB) Planned Activities to Achieve Indicators in Project Brief Results Outcomes 1\. Data collection and 1\. Physical, biological, and Completed evaluation socioeconomic assessments of each - 4 biological expeditions with Collect information for MPA (4) including information on TOC (San Andres, Providence, management and implement the threats and vulnerability\. Southern Cays, Northern Cays) information system\. Y1, Y2, Y3 - 2 rapid ecosystem assessments with INVEMAR (Southern and Central Sections) Y2 - 3 large-scale socioeconomic and value surveys (users, tourists, households) Y1, Y2 - 2 intrinsic worth valuations (coral reefs, mangroves) Y1 - 2 threat and vulnerability assessments (Southern and Central Sections) Y2 - 2 dive site evaluations with U\. of Pereira (Southern and Central Sections) Y2, Y3 - 2 mooring buoy site evaluations with FKNMS (Southern and Central Sections) Y3 - Identification and evaluation of spawning sites Y4 2\. Stakeholder analysis completed\. Completed 3\. MPA information management Completed system set up\. - Information updated monthly Planned Activities to Achieve Indicators in Project Brief Results Outcomes 2\. Legislation and policy 1\. Legal diagnostic review and study Completed Enact the MPA system and completed\. 13  Project Completion Report establish legal and policy 2\. Inter-institutional meetings held Completed frameworks\. (12)\. - 8 meetings Y1 - 14 meetings Y2 - 12 meetings Y3 - 13 meetings Y4 - 14 CORALINA-CU steering committee meetings Y2-Y4 3\. Enforcement and policy training Completed programs carried out (2) - Coast Guard training program Y2, Y3 - Volunteer inspectors training Y2, Y3 Planned Activities to Achieve Indicators in Project Brief Results Outcomes 3\. MPA management 1\. Series of stakeholder Completed Design and implement the consultations incorporating conflict - Zoning: 47 meetings/ workshops integrated management plan in resolution and local empowerment Y1-4, 7 plenaries Y3-4 (14 cooperation with the community\.realized (4 series: zoning for workshops Y1, 16 workshops equitable benefit distribution, Y2, 8 workshops Y3, 9 management planning to reduce workshops Y4, Management threats, enforcement and monitoring, planning, issues, and conflict operational strategies to ensure resolution: 43 meetings/ biological conservation and financial workshops Y1-4 sustainability)\. - Threats and vulnerability: 5 workshops Y2-3 - Enforcement and monitoring: training programs Y2-4 - Financial sustainability and daily ops: 11 meetings Y1-4 2\. International Project Advisory Completed Board functioning\. - 5 annual meetings 3\. Community Commissions (2) Completed functioning\. - Stakeholder Advisory Committees established for Southern and Central Sections ­ membership defined, meetings held, management agreement approved by members 4\. Mooring and marker buoy (50) 80% Complete permits requested for 2 MPAs\. - 32 mooring buoy permits requested, received, and buoys installed in Central and Southern Sections - Marker buoy sites identified and buoys designed 14  Project Completion Report 5\. Zoning maps (4) produced for 3 Completed MPAs\. - Maps in GIS (boundaries and zoning plans): 63 all MPA, 72 San Andres, 90 Providence, 101 Cays, 15 Northern Cays alternatives - Other maps: 8 team zoning alternatives, 17 stakeholder zoning, 92 uses, 16 natural resources, 10 historical resources, 2 vulnerability 6\. Economic analysis and financing Completed plan completed\. - Financial sustainability plan completed (Southern and Central Sections) Y2 - 9 stakeholder consultations Y1 - Pending full implementation 7\. Community-based monitoring and Completed enforcement action plans (2) - Action Plans for Central and developed for 2 MPAs\. Southern Sections 8\. MPA office spaces (2) defined Completed Planned Activities to Achieve Indicators in Project Brief Results Outcomes 4\. Capacity building 1\. Community training programs for Completed Strengthen local organizations, target groups completed including MPAs: 23 schools, 35 general train stakeholders, and produce workshops, meetings, and events (4: community, 7 field trips Y1 communications\. MPAs, water quality issues, sustainable tourism, organizational Water quality, ecosystems, strengthening)\. biodiversity: 47 schools, 25 general community Y2 Sustainable tourism: ecotourism workshops, destination management, best management practices Y2-4 Organizational strengthening: MPA/marine conservation education to national police, teachers, social service workers, civil servants, elected officials, NGOs Y2-4 Special training courses to target groups and institutions: 1 MAP teacher training, 9 international coastal clean-up, 6 PADI, 13 UNEP MPA training, 3 REEF/ RECON, 4 expedition planning and participation, 2 fish spawning aggregations Y1-4 15  Project Completion Report 2\. Stakeholder study tours carried Completed out (artisanal fishers, diving Dive operators trip to Bonaire Marine industry)\. Park Y2 Artisanal fishers trip to Jamaica Y4 CU students trips to Providence Y2, National Park in Costa Rica Y3, and Northern Cays Y4 3\. Technical training tours realized Completed (biodiversity conservation, MPA 2 persons to UNEP-CEP MPA managers operations, fisheries management)\. training of trainers (MPA operations, conservation) Y1, Y3 1 person to MAP Caribbean HQ in Cayman Brac (mangrove management and curriculum training) Y1 11 persons to Florida Keys National Marine Sanctuary Y1 (fisheries management, conservation, MPA operations, outreach, mooring buoys) 2 persons to Galapagos National Park and Marine Reserve (conservation, fisheries management, MPA operations) Y2 3 persons to US National Ocean Service/NOAA, Washington, DC (socio- economic tools, economic sustainability, GIS) Y2 2 persons to agencies in Washington, DC (financial mechanisms including trust funds, debt-for-nature swaps, conservation grants Y2 1 person to Honduras with MAP to act as co- facilitator (mangrove curriculum teacher training) Y3 1 person to INVEMAR, Santa Marta (training in Integrated Coastal Management) Y4 1 person to World Bank, Bogota (training in procurement) Y4 2 persons to Chinchorro, Mexico (training in habitat mapping using remote sensing/side- scan sonar) Y4 1 person to St Croix with RECON to act as trainer (RECON instructore training) Y4 1 person to Panama with COLCIENCIAS for an exchange with fishers and managers Y4 16  Project Completion Report 4\. Training courses completed with Completed instruction by outside experts Ed Yates from TetraTech ­ 2 courses (EIA, (fisheries management, water regulations, and legal analysis for integrated quality, MPA management and coastal management-ICM) Y1 operations)\. Cheri Recchia, Rich Appeldorn, Joshus Nowlis, Alan Friedlander from CMC (fisheries management) Y1 Steve Edwards from CI (ecotuorim planning for marine tourism) Y1 Jonathon Phinney from ASLO and Cliff Randall from VA Tech (water quality and development of Action Plan) Y2 Martin Keeley from Mangrove Action Project (mangrove curriculum for teachers) Y2 Raul Cruz from U\. of Havana (lobster replenishment, fisheries management) Y2 Tom van't Hof, MPA consultant (limits of acceptable change, carrying capacities) Y2 REEF and RECON/TOC (species and disease identification, monitoring protocols, dive certification) Y2 Kalli de Meyer from Bonaire Marine Park/CORAL (ecological diving, MPA operations and over fishing) Y3 Jan Steffen and Gillian Cambers from UNESCO/CSI (beach management, MPA operations, COSALC) Y3 Judith Lang from RECON/TOC (training instructors, monitoring site selection) Y3 Exchange with Morrocoy National Park, Venezuela Y3 Experts from Texas A&M (coastal and marine modeling, problem-solving systems) Two phases - Y3-4 Experts from FKNMS (diver training for buoy installation and maintenance) Y3-4 RECON follow-up (diving instruction and certification) Y4 Norberto Capetillo from Cuba (sustainable fishing, lobster culture) Y4 Institute of Caribbean Studies from National University (littoral zone management) Y4 2 expert sessions on protected areas 1) Eduard Muller (MAB Committee) 2) Georgina Bustamante (TNC) Y4 5\. Formal educational program Completed curriculum developed\. - 18 students graduating 12/05 17  Project Completion Report 6\. Educational and extension Completed (see Annex 5) materials developed (booklets-2, Other: flyers-5, buttons-1, posters-4, stickers-1, video-1, announcements 6+ peer-reviewed papers in journals and programs in local media)\. 8+ articles in international magazines/newsletters 2+ conference proceedings 10+ presentations at meetings and conferences 7\. Stakeholders attend regional Completed conferences (8)\. International Association of Impact Assessment (IATA) in Cartagena, Colombia Y1 UNESCO Ibero-MAB Network in San Jose, Costa Rica Y1 US-NOS International MPA Workshop and NOAA CZ'01 in Cleveland, USA Y1 GCFI in Turks and Caicos, BWI Y2 International Coastal Clean-Up in San Diego, USA Y2 Latin American Congress of Marine Science (COLACMAR) in San Andres Y2 National turtle management plan in Riohacha, Colombia Y2 Ocean and Coasts at Rio +10 in Paris, France Y2 International Coral Reef Initiative (ICRI) in Cancun, Mexico Y2 Reefs at Risk in Miami, USA Y2 INVEMAR-IDEAM workshop on Global Climate Change (GCC) in Bogota Y2 World Bank workshop on strategic financial project planning in Mexico City Y3 Agustin Codazzi-Javeriana U workshop on improving GIS accuracy in Bogota Y3 GCFI in Mexico City Y3 GEF Conference on economic sustainability of biodiversity projects in Havana, Cuba Y3 Punta Cana Conference on integration of enterprise and biodiversity in Dominican Republic Y3 18  Project Completion Report AICAS Workshop on bird conservation in Tayrona National Park, Colombia Y3 TNC Workshop on Caribbean biodiversity in Santa Marta, Colombia Y4 Smithsonian Institute & Great Barrier Reef Marine Park Authority Seminar on MA management in Panama Y4 Colombian Ocean Commission Forum on marine sustainability in Bogotá Y4 WIDECAST Symposium on sea turtles in Savannah, USA Y4 IUCN-NOS International MPA Workshop and NOAA CZ'05 in New Orleans, USA Y4 CARICOMP Conference in Bocas del Toro, Panama Y4 International Coastal Clean-Up in Hawaii Y4 World Congress on MPAs/IMPAC in Geelong, Australia Y4 5\. Project management\. 1\. Project accounting system set up\. Completed 2\. Financial audits completed\. Completed - Audit of PY4 scheduled for October 2005 3\. Evaluations realized\. Completed 4\. Final review accomplished by the Underway World Bank 5\. A project team with a project Project coordinator and team Sep coordinator to carry out project 2000-Feb 2003, new project activities, particularly for preparing coordinator named May 2004 reports, financial statements and operational plan\. (2) Project Sustainability ­ Long-term technical, social and institutional sustainability of project activities and outcomes is likely; due mainly to the project's achievement of ratified multiple-use marine zoning plans, extensive community participation, generation of local economic benefits, local capacity built, institutions strengthened and international commitment to project goals\. However, perceived threats to this sustainability include the lack of a financial strategy for the MPA and the consolidation of the Northern Section MPA, where agreements may prove more difficult to enforce than in the Central and Southern Sections\. The following is a discussion of the main aspects related to overall project sustainability, as these were achieved in light of original project design\. a) Technical Sustainability\. This project achieved state of the art baseline assessments and zoning of complete marine ecosystems\. The inclusion of associated reef ecosystems 19  Project Completion Report in each MPA (including deep water areas surrounding the northern and southern cays) was done seeking comprehensive biodiversity conservation and large-scale habitat management to increase the effectiveness of spatial control as a marine management tool\. Multiple-use zoning of these entire ecosystems was delimited in cooperation with resource users and was set up including no-entry and no-take areas, artisanal fishing zones, special dive sites with features like mooring buoys and snorkel trails, and water sports zones\. The establishment of no entry and artisanal fishing zones are special features of this MPA, as is the extent of deep water coverage\. The project achieved a high degree of participation from a number of international MPA and marine management experts in zoning and MPA design\. Conflicts were reduced between resource users by creating areas reserved for artisanal fishing, delineated in collaboration with the fishers themselves, and cooperative management methods determined with water sports operators\. Island-wide education about boundaries and permitted uses of each zone combined with training in ways to reduce human threats to ecosystem health and productivity should promote long-term implementation of the MPA's zoning and management plans\. b) Social Sustainability\. The project team understood that long-term sustainability would only be possible if the community understood the relationship between global biodiversity conservation, local sustainable use, and the survival of the native Archipelago culture, both socially and economically\. Project execution effectively obtained stakeholder involvement in all phases of project implementation along with training in biodiversity conservation, sustainable use, and threat reduction\. Other features of the MPA included the Christian University formal training program in coastal and marine resource management to promote environmental awareness and prepare the native community for employment opportunities arising from the establishment of the MPA\. Stakeholder trips were also undertaken during project execution to promote exchange and commitment to project objectives\. One trip of artisanal fishers to Jamaica is especially worth highlighting, since it gave the possibility of Archipelago fishers to compare the degradation of sea resources in Jamaica to their own relatively pristine environment and to become more committed to project activities\. Dive operators also visited Bonaire Marine Park, where they were trained in sustainable methods to improve dive tourism\. c) Institutional Sustainability\. At a national level, the Project supported CORALINA's institutional role as coordinator of the MPA\. As the National Environmental System representative for the Archipelago department, CORALINA was created by the law that enacted Colombia's decentralized environment system and has the nationally legislated status of a regional autonomous environmental corporation\. All CORALINA projects and actions are based on these directives; consequently the agency enjoys a high level of popular support which further contributes to its institutional stability\. CORALINA priorities that help ensure project sustainability include creating international bonds, pursuing advanced training for islander resource managers, involving the community in all decisions and programs that affect them, and supporting local institutional and community empowerment\. At an international level, the project strengthened regional links and obtained strong support from the IAB and a number of collaborating organizations\. CORALINA established a number of strong international and regional ties with NGOs, governments, and Caribbean programs; many of whom participated in project planning and contributed to project implementation and long-term MPA system functioning\. In addition to NGO project 20  Project Completion Report partners TOC and IRF, such organizations (both non-governmental and governmental) included the international CORAL program, the CARIBWA chapter of the National Marine Educators Association, the United Nations Environment Program (UNEP), the Mangrove Action Project, the Reef Environmental Education Foundation (REEF), the Barbados Coastal Zone Management Unit and the Caribbean Fishery Council\. A four-part training program was sponsored by the U\.S\. National Ocean Service that included training the entire project team in the Florida Keys National Marine Sanctuary (a global model for MPAs) and training project economists and GIS specialists at NOAA headquarters in Washington, DC\. Three major international conservation NGOs with a strong presence in Latin America and the Caribbean (LAC) -- the Nature Conservancy (which has designated the Archipelago one of 9 priority coastal ecosystems in LAC), the World Wildlife Fund, and Conservation International (which has included the Archipelago as one of the world's top ten regions for marine biodiversity) -- have also established contact with CORALINA expressing an interest to examine possible contributions to the MPA\. The GEF-INAP Climate Change project, currently in the approval stage, will also promote the project's sustainability by supporting the MPA's full implementation and measuring the MPA's impact on biodiversity conservation\. d) Financial Sustainability\. While a solid financial sustainability strategy was designed by a consultant and the project's economists in consultation with stakeholders during the project, the execution of key mechanisms, such as a marginal increase in the tourist tax paid upon entry to the islands, was delayed\. This study included a projection of annual recurrent costs for the Central and Southern Sections of US$350,000\. Northern Section operational expenses have not been estimated\. As of the date of this report, a clear financial plan has not been executed to guarantee these annual financial needs\. The few indicators that were developed measuring this aspect were not fully executed\. The project's main proposal is for a US$1 increase in the tourist tax charged for entry into the islands, which alone would generate US$350,000 annually given the number of tourists entering the islands each year\. This increase is in process and is not expected to affect tourism given a willingness-to-pay study realized during the project, which showed that tourists would pay up to an additional US$5 each for entry to the islands for marine conservation\. The delay in legal establishment of the MPA negatively impacted the establishment of financial sustainability as mechanisms could not be put in place before the MPA existed officially\. CORALINA recognizes this issue and has as a top priority the execution of the MPA's financial strategy, as well as seeking funding over the longer term from the GEF- Colombian National Protected Areas Trust Fund Project (currently in its preparation phase), the GEF Climate Change project (recommended by the Bank for work program inclusion October 4, 2005) and related projects with other donors\. (3) Replicability ­ Project replicability is likely, due to various mechanisms developed during the project\. It is telling that the annual GFCI regional conference in 2005 will be held in San Andres in November, largely because of the MPA's highly regarded design and execution\. CORALINA representatives are also attending international conferences by nomination and invitation, such as the MPA workshop (CZ 05) in New Orleans in late July 2005 and the first global MPA forum (IMPAC) in Australia later this year, to disseminate key lessons learned and to present the Seaflower MPA at an international level\. 21  Project Completion Report Another mechanism supporting the replicability of this project is a series of regional partnerships developed to further research and MPA management activities\. Relationships have been developed with UNESCO, the Florida Keys National Marine Sanctuary, NOAA, the Center for International Development at Brandeis University, Bonaire Marine Park, The Ocean Conservancy, IUCN and the Mangrove Action project, among others\. These relationships are being strengthened and supported by the International Advisory Board, which possesses various high profile members with significant experience in MPA design and implementation\. Finally, the project team belongs to key networks developed to further monitoring and assessments, including: CaMPAM, COSALC, CSI-SIV, CARICOMP, WIDECAST, and MAB\. (4) Stakeholder Involvement ­ Overall project methodology emphasized community participation at the decision-making level to resolve resource use conflicts, empower the native community, integrate threat mitigation into management planning, and achieve equitable distribution of benefits with emphasis on local nature-based tourism and fishing\. Outcomes were produced in 4 key areas to reach the goal of long-term biodiversity conservation: 1) Data collection and evaluation\. Ecological and socioeconomic information needed for MPA design and management was collected, systematized, and made available to local stakeholders; 2) Legislation and policy\. MPA system was legally enacted with policies and regulations established that assure equitable access to resources and reduce human threats; 3) MPA management\. Integrated management plans have been designed in agreement with the community, are under stakeholder and institutional review and are expected to be under implementation with active stakeholder involvement and zoning plans have been legally enacted; and 4) Capacity building\. Stakeholders, including institutions, NGOs, cooperatives and businesses were trained in resource management and ways to reduce human threats to the marine and coastal ecosystems to ensure long-term biodiversity conservation and sustainable resource use\. (5) Monitoring and Evaluation ­ The project team developed a solid monitoring and evaluation system\. First, CORALINA monitored project objectives, outcomes, and activities using logframe indicators presented in the project summary\. Second, the team at CORALINA performed high quality biological and socio-economic assessments of the project zone and built the capacity to continue these assessments into the future\. As part of these assessments, the team adopted new approaches to monitoring, including beach profiling and socioeconomic surveys, to improve the level of information regarding the Archipelago and its inhabitants\. Conservation and socioeconomic indicators have been identified, and a pilot program of socioeconomic monitoring has been implemented\. Finally, the International Project Advisory Board (IAB) will continue to meet as long as funds permit to serve as an expert panel of advisors/evaluators\. These advisors have committed themselves to be available by correspondence, even if funding is not available for annual meetings\. Monitoring results and conclusions reached as a result of evaluation reports and advice from the IAB have been used constructively to recommend and 22  Project Completion Report implement changes in project management and for future reference in the development of similar or related projects\. (6) Special Project Circumstances ­ The events of September 11 led to difficulties for lead technical partner, The Ocean Conservancy, in fundraising and procurement for the information-gathering expedition to the Archipelago's Northern Cays\. This expedition was delayed nearly a year, which meant that the zoning for this region's MPA (the largest in the system) had to be postponed\. It was impossible to complete zoning prior to the expedition because information was unavailable on this region\. Elections in the San Andres department in December 2003 resulted in a new governor, mayor, secretary of planning, and secretary of agriculture and fisheries, all of whom are on CORALINA's board of directors and are key project stakeholders\. All of these officials had to learn about the project in detail and in January requested more time to do so\. In addition, a new agency concerned with fisheries planning and management (INCODER) began functioning in the Archipelago during PY 3\. This agency also had to be thoroughly integrated into the project\. Finally, CORALINA's General Director during the first years of the project was replaced by election of the Board in December 2003\. Elizabeth Taylor took over as CORALINA's General Director in January, 2004\. This also meant changes for CORALINA that naturally occasion delays\. The new general director had to re-assemble an MPA team which included some key original project members such as Marion Howard, the original project coordinator, in an advisory capacity\. In the General Director's prior post as Chief of Environmental Management, she supervised the MPA project during its first two years, so its successful completion and long-term sustainability was a top priority for the new administration\. (7) Institutional Capacity / Partner Assessments ­ According to CORALINA, The World Bank, as GEF implementing agency, was extremely helpful to CORALINA throughout the process of planning and implementing the MSP\. The Bank's advisers provided valuable input to the development of the MSP and also substantially built CORALINA's staff capacity to develop projects\. This led to a number of "spin-off" projects being generated during the MSP that strengthened the project, allowing additional activities to be completed and leveraging funds and technical support, including projects on mooring buoy installation funded by National Fish and Wildlife Foundation, sustainable tourism with Conservation International, species research funded by Darwin Initiative, and solid waste management (two phases) funded by the European Union\. At CORALINA's request, when the project began the Bank sent two experts to San Andres to train staff in administrative aspects of project management like procurement and project accounting\. This training substantially strengthened CORALINA as an institution; an additional output that will not only help ensure long-term sustainability of the GEF project but will also improve this government agency's overall work in the long-term\. Working with the Bank was a very positive experience for CORALINA, mostly because of the Bank's management style, which was well suited to CORALINA's needs as an institution\. A high level of autonomy and self-determination in coordinating the project 23  Project Completion Report meant that CORALINA, the community, and other stakeholders like local institutions made project decisions and experienced true "ownership" of the GEF project ­ both its process and products\. The Bank also helped CORALINA to promote local management without sacrificing expertise\. CORALINA was determined to have local people run the project but there was little local experience in marine management\. The idea to set up a board of international experts to advise a local project team emerged in planning meetings with the Bank\. As mentioned in other sections of this report, the International Advisory Board (IAB) grew into a unique feature of the project\. Like the Bank, the IAB left decision-making to CORALINA and the local community but provided advice and technical support upon request\. For such reasons, this project empowered CORALINA's operational directors, project staff, and the island communities, including marginalized user groups like artisanal fishers\. The Bank's respectful approach communicated genuine appreciation for local capabilities and acknowledged the people's ability to lead their own development; such respect was not something that the native community was accustomed to receiving from project partners or donors\. Much of the credit for the high levels of empowerment, institutional strengthening, and administrative capacity generated by the project -- as well as the overall success of the project management process -- rests with the Bank project management team in Bogotá\. III\. Summary of Main Lessons Learned The principal lessons learned during project execution were the following: Community participation should be transversal to the project\. CORALINA's principal success in designing and obtaining ratification for the Seaflower MPA was in its thoroughness and effort to obtain high community participation in every aspect of project execution, including design, monitoring, zoning, outreach and capacity building\. Biological and socioeconomic assessments should be key inputs to zoning agreements, as should the incorporation of indigenous knowledge\. In addition to technical monitoring programs carried out by CORALINA scientists, community members were trained in four community-based monitoring methodologies\. This on-going volunteer work collects important information and links the MPA with regional networks\. In addition to garnering strong community support, the project team obtained solid technical support to approach the design of the MPA's zoning agreements, ensuring sustainable use and the conservation of ecosystems, key species, habitats and fish spawning aggregation sites\. Indigenous knowledge from local communities was also gathered and used as a key input in zoning plans\. Trainees become trainers\. An integral part of PA projects should be a solid training program as well as informal dissemination efforts\. This approach will support the sustainability of project objectives\. Project team members became trainers themselves (notably with the Mangrove Action Project, UNESCO's COSALC program, and RECON; all of which took them as trainers to international sites) as the project progressed, and stakeholders including fishers and dive operators multiplied training on site\. 24  Project Completion Report Stakeholder exchanges are essential to promote project objectives\. As in related GEF projects, coordinating trips and exchanges for key stakeholders was crucial during project execution to support local appropriation and dissemination of project objectives\. International Advisory Boards are key players in an MPA\. The role of the IAB was crucial, as it provided experience, contacts, lessons learned from previous MPAs, technical support, and in-kind contributions\. Importantly, it also allowed the project team to be made up of local people without MPA experience at the time the project began, which engendered trust and support for the process and guaranteed local ownership\. MPAs are long-term processes\. It became evident during project execution that the objectives of assessing, designing, delimiting and establishing an MPA within the original time frame were too ambitious\. Additionally, working with public organizations at national and local levels and extensive stakeholder participation imply longer project execution\. Implementing a financial sustainability strategy should be a central component in project execution\. In this project, a financial sustainability strategy was designed during the first stages of activity execution\. However, it should be ensured that elements of these strategies are implemented within the projects' duration in order to obtain feedback and improvement, as well as securing the MPA's sustainability\. Integrating conservation objectives, socioeconomic concerns, capacity building and equity result in MPAs that promote sustainable development\. From the beginning the project was designed with an integrated sustainable development mission\. A key project objective was the MPA's generation of local benefits\. Since native communities depend on the sea and its resources for their economic and cultural survival, respecting ancestral fishing sites ensured the community's sustainable use of marine resources\. This commitment was reflected in project implementation and formalized in the MPA objectives and zoning objectives that were agreed upon by the stakeholders and adopted by CORALINA's Board\. IV\. Financial Management Status The first audit report corresponded to the period between January and December 2001\. This report was sent by Amézquita y Cía, S\.A\., an accredited auditor, on April 12, 2002\. The principal conclusion of this report was that resource management was managed in a satisfactory manner, issuing unqualified opinions over the financial statements and the use of proceeds\. The Bank's Internal Financial Management team reviewed the report and considered it acceptable\. The team issued recommendations regarding improved account disclosure, which were cleared by the target date of December 27, 2002\. The second audit report was delivered by Amézquita y Cía, S\.A on July 1, 2003 and covered the period from January to December 2002\. The auditors issued unqualified opinions over the financial statements and internal control processes, concluding that CORALINA handled project disbursements in a satisfactory manner\. In addition, financial information was presented in a reasonable manner\. The Bank's Internal Financial Management team reviewed the report and considered it acceptable\. The third audit report was presented on July 2, 2004 and covered the period from January to December 2003\. The auditors issued unqualified opinions over the financial statements, special account and compliance of the covenants of project\. 25  Project Completion Report Due date of final statement of accounts and external audit with period of coverage: December 31, 2005, covering January to December 2004, January to June 2005 and the three-month additional Grace Period\. Received by task manager: Yes/No (expects to receive it on December 31, 2005) 26  Project Completion Report Annex 1\. Map of Marine Protected Areas ­ External Boundaries 27  Project Completion Report Annex 1A\. Map of Marine Protected Areas ­ Northern Section 28  Project Completion Report Annex 1B\. Map of Marine Protected Areas ­ Central Section 29  Project Completion Report Annex 1C\. Map of Marine Protected Areas ­ Southern Section 30  Project Completion Report Annex 2\. Legal Resolutions Ratifying the MPA I\. Ministry of the Environment Resolution 107/2005 MINISTERIO DE AMBIENTE, VIVIENDA Y DESARROLLO TERRITORIAL RESOLUCION No\. 107 "Por la cual se declara un Área Marina Protegida y se dictan otras disposiciones" LA MINISTRA DE AMBIENTE, VIVIENDA Y DESARROLLO TERRITORIAL En ejercicio de sus facultades legales, contenidas en el numeral 10 del artículo 6 del Decreto No\. 216 de 2\.003 y en especial en la ley 165 de 1994 y CONSIDERANDO Que la Constitución Política de Colombia establece que es obligación del Estado y de las personas proteger las riquezas culturales y naturales de la Nación, así como garantizar el derecho a gozar de un ambiente sano\. Que así mismo dispone en sus artículos 80 y 95 numeral 8, el deber de proteger la diversidad e integridad del ambiente, la conservación de las áreas de especial importancia ecológica, la planificación, manejo y aprovechamiento de los recursos naturales para garantizar su desarrollo sostenible, su conservación, restauración o sustitución así como también, prevenir los factores de deterioro ambiental\. Que Colombia suscribió el Convenio sobre Diversidad Biológica, aprobado por medio de Ley 165 de 1994, el cual tiene como fin conservar la diversidad biológica, promover la utilización sostenible de sus componentes y la participación justa y equitativa en los beneficios que se deriven de la utilización de los recursos genéticos, mediante el uso adecuado de los recursos, una transferencia apropiada de la tecnología y una acertada financiación\. Que así mismo, el convenio establece las áreas marinas protegidas como un instrumento esencial para el desarrollo del mismo en ecosistemas marinos y costeros\. Que la Convención de Diversidad Biológica - CDB, dispone entre otras cosas, que Cada Parte Contratante, establecerá un sistema de áreas protegidas o áreas donde haya que tomar medidas especiales para conservar la diversidad biológica; así mismo elaborará directrices para la selección, el establecimiento y la ordenación de áreas protegidas o áreas donde haya que tomar medidas especiales para conservar la diversidad biológica y promoverá la protección de ecosistemas y hábitats naturales y el mantenimiento de poblaciones viables de especies en entornos naturales\. Que también es responsabilidad de cada Parte Contratante, promover un desarrollo ambientalmente adecuado y sostenible en zonas adyacentes a áreas protegidas, con miras a aumentar la protección de esas zonas; rehabilitar y restaurar ecosistemas degradados, promoviendo la recuperación de especies amenazadas, entre otras cosas, mediante la elaboración y la aplicación de planes y otras estrategias de ordenación con la finalidad de establecer las condiciones necesarias para armonizar las utilizaciones actuales con la conservación de la diversidad biológica y la utilización sostenible de sus componentes\. Que en al marco de la mencionada Convención, se adoptó desde el año 1995, el Mandato de Jakarta y su programa de trabajo, relacionado con la biodiversidad costera y marina, cuyos elementos estratégicos son: a) el manejo integrado de las zonas costeras y marinas; b) el uso sostenible de los recursos marinos vivos; c) la promoción del establecimiento de áreas marinas y costeras protegidas; d) la camaricultura sostenible; y e) el control a la introducción de especies y genotipos invasores u exóticos\. Que así mismo, Colombia es parte del Convenio para la Protección y el Desarrollo del Medio Marino en la Región del Gran Caribe (Ley 56 de 1987) y su Protocolo relativo a las Áreas y Flora y Fauna Silvestres Especialmente Protegidas (Ley 356 de 1997), que tiene como finalidad proteger, restaurar y mejorar el estado de los ecosistemas marinos, así como las especies amenazadas o en peligro de extinción y sus hábitat en la Región del Gran Caribe, mediante, entre otras, el establecimiento de áreas protegidas en las áreas marinas y ecosistemas asociados\. 31  Project Completion Report Que la UNESCO en el año 2000 declaró al Archipiélago de San Andrés, Providencia, Santa Catalina y los cayos como Reserva de Biosfera - SEAFLOWER, incluyendo en esta declaratoria la propuesta de zonificación y plan de manejo\. Que la conservación y el uso sostenible de los recursos naturales de la Reserva de Biosfera son parte del desarrollo regional y deben seguir los lineamientos de manejo internacionalmente identificadas con tres zonas de intervención: zonas núcleo, de amortiguamiento y la zona de transición o cooperación que incluye toda la zona marina por fuera de la barrera arrecifal\. Que en las tres zonas deben aplicarse los conceptos de desarrollo sostenible, para que las actividades sean sostenibles en el tiempo, equitativas y rentables desde el punto de vista social, ecológico y económico, garantizando un trabajo en forma conjunta y coordinada entre las comunidades locales, las entidades gubernamentales, los organismos de conservación, científicos, asociaciones civiles, grupos culturales, empresas privadas y otros interesados en la gestión y desarrollo sostenible del archipiélago\. Que el Ministerio del Medio Ambiente mediante Resolución No\.1426 del 20 de diciembre de 1996, reserva, alindera y declara el Área de Manejo Especial "Los Corales del Archipiélago de San Andrés, Providencia, Santa Catalina y Cayos", para la administración, manejo y protección del ambiente y de los recursos naturales renovables del área del Departamento Archipiélago de San Andrés, Providencia y Santa Catalina\. Que dicha Area de Manejo Especial se encuentra conformada por las islas de San Andrés, Providencia y Santa Catalina, Cayos Albuquerque, East South-East, Roncador, Serrana, Quitasueño, Bajo Nuevo, Bancos de Serranilla y Alicia, demás islas, islotes, cayos, morros, bancos arrecifes y el mar territorial comprendido dentro de la jurisdicción del Departamento Archipiélago de San Andrés, Providencia y Santa Catalina, los cuales presentan ecosistemas de alta productividad, diversidad biológica y las extensiones mas importantes de ecosistemas coralinos del Territorio Nacional\. Que mediante Decreto 216 del 3 de febrero de 2003, se determinan los objetivos y la estructura orgánica del Ministerio de Ambiente, Vivienda y Desarrollo Territorial, como también se distribuyen las funciones, entre las cuales y por intermedio de la Dirección de Ecosistemas le corresponde, según el tenor del artículo 12 numeral 3, "Proponer conjuntamente con la Unidad Administrativa Especial del Sistema de Parques Nacionales Naturales y demás autoridades ambientales, las políticas y estrategias para la creación, administración y manejo de las áreas de manejo especial y otras áreas protegidas \."\. Que el Plan Nacional de Desarrollo "Hacia un Estado Comunitario" estableció la estrategia de sostenibilidad ambiental para impulsar el desarrollo de acciones dirigidas a la conservación, manejo, uso y restauración de los ecosistemas, teniendo en cuenta las políticas ambientales y así buscar afianzar la gobernabilidad y legitimidad del Estado en la gestión ambiental\. Que de acuerdo con la Política Nacional Ambiental para el Desarrollo Sostenible de los Espacios Oceánicos y las Zonas Costeras e Insulares de Colombia (PNAOCI)", adoptada por el Consejo Nacional Ambiental el 5 de diciembre de 2000 y los diferentes tratados internacionales adoptados por Colombia, se define la necesidad de impulsar programas para el manejo integrado de las áreas marinas y costeras y el uso sostenible de sus recursos mediante el ordenamiento ambiental territorial de los espacios oceánicos y zonas costeras e insulares, de forma que contribuya al mejoramiento de la calidad de vida de la población colombiana y la conservación de los ecosistemas y recursos marinos y costeros\. Que de acuerdo con el documento CONPES 3164: "Plan de Acción 2002-2004 de la Política Nacional Ambiental para el Desarrollo Sostenible de los Espacios Oceánicos y las Zonas Costeras e Insulares de Colombia", en desarrollo del Programa de áreas y marinas protegidas se pretende establecer el Subsistema de Áreas Marinas Protegidas (AMP), como parte del Sistema Nacional de Áreas Protegidas (SINAP), compuesto por áreas marino costeras de particular importancia ecológica, socioeconómica y cultural\. Las actividades prioritarias de este programa para el período de tiempo comprendido son la definición de criterios para el establecimiento de Áreas Marinas Protegidas y la vinculación de éstas al sistema nacional de áreas protegidas u otras figuras de protección\. Que según el POT de la Isla de San Andrés, adoptado mediante Decreto No\. 325 del 18 de noviembre de 2003, conforman la estructura ambiental del territorio insular: a)\. Las líneas, áreas, cinturones o porciones terrestres y/o marítimas determinadas de la zonificación de la Reserva de Biosfera; b) el Sistema de áreas protegidas determinadas por el nivel de fragilidad o vulnerabilidad ambiental; c) el área de litoral, playas y áreas marinas hasta la línea de 12 millas náuticas; d) las áreas marinas de paisaje subacuático; y e) las áreas marinas Protegidas\. Igualmente, conforman el sistema de Áreas Protegidas de la Estructura Ambiental del Territorio, las áreas que requieren de especial protección resultado de la zonificación de la Reserva de Biosfera, entre ellas las áreas marinas protegidas\. Que el mismo decreto del POT de la Isla de San Andrés, en su artículo 29, establece que la delimitación de las áreas marinas y el área litoral sumergida será la determinada en el proceso que al respecto adelanta la autoridad ambiental en el Plan de Manejo del Sistema Regional de Areas Marinas Protegidas\. 32  Project Completion Report Que durante la última reunión de la Conferencia de las Partes de la Convención de Diversidad Biológica - COP 7 - realizada en febrero de 2004, en su decisión VII/5, solicita a las partes Contratantes avanzar en el establecimiento y/o fortalecimiento de sistemas regionales y nacionales de áreas marinas y costeras protegidas, integrándolos a la red mundial como una contribución al logro de objetivos globales de conservación de la biodiversidad marina y costera\. Que en desarrollo de las anteriores decisiones, la Corporación para el Desarrollo Sostenible del Archipiélago de San Andrés, Providencia y Santa Catalina ­CORALINA, viene desarrollando desde el año 2\.000, una estrategia regional que busca proteger de manera adecuada y ambientalmente sostenible los recursos naturales presentes en el área marina de la Reserva de Biosfera, mediante la identificación de las áreas de especial importancia para su protección y conservación, las cuales incluyen su delimitación y zonificación y que podrían llegar a ser parte del sistema nacional de áreas marinas protegidas\. Que teniendo en cuenta la importancia que reviste el Archipiélago de San Andrés, Providencia y Santa Catalina por poseer ecosistemas y recursos de valor estratégico, que proveen bienes y servicios ambientales soporte para el desarrollo sostenible y la conservación del patrimonio ambiental del país, es de interés del Ministerio de Ambiente, Vivienda y Desarrollo Territorial, como máxima autoridad ambiental, declarar el Area Marina Protegida al interior de la Reserva de la Biosfera - SEAFLOWER, con la finalidad de conservar muestras representativas de la biodiversidad ecosistémica, específica y genética marinas del Departamento Archipiélago de San Andrés, Providencia y Santa Catalina\. Que teniendo en cuenta las anteriores consideraciones, RESUELVE: ARTÍCULO PRIMERO\.- Declarar como Area Marina Protegida (AMP) de la Reserva de la Biosfera - SEAFLOWER, el área del Archipiélago de San Andrés, Providencia y Santa Catalina, que por su especial importancia ecológica, económica, social y cultural se delimita dentro de las siguientes coordenadas: 1\. 14° 50' N ­ 81° 30' W 2\. 14° 50' N ­ 79° 50' W 3\. 13° 10' N ­ 79° 50' W 4\. 12° 45' N ­ 81° 30' W 5\. 12° 00' N ­ 81° 00' W 6\. 12° 00' N ­ 81° 58' W 7\. 12° 45' N ­ 81° 58' W 8\. 13° 10' N ­ 81° 00' W ARTÍCULO SEGUNDO\.- FINALIDAD\. La finalidad del AMP que se declara y delimita externamente mediante la presente resolución es la conservación de muestras representativas de la biodiversidad marina y costera, de los procesos ecológicos básicos que soportan la oferta ambiental del Archipiélago y de los valores sociales y culturales de su población, y promover al interior de la Reserva de la Biosfera Seaflower la integración de los niveles nacional y regional\. ARTÍCULO TERCERO\.- ADMINISTRACIÓN DEL AMP\. La administración y manejo ambiental del Area Marina Protegida estará a cargo del Ministerio de Ambiente, Vivienda y Desarrollo Territorial, en cuanto a las áreas declaradas o que se puedan declarar como integrantes del Sistema de Parques Nacionales Naturales, y en lo demás a la Corporación para el Desarrollo Sostenible del Archipiélago de San Andrés, Providencia y Santa Catalina ­ CORALINA\. Parágrafo: Lo anterior, sin perjuicio de las competencias de otras autoridades del nivel Nacional, Departamental y Municipal\. ARTICULO CUARTO- DELIMITACION INTERNA DEL AMP: El Consejo Directivo de CORALNA decidirá sobre la delimitación interna del Area Marina Protegida aquí declarada y definirá los lineamientos generales para su posterior zonificación\. ARTÍCULO QUINTO: COMITÉ TÉCNICO ASESOR: El Consejo Directivo de CORALINA podrá crear un Comité Técnico Asesor, el cual brindará asistencia técnica en aspectos relacionados con los criterios ecológicos, económicos y socioculturales que orienten el proceso de zonificación interna del Area Marina Protegida y reglamentación de usos\. ARTÍCULO SEXTO: La presente Resolución rige a partir de la fecha de su publicación en el Diario Oficial y deroga la Resolución No\. 1426 del 20 de diciembre de 1996 y demás disposiciones que le sean contrarias\. 33  Project Completion Report PUBLÍQUESE Y CÚMPLASE Dada en Bogotá, D\.C\., a los SANDRA SUAREZ PEREZ Ministra de Ambiente, Vivienda y Desarrollo Territorial C:/msword/mhromero/resoluciondeclaracionareamarinaprotegida II\. Accord 21 from Coralina's Board of Directors that declares the three administrative zones, describes their borders (Northern, Central, and Southern Sections), and defines the MPA objectives ACUERDO ( 021 del 2005 ) "Por medio del cual se delimita internamente el Área Marina Protegida de la Reserva de la Biosfera Seaflower y se dictan otras disposiciones" El Consejo Directivo de la Corporación para el Desarrollo Sostenible Del Archipiélago de San Andrés, Providencia y Santa Catalina -CORALINA-, en ejercicio de sus facultades legales conferidas por la Ley 99 de 1993, Resolución No\.107 del 27 de enero de 2005 del Ministerio de Ambiente, Vivienda y Desarrollo Territorial, demás normas concordantes, y CONSIDERANDO: Que la Constitución Política de Colombia establece en su artículo 8 que es obligación del Estado y de la personas proteger las riquezas culturales y naturales de la nación, así como garantiza en su artículo 79 el derecho a gozar de un ambiente sano y dispone en sus artículos 80 y 95 numeral 8 el deber de proteger la diversidad e integridad del ambiente, la conservación de las áreas de especial importancia ecológica, la planificación, manejo y aprovechamiento de los recursos naturales para garantizar su desarrollo sostenible, su conservación, restauración o sustitución y, además indica que se deberán prevenir los factores de deterioro ambiental\. Que la Ley 99 de 1993 en su artículo 37, creó la Corporación para el Desarrollo Sostenible del Archipiélago de San Andrés, Providencia y Santa Catalina -CORALINA-, con sede en San Andrés (isla), como una Corporación Autónoma Regional que además de sus funciones administrativas en relación con los recursos naturales y el medio ambiente del Archipiélago de San Andrés, Providencia y Santa Catalina, ejercerá actividades de promoción de la investigación científica y transferencia de tecnología, sujeta al régimen especial previsto en la ley y en sus estatutos, encargada principalmente de promover la conservación y el aprovechamiento sostenible de los recursos naturales renovables y del medio ambiente del Archipiélago de San Andrés Providencia y Santa Catalina, dirigirá el proceso de planificación regional del uso del suelo y de los recursos del mar para mitigar o desactivar presiones de explotación inadecuada de los recursos naturales, fomentar la integración de las comunidades nativas que habitan las islas y de sus métodos ancestrales de aprovechamiento de la naturaleza al proceso de conservación, protección y aprovechamiento sostenible de los recursos naturales renovables y del medio ambiente y de propiciar, con la cooperación de entidades nacionales e internacionales, la generación de tecnologías apropiadas para la utilización y conservación de los recursos y el entorno del archipiélago\. La jurisdicción de CORALINA comprende el territorio del Departamento Archipiélago de San Andrés, Providencia y Santa Catalina, el mar territorial y la zona económica de explotación exclusiva generadas de las porciones terrestres del archipiélago, y ejercerá, además de las funciones especiales que determine la ley, las que le asigne el Ministerio del Medio Ambiente y las que dispongan sus estatutos\. Que el Parágrafo 2 ídem prevé que el Archipiélago de San Andrés, Providencia y Santa Catalina se constituye en reserva de la biosfera\. 34  Project Completion Report Que la UNESCO en noviembre 10 de 2000, declaró el Archipiélago de San Andrés, Providencia y Santa Catalina, Reserva de la Biosfera Seaflower, para el hombre y la biosfera, incluyendo tanto el área marina como terrestre con el objeto entre otros de conservar la diversidad biológica en armonía con la protección de la cultura local\. Que Colombia suscribió el Convenio sobre Diversidad Biológica ­CBD-, aprobado por medio de Ley 165 de 1994\. Que dicho Convenio tiene como fin conservar la diversidad biológica, promover la utilización sostenible de sus componentes, y la participación justa y equitativa en los beneficios que se deriven de la utilización de los recursos genéticos, mediante el uso adecuado de los recursos, una transferencia apropiada de la tecnología y una acertada financiación\. Que de acuerdo con el Convenio, las áreas protegidas se constituyen en un instrumento esencial para el desarrollo de dicho Convenio en ecosistemas marinos y costeros\. Que así mismo, Colombia es parte del Convenio para la Protección y el Desarrollo del Medio Marino en la Región del Gran Caribe (Ley 56 de 1987) y su Protocolo relativo a las Áreas y Flora y Fauna Silvestres Especialmente Protegidas (Ley 356 de 1997), que tiene como finalidad proteger, restaurar y mejorar el estado de los ecosistemas, así como las especies amenazadas o en peligro de extinción y sus hábitat en la Región del Gran Caribe, mediante, entre otras, el establecimiento de áreas protegidas en las áreas marinas y ecosistemas asociados\. Que el Ministerio de Ambiente, Vivienda y Desarrollo Territorial, mediante Resolución No\. 107 del 27 de enero de 2005, declaró como Área Marina Protegida de la Reserva de la Biosfera Seaflower, el área del Archipiélago de San Andrés, Providencia y Santa Catalina, que por su especial importancia ecológica, económica, social y cultural se delimita dentro de las siguientes coordenadas: PUNTO LATITUD LONGITUD 1 14° 59´ 08" N 82° 00´ 00" W 2 14° 59´ 08" N 79° 50´ 00" W 3 13° 10´ 00" N 79° 50´ 00" W 4 13° 10´ 00" N 81° 00´ 00" W 5 12° 00´ 00" N 81° 00´ 00" W 6 12° 00´ 00" N 82° 00´ 00" W Que de acuerdo con la citada Resolución la finalidad del Área Marina Protegida es la conservación de muestras representativas de la biodiversidad marina y costera, de los procesos ecológicos básicos que soportan la oferta ambiental del archipiélago y de los valores sociales y culturales de su población y promover al interior de la Reserva de la Biosfera Seaflower la integración del sistema de áreas protegidas de los niveles nacional y regional\. Que así mismo, la precitada Resolución establece que corresponde al Consejo Directivo de CORALINA, realizar la delimitación interna del Área Marina Protegida y definir los lineamientos generales para su posterior zonificación\. Que la delimitación del Área Marina Protegida es un mecanismo para asegurar la administración y conservación de la biodiversidad, el aprovechamiento sostenible de los recursos y la posibilidad de la continuidad de la vida misma para los habitantes del archipiélago que dependen en su totalidad de la oferta ambiental del mismo\. Que el archipiélago de San Andrés, Providencia y Santa Catalina, posee grandes valores naturales tanto en sus zonas terrestres como en sus zonas marinas, siendo necesario implementar medidas que garanticen la protección de ecosistemas sensibles y vulnerables para asegurar su conservación\. Que con fundamento en lo anterior se, ACUERDA PRIMERO: Delimitar internamente el Área Marina Protegida (AMP) de la Reserva de la Biosfera SEAFLOWER, que estará conformada por el conjunto de áreas de especial importancia ecológica y cultural, las cuales se enmarcan dentro de las siguientes coordenadas, identificados por los puntos 35  Project Completion Report numerados en el mapa adjunto y anexo al presente acto administrativo y que hace parte integral del mismo: 1\. Northern Section o Sector Norte del Área Marina Protegida: Comprende los complejos arrecifales de Quitasueño (Queena), Roncador y Serrana con un área de 37\.522 km² aproximadamente\. Latitud Longitud a) 14°59' 08" N - 82°00' 00" W Partiendo desde este punto (1) en línea recta hacia el Este hasta alcanzar el siguiente punto\.(2) b) 14°59' 08" N - 79°50' 00" W Siguiendo desde este punto (2) en línea recta hacia el Sur hasta alcanzar el siguiente punto\.(3) c) 13°10' 00" N - 79°50' 00" W Continuando desde este punto (3) en línea recta hacia el Oeste hasta alcanzar el siguiente punto\.(4) d) 13°10' 00" N - 80°30' 00" W Siguiendo desde este punto (4) en línea recta hacia el Norte hasta alcanzar el siguiente punto\.(5) e) 13°50' 00" N - 80°30' 00" W Continuando desde este punto (5) en línea recta hacia el Oeste hasta alcanzar el siguiente punto (6)\. f) 13°50' 00" N - 82°00' 00" W Siguiendo desde este punto (6) en línea recta hacia el norte hasta alcanzar y cerrar en el punto (1) inicial o de partida\. 2\. Central Section o Sector Central del Área Marina Protegida: Comprende la zona costera de las islas de Providencia y Santa Catalina con su complejo arrecifal Cayos y Bajos con un área de 12\.715 km² aproximadamente y sus límites externos que forman una figura geométrica que simula un rectángulo están dados por las siguientes coordenadas, identificados por los puntos numerados en el mapa adjunto: Latitud Longitud a) 13°50' 00" N - 82°00' 00" W\. Partiendo de este punto (6) en línea recta hacia el Este hasta alcanzar el siguiente punto (5)\. b) 13°50' 00" N - 80°30' 00" W Continuando desde este punto (5) en línea recta hacía el Sur hasta alcanzar el siguiente punto\.(4) c) 13°10' 00" N - 80°30' 00" W Siguiendo desde este punto (4) en línea recta hacia el Oeste hasta alcanzar el siguiente punto (7)\. d) 13°10' 00" N - 82°00' 00" W Continuando desde este punto en línea recta hacia el Norte hasta cerrar en el punto inicial (6)\. 3\. Southern Section o Sector Sur del Área Marina Protegida: Comprende la zona costera de la Isla de San Andrés con su complejo arrecifal, el complejo arrecifal de Bolívar (East Southeast Cays) y el complejo arrecifal de Albuquerque (South Southwest Cays), Cayos y Bajos con un área de 14\.780 km² aproximadamente y sus limites externos que forman una figura geométrica que simula un rectángulo, están dados por las siguientes coordenadas identificados por los puntos numerados en el mapa adjunto: Latitud Longitud a) 13°10' 00" N - 82°00' 00" W Partiendo de este punto (7) en línea recta hacia el Este hasta alcanzar el siguiente punto (10)\. b) 13°10' 00" N - 81°00' 00" W Continuando desde este punto (10) en línea recta hacia el Sur hasta el siguiente punto (9)\. c) 12°00' 00" N - 81°00' 00" W Siguiendo desde este punto (9) en línea recta hacia el Oeste hasta el siguiente punto (8) d) 12°00' 00" N - 82°00' 00" W Continuando por este punto (8) en línea recta hacia el Norte hasta alcanzar y cerrar en el punto inicial (7)\. SEGUNDO: Área Marina Protegida de la Reserva de la Biosfera Seaflower, que mediante este acto se delimita, tiene los siguientes objetivos, en concordancia con la finalidad establecida en la resolución 107 del 27 de enero de 2005: 36  Project Completion Report - Preservar y recuperar las especies, la biodiversidad, los ecosistemas y otros valores naturales\. - Promover prácticas buenas de manejo, para garantizar el uso sostenible de los recursos costeros y marinos\. - Distribuir equitativamente los beneficios sociales y económicos para contribuir al desarrollo local\. - Proteger los derechos que se refieren a los usos tradicionales de la comunidad\. - Promover mediante la educación el sentido de pertenencia\. PARÁGRAFO: CORALINA promoverá de manera conjunta con las autoridades ambientales competentes, la articulación de información y acciones en relación con las áreas que conforman el Sistema Nacional de Áreas Protegidas ­SINAP- y el Sistema Regional de Áreas Protegidas ­SIRAP- TERCERO: Para la zonificación y regulación de los sectores que integran el Área Marina Protegida se tendrán como fundamento los estudios ecológicos y ambientales pertinentes, las normas nacionales y tratados internacionales aplicables, los principios orientadores de las Reservas de Biosfera, los usos actuales que sean socialmente aceptados por las comunidades locales y que no atenten contra la sostenibilidad ni aprovechamiento racional de los recursos, y en general los criterios ambientales, socioeconómicos y administrativos que permitan una zonificación adecuada, una regulación eficaz y una administración eficiente en dichas áreas\. PARÁGRAFO PRIMERO: El Consejo Directivo de CORALINA, decidirá sobre la zonificación y la regulación general de usos de las zonas del Área Marina Protegida\. PARÁGRAFO SEGUNDO: Para la administración del Área Marina Protegida, la Dirección General de CORALINA, presentará ante el Consejo Directivo el modelo administrativo de las mismas\. CUARTO: El presente Acuerdo rige a partir de la fecha de su publicación en el diario oficial y en el boletín ambiental de CORALINA\. PUBLÍQUESE Y CÚMPLASE III\. Accord 25 from Coralina's Board of Directors that declares the zoning for the three sections, delimits their boundaries, and details the general "umbrella" regulation for the MPA and each type of zone ACUERDO No\. ( 025 del 2004 ) "Por medio de la cual se zonifica internamente el Área Marina Protegida de la Reserva de la Biosfera SEAFLOWER, se establece su Reglamentación General de Usos y se dictan otras disposiciones" El Consejo Directivo de la Corporación para el Desarrollo Sostenible del Archipiélago de San Andrés, Providencia y Santa Catalina, en ejercicio de sus atribuciones legales y estatutarias, en especial las conferidas por la Ley 99 de 1993, el Decreto 1768 de 1994, la Resolución 0107 del 27 de enero de 2005, y CONSIDERANDO Que el Ministerio de Ambiente, Vivienda y Desarrollo Territorial a través de la Resolución 0107 del 27 de enero de 2005, Declaró como Área Marina Protegida -AMP- de la Reserva de Biosfera SEAFLOWER, una zona dentro del Departamento Archipiélago de San Andrés, Providencia y Santa Catalina, por su especial importancia ecológica, económica, social y cultural\. Que la finalidad del AMP declarada es la conservación de muestras representativas de la biodiversidad marina y costera, de los procesos ecológicos básicos que soportan la oferta ambiental del Archipiélago y de los valores sociales y culturales de su población, y promover al interior de la Reserva de la Biosfera ­ SEAFLOWER - la integración de los niveles nacional, regional y local para su administración y manejo\. Que la zonificación y su reglamentación general de usos, constituyen el principal instrumento de planificación para la conservación y manejo del AMP, en donde se establecerán los determinantes ambientales que orientarán las diferentes actividades sostenibles que se realicen al interior como en las zonas del AMP\. Que la zonificación y su reglamentación general de usos se elaboran teniendo en consideración los valores 37  Project Completion Report ecológicos, socioeconómicos y culturales que orientaron la inclusión del Departamento Archipiélago en la red Internacional de UNESCO como Reserva de Biosfera ­ SEAFLOWER\. Estos buscan en asocio con los demás instrumentos de planificación y manejo disponibles, la protección y conservación de los ecosistemas y biodiversidad existentes en el AMP, incorporando en la misma una red de zonas estrictamente protegidas que garanticen el uso y acceso sostenibles de los bienes y servicios ambientales que generan\. Que adicionalmente a la protección y conservación de áreas representativas por su biodiversidad, la zonificación y reglamentación general de usos también facilita la protección de otras áreas con altos valores de conservación, mediante la asignación de zonas de protección a un amplio rango de hábitats como las formaciones coralinas, praderas de fanerógamas marinas y ecosistemas de manglar así como hábitats relevantes para especies amenazadas o en vías de extinción (por ejemplo, langosta espinosa, caracol pala, pulpos, pargos, meros, entre otros) u otros sitios especiales o únicos\. Que el AMP se administra y maneja como un área de usos múltiples que implica que, al mismo tiempo que se fortalecen las actividades de conservación, se permite la generación y mantenimiento de actividades productivas tanto recreacionales, como comerciales, de investigación y educación ambiental así como las tradicionales desarrolladas por las comunidades locales\. Que la administración y manejo del AMP permitirá asegurar el logro de los objetivos de su establecimiento, designación y administración y los elementos centrales que se deben considerar en el proceso comprenden: a) Protección de especies: proteger la biodiversidad y especies de particular interés, incluyendo, langostas, tortugas marinas, tiburones, peces loro, pepinos de mar, corales (Acropora spp , Porites spp, Dendrogyra spp), manglares, fanerógamas marinas y algas, entre otras; b) Protección de hábitats: proteger hábitats representativos y aquellos que son críticos para la supervivencia de especies de particular interés y el funcionamiento de los ecosistemas tomando en consideración las conectividades ecológicas existentes entre ellos; c) Resolución de conflictos: eliminar o minimizar usos incompatibles y conflictos entre usuarios; d) Recuperación: permitir la regeneración de comunidades bentónicas, poblaciones de peces y otras especies marinas, degradadas y/o sobreexplotadas; e) Impactos socioeconómicos: minimizar los impactos socioeconómicos adversos; f) Uso sostenible: asegurar la sostenibilidad del uso de los recursos; g) Equidad y tenencia: garantizar la distribución equitativa de los beneficios económicos y sociales y proteger los derechos tradicionales; h) Implementación: facilitar la delimitación, cumplimiento y el seguimiento de las medidas que se adoptan\. Que la zonificación interna del AMP y la reglamentación general de usos derivadas de esta, reconocen de manera expresa los derechos e intereses de las comunidades tradicionalmente asentadas en el área, facilitando el desarrollo de actividades de uso tradicional de los recursos marinos y costeros en concordancia con las costumbres y tradiciones de los pobladores\. Que la contribución de la investigación científica para el manejo y conocimiento del AMP se reconoce en la zonificación y reglamentación general de usos, asignando para estos fines, unas áreas específicas al interior de cada zona, que permitan mejorar la información y conocimientos requeridos tanto para el seguimiento del Plan de Manejo que se formule como para verificar la eficiencia y efectividad de la zonificación establecida\. Que la zonificación y reglamentación general de usos del AMP, se construyen tomando en consideración los demás instrumentos de planificación, ordenamiento y desarrollo territorial elaborados con anterioridad por las entidades con funciones y competencias en el área, y propone un esquema único, consistente y simplificado para el manejo y administración de toda el AMP\. Que la zonificación y reglamentación general de usos establecen las finalidades de uso y las formas de acceso para cada una de las zonas que no requieren de permisos especiales así como los tipos de uso y acceso a determinadas zonas que requieren de autorizaciones o permisos por parte de la autoridad competente\. En términos generales, en las Zonas de Uso General, se permiten el mayor número de actividades con el menor número de restricciones buscando fundamentalmente proteger la calidad del agua y de los ecosistemas, mientras que las Zonas de Preservación (no extracción ni acceso), son las más restrictivas\. Que la zonificación estará definida bajo las siguientes categorías: 1\. ZONA DE USO GENERAL 2\. ZONA DE USO ESPECIAL 38  Project Completion Report 3\. ZONA DE RECUPERACIÓN Y USO SOSTENIBLE DE LOS RECURSOS HIDROBIOLÓGICOS\. 4\. ZONA DE CONSERVACIÓN (NO TAKE) 5\. ZONA DE PRESERVACIÓN (NO ENTRY) La zonificación prevé la posibilidad de definir o delimitar otros tipos de áreas específicas al interior de las demás áreas que se zonifican y se identificaron previamente\. Que la zonificación prevé, adicionalmente, la posibilidad de establecer medidas adicionales sobre usos y acceso a determinadas áreas con el fin de poder adelantar actividades que por motivos excepcionales no fueron previstos dentro de la reglamentación de usos generales de cada una de las zonas o áreas descritas en los numerales anteriores, como por ejemplo, razones de seguridad, emergencias, instalación de facilidades para la navegación, operaciones de defensa y el ejercicio de prácticas y costumbres tradicionales por parte de las comunidades nativas del archipiélago\. Que para cada una de las zonas descritas, se establece la regulación de usos generales que orientará el desarrollo de las actividades permitidas, restringidas y prohibidas en cada una de las zonas o en parte de ellas, la designación de áreas al interior de cada una de las zonas del AMP y los procedimientos a seguir por todos los usuarios para obtener los permisos necesarios para el uso y acceso a cada zona según lo establecido en la zonificación\. Que la regulación general de usos, se constituye en determinantes para el ejercicio de las funciones y competencias de las entidades con jurisdicción en el AMP, razón por la cual, deberán incorporarlas en sus respectivos instrumentos de planificación e inversión\. Que mediante acuerdo 021 del Consejo Directivo de CORALINA del 9 de junio de 2005, se aprobó se delimitó internamente el Área Marina Protegida de la Reserva de la Biosfera SEAFLOWER, habiéndose dividido el área en tres sectores, Norte, Central y Sur\. Que corresponde al Consejo Directivo de CORALINA, adoptar la zonificación y reglamentación general de usos del Área Marina Protegida y en merito de lo expuesto, ACUERDA ARTÍCULO PRIMERO: zonificar cada uno de los sectores del Área Marina Protegida de la Reserva de la Biosfera SEAFLOWER, declarada por el Ministerio de Ambiente, Vivienda y Desarrollo Territorial mediante la Resolución 0107 de 2005; delimitada internamente por medio de Acuerdo del Consejo Directivo de Coralina número 021 del 09 de junio de 2005 y representada cartográficamente en los mapas anexos al presente acuerdo y que forman parte integral del mismo\. La zonificación corresponde a una subdivisión con fines de conservación y manejo de las diferentes áreas que integran el AMP, que se planifica y determina de acuerdo con las características naturales, político- administrativas, jurídicas y socioeconómicas de cada una de ellas, para su adecuada administración\. La zonificación que a continuación se define implica diferentes grados de protección que se regulan a través de medidas especiales que garantizan su manejo integral, considerando las situaciones particulares del área en términos de sus potencialidades, restricciones, alteraciones, degradación y presiones de uso\. La zonificación que se adopta es la siguiente: 1\. Zona De Uso General: unidad de manejo sostenible aplicable a aquellas áreas que contienen ecosistemas con una alta oferta de bienes y servicios ambientales, que permiten que sean aprovechados sosteniblemente sin implicar una modificación significativa del entorno natural del área para generar un modelo de desarrollo y utilización de los recursos naturales en beneficio de la región, que sean compatibles con los objetivos de conservación del AMP\. En esta zona se permitirán actividades recreativas de bajo impacto, acuacultura sostenible, pesca de subsistencia pesca artesanal e industrial sostenible, ecoturismo, entre otras\. 39  Project Completion Report 2\. Zona De Uso Especial: unidad de manejo sostenible aplicable a aquellas áreas en donde se requiere implementar medidas de manejo específicas, por ejemplo, para regular el acceso o el tipo de actividades a permitir en sectores con una alta intensidad de uso, para proteger los recursos naturales; establecer umbrales para la recuperación de especies sobre explotadas o para garantizar la seguridad pública frente a contingencias\. Este tipo de zonas podrán establecerse con carácter temporal o permanente dependiendo de la forma en que se definan a través de la reglamentación de los usos AMP\. La Autoridad Ambiental establecerá este tipo de zonas y su reglamentación específica, con base en el marco normativo vigente, con el fin de atender situaciones que requieren de una intervención inmediata\. En estas zonas se restringirá el grado de intervención humana a actividades como: investigación, monitoreo, educación ambiental, ecoturismo, recreación de bajo impacto, anclaje, canal de acceso, pesca sostenible, entre otros\. 3\. Zona De Recuperación y Uso Sostenible De Los Recursos Hidrobiológicos: unidad de conservación y manejo sostenible aplicable a aquellas zonas dentro del área marina protegida que por causas naturales o intervención humana han sufrido daños importantes y requieren un manejo especial para recuperar su calidad y estabilidad ambiental\. En esta zona se permiten actividades de recuperación y/o restauración de ecosistemas, pesca artesanal tradicional regulada, investigación científica, educación ambiental, pesca artesanal y deportiva guiada por pescadores artesanales tradicionales\. Zona De Conservación (NO TAKE): unidad de conservación y manejo sostenible aplicable a aquellas áreas cuyo uso principal será el de protección de la biodiversidad, incluyendo comunidades marinas y procesos ecológicos más representativos del AMP, así como ecosistemas que sean vitales para su desarrollo sostenible\. Esta zona incluye además las zonas declaradas como parques regionales naturales y las que en un futuro se declaren\. En esta zona sólo se permitirán actividades de investigación, recuperación y/o restauración ecológica de ecosistemas degradados, monitoreo, educación ambiental, ecoturismo y recreación de bajo impacto\. Zona De Preservación (No Entry): Unidad de conservación y manejo sostenible aplicable a aquellas áreas cuya existencia sea crítica y fundamental para la protección y conservación de la biodiversidad, incluyendo comunidades marinas y procesos ecológicos más representativos del AMP, así como ecosistemas que sean vitales para su desarrollo sostenible\. El objetivo de su establecimiento es la destinación de áreas al interior del AMP para la estricta conservación de ecosistemas y/o hábitats esenciales que garanticen la integralidad ecosistémica y de los valores naturales del área marina protegida, manteniéndolas libres de intervenciones antrópicas extractivas\. En esta zona sólo se permitirán actividades de investigación científica y monitoreo mediante permiso de la autoridad competente\. ARTÍCULO SEGUNDO: Para alcanzar la misión, objetivos del AMP y los objetivos de la zonificación, se establecen las siguientes regulaciones generales de usos para cada una de las zonas, las cuales incluyen la descripción de las actividades permitidas, las prohibiciones, el uso y/o acceso sin permiso y el uso y/o acceso con permiso: 1\. Zonas de Uso General\. En esta zona se permitirán actividades recreativas de bajo impacto, acuacultura sostenible, pesca de subsistencia, artesanal sostenibles, ecoturismo, transporte marítimo, entre otras\. A\. Prohibiciones\. a) En los sectores Central (Central) y Sur (Southern) del AMP no se permitirán actividades de pesca industrial\. En el sector Norte (Northern) de la AMP, la Junta Departamental de Pesca y Acuacultura en coordinación con la Autoridad Ambiental del AMP/CORALINA y la autoridad marítima, oída la opinión de 40  Project Completion Report los diferentes grupos de interés como pescadores artesanales, industriales pesqueros, entre otros, establecerá y reglamentará las zonas de uso especial destinadas a las actividades de pesca industrial sostenible permitidas para el sector Norte (Northern)\. Parágrafo: Se dará un plazo de hasta un (1) año partir de la entrada en vigencia del presente Acuerdo, para el establecimiento y reglamentación de la pesca industrial sostenible para el sector Norte (Northern) del AMP\. B\. Uso y/o acceso sin permisos\. En las Zonas Uso General se podrán realizar o adelantar las siguientes actividades sin permisos o autorizaciones: a) Actividades de bajo impacto, incluyendo las recreativas\. b) Pesca de subsistencia\. c) Investigaciones científicas y/o tecnológicas nacionales que no impliquen la toma de muestras de la biodiversidad incluyendo los recursos naturales no renovables teniendo en cuenta lo establecido por el Decreto 309 de 2000 o la norma que la sustituya o modifique, Convenio de Diversidad Biológica ­CBD- aprobado por medio de Ley 165 de 1994 y la normatividad vigente sobre acceso a recurso genéticos\. d) Usos tradicionales de los recursos marinos por parte de las comunidades locales siempre y cuando se encuentren permitidas dentro de la zona o soportados por convenios debidamente suscritos y reglamentados con la autoridad ambiental\. e) Fotografía y filmaciones sin ánimo de lucro\. f) Programas educativos sin ánimo de lucro\. C\. Uso y/o acceso con permiso\. Para realizar o desarrollar cualquiera de las siguientes actividades se requiere del trámite y obtención del correspondiente permiso o autorización ante la autoridad competente: a) Extracción o recolección de recursos marinos asociados a actividades diferentes a las permitidas en el numeral A, para cualquier tipo de actividad que se pretenda desarrollar\. b) Pesca artesanal o industrial en cualquiera de sus formas\. c) Pesca industrial para el caso de la excepción prevista para la zona norte\. d) Proyectos de acuacultura o maricultura en caso que así lo exija la normatividad ambiental nacional o regional (rigor subsidiario- acuerdo del Consejo Directivo y aprobación del Ministerio - vigencia transitoria)\. e) Proyectos de turismo u operación de servicios turísticos en caso que así lo exija la normatividad ambiental nacional o regional\. f) Investigaciones científicas y/o tecnológicas conforme a la normatividad en esta materia\. g) Usos tradicionales de los recursos naturales marinos cuando estos no se encuentren cobijados por lo establecido en el inciso B - d), descrito en la sección anterior\. h) Desarrollo y/o remodelación y/o adecuación y/o operación de obras de infraestructura compatibles con los objetivos de conservación definidos para el AMP y para las Zonas de Uso General, entre otras: Facilidades para la descarga o vertimiento de cualquier tipo de residuos tanto líquidos como sólidos\. Construcción, mantenimiento, adecuación y operación de puertos y/o facilidades portuarias\. Construcción, mantenimiento o demolición de cualquier tipo de obra de infraestructura que pueda generar impactos ambientales perjudiciales en el AMP\. i) Desarrollo de proyectos o actividades compatibles con los objetivos de conservación definidos para el AMP y para las Zonas de Uso General, entre otras: Dragados\. Vertimientos de residuos líquidos y sólidos (peligrosos o no peligrosos) desde cualquier fuente (móvil, fija o difusa desde tierra o mar)\. Obras de protección de playas o áreas en riesgo por fenómenos naturales\. j) Cualquier otra actividad compatible con los objetivos generales de conservación y uso sostenible del AMP y de las Zonas de Uso General que no se encuentren mencionadas o descritas en la sección B\. 2\. Zonas de Uso Especial 41  Project Completion Report En estas zonas se restringirá el grado de intervención humana a actividades como: investigación, monitoreo, educación ambiental, ecoturismo, recreación de bajo impacto, anclaje, canal de acceso, pesca sostenible, entre otros\. Las regulaciones generales y específicas de uso de este tipo de esta categoría de zona, se definirá en un plazo no mayor de un (1) año, contado a partir de la entrada en vigencia del presente Acuerdo y se someterán igualmente, a la aprobación por parte del Consejo Directivo\. La Corporación como Autoridad Ambiental y Administrativa del AMP, trabajará en conjunto con las diferentes instituciones y grupos de interés en su establecimiento\. Hasta tanto se elaboren las regulaciones generales y específicas de usos se aplicarán con carácter transitorio las establecidas para las zonas de uso general en lo relacionado con las prohibiciones y las formas (permisos y/o autorizaciones) de acceder, utilizar o aprovechar sosteniblemente los ecosistemas y recursos naturales en estas zonas\. 3\. Zona de Recuperación y Uso Sostenible de los Recursos Hidrobiológicos\. En esta zona se permiten actividades de recuperación y/o restauración de ecosistemas, pesca artesanal tradicional regulada, investigación científica, educación ambiental, pesca artesanal tradicional y pesca deportiva guiada por pescadores artesanales tradicionales\. A\. Prohibiciones\. a) Se prohíbe la pesca industrial\. b) No se permiten actividades recreativas o comerciales que impliquen extracción de recursos naturales renovables distintos a la pesca de subsistencia, pesca artesanal tradicional regulada, pesca artesanal y deportiva guiada por pescadores artesanales tradicionales\. c) No se permiten embarcaciones de propulsión a chorro de uso personal\. B\. Uso y/ o acceso sin permisos\. a) Actividades de bajo impacto, incluyendo las recreativas, que no involucren la extracción de recursos naturales o productos marinos\. b) Pesca de subsistencia\. c) Usos tradicionales de los recursos marinos por parte de las comunidades locales siempre y cuando se encuentren permitidas dentro de la zona o soportadas por convenios debidamente suscritos y reglamentados con la autoridad ambiental\. d) Fotografía y filmaciones sin ánimo de lucro\. e) Programas educativos sin ánimo de lucro\. C\. Uso y/o acceso con permisos\. a) Se permite la pesca artesanal tradicional en los términos definidos por la Junta Departamental de Pesca y Acuacultura y en concordancia con las regulaciones vigentes para el manejo de las pesquerías\. Todas las regulaciones pesqueras existentes en relación con el Archipiélago de San Andrés siguen vigentes, incluyendo, pero no limitándose, a las vedas y las restricciones en el uso de artes de pesca (arpón u otros restringidos)\. b) Pesca deportiva\. c) La investigación, el monitoreo y la educación\. d) Navegación de embarcaciones pesqueras, caso en el cual los equipos utilizados para el desarrollo de sus actividades se deberán encontrar almacenados o asegurados cuando la embarcación se encuentre en tránsito hacia otra zona de pesca autorizada dentro del AMP o hacia puerto de desembarque\. e) El desarrollo de proyectos de acuacultura o maricultura a pequeña escala por parte de pescadores tradicional artesanales legalmente reconocidos para el desarrollo de la actividad\. f) La utilización de dispositivos de agregación de peces (FAD's), sólo se permitirá con autorización y aprobación de la Autoridad Administrativa del AMP/CORALINA y la Junta Departamental de Pesca y Acuacultura\. g) Fotografía y filmaciones con ánimo de lucro\. h) Programas educativos con ánimo de lucro\. 42  Project Completion Report 4\. Zona de Conservación (no take)\. En esta zona sólo se permitirán actividades de investigación, recuperación y/o restauración ecológica de ecosistemas degradados, monitoreo, educación ambiental, ecoturismo y recreación de bajo impacto\. A\. Prohibiciones\. a) No se permiten actividades recreativas o comerciales que impliquen extracción de recursos naturales renovables y no renovables\. b) No se permiten embarcaciones de propulsión a chorro de uso personal\. B\. Uso y/o acceso sin permisos\. a) Actividades de bajo impacto, incluyendo las recreativas, que no involucren la extracción de recursos naturales o productos marinos\. b) Usos tradicionales de los recursos marinos por parte de las comunidades locales siempre y cuando se encuentren permitidas dentro de la zona o soportadas por convenios debidamente suscritos y reglamentados con la autoridad ambiental\. c) Fotografía y filmaciones sin ánimo de lucro\. d) Programas educativos sin ánimo de lucro\. C\. Uso y/o acceso con permisos\. a) La investigación, el monitoreo y la educación b) Navegación de embarcaciones pesqueras, caso en el cual los equipos utilizados para el desarrollo de sus actividades se deberán encontrar almacenados o asegurados cuando la embarcación se encuentre en tránsito hacia otra zona de pesca autorizada dentro del AMP o hacia puerto de desembarque\. c) El desarrollo de proyectos de acuacultura o maricultura a pequeña escala por parte de pescadores artesanales legalmente reconocidos para el desarrollo de la actividad\. d) La utilización de dispositivos de agregación de peces (FAD's), previa autorización y aprobación de la Autoridad Administrativa del AMP/CORALINA y la Junta Departamental de Pesca y Acuacultura\. e) Fotografía y filmaciones con ánimo de lucro\. f) Programas educativos con ánimo de lucro\. 5\. Zona de Preservación (no entry)\. En esta zona sólo se permitirán actividades de investigación científica y monitoreo mediante permiso de la autoridad competente\. A\. Prohibiciones\. Se prohíben las siguientes actividades que pueden traer como consecuencia la alteración del ambiente natural de estas zonas: a) El vertimiento, introducción, distribución, uso o abandono de sustancias tóxicas o contaminantes\. b) La utilización de cualquier producto químico de efectos residuales y de explosivos, salvo cuando los últimos deban emplearse en obra autorizada\. c) Realizar excavaciones de cualquier índole, excepto cuando las autorice CORALINA por razones de orden técnico o científico\. d) Toda actividad que determine CORALINA como causa de modificaciones significativas del ambiente o de los valores naturales de las distintas áreas\. e) Ejercer cualquier acto de pesca, salvo la pesca con fines de investigación debidamente autorizada por CORALINA, y la pesca de subsistencia en las zonas donde por sus condiciones naturales y sociales se permita esta clase de actividad, siempre y cuando la actividad autorizada no atente contra la estabilidad ecológica de los sectores en que se permita\. f) Recolectar cualquier producto de fauna y/o flora, excepto cuando CORALINA lo autorice para investigaciones y estudios especiales\. 43  Project Completion Report g) Llevar, usar o portar sustancias inflamables no expresamente autorizadas y sustancias explosivas\. h) Arrojar o depositar basuras, desechos o residuos\. i) Producir ruidos o utilizar instrumentos o equipos sonoros que perturben el ambiente natural\. j) Alterar, modificar o remover señales, avisos, vallas y mojones\. B\. Uso y/o acceso sin permisos\. a) Todas las actividades que se pretendan adelantar en estas zonas requieren de autorización por parte de la autoridad competente y sólo se podrán realizar siempre y cuando no causen alteraciones al ambiente natural\. b) Tránsito de embarcaciones C\. Uso y/o acceso con permisos\. Las personas que utilicen estas zonas podrán permanecer en ellas solo el tiempo especificado en las respectivas autorizaciones\. Los usuarios con cualquier finalidad deberán obtener previamente la correspondiente autorización de acuerdo con el objeto de la visita y cumplir con los demás requisitos que se señalen en la respectiva autorización\. Se requiere de autorización para el desarrollo de las siguientes actividades: a) Desarrollar investigaciones y/o estudios científicos y/o tecnológicos\. ARTÍCULO TERCERO: Los permisos o autorizaciones requeridos para el desarrollo de las actividades descritas en cada una de las zonas, se adelantarán ante las autoridades competentes y con sujeción a las normas y procedimientos establecidas para tal fin\. En todo caso, las entidades encargadas de adelantar dichos trámites, tomarán en cuenta las regulaciones establecidas en el presente Acuerdo, con la finalidad de contribuir al logro de los objetivos de conservación, uso sostenible y manejo integral del AMP\. ARTICULO CUARTO: CORALINA adelantará las gestiones necesarias ante la Autoridad Marítima para el establecimiento y regulación de rutas de navegación al interior del AMP y de las demás actividades de su competencia, en especial lo relativo a las señalizaciones y designaciones de zonas de fondeo y/o amarre\. ARTÍCULO QUINTO: En todas las zonas a que se refiere el presente acto administrativo, se prohíbe: a\. Dañar, afectar o alterar de cualquier forma, las formaciones coralinas, ecosistemas de manglar, fanerógamas marinas, playas, dunas y demás sistemas ambientales presentes\. b\. Extraer, movilizar, transportar, vender y/o comercializar elementos y/o productos que hagan parte de los sistemas ambientales como los corales, manglares, fanerógamas marinas, playas, dunas, o sus componentes o productos derivados sin autorización de la autoridad competente\. c\. Anclaje sobre las estructuras coralinas\. d\. Operar o anclar embarcaciones de manera que causen o sean causa probable del daño a los corales, manglares, fanerógamas marinas, fondos marinos o cualquier otra parte del AMP\. e\. Verter o descargar cualquier tipo de sustancia desde tierra, mar o aire sin autorización f\. Dragar, perforar, depositar, instalar, fijar o separar estructuras, o cualquier otra alteración del fondo marino sin autorización, incluyendo entre estas, las actividades de operación de dispositivos de agregación de pesca (arrecifes artificiales, etc\.), (FAD's), la acuacultura y la utilización de equipos de investigación\. g\. Extraer, destruir, mover, poseer, vender o comercializar recursos del patrimonio histórico o cultural sin autorización de la entidad competente\. h\. Introducir o liberar especies exóticas de fauna y/o flora o repoblar con especies nativas sin autorización\. i\. Desarrollar actividades de acuacultura o maricultura sin la autorización de la Junta Departamental de Pesca y Acuacultura y la Autoridad Administrativa del AMP /CORALINA\. j\. Destruir, remover o cualquier otra forma de alteración de boyas, señalizaciones o equipamientos científicos\. k\. Extraer, dañar, alterar, vender, comercializar o poseer cualquier especie o sus partes o productos, que se encuentren reguladas y protegidas por medidas internacionales, nacionales o locales; incluyendo las especies marinas definidas como amenazadas o en peligro de extinción\. 44  Project Completion Report l\. Usar explosivos y demás artes de pesca prohibidas legalmente\. m\. Introducir o liberar sustancias nocivas, incluyendo venenos o agentes químicos para el ejercicio de la actividad pesquera en cualquiera de sus modalidades\. n\. Recolectar huevos o alterar los nidos de cualquier especie animal en las playas, manglares, cayos, áreas costeras y aguas marinas\. o\. Desarrollar proyectos de investigación y/o monitoreo sin la autorización de las Autoridades competentes\. ARTÍCULO SEXTO: CORALINA deberá formular y/o ajustar y adoptar, dentro de los seis (6) meses siguientes a la entrada en vigencia del presente acuerdo, los Planes de Manejo de cada uno de los Parques Regionales incluidos en el AMP, tomando en cuenta las determinantes establecidas en el presente Acuerdo\. ARTÍCULO SÈPTIMO: CORALINA deberá divulgar y dar a conocer a la comunidad en general, las disposiciones contenidas en el presente Acuerdo\. Copia del mismo deberá ser remitido a las autoridades competentes para lo de su competencia, en todo caso se publicará en un medio de circulación regional y página WEB de la Corporación\. ARTICULO OCTAVO: La zonificación y reglamentación aquí establecida se revisará cada tres (3) años ARTICULO NOVENO: El incumplimiento de las disposiciones contenidas en el presente acuerdo dará lugar a la imposición de las medidas preventivas y sanciones contenidas en la Ley 99 de 1993 o la legislación que la sustituya o modifique\. ARTICULO NOVENO: El presente Acuerdo rige a partir de la fecha de su publicación en el Diario Oficial\. COMUNÍQUESE, PUBLÍQUESE Y CÚMPLASE\. 45  Project Completion Report Annex 3\. Zoning Consultation and Negotiation Meetings & Workshops (2003 ­ 2004) No\. DATE MEETINGS&WORKSHOPS STAKEHOLDER No\.PART\. OBSERVATION* 01 Jan Northern Cays Zoning Divers 5 CORALINA'S 29/03 MPA Team (2 OPSC members) Feb Northern Cays Zoning Fishers 10 CORALINA'S 5/03 MPA Team (2 OPSC members) 02 June MPA's Zoning & Financial Associated and 32 MPA 30/03 Sustainable Plan Workshop independent Interdisciplinary SAI artisanal fishers Team(5 members) 03 Jun Southern Cays Zoning Associated and 10 CORALINA's 06/03 independent Directive Board artisanal fishers member (1), SAI San Luis and General Director Cove Sea Side and MPA Interdisciplinary Team ( 2 members) 04 Jul Exchange of Experience with Associated and 22 CORALINA's 15/03 experts from the Morrocoy independent General Director, SAI Park Venezuela fishers MPA Interdisciplinary Team(7 members) 05 Aug Southern Cays Zoning Associated and 21 CORALINA's \.02/03 independent General Director , SAI fishers, San Luis, MPA The Hill and Interdisciplinary Cove Sea Side Team (5 sites members) 06 Aug Door-to-door presentation of Industrial fishers, 2 MPA 12/03 The MPA Project Managers Interdisciplinary SAI Team (2 members) 07 Sep\. San Andres MPA Zoning Associated and 11 CORALINA's 15/03 Meeting independent MPA SAI artisanal fishers Interdisciplinary San Luis and Team(6 Cove Sea Side members) Sep\. San Andres Zoning Meeting Artisanal fishers, 15 CORALINA's 08 16/03 Fisheries Mutual MPA SAI Association, SAI, Interdisciplinary North End\. Team (4 members) 09 Sep San Andres Zoning Artisanal Fishers 8 CORALINA's \.18/03 from different MPA SAI sectors Interdisciplinary Team(4 members) 10 Sep San Andres Zoning Traditional users, 32 CORALINA's 19/03 First Plenary fishers, water Directive Board SAI sports, Tourism, Members(2), education Environmental Institutions, local Manager, government, MPA 46  Project Completion Report No\. DATE MEETINGS&WORKSHOPS STAKEHOLDER No\.PART\. OBSERVATION* authorities, Interdisciplinary others Team(6 members) 11 Oct San Andres Zoning Artisanal fishers, 29 MPA 03/03 Workshop Fisheries Mutual Interdisciplinary SAI Association, SAI, Team(3 North End members) 12 Nov Old Providence y Santa Institutions 21 MPA 11/03 Catalina Zoning Alternatives Interdisciplinary OPSC Team (2 members) 13 Nov Old Providence y Santa Fishers, Divers 38 MPA 12/03 Catalina Zoning Alternatives Interdisciplinary OPSC Team (2 members) 14 Dec\. Southern Cays (Bolivar Associated and 32 CORALINA's 27/03 Albuquerque) Zoning independent General Director SAI Workshop\. Artisanal fishers, MRE/Embassy in Introduction to North End, San Jamaica, MPA exchange with fishers in Luis, Cove\. Interdisciplinary Jamaica Team (6 members) 15 Jan Southern Cay Albuquerque Artisanal Fishers 7 CORALINA'S 20/04 Zoning Field Trip MPA SAI Interdisciplinary Team (SIG Technician and Marine Biologist) 16 Jan Southern Cay Bolivar Zoning Artisanal Fishers 7 CORALINA'S 21/04 Field Trip MPA SAI Interdisciplinary Team (SIG Technician and Marine Biologist) 17 Apr MPA's Zoning Artisanal Fishers, 37 MPA 26/04 (external boundaries) Divers, NGO's Interdisciplinary 0PSC Team (3 members) 18 May Old Providence y Santa Artisanal Fishers 17 MPA 11/04 Catalina Zoning Final Santa Catalina, Interdisciplinary OPSC Proposal Jones Point, Team (3 Town members) 19 May Old Providence y Santa Artisanal Fishers 18 MPA 12/04 Catalina Zoning Final Boxon, Mountain, Interdisciplinary OPSC Proposal Rocky Point Team (3 members) 20 May Old Providence y Santa Artisanal Fishers, 10 MPA 13/04 Catalina Zoning Final Bottom House, Interdisciplinary OPSC Proposal Southwest Bay Team (3 members) 21 May Old Providence y Santa Artisanal 10 MPA 14/04 Catalina Zoning Final Fishers, Interdisciplinary OPSC Proposal Freshwater Bay, Team (3 Lazy Hill, Old members) Town, Free Town 22 Jun Access Channel and Port Captaincy, 4 MPA 15/04 Anchoring Areas MPA Interdisciplinary OPSC Interdisciplinary Team (3 47  Project Completion Report No\. DATE MEETINGS&WORKSHOPS STAKEHOLDER No\.PART\. OBSERVATION* Team members) 23 Jun Old Providence y Santa Artisanal Fishers 13 MPA 15/04 Catalina Zoning No Take from the West Interdisciplinary OPSC Area Negotiation Site Team (3 members) 24 Jul Southern Cay Albuquerque Associated and 32 CORALINA's 10/04 Final Zoning Independent General Director SAI Fishers North ,MPA End, San Luis Coordinator, and Cove Sea MPA Side Interdisciplinary Team (7 members) 25 Aug Old Providence y Santa Cooperative, 4 MPA 02/04 Catalina Zoning Casitas INCODER, PNN Interdisciplinary SAI Cubanas Area Negotiation Mc Bean Lagoon, Team CORALINA (3members) 26 Aug Southern Cay Albuquerque Associated and 25 CORALINA's 06/04 Final Zoning Independent General Director SAI Fishers ,MPA (exclusively dive Coordinator, or hand line & MPA dive) Interdisciplinary Team (8 members) 27 Aug San Andres MPA Final Stakeholders 40 CORALINA's 09/04 Zoning Plenary and Representatives: General Director SAI Agreement Document Traditional users, ,MPA elaborated\. fishers, water Coordinator, Southern Cays (Bolivar, sports, Tourism, MPA Albuquerque) Zoning education Interdisciplinary Revised\. institutions local Team (8 government, members) authorities, others 28 Aug Old Providence y Santa Stakeholders: 18 MPA 29/04 Catalina Zoning Plenary Artisanal Interdisciplinary OPSC Fishers, Dive Team (3 Shops, members) Institutions 29 Aug Exchange of ideas about Artisanal fishers 7 MPA 30/04 Alternatives livelihoods and from Interdisciplinary SAI socioeconomic monitoring San Luis and Team (3 Cove members) 30 Aug Exchange of ideas about Artisanal fishers 12 MPA 31/04 alternatives livelihoods and North End Interdisciplinary SAI socioeconomic monitoring Team (2 members) 31 Sep Updated MPA General Independent 10 MPA 16/04 Planning Process, Final Artisanal Fishers Interdisciplinary SAI Zoning alternatives San (semi-industrials) Team Andres and Southern Cays from Newball (5members) Avenue, North End 32 Sep\. Exchange of Experience with Artisanal and 25 Coordinator, 21/04 The Ocean Conservancy industrial Fishers MPA SAI Experts about Sharks- Interdisciplinary 48  Project Completion Report No\. DATE MEETINGS&WORKSHOPS STAKEHOLDER No\.PART\. OBSERVATION* Monitoring and indicators Team (6 workshop members) 33 Oct\. Stakeholder Encounter with Stakeholders: 32 CORALINA'S 7/04 the MPA Project International Artisanal fishers, General Director, SAI Advisory Board IAB Sport Divers, MPA Institutions, Coordinator, government staff MPA Interdisciplinary Team ( 5 members) IAB (4 members) TOTAL 616 SAI: San Andres Island OPSC: Old Providence y Santa Catalina 49  Project Completion Report Annex 4\. Inter-institutional Meetings & Workshops (2003 ­ 2004) No\. DATE MEETINGS & STAKEHOLDER No\.PART\. COMMENTS* WORKSHOPS 01 Dec16/03 Inter-institutional National 9 CORALINA's Committee and University, MPA COLCIENCIAS Project SENA, Interdisciplinary Meeting ",Management INCODER, Local Team (2 members ) and Conservation of the Government Fisheries Resources in Secretariat of the Seaflower Agriculture and Biosphere Reserve Fisheries, Program" CORALINA 02 Feb\.21/0 MPA's Legal Local 15 CORALINA's 4 Declaration Negotiation Government General Director, Meeting\. General Staff: Environmental Participatory Planning Governor, Manager, Legal Process of the MPA Director of Department Updated\. Planning, Coordinator an Secretary of MPA Tourism, Interdisciplinary Secretary of Team (4 members ) Health, Coordinator of Legal Office, Secretariat of Agriculture, Marine Biologist 03 Mar Inter-institutional National 16 CORALINA'S 18/04 Committee and University, General Director, COLCIENCIAS Project INCODER, Environmental Meeting CORALINA, Manager and MPA "Management and SENA, Interdisciplinary Conservation of the DIMAR, The Team (4 members) Fisheries Resources in Christian the Seaflower University, Local Biosphere Reserve Government Program" Meeting Secretariat of Agriculture and Fisheries, The Ocean Conservancy TOC 04 Apr 2/04 Inter-institutional National 14 CORALINA'S Committee and University, MPA COLCIENCIAS Project INCODER, Interdisciplinary Meeting CORALINA, Team (4 members "Management and SENA, Conservation of the DIMAR, Christian Fisheries Resources in University, Local the Seaflower Government Biosphere Reserve Secretariat of Program" Agriculture and Fisheries 05 Apr International "Coast National 20 CORALINA'S MPA 19-23/04 line Management" University, Coordinator and 50  Project Completion Report Seminar INVEMAR , Interdisciplinary CORALINA, Team (6 members) INCODER, DIMAR (Port Captaincy), National and International Key Note Speakers from Puerto Rico, Belize, Guajira, Santa Marta 06 Jul 2/04 Fishers Productive Red de 11 CORALINA'S: Chain Committee Solidaridad MPA Meeting Social, Local Interdisciplinary Government Team (1 member ) Secretariat of Planning Agriculture and Management Office Fisheries, (1) INCODER, CORALINA, National University 07 Aug Inter-institutional National 10 12/04 Committee and University, CORALINA's COLCIENCIAS Project SENA, Environmental Meeting "Management INCODER, Local Manager, and Conservation of the Government MPA Fisheries Resources in Secretariat of Interdisciplinary the Seaflower Agriculture, Team ( 4 members) Biosphere Reserve DIMAR, Program" CORALINA 08 Aug Inter-institutional National 10 MPA 30/04 Committee and University, Interdisciplinary COLCIENCIAS Project SENA, Team ( 4 members) Meeting INCODER, "Management and Secretariat of Conservation of the Agriculture and Fisheries Resources in Fisheries, the Seaflower CORALINA, Biosphere Reserve DIMAR Program" 09 Sep\.7/04 Fisheries Meeting with Artisanal and 15 local Environmental industrial fishers, The meeting was Authorities Local convoked by the (Procuraduría Government Environmental and Ambiental) Staff, Agricultural Attorney CORALINA'S General Director, Environmental Manager, MPA Project Interdisciplinary Team(4) 10 Sep 9/04 Inter-institutional Artisanal Fishers 16 CORALINA'S Committee and From San General Director, 51  Project Completion Report COLCIENCIAS Project Andres, Old MPA Workshop Providence and Interdisciplinary "Management and Santa Catalina Team (5 members) Conservation of (Cooperative Fish Fisheries Resources in and Farm), Port the Seaflower Captain, National Biosphere Reserve University, Program" INCODER, SENA, CORALINA, Secretariat of Agriculture and Fisheries\. 11 Sep Artisanal Fishers Red de 13 Convoked by the 10/04 Productive Chain Solidaridad Red de Solidaridad Meeting Social, Artisanal Social General Participatory Fishers, SENA CORALINA'S MPA Planning Process of Coordinator and The MPA Updated Interdisciplinary Team (4 members) Sep MPA Inter-institutional National Police 17 CORALINA'S 12 13/04 Agenda Workshop Department, General Director, Port Captain, MPA Coordinator Local and Interdisciplinary Government: Team (5 members) Department Of Planning, Inter-institutional Secretariat of Agenda Issues: Tourism, Enforcement, uses Secretariat of and regulations, Interior, financial INCODER, sustainability, Voluntary legislation and Inspectors policies\. ( Divers) 13 Sep CORALINA-TOC INCODER, Red 25 CORALINA's 21/04 Exchange of de Solidaridad Environmental Experiences Meeting Social, Port Manager, MPA Captain, Armada Interdisciplinary Nacional, Coast Team ( 4 members) Guard, Secretariat of Agriculture, National University, SENA TOTAL 191 52  Project Completion Report Annex 5\. Educational and Extension Materials (2001 ­ 2005) Type Topic/Name Reader Partner Print status/ June 2005 Flyers Introduction to MPAs (English) Adults - not reprinting Introduction to MPAs (Spanish) Seaflower Biosphere Reserve UNESCO BR needs reprinting (English) Seaflower Biosphere Reserve (Spanish) Diving practices (English) Coral recovery revised for 2nd Diving practices (Spanish edition Corals (English) Coral recovery revised for 2nd Corals (Spanish) edition Mangroves (English) MAP received from printer Mangroves (Spanish) Curricula Marvelous Mangroves in San Teachers MAP not reprinting Andres sent to Honduras Marvelous Mangroves in in process Honduras Marvelous Mangroves in Guatemala Marine (Spanish) - ready for printing Marine (English) ready for printing Booklets Corals (bilingual) Adults Coral recovery revised for 2nd edition Mangroves (bilingual MAP received from printer RB 360 Special MPA edition - not reprinting Sea Turtles (bilingual) Children - revised for 2nd edition A Promise to the Sea (bilingual) - reprinting Coral Reef Coloring Book Coral recovery revised for 2nd (bilingual) edition MPA Alphabet - received from printer Folders Corals (bilingual) Any - needs reprinting MPA/corals (bilingual) Coral recovery needs reprinting Calendars Corals (bilingual) Any Coral recovery produce 2nd edition MPAs/marine ecosystems - printing (bilingual) Plastic Good diving practices (bilingual) Adults Coral recovery produce 2nd edition cards Mooring buoys Buoys printing Posters Mooring buoys (English) All Buoys printing Mooring buoys (Spanish) MPA boundaries - printing Marine ecosystems - file frozen Videos MPA introduction (English w/ All TOC no revision needed subtitles) MPA clips - in process Other MPA button All - producing MPA sticker - producing MPA ruler - producing MPA T-shirt (1) - distributed MPA T-shirt - producing MPA cap - distributed Seaflower puzzle UNESCO BR produce 2nd edition 53  Project Completion Report Annex 6\. Seaflower MPA Management Structure CORALINA Board of Directors MPA Advisory Committees Standing Advisory Committees CORALINA Stakeholder Advisory Committee International San Andres Office Providence & Santa Catalina Office Inter-Institutional Advisory Board Committee (IIC) (IAB) MPA Project Team MPA Project Team Special Advisory Committees International Northern Section Southern Section Advisory Board Office Central Section Office Office Technical Advisory Committee (TAC) 54  Project Completion Report International Advisory Board Stakeholder Advisory Committee Inter-Institutional Committee Technical Advisory Committee Membership by individual Representatives as indicated: Representatives/ 1 unless Representatives/ 1 each (9): External advisory capacity only Southern Section (9) otherwise noted (10): - Minister of Environment - Artisanal fishers ­ 3 - DIMAR - National Park Unit - Professional divers ­ 2 - Port Captain/2 (SA, OPSC) - INVEMAR - Other water sports ­ 2 - Coast Guard - INCODER - Traditional users ­ 1 - Secretary of Agriculture and - Departmental government - Marinas - 1 Fisheries (SA) - SENA - Municipal Fisheries (OPSC) - Universities Central Section (7) - INCODER - Port Captain - Artisanal fishers ­ 2 - Mc Bean Lagoon National - CORALINA - Professional divers ­ 2 Park - Other water sports ­ 1 - Christian University - Traditional users -1 - CORALINA - Tourism - 1 55

REVIEW

P002984

 ICRR 13115 Report Number : ICRR13115 IEG ICR Review Independent Evaluation Group 1\. Project Data: Date Posted : 09/11/2009 PROJ ID : P002984 Appraisal Actual Project Name : Ug-power Sil 4 (fy02) Project Costs (US$M): US$M ): 89\.3 87\.8 Country : Uganda Loan/ US$M ): Loan /Credit (US$M): 62\.0 61\.2 Sector Board : EMT Cofinancing (US$M ): US$M): 18\.0 21\.4 Sector (s): Power (95%) Central government administration (5%) Theme (s): Infrastructure services for private sector development (34% - P) State enterprise/bank restructuring and privatization (33% - P) Regulation and competition policy (33% - P) L/C Number : C3545 Board Approval Date : 07/03/2001 Partners involved : Nordic Development Closing Date : 12/31/2004 03/31/2008 Fund (NDF) Norwegian Agency for Development Cooperation (NORAD) Evaluator : Panel Reviewer : Group Manager : Group : Robert Mark Lacey Roy Gilbert Monika Huppi IEGSG 2\. Project Objectives and Components: a\. Objectives: The objectives of the project, according to the PAD, were: (a) to improve power supply to meet demand by supporting critically needed investments in the electric power sub-sector; and (b) to strengthen Borrower capacity to manage reform, privatization and development in the power and petroleum sub-sectors\. These objectives are the same as those stated in the Credit Agreement except that in the latter, the word “privatizationâ€? does not feature in objective (b)\. b\.Were the project objectives/key associated outcome targets revised during implementation? No c\. Components (or Key Conditions in the case of DPLs, as appropriate): There were four components\. Component A Power System Expansion and Rehabilitation (US$83\.9 million at appraisal, US$80\.5 million at closure) financed (i) two 40 MW hydropower turbines (units 14 and 15) at the Kiira hydropower facility; (ii) upgrading and extension of the System Control and Data Acquisition (SCADA) and telecommunication systems; (iii) rehabilitation of transmission system components; (iv) civil works and hydro-mechanical equipment for completing the installation of an earlier turbine unit at Kiira; and (v) project design and supervision\. Component B Environmental Monitoring (US$0\.2 million at appraisal, US$40,000 at closure) financed an environmental officer and monitoring equipment to ensure compliance with the Bank’s and with Uganda’s environmental requirements\. Component C Power Sector Development and Reform (US$2\.4 million at appraisal, US$5\.6 million at closure) supported power sector development and reform through capacity strengthening and studies\. Component D Petroleum Sector Development and Reform (US$1\.0 million at appraisal, US$1\.1 million at closure) aimed to enhance the capacity of the Ministry of Energy and Minerals Development (MEMD) to manage the petroleum sector through the provision of monitoring equipment and consultancy services\. d\. Comments on Project Cost, Financing, Borrower Contribution, and Dates: Project Cost\. Due to cost savings on procurement of the turbines in Component A, US$21 million was reallocated at the December 2003 Mid Term Review (MTR) as follows: further strengthening and expansion of the transmission system (US$6\.8 million); support for the concessioning of distribution system assets to a private operator (US$11 million); retroactive financing of claims related to the previous Third Power Project (US$2\.3 million); environmental monitoring (US$0\.2 million); and dam safety, geothermal development and tariff mechanisms (US$0\.7 million)\. Financing\. The project was co-financed by NDF and NORAD, who contributed US$11\.3 million and US$6\.7 million respectively\. The Borrower’s contribution, estimated at US$9\.3 million at appraisal, was US$4\.7 million at closure\. This gap was largely filled by a US$3\.4 million increase in the dollar value of the euro denominated NDF contribution due to exchange rate movements\. Dates\. For approximately three years following effectiveness in April 2002, implementation proceeded satisfactorily\. From 2005 onwards, however, progress was slower than anticipated\. Technical problems with the commissioning of the two new turbines caused delays of about 2\.5 years, and procurement issues related to the new project components resulted in a further six months holdup\. Following the recommendation at the MTR, the closing date was extended by two years to December 31, 2006; two further extensions were, nonetheless, required, first to December 31, 2007 and then to March 31, 2008\. 3\. Relevance of Objectives & Design: Relevance of objectives and design was modest \. The project’s objectives were, and remain, substantially relevant \. They are consistent with the goals of the Poverty Eradication Action Plan, an overarching Government of Uganda policy for economic growth and policy reduction, which identified improving access to, and quality of, power transport and telecommunications as priorities for the country's development\. They are also fully consistent with the Bank’s strategic priorities for Uganda with their emphasis on improved and least cost infrastructure delivery, sector reform and privatization\. However, as noted below, development objectives were too broad and ambitious given the resources available for the project\. Overall, design relevance is rated as modest \. While design was of a high technical standard, and focused on the sector’s principal technical, institutional and financial constraints, it was also over ambitious\. The financial and technical resources made available under the project were insufficient to achieve its goals\. The time necessary to implement the project was underestimated and not enough allowance was made for client capacity limitations\. A number of risk factors were not taken fully into account, including hydrology risks beyond those that were analyzed; commissioning delays for the turbines, a risk rated only as modest; the failure of the first private sector Bujagali hydro project to reach closure as planned in 2003; and delays in the private concessioning of the distribution network which impacted negatively on the project’s system loss reduction goals\. 4\. Achievement of Objectives (Efficacy): Overall, the efficacy of the project is rated as modest \. Objective (a) -- to improve power supply to meet demand by supporting critically needed investments in the electric power sub-sector -- was achieved only to a modest extent\. At closure, only some 19 GWh of additional generated energy was produced by turbine units 14 and 15 at Kiira compared to an appraisal estimate of 95 GWh\. This was due mainly to low hydrology conditions resulting from prolonged drought\. While output is now rising significantly as climatic conditions improve, and it is probable that supply will reach appraisal targets within a few years, the anticipated greater flexibility in generation capacity and reduced risks from dam failure are not yet manifest\. This failure was partially offset by over-achievement of two sub-objectives\. Annual outages due to defects in the transmission system have been reduced by 59% against a target of 30%, and the number of new connections per annum had reached about 20,000 by project closure compared to a predicted 10,000\. Objective (b) -- to strengthen Borrower capacity to manage reform, privatization and development in the power and petroleum sub-sectors – was achieved to a substantial extent\. Environmental management capacity was increased -- plans were fully implemented in compliance with both country and Bank safeguard policies, and all necessary mitigation measures were carried out\. A well-functioning regulator (Electricity Regulating Authority, ERA) was established\. The Uganda Electricity Board (UEB) was unbundled into separate entities for generation, transmission and distribution, and the generation and distribution facilities were concessioned to the private sector\. Water management of Lake Victoria has been improved, and a Dam Safety Framework established\. There has been progress in developing alternative energy sources\. The inspection and enforcement capacity of both the MEMD and Uganda National Bureau of Standards has been enhanced through the setting up of petroleum laboratories\. 5\. Efficiency (not applicable to DPLs): The economic efficiency of the project is rated as high \.Despite the tardiness in commissioning the two new turbine units at Kiira, the ERR was substantially higher at closure than at appraisal (the same methodology was applied)\. This is mainly because the delay in the construction of the private Bujagali hydropower plant increased the economic value of the Kiira facilities\. Moreover, according to the Environmental Assessment for the Nile Equatorial Lakes Region, there is a high probability that climate changes will lead to increased run-off, which would enhance further the economic benefits of the two new units\. No separate financial rate of return was calculated\. ERR )/Financial Rate of Return (FRR) a\. If available, enter the Economic Rate of Return (ERR) FRR ) at appraisal and the re -estimated value at evaluation : re- Rate Available? Point Value Coverage/Scope* Appraisal Yes 20% 90% ICR estimate Yes 46% 90% * Refers to percent of total project cost for which ERR/FRR was calculated\. 6\. Outcome: Relevance is efficacy are both modest although efficiency is high\. While the operation played a significant role in furthering and consolidating reform and putting the power sector on a firmer financial footing, project resources were insufficient to reach the development objectives before closure\. a\. Outcome Rating : Moderately Unsatisfactory 7\. Rationale for Risk to Development Outcome Rating: The risks to development outcome are moderate\. When project preparation began, the financial weakness of Uganda’s power sector was defined as a major risk\. The financial performance of the three unbundled companies and the distribution concessionaire is now satisfactory, although loss reduction remains a challenge\. There is a well functioning regulator with a strong record of approving cost reflective tariff adjustments\. This, together with technical and institutional enhancements, should help to ensure sustainable operation and maintenance\. Improvements to hydro generation and transmission facilities will lead to greater flexibility and more reliable power supply over the long term, as well as mitigating the effects of unforeseen rises in petroleum prices\. The Government of Uganda has demonstrated a commitment to deepening power sector reform and has already implemented the most significant institutional changes\. The main outstanding risk concerns Lake Victoria hydrology\. Here, also, there has been considerable improvement in water resource management; however, over-abstraction persists\. Although regional coordination has strengthened, there is still a need for a shared vision and plan for the Lake’s management which would include a careful assessment of the risks and vulnerability associated with hydrological variability and the development of mitigating measures\. a\. Risk to Development Outcome Rating : Moderate 8\. Assessment of Bank Performance: Quality at entry was Moderately Satisfactory \. Project design was technically sound and the implementation arrangements built upon the lessons learnt during previous power projects in Uganda\. Bank-funded activities were clearly demarcated from those of the co-financiers\. The PDOs were clear and easy to monitor\. Design and bidding documents were available prior to project approval, and this contributed to satisfactory progress during the first years of implementation\. However, as noted in Section 3 above, the financial and technical resources, as well as the time available, were insufficient to enable attainment of project goals\. Moreover, risk identification and mitigation had significant shortcomings, and in particular three major risks were not given sufficient weight: drought conditions; the increased generation deficit beyond 2005 resulting from the withdrawal of the first private sponsor for the Bujagali hydro project; and the delay in concessioning the distribution network\. Supervision was Satisfactory \. 12 staff members and consultants participated in supervision (excluding administrative support), and there was one task team leader throughout which undoubtedly contributed to efficacy\. The supervision team demonstrated flexibility and responded in a timely manner to changing circumstances including the Borrower’s request for a restructuring of the DCA at the MTR\. Responsiveness was enhanced by the presence of some team members in the Country Office\. Several unforeseen demands challenged the supervision budget, including the recruitment of an additional consultant hydrologist to address the fall in Lake Victoria water levels, and additional engineering expertise to confront technical problems with the two new turbine units\. at -Entry :Moderately Satisfactory a\. Ensuring Quality -at- b\. Quality of Supervision :Satisfactory c\. Overall Bank Performance :Moderately Satisfactory 9\. Assessment of Borrower Performance: Central Government performance was Satisfactory \. Overall, the Government demonstrated ownership and commitment to project goals, and performed particularly well in implementing the institutional reform program (unbundling, regulation, privatization)\. There were initial difficulties with counterpart funding, and central government electricity bill arrears were only settled towards project closure\. More agile planning could have reduced the generation deficit and the negative impact on Lake Victoria resulting from the withdrawal of the first Bujagali project sponsor\. Project implementation was the responsibility of MEMD, itself part of Government\. Performance was Satisfactory \.The Ministry supervised the policy components directly, while the physical investment and consultancy components were managed by the Project Implementation Unit (PIU)\. There was initially some tardiness in delivering the required monitoring reports, but in general both the Ministry itself and the PIU were diligent in identifying and adequately addressing implementation issues as they arose\. a\. Government Performance :Satisfactory b\. Implementing Agency Performance :Satisfactory c\. Overall Borrower Performance :Satisfactory 10\. M&E Design, Implementation, & Utilization: The quality of M&E design in the PAD was substantial \. The PDOs were clearly defined and a considerable number of quantitative targets were developed with which to measure progress towards their attainment\. These covered institutional measures relating to sector reform and management as well as projected outputs and outcomes such as load shedding, loss reductions, number of new connections etc\. There was, however, an excessive number of indicators and some of them – for example, load shedding and loss reductions – were beyond the project’s scope\. Initially this limited the utilization of some indicators\. In 2006, they were redesigned in a new results framework which made it much easier to link systematically inputs to outputs and outputs to outcomes in the form of progress towards meeting the unchanged PDOs\. This new system of indicators was used during the last two years of implementation and continues to be employed to track progress\. Implementation and utilization are therefore also rated as substantial \. a\. M&E Quality Rating : Substantial 11\. Other Issues (Safeguards, Fiduciary, Unintended Positive and Negative Impacts): Environment: The project was classified as category B for environmental impact purposes\. Although direct environmental issues were minor (the capital works were limited to placing two generating units in existing bays and construction of transmission sub-stations), wider dimensions were addressed\. An Environmental Management Plan was prepared for the restructured project\. A final environmental supervision mission in October 2007 was satisfied that the Plan’s provisions had been, or soon would be, implemented\. According to the ICR, all activities had been completed by closure\. The end use energy efficiency programs initiated under the project, including energy audits of public and private institutions, continue to be implemented under other Bank-supported activities\. The risks associated with falling water levels in Lake Victoria are an ongoing concern\. Abstraction, though reduced, continues at a rate above the amount for power generation that was agreed between Uganda and another riparian country\. Cross sectoral coordination and collaboration, at both regional and national levels, has intensified, as has the Bank's involvement through its participation in the Lake Victoria Discussion Group\. Hydrological concerns have given impetus to the preparation of the of Phase II of the Lake Victoria Environmental Management Project\. Resettlement:Initially, there were no resettlement or social issues associated with the project\. However, the added transmission and distribution components did require some resettlement and land acquisition\. Little detail is provided in the ICR, but it is implied that the impact was minor and adequate remedial and compensatory measures taken in line with Bank safeguards\. Fiduciary: There is no discussion in the ICR of the timeliness and adequacy of project financial audits\. However, the financial management performance of the Uganda Electricity Transmission Company Ltd\. (UETCL), which was responsible for Components A and B, was judged satisfactory, while that of MEMD (components C and D) displayed some weaknesses in accounting policies, budget monitoring, and internal controls; it was judged to be moderately satisfactory\. In order to ensure the financial viability of the power sector, two financial covenants were set: (i) debt service coverage of 1\.0 times net operating revenues in 2001 and 1\.3 times from 2003 onwards; and (ii) a current ratio of 1\.0 in 2001 and 1\.2 from 2002 onwards\. Although there was some tardiness in achieving these targets, by 2006 they were being met or exceeded by all the unbundled entities in the sector, and this continued through 2008\. There is no doubt that the sector is now in a much sounder financial position\. Unintended Outcomes: Following the recommendations of one of the studies supported by the project, Kenya and Uganda have agreed to the extension of an oil pipeline which is expected to reduce the cost of transporting the latter's petroleum supplies by about 50% and increase supply reliability\. 12\. Ratings : 12\. ICR IEG Review Reason for Disagreement /Comments Outcome : Moderately Moderately Development objectives were Satisfactory Unsatisfactory over-ambitious given the resources and time available for implementation\. Much still remained to be achieved at closure\. Risk to Development Negligible to Low Moderate Climatic risks, associated particularly Outcome : with Lake Victoria's hydrology, remain a concern\. Bank Performance : Satisfactory Moderately Design was over-ambitious\. Satisfactory Insufficient weight was given to three major risks\. Borrower Performance : Satisfactory Satisfactory Quality of ICR : Satisfactory NOTES: NOTES - When insufficient information is provided by the Bank for IEG to arrive at a clear rating, IEG will downgrade the relevant ratings as warranted beginning July 1, 2006\. - The "Reason for Disagreement/Comments" column could cross-reference other sections of the ICR Review, as appropriate \. 13\. Lessons: 1\. The scope of project objectives should be narrowed to what can reasonably be achieved with the project's support, and performance indicators restricted to those where it can be expected to have an attributable impact\. While the reforms aimed for here were all desirable, a number of them were beyond the project's financial reach\. The project was also unable to influence the timing of the distribution concession\. 2\. Project preparation should be realistic about the client's implementation capacity and the time it would take to achieve reforms and implement project-supported investments\. 3\. Critical climatic and environmental risks to project outcomes, such as -- in this case -- Lake Victoria water levels, should be fully analyzed and appropriate mitigation built into project goals\. 4\. Least cost options for increasing power supply are not necessarily the same as those for reducing power shortages\. In addition to new generating capacity, the latter are likely to include demand side management and an action plan for reducing system losses\. 14\. Assessment Recommended? Yes No 15\. Comments on Quality of ICR: The ICR is clearly written and focuses on the issues which arose during implementation\. It contains most of the material required to reach an informed judgment concerning the outcome of the project\. There are, nonetheless, two significant shortcomings\. Too much attention is paid to delivery of component outputs and too little to development outcomes\. The assessment of risk to development outcome is thin and backed by little evidence\. Three more minor points: the document is nearly twice the recommended length; more detail could have been provided on the resettlement and compensation resulting from the additional transmission works, and there should have been a discussion in the fiduciary section of project financial auditing and any major procurement issues which may have arisen\. a\.Quality of ICR Rating : Satisfactory

REVIEW

P064981

 ICRR 13585 Report Number : ICRR13585 IEG ICR Review Independent Evaluation Group 1\. Project Data: Date Posted : 05/02/2012 PROJ ID : P064981 Appraisal Actual Project Name : Sana'a Basin Water US$M ): Project Costs (US$M): 30\.0 33\.3 Management Project Country : Yemen Loan/ Loan /Credit (US$M ): US$M): 24\.0 26\.8 Sector Board : US$M ): Cofinancing (US$M): Sector (s): Irrigation and drainage (50%) Crops (30%) Agricultural extension and research (20%) Theme (s): Water resource management (67% - P) Rural services and infrastructure (33% - S) L/C Number : C3774 Board Approval Date : 06/03/2003 Partners involved : Closing Date : 06/30/2009 06/30/2010 Evaluator : Panel Reviewer : Group Manager : Group : Robert Mark Lacey Ridley Nelson IEG ICR Review 1 IEGPS1 2\. Project Objectives and Components: a\. Objectives: The project was originally conceived as the first in an Adaptable Program Lending (APL) operation to support Phase I of a three-phase, 15 year Government of Yemen (GoY) program, the objective of which was to slow down depletion of ground water in the Sana’a Basin aquifers (including fossil aquifers) to gain time for GoY to convert the Sana ’a Basin economy to less water-intensive activities and encourage out -migration (PAD, page 3)\. According to the PAD (page 6), the project development objective (PDO) was “to increase both the quantity and the useful life of the available water resources within the Sana á Basin by increasing the efficiency of agricultural water use and accelerating aquifer recharge, so as to allow time for a gradual shift to a less water -based rural economy, by the following: (i) Conserve water by introducing farmers to modern irrigation /improved equipment and methods that may save up to 40% of water (demand management)\. (ii) Change pumping and water use behavior in the Basin through a comprehensive Information and Public Awareness Campaign (IPAC) that would touch all segments of the Basin population (demand management)\. (iii) Accelerate recharge, in order to save precipitation run -off from evaporation (supply management)\. (iv) Obtain a better understanding of the Basin ’s hydraulic situation, including through systemic monitoring, leading to improved water management (institutional development)\. (v) Build a strong and sustainable institutional base for central and local water basin management, including water regulation and enforcement, planning and water allocation, that may be replicated in other basins (institutional development)\.â€? According to the Development Credit Agreement (DCA), the PDO was “to assist the Borrower in (i) increasing the efficiency of agricultural water use within the Sana ’a Basin; and (ii) accelerating aquifer recharge to allow for a gradual shift to a less water-based rural economy\.â€? This Review is based on the PDO as stated in the PAD as it is more monitorable \. b\.Were the project objectives/key associated outcome targets revised during implementation? No c\. Components (or Key Conditions in the case of DPLs, as appropriate): The project had seven components : 1\. Demand management and irrigation (US$9\.9 million at appraisal, US$10\.3 million at closure)\. This aimed to increase the efficiency of water use through the use of modern irrigation technology \. 2\. Supply management and recharge improvement (US$8\.2 million at appraisal, US$8\.8 million at closure)\. This was to enhance and accelerate groundwater recharge through mostly small conventional dams, sub -surface dams, and other structures\. 3\. Institutional development and capacity building (US$2\.8 million at appraisal, US$3\.8 million at closure), including (i) development and application of a regulatory framework for water use; (ii) Basin water management; and (iii) Basin hydrological and water resource investigation and monitoring \. 4\. Information and public awareness campaign (US$1\.0 million at appraisal, US$0\.9 million at closure) to increase awareness of groundwater scarcity and change behavior of water users \. 5\. Environmental management plan and mitigation program (US$0\.6 million at appraisal, US$0\.9 million at closure) aimed at improving the environment of the Sana'a Basin through water resource conservation, pollution prevention and improved environmental health conditions \. 6\. Project management and monitoring (US$1\.3 million at appraisal, US$1\.1 million at closure)\. 7\. Follow -up project preparation (US$1\.2 million at appraisal, US$1\.0 million at closure)\. d\. Comments on Project Cost, Financing, Borrower Contribution, and Dates: Final project costs were within a few percentage points of appraisal estimates \. The dollar value of IDA disbursements was about 12% higher than foreseen, due to the depreciation of the dollar against the SDR \. A small amount (SDR1,650) was left undisbursed at closure and was canceled \. The Borrower's contribution, mostly in kind, was US$ 0\.5 million higher than the appraisal estimate of US$ 6\.0 million\. In June 2009, IDA agreed to a request from the GoY to a six -month extension of the closing date (to December 31, 2009) to complete dam rehabilitation works \. A further six month extension (to June 30, 2010) was subsequently agreed to enable completion of remaining small contracts \. 3\. Relevance of Objectives & Design: a) Objectives \. The relevance of the PDO was, and remains, high\. (a high Yemen’s fresh water availability is low and limited \. There are no perennial rivers; water comes from rainfall, springs, and groundwater\. Overall availability, at 115 cubic meters (m3) per capita per year is among the lowest in the world; the average in the MNA Region, already low by international standards, is 1,250 m3 per capita per year\. In the highlands, where most of the population lives, groundwater is almost non -renewable, and is being pumped at an average rate of one -and-a-half times that of natural recharge \. In the Sana’a Basin, 5 meters of groundwater per year are being depleted \. It is uneconomic and socially controversial to bring water in from outside the Basin\. The PDO are consistent with the Government of Yemen ’s (GoY) National Water Sector Strategy and Investment Program (updated in 2008)\. The project was identified by the GoY due to the seriousness of Yemen ’s water scarcity\. IDA’s Country Assistance Strategy of August 2002, prevalent at the time of project preparation, highlighted the sustainability of water resources as being one of the key objectives for IDA assistance in Yemen, with emphasis placed on improving water management for environmental sustainability and economic growth \. The current CAS (April, 2009) states (page 3) that “The rapid depletion of water reserves (aquifers) is a major threat to the country\.â€? Helping with the management of natural resource scarcity (especially water resources ) is one of the four strategic objectives of the CAS \. (b) Design \. The relevance of design is assessed as modest \. The statement of project objectives was clear \. The intended intermediate and final outcomes – reduction in the amount of groundwater used for irrigation, increased aquifer recharge, establishment of water users ’ associations, groups and federations (WUA, WUG, WUF), functioning operation and maintenance of the new and rehabilitated dams, approval of the by -laws to the Water Law, completion of licensing and registration of wells, establishment of monitoring systems for groundwater and aquifer recharging, and changes in attitudes towards water conservation in all segments of the population – are closely linked to the objectives and appropriate measures of their attainment \. Similarly, the causal chain between the demand and supply side activities financed by the project – civil works and modern irrigation equipment, institutional development and public awareness campaign – was generally  clear and convincing, with one important exception \. As the ICR (page 5) points out, “It was a mistake in project design to establish the disbursement condition requiring improvement of the quality of effluent and sludge from the Sana’a waste water treatment plant (WWTP) since this was outside the scope of the project interventions and it turned out to be much more difficult than expected \.â€? It depended on major governmental investment decisions over which the project institutions had no control \. This caused considerable delay to the implementation of Component 2 (to the disbursements for which it was a prior condition ), and eventually IDA was obliged to drop it in order to allow civil works to begin \. Design relied on an essentially top -down approach to community water management, with WUAs promoting compliance with regulations prohibiting counter -productive practices such as illegal well drilling \. This did not succeed (see Section 4 below)\. More community-based governance, backed by technical assistance and an adequate legal framework, may have been more successful, but was not considered \. Design did not take sufficient account of a number of factors which affected the outcome and implementation speed of the project\. The time and resources necessary for effective community and social mobilization were underestimated\. Farmers lacked motivation and incentive to join community water management organizations \. Farmers’ strong preference for new piped conveyance systems rather than rehabilitation of existing ones was not identified\. The political commitment of the Government concerning enforcement of the Water Law, approval of the necessary by-laws, enforcement of well licensing and restrictions on water rights, as well as the strengthening of responsible partner institutions, was overestimated \. The increased coordination difficulties consequent upon the (IDA-supported) creation of the Ministry of Water and Environment (MWE), and especially the conflicts with the Ministry of Agriculture and Irrigation (MAI), were not adequately anticipated and mitigating measures were not prepared\. Design did not address the issue of diversifying into non -agricultural activities\. The project, therefore, offers few lessons regarding adaptation to water scarcity through economic diversification \. 4\. Achievement of Objectives (Efficacy): To increase the quantity of the available water resources within the Sana á Basin by increasing the efficiency of agricultural water use and accelerating aquifer recharge is assessed as substantial \. The civil works and modern irrigation equipment financed by the project have increased the efficiency of agricultural water use and also attained accelerated aquifer recharge through dam rehabilitation \. To increase the useful life of the available water resources within the Sana á Basin is assessed as modest \. The project did not succeed in putting in place an effective institutional, legal and regulatory framework necessary to increase the useful life of the available water resources \. Reliance on top-down regulatory approaches has had little success in modifying water use behavior \.The GoY is as yet unable either to govern water use effectively, or to control random drilling which continues to undermine Yemen ’s vital and scarce water resources \. The intermediate steps are discussed below \. Conserving water by introducing farmers to modern irrigation /improved equipment and methods (substantially achieved)\. The ICR reports that the project contributed to reducing the irrigation water requirement by improving irrigation efficiency from 40 - 50% to 70 - 90 %\. The amount of groundwater used for irrigation of crops in the project area was reduced by 14\.8 million cubic meters (m3) between 2003 and 2010, more than 200% of the 7 million m3 target\. This was achieved principally through the conversion of earth channels to piped systems, rather than, as originally intended, through upgrading of the existing piped systems \. The ICR (page 17) reports that the emphasis on the latter at appraisal was due “insufficient assessment of requirements of potential beneficiaries \.â€? The area covered by improved irrigation systems rose from zero to 4,130 hectares (ha), exceeding the target of 4,000 ha\. Changing pumping and water use behavior in the Basin through a comprehensive Information and Public Awareness Campaign (IPAC) that would touch all segments of the Basin population (modestly achieved)\. The ICR reports (page 21) that “The IPAC was well designed, covering the full scope of stakeholders \.â€? It used multi-media methods and was highly participatory \. IPAC is described as a “highly successful component of the project\.â€? A baseline survey of water conservation attitudes in all population segments of the Sana ’a Basin was carried out in 2006, and a follow up impact assessment was performed in 2008\. According to the latter, “Awareness of the dangers of aquifer depletion improved significantly in urban and rural areas according to the results of pre - and post-project surveys\.â€? This is consistent with the Borrower ’s ICR, which states (page 50 of the ICR) that “the IPAC…was successful in generating observable changes in the behavior of the farming communities and other stakeholders towards better understanding of the groundwater situation\.â€? However, this is contradicted by the unchecked continuation of unauthorized drilling \. The ICR reports (page 19) that between 2005 and 2009, only 106 wells were licensed\. Nonetheless, 614 illegal wells were drilled\. As a consequence, groundwater depletion continues to increase in the Sana ’a Basin\. Despite the intensity of the IPAC, the project’s reliance on top-down regulatory approaches has had little success in modifying water use behavior \. “There seems to have been relatively little recognition or support for  developing other local activities to protect domestic water supplies, regulate land and water rights, resolve water-related disputes , and adapt collectively to increasing water scarcity â€? (ICR, page 11)\. One of the behavioral consequences of modernized irrigation may be the expansion of the area under irrigation, which would be contrary to the objectives of Yemen ’s program\. To mitigate this, each WUA signs a tripartite agreement with the Government, and the Technical Secretariat of the Sana ’a Basin Commission (SBC), under which farmers stipulate that they will not carry out such an expansion after having received subsidized modern irrigation technology\. The ICR reports (page 49) that, while there is no evidence of expansion of irrigated agriculture in the project area, no survey was conducted to confirm farmers ’ adherence to the tripartite agreements\. Accelerating recharge, in order to save precipitation run -off from evaporation (substantially achieved)\. The ICR reports that the project contributed to augmenting the recharge of shallow groundwater aquifers by increasing seepage from rainwater harvesting through the rehabilitation of 10 dams, reconstruction of 1 dam and construction of check dams \. Recharge rose from zero to 1\.2 million m3, compared to a target of 1 million m3\. The project originally intended to achieve accelerated aquifer recharge through new artificial recharge schemes including 4 conventional dams, 3 sub-surface dams, a series of check dams, 20 spate breakers, water harvesting pits, and 2,500m terrace rehabilitation in addition to rehabilitation of the 11 existing conventional recharge damsâ€? (ICR, page 18)\. Once again, modifications had to be made due to appraisal insufficiencies \. The four new recharge dams turned out to be infeasible, and the sub -surface dams were also canceled because the proposed sites had been “significantly influenced by the urbanization of Sana ’a City\.â€? However, “no attempt was made to replace these by other locations, thus losing the opportunity of trying such an innovation in the Sana ’a Basin\.â€? Civil works for accelerated recharge were significantly delayed by a stipulation in the DCA that their initiation must be preceded by evidence of improved quality of the effluent and sludge from the Sana ’a waste water treatment plant (WWTP)\. This requirement was not met and was eventually dropped \. The Borrower’s ICR (ICR, page 49) states that, according to the environmental monitoring system, there was “no improvement whatsoever in terms of quality [of the effluent and sludge]\.â€? The health hazard and the risk of aquifer pollution thus remain \. Obtaining a better understanding of the Basin ’s hydraulic situation, including through systemic monitoring, leading to improved water management (modestly achieved)\. Achievements have fallen short of the systematic research and monitoring effort foreseen at appraisal \. A comprehensive water resources assessment study was completed and “some data [are] being collected and analyzedâ€? (ICR, page 39)\. However, the ICR reports that “there is some debate about some aspects of the study\.â€? While the “assessment synthesized information from a wide range of sources and provided a framework and starting point for further work, â€? it also “failed to provide clear information for a more accurate groundwater storage estimate required for decision makers \.â€? Consequently, a number of activities still need to be carried out under a follow up project\. These include additional deep drilling; additional data collection and analysis to understand porosity and specific yield; an increase in the number of wells and pumping tests to estimate hydraulic conductivity parameters; a refining of estimates of calibrated values of hydraulic conductivity; an analysis of the impact of faults and other structural features; and a definition of priorities for the well monitoring program\. While a dam recharge monitoring system was established under the project, Basin -wide recharge monitoring systems were not set up as originally intended and are now to be financed under the follow -up Water Sector Support Project\. The drilling and testing of three exploratory wells to a depth of approximately 1,000 meters to obtain information about aquifers and new sources for drinking water are yet to be completed \. Although an international consulting firm was contracted to carry out a satellite imagery study in 2006, follow-up satellite imagery studies for monitoring changes in irrigated areas, cropping patterns and evapo -transpiration levels, which are crucial for project impact and water balance assessment analysis, are yet to be undertaken \. The project team informed IEG that a second study had been planned for this but was dropped due to shortages of time and money\. Building a strong and sustainable institutional base for central and local water basin management, including water regulation and enforcement, planning and water allocation, that may be replicated in other basins (modestly achieved)\. The PAD reports (page 10) that “groundwater exploitation [in Yemen] is essentially unregulated\. The owner of each of Yemen’s 50,000-100,000 wells (13,000 wells in the Sana’a Basin) is sovereign master of how much to pump\. The ‘law of capture prevails, and the incentives favor competitive mining over conservation \.â€? This situation was meant to be addressed by the new Water Law of 2002\. Although the Law is, according to the PAD, an important achievement, it contains a number of flaws including the following four key issues (i) it allows well digging/drilling up to 60 m, and the deepening of any well by up to 20 m, without a license; (ii) it provides for no levying of water charges; (iii) it grandfathers all prior water rights, including those from all wells drilled within three years of the Law’s effectiveness; and (iv) it does not provide for measurement of water abstraction \. The impact of these drawbacks was meant to be mitigated by, first, having the Sana ’a Basin declared a protected zone, and then, under the project, enacting a number of by -laws to be applied to protected zones \. The Sana’a Basin (along with two others) was declared a protected zone in November, 2002\. However, although the  by-laws have been drafted, they had not (at the time the ICR was completed) been approved and adopted by the Government\. Cabinet ratification was still pending while the drafts were being reviewed by the Ministry of Justice\. According to the ICR, the failure to approve the by -laws by project closure (according to the project team, they were finally approved on February 26, 2011) reflects weak commitment on the part of the Government to enforce the Water Law (IEG was informed by the project team that IDA had no role in the drafting of the Law)\. There are, moreover, a number of weaknesses in the by -laws as drafted\. The ICR reports (page 8) that, although the by-laws propose many duties for WUGs and WUAs, they do not provide them with sufficient legal authority to carry out their responsibilities \. For example, they do not clearly and specifically empower WUA to establish mandatory fees, create and enforce rules, restrict access to water, and impose penalties on those who break the rules\. The testing and introduction of guidelines, systems and procedures for water rights recognition, registration, licensing and administration with and for the NWRA ’s Sana’a Branch (NWRA-SB) has still to be completed\. Wells and tankers have still to be registered with the NWRA -SB\. The ICR attributes this to the weak capacity of NWRA-SB and lack of support from law enforcement officers \. Creation of Water User Federations (WUF) at both the sub-basin and overall Sana’a Basin levels, to enable participatory multi-source and multi-use integrated water resource management (IWRM) remains pending\. According to the PAD, (page 11), it was the intention to build up the capacity of the Sana ’a Basin Commission (SBC) and convert it into a Sana’a Basin Agency (SBA), that would, over time, become the empowered Coordinator of all IWRM activities in the Sana ’a Basin\. In addition, agencies responsible for individual activities would be strengthened within the Government ’s permanent line structure\. These two actions were meant to avoid the establishment of a parallel and quasi -autonomous project coordination unit (PCU, financed from project funds) that had not been found conducive to sustained institution and capacity building \. Due to what the ICR (page 3) describes as “insufficient GoY commitment to the planned reform agenda, â€? this process did not materialize (the project team subsequently informed IEG that there were conflicts of authority between Sanaa City and the Governorship of Sanaa Province concerning SBC leadership )\. Instead, shortly after Board approval (but before Effectiveness), a new Ministry of Water and Environment (MWE) was established, and the Technical Secretariat of the SBC was designated as the PCU without any change in its function \. According to the project team, the Minister of Water Resources and the Environment was reluctant to create the SBA which, he felt, could have diluted his authority over the water sector \. The ICR also states that the creation of the MWE complicated still further the already complex task of coordination among the large number of project partner agencies\. The ICR (page 11) notes that, “although the project attained most of [its] physical targets, it relied heavily on contractual staff and project modalities, and so did little to enhance the capacity of the main water agencies including MWE, NWRA, NWRA-Sana’a Basin, and SBC\. This is attributable to (a) lack of qualified staff; (b) staff incentives; (c) proper management; (d) budget allocation; (e) morale; and (f) leadership\. Despite training programs carried out under the project, the impact of the training seems minimal \.â€? As a result of the shortcomings in the project ’s institutional achievements, “After 7 years of [project] support, the GoY is yet unable to enforce the new water legal framework, and control the random drilling which is undermining the most important resource for the livelihood of the people in the country â€? (ICR, page 19)\. Progress towards attainment of program goals \. Despite the achievements of the improved irrigation infrastructure, much of the project’s intended outcomes remain to be attained, especially on the institutional front \. "Groundwater depletion continues to increase in the Sana ’a Basin, and there is limited demonstrative progress in slowing [it] down" (ICR, page 10)\.The Government decided not to proceed further with the APL \. Rather, a multi-donor Water Sector Support Project (WSSP) was prepared, which would support water sector interventions including the continuation and expansion of the activities planned or begun under the SBWMP \. 5\. Efficiency (not applicable to DPLs): The project was subjected to a cost -benefit analysis at both appraisal and closure \. Not only the physical components (mostly civil works and modern irrigation equipment ), which accounted for just under three -quarters of final project cost, but all costs were factored into the analysis, including those for which specific benefits were not quantified (institutional development, capacity building, environmental management and mitigation, and the public awareness campaign)\. The main quantified benefits were those stemming from the physical investments and consisted of reduced water use and irrigation cost, and increased crop yields \. The project team informed IEG that the non-construction of the four dams foreseen at appraisal had no negative impact on efficiency, though the dams would have had an environmental value due to flood retention \. The same methodology for estimating the benefits (calculating the value added of water on the basis of farm budgets and the average cropping pattern in the project area) was applied both ex ante and ex post \. The combined effect of the benefits was to double water productivity from YR64 (32 US cents) per m3 to YR132 (64 US cents) per m3 (ICR, page 9 and Annex 3)\. The overall economic rate of return (ERR) was estimated at 16\.9%, compared to 19\.7% at appraisal\. The opportunity cost of capital used was 10%\. The results do not include the economic value of water savings from the installation of more modern localized irrigation systems\. Their addition would raise the ERR to 29\.6%\. Increases in farmers’ incomes (estimated at between 13% and 39%) have not been directly factored into the analysis, nor have increased safety and prevention of socio-economic damage downstream resulting from the reduced risk of failure of dams rehabilitated under the project\. While the project investments are economically efficient, their sustainability is questionable because the life of fossil aquifers is still highly endangered (see Section 7 below)\. Efficiency is rated substantial \. ERR )/Financial Rate of Return (FRR) a\. If available, enter the Economic Rate of Return (ERR) FRR ) at appraisal and the re -estimated value at evaluation : re- Rate Available? Point Value Coverage/Scope* Appraisal Yes 19\.7% 100% ICR estimate Yes 16\.9% 100% * Refers to percent of total project cost for which ERR/FRR was calculated\. 6\. Outcome: Outcome is assessed as Moderately Unsatisfactory \. The civil works and modern irrigation equipment financed by the project have increased the productivity of agricultural water use and accelerated aquifer recharge \. The investments are economically efficient \. However, the project did not succeed in putting in place an effective institutional, legal and regulatory framework required to change sufficiently the behavior of water users to impede practices (especially illegal well drilling)\. While the PDO is highly relevant, design contained a number of drawbacks which undermined project results and is rated modest \. With regard to the overall program goal, there is no convincing evidence that the rate of depletion is slowing down \. a\. Outcome Rating : Moderately Unsatisfactory 7\. Rationale for Risk to Development Outcome Rating: IEG concurs with the ICR’s rating of significant risk to development outcome, in the light of : Serious governance weaknesses in the Sana ’a Basin reflected, inter alia, in continued illegal well drilling and still increasing groundwater depletion \. The continued health hazard and risk of aquifer pollution from the Sana ’a WWTP\. The assumption that operation and maintenance (O&M) of dams will be the responsibility of farmers and the lack of a clear role for GoY institutions in assuring adequate O&M \. There has been no systematic assessment of the institutional, technical or financial capacity of farmers ’ organizations to assume these responsibilities, which can be onerous, especially for medium and large scale structures \. a\. Risk to Development Outcome Rating : Significant 8\. Assessment of Bank Performance: (a) Quality at Entry Although extensive and useful work was performed during preparation of the project, and the strategic justification for the operation was sound, Quality at Entry displayed a number of significant shortcomings : The project and its implementation arrangements were too complex for the Borrower ’s capacity\. There were seven components requiring intensive coordination and stakeholder consultation \. Several agencies and line ministries were involved\. The organizational difficulties in implementing the project ’s multiple physical activities and institutional strengthening activities were underestimated given the capacity weaknesses of the GoY institutions engaged in water resource management \. Insufficient attention was given at the preparation stage to overcoming local skepticism, distrust and lack of understanding of the project \. The PAD assumed that the O&M of dams would be the responsibility of beneficiaries without assessing their institutional, technical and financial readiness to assume these responsibilities \. Because of what the ICR (page 17) describes as “insufficient assessment of the situation at appraisal, â€? it was found during implementation that four proposed new recharge dams were not feasible investments \. The decision not to proceed with the building of the dams was taken when the consultants ’ designs were already at an advanced stage\. Similarly, construction of the sub -surface dams also had to be canceled due to urban encroachment from Sana’a City on the sites planned at appraisal \. Insufficient assessment at appraisal of beneficiary requirements and preferences also led to the almost total cancelation of the planned upgrading of the existing piped systems (only 70 hectares were rehabilitated compared to an original estimate of 1,660)\. In addition, the project did not envisage participation of local communities in the procurement of goods and civil works, and there was no provision in the DCA for  procurement through community contracting \. This contributed to slow implementation; a decision was taken later to involve communities in procurement of irrigation systems \. Although the PAD acknowledges the importance of a solid M&E system for this kind of operation, the document contains little discussion of the characteristics of such a system \. The M&E system was left to be established during implementation\. As the Borrower’s ICR points out, the project’s preparation period (three-and-a-half years from concept review to Board approval) was too long, particularly for a politically sensitive sector like water in Yemen \. There was a risk (which, in fact, materialized) of changes in the political environment which could affect project outcome\. (b) Supervision : Twelve supervision missions were undertaken over the life of the project, averaging two per year \. The missions were adequately staffed, and the change of task team leader (TTL) during implementation did not appear to affect continuity \. More continual support was provided by financial management and procurement specialists based in the Cairo and Sana ’a Offices, and by a water resources management specialist in the Sana’a Office\. Supervision was challenged by design inadequacies and Quality at Entry weaknesses \. The team was generally pro-active in addressing these, and although progress was, at times, slow, almost full disbursement of the Credit had been achieved by closure \. The team also responded promptly to queries and issues raised by the Borrower on procurement and financial management; the Borrower ’s ICR indicates satisfaction with IDA performance in this respect \. However, as the ICR points out, IDA should have done more to address the shortcomings of the institutional development component, and to provide more support to the PCU in organizing the test drilling and basin modeling activities\. Policy dialogue was unsuccessful in strengthening the crucially important water by -laws, in assuring their swift approval, and also in addressing the issue of illegal drilling \. When the planned sub-surface dams had to be canceled because of urban encroachment, no attempt was made to find alternative sites, and the opportunity of testing this innovation in the Sana ’a Basin was therefore lost\. Although the risk of expansion of irrigated areas had been mitigated by tripartite contracts to be enforced by the local communities, no survey was undertaken to confirm that farmers were, in fact, respecting the terms of these contracts\. Evidence that safeguards were fully complied with in this Category "A" project is lacking, and there are some indications of possible issues \. at -Entry :Moderately Unsatisfactory a\. Ensuring Quality -at- b\. Quality of Supervision :Moderately Unsatisfactory c\. Overall Bank Performance :Moderately Unsatisfactory 9\. Assessment of Borrower Performance: (a) Government Although the Government showed strong initial commitment to the project, and was, indeed, active in identifying it, it was unable to fulfill several commitments necessary to achieve intended project outcomes : Political commitment to the improved governance necessary to stop, and then to reverse, the depletion of the water resource, has been lacking \. The initial Water Law was weak\. Although the project provided assistance with preparation of the by-laws to mitigate the Law’s shortcomings, these by-laws had not been approved by project closure\. Consequently, the Government and the water agencies did not have the legal ability to enforce the required regulations \. As the ICR (page 13) points out, “it is crucial for the GoY to beef-up its commitment to improving water governance in Yemen in order to save limited fossil groundwater to the next generations\.â€? The project was unable to strengthen the water agencies as planned because of insufficient GoY commitment to enforce their active participation and to create the necessary enabling environment \. The Government did not comply with the disbursement condition in the DCA committing it to carry out improvements of the Sana’a WWTP within a year\. This not only created significant implementation delays, but also means that health hazards and potential aquifer pollution dangers remained unaddressed \. (b) Implementing Agency : The Technical Secretariat of the SBC was designated as the PCU \. Initially, it faced difficulties in coordinating with other agencies, especially the NWRA \. The appointment of a new Director resolved these problems \. The ICR reports that, under his strong leadership, the PCU staff demonstrated commitment to the project reflected in strong teamwork\. This was an important contribution to the success of the project in completing the physical investments and in disbursing most of the credit \. However, although the PCU performed well, the Sana ’a Basin branch of the NWRA, responsible for the  regulatory and enforcement dimensions, was not able to assume its responsibilities as anticipated \. Evidence that safeguards were fully complied with in this Category "A" project is lacking, and there are some indications of possible issues \. a\. Government Performance :Moderately Unsatisfactory b\. Implementing Agency Performance :Moderately Unsatisfactory c\. Overall Borrower Performance :Moderately Unsatisfactory 10\. M&E Design, Implementation, & Utilization: Design \. The PAD states (page 25): “A strong monitoring and evaluation system will be set up under the project, â€? and, again on page 28: “Experience also shows that at the end of the subsidized investment phase [irrigation modernization and water conservation ] programs can deteriorate unless there is a continuing flow of benefits and unless a pattern of respect for new rules can be developed \. Yemeni experience with this approach is very limited, and outcomes are difficult to predict \. Therefore, close monitoring and evaluation would be essential \.â€? Nonetheless, the PAD does not offer even an outline of what such an M&E system would look like \. Except for the two sentences quoted, there is little or no discussion of M&E in the main text, and the results framework outlined in Annex 1 merely states that progress towards attaining key performance indicators would be measured through “M&E reports\.â€? It was clearly the intention that the M&E system would be developed during implementation \. Implementation \. The ICR reports that M&E activities were initiated in 2003 (the project became effective in December, 2002), following the completion of a baseline study by consultants \. However, M&E was conducted “through ad hoc efforts by the various project teams in an uncoordinated manner â€? (ICR, page 6)\. A more coherent approach was enabled in March 2005 by the intervention of an international consultant and sustained thereafter with the support of a local specialist in the PCU who was appointed in March, 2006\. By project closure, according to the ICR, M&E reports had slowly evolved into useful and timely management tools with the incorporation of an increasing number of indicators of progress towards attainment of the PDO \. The ICR reports that between March 2006, and project closure (June, 2010), 16 quarterly progress reports as well as several monthly reports had been submitted, providing data on some 50 results and outcome-based indicators covering all seven project components \. Utilization : Except for IDA supervision, and review by the Government ’s project steering committee, there is no indication in the ICR that M&E was used to guide any policy decisions or strategic or practical applications \. a\. M&E Quality Rating : Modest 11\. Other Issues (Safeguards, Fiduciary, Unintended Positive and Negative Impacts): Safeguards \. The project, which was classified as Category A, triggered four safeguard policies : Environment (OP 4\.01), Involuntary Settlement (OP 4\.12), Pest Management (OP 4\.09), and Safety of Dams (OP 4\.37)\. Environment \. The preparation of an environmental management plan (EMP) and implementation of a mitigation program was a specific component of the project \. According to the ICR (page 21), the EMP “included measures to ensure adequate consideration of environmental impacts in the design, construction and operation of the projects physical interventions (particularly the dams)\.â€? The project’s main environmental drawback was the failure to to change sufficiently the behavior of water users and hence to impede a continued depletion of the resource \. In addition, the quality of the effluent and sludge from the Sana’a WWTP was not improved as required by the EMP and set out in the DCA \. The project had therefore to resort to less than fully satisfactory short term mitigation measures, such as an awareness campaign and early warning system for those farm communities in the vicinity of the plant, and the provision of laboratory equipment to improve analysis at the WWTP\. The ICR reports (pages 22-23) “that the much-needed physical and operational improvements at the WWTP are now underway and should be completed in the next two years \. It remains to be seen, however, if the desired improvement in the quality of the effluent and sludge will be realized \.â€? Involuntary Settlement \. Project design originally included the construction of five new dams \. A “Resettlement Frameworkâ€? (ICR, page 7) was prepared\. In the event, only one new dam was constructed \. It was built on the site of a previously collapsed dam, so that no land acquisition was required \. Land needed for WUA offices was transferred under what the ICR describes as “the customary system of donating land for public interest projects \.â€? This process, by which land title is formally and voluntarily transferred to the Government, is “based on thorough consultation and prior, informed, consent\.â€? It has been used in other IDA-funded projects in rural Yemen\. The ICR reports that a June 2009 safeguard review mission concluded that “the voluntary land donation – if the land is considered small – may be deemed appropriate in the Yemeni context (italics in original)\. It should, however, be emphasized that this is dependent upon a well-documented land acquisition and negotiation process \.â€? It is unclear from the project documents whether or not such a well -documented process is, in fact, regularly followed \. Pest Management \. The ICR reports that the Environmental Impact Assessment recognized the public health concerns posed by the use of pesticides in the Sana ’a Basin, even though the project did not directly promote their use\. The ICR (page 22) further notes that “the project worked with the Department of Plant Protection of the MAI to promote the implementation of integrated pest management plans for grapes and qat â€? [a plant of African origin, the leaves of which are chewed as a stimulant; it is widely grown in rural Yemen ]\. The technical capacity of DPP staff was strengthened and its laboratory facilities enhanced \. Safety of Dams \. According to the ICR, the project supported the establishment of a Dam Safety Review Panel (DSRP), consisting of three dam experts, to review dam design reports and visit the dam sites before, during and after construction and rehabilitation in order to ensure safety \. It reviewed the O&M and dam safety manuals, the emergency preparedness plans and start up operations for each dam \. The DSRP carried out a total of six missions, producing reports and recommendations covering the one new dam, ten rehabilitated dams, and the series of check dams funded by the project\. In addition, “the GDI [General Directorate of Irrigation] undertakes regular inspection of all dam structures to ensure their integrity and report any potential failures to the responsible authorities â€? (ICR, page 7)\. The ICR reports that the DRSP concluded that project intervention has considerably improved the stability and safety of the 11 dams, although “continuing technical supervision and adequate funding for O&M [are] essential for dam safety\.â€? Fiduciary \. Financial Management \. The ICR reports that financial management was adversely affected until the mid -term review (MTR) by high staff turnover in the PCU \. At the MTR, it was agreed that the management team would be changed under the new PCU Director\. A new financial manager was appointed who improved submission of financial management reports, formulated an acceptable budget and disbursement plan for the project, and prepared a financial management manual including accounting policies and procedures and instructions regarding the necessary controls to be applied \. According to the ICR, financial management was satisfactory during the last half of project implementation\. Audits\. The ICR states that annual audit reports were prepared and submitted to IDA on time \. It is not stated if the auditor’s opinions were qualified\. The project team subsequently clarified that all opinions were unqualified except that of 2005, when beneficiary contributions were not reflected in the financial statements, opening balances did not agree with those of the previous year, and there was a small undocumented exchange rate gain \. These problems were all rectified\. Procurement \. As noted in Section 8 above, a decision was taken during implementation, and given the slow progress in the delivery of irrigation systems, to involve communities in the procurement of civil works and goods \. Prior to this, beneficiaries frequently intervened in the contractors ’ work, leading to delays and stoppages (the main requests of the beneficiaries were for additional works not included in the contracts or for the employment of local labor or hire of machinery owned by the beneficiaries )\. These problems would have been avoided if adequate time and resources had been planned from the beginning to allow for community involvement \. The ICR reports (page 8) that, after the decision to involve the communities, the DCA was not modified \. Nonetheless, “project staff satisfactorily carried out procurement in line with IDA’s guidelines\.â€? Unintended Impacts \. The ICR mentions three unintended consequences which will require monitoring : Improvements in irrigation efficiency have made irrigated agriculture more profitable \. In the absence of effective limits on water abstraction, this may increase the rate of depletion \. Savings by project farmers may be offset by more intensive irrigation, more irrigation by other farmers, and continued overuse of wells that may otherwise have become uneconomic\. In some cases, recharging of upstream aquifers may reduce water availability to farmers downstream, obliging them to relocate\. In Yemen, understanding of, and regulations for, rights to groundwater are less developed than those for surface water\. Increases in irrigation efficiency make cultivating qat more profitable \. Qat is problematic, not only for its intense water requirements which make it a major driver of aquifer depletion, but also for its impact on family expenditures, welfare, and the health of consumers \. More profitable qat cultivation may also undermine the GoY ’ s qat reduction program, which IDA is supporting \. This issue can only be addressed through effective limits on ground water extraction and on expansion of irrigated areas, and encouraging diversification into other crops \. 12\. 12\. Ratings : ICR IEG Review Reason for Disagreement /Comments Outcome : Moderately Moderately Although the physical investments Satisfactory Unsatisfactory financed by the project increased the productivity of agricultural water use and accelerated aquifer recharge in an economically efficient manner, the project did not succeed in putting in place the legal and regulatory framework required to limit effectively  water abstraction and prevent illegal well drilling\. While the PDO is highly relevant, design contained a number of drawbacks which undermined project results\. The program goal of slowing down depletion of ground water in the Sana’a Basin aquifers is yet to be attained; evidence indicates that the pace of depletion is at least the same as previously\. Risk to Development Significant Significant Outcome : Bank Performance : Moderately Moderately Quality at Entry and Quality of Satisfactory Unsatisfactory Supervision displayed a number of significant shortcomings (see Section 8 above)\. Borrower Performance : Moderately Moderately There were significant shortcomings in Satisfactory Unsatisfactory government performance (see Section 9 above)\. Quality of ICR : Satisfactory NOTES: NOTES - When insufficient information is provided by the Bank for IEG to arrive at a clear rating, IEG will downgrade the relevant ratings as warranted beginning July 1, 2006\. - The "Reason for Disagreement/Comments" column could cross-reference other sections of the ICR Review, as appropriate \. 13\. Lessons: The main lessons that can be drawn from the experience of this project are : Care should be taken to ensure that there is political commitment, not just to the physical investment dimensions of a project, but also to the more difficult legal and regulatory reforms needed to halt, and then to reverse, the depletion of a scarce, highly valuable, and diminishing natural resource \. For a project in a politically and socially sensitive area, such as the water sector in Yemen, it is important to limit preparation time to the minimum necessary to assure good quality at entry, so as to reduce the risk of loss of political momentum for necessary reforms \. Country dialogue, including IDA management intervention when appropriate, should be used at an early stage to resolve complex institutional issues with Government \. Implementation of effective ground water governance requires strong commitment and support, not just of Government and its institutions, but of local stakeholders, especially water users \. An approach involving greater reliance on community-based governance, backed by technical assistance and an adequate legal framework, may have been more successful than the top -down regulatory one adopted, but was not considered\. Sufficient time and resources need to be invested to develop local understanding of the project ’s objectives, as well as the willingness and the capacity of stakeholders to participate in its implementation \. 14\. Assessment Recommended? Yes No Why? A combined assessment of this and the follow -up WSSP would enable developments after the closure of this project to be taken into account, and would also be a useful source of lessons concerning the institutional approach to be adopted in order to secure sustained behavior changes among water users \. 15\. Comments on Quality of ICR: The ICR is clearly written and contains all of the elements necessary to evaluate the project \. It is commendably frank in its analysis of shortcomings of the project itself and of IDA and Borrower performance \. However, the logical conclusions of the analysis are not always reflected in the ratings \. Annex 2, dealing with outputs by component is thorough, and there is a good summary of the Borrower ’s ICR\. Given that this was a Category "A" project, it is a significant shortcoming that there was not a fuller analysis of safeguard compliance \. More discussion of M&E design, and of the activities of other donors operating in the sector, would have been useful \. There is no indication of whether or not project audits were qualified \. The component cost figures in the text differ from those in Annex 1\. a\.Quality of ICR Rating : Satisfactory

REVIEW

P074055

 ICRR 13643 Report Number : ICRR13643 IEG ICR Review Independent Evaluation Group 1\. Project Data: Date Posted : 08/09/2011 Country : Cape Verde Project ID : P074055 Appraisal Actual Project Name : Growth And US$M ): Project Costs (US$M): 11\.5 15\.6 Competitiveness Project L/C Number : C3755 Loan/ US$M): Loan /Credit (US$M): 11\.5 15\.6 Sector Board : FPD Cofinancing (US$M): US$M ): Cofinanciers : Board Approval Date : 02/13/2003 Closing Date : 02/28/2008 06/30/2010 Sector (s): General public administration sector (35%); Compulsory pension and unemployment insurance (20%); General finance sector (20%); General industry and trade sector (20%); General transportation sector (5%) Theme (s): Other financial and private sector development (25% - P); Regulation and competition policy (25% - P); Legal institutions for a market economy (24% - P); Trade facilitation and market access (13% - S); Standards and financial reporting (13% - S) Prepared by : Reviewed by : ICR Review Group : Coordinator : Chad Leechor Kris Hallberg Ismail Arslan IEGPS2 2\. Project Objectives and Components: a\. Objectives: The project's overall objective is to broaden the base of private participation in economic growth, enhance private sector competitiveness and further develop its financial sector\. (PAD, Section A, page 2\.) Among the outcome targets are: FDI increase of $100 million; improved ranking in Doing Business from 125 th place; increased in efficiency of private firms by 5 percent; reduction of NPLs to 7 percent; availability of electronic financial services in all of the islands\. Similarly, the development credit agreement (DCA) states "the objectives of the Project are to assist the Borrower to broaden the base of private sector participation in economic growth, strengthen its financial sector, and enhance the competitiveness of its private sector\." (Schedule 2, page 14) With no substantive differences, this review uses the PAD as basis for evaluation\. b\.Were the project objectives/key associated outcome targets revised during implementation? No c\. Components: The project consists of the following two components:  1\. Modernizing, Strengthening and Restructuring Financial Sector (appraisal $3\.4 million; actual $2\.72 million)\. A\. Financial Sector Development, including training, equipment which consists mainly of computer systems with software and technical assistance\. B\. Pension Reform, including technical assistance on auditing, actuarial reviews, IT need assessments and consultancy services on the full range of pension services such as investment policy, valuation, reporting, disclosure policy and development of the contractual savings industry\. 2\. Enhancing Private Sector Competitiveness (appraisal $8\.0 million; actual $9\.1 million)\. A\. Investment Climate Reform, including studies of taxes and administrative barriers\. B\. Post Privatization and Divestiture, including training and studies of regulatory framework and practices for ports, airports and telecom\. C\. Institutional Capacity Building, including training for agencies interacting with private firms\. D\. Private Sector Capacity Building, including matching grants for eligible private firms\. The balance of the credit supports project implementation (appraisal estimate $1\.1 million; actual $2\.4 million ) and reimburses project preparation funds ( appraisal estimate $0\.6 million; actual $0\.6 million)\. d\. Comments on Project Cost, Financing, Borrower Contribution, and Dates: In July 2007, the Board approved additional financing of $3 million to the original credit of $11\.5 million, bringing the total approved credit to $14\.5 million\. No change in the original objectives or design were involved in the second round financing\. The incremental funds supported priority activities including both scaled up activities that had advanced beyond original targets and new activities\. The original credit was fully disbursed, resulting in $12\.7 million of disbursement due to cross currency exchange rate changes between SDR and USD\. Of the $3 million in additional finance, $2\.85 million was disbursed\. The balance was canceled\. Total disbursement reached to $15\.6 million\. The closing date was extended twice\. First, on July 3, 2007, when the Board approved additional financing, the closing date was extended from February 28, 2008 to December 31, 2009\. On September 9, 2009, it was extended again to June 30, 2010\. The extensions were intended to allow the new and scaled up activities to reach completion\. 3\. Relevance of Objectives & Design: a\. Relevance of Objectives: The objectives are well aligned with those of the Government which includes support for private sector led growth (PRSP 2003)\. It is also consistent with the Bank's assistance strategy both at the time of appraisal (2001 CAS) and currently (2009 CPS) of improving the business environment and enhancing international competitiveness\. The relevance of objectives is High \. b\. Relevance of Design: The design is complex in that it encompasses a large number of activities, including advanced reform measures (such as tariff restructuring and establishment of a multi-sector regulating agency),  acquisition of sophisticated skills (at the central bank and pension administrator) and provision of matching grants to private firms\. But it is based on extensive Bank experience in supporting the financial sector and private firms\. Project activities target specific needs, providing a mix of services including technical studies, advice, equipment, capacity building and matching grants for the private sector\. The merit of the matching grants, however, was not well established\. No need assessments were made and the justification for subsidies was not provided\. The results framework, while rudimentary by current standards, is adequate for the most part\. Targets, however, are often stated as output delivery, rather than outcome indicators with baseline values\. In addition, the divestiture program could have been developed further to include specific changes of existing agencies and the requirements of a functioning multi-sector regulator\. Furthermore, the optimism should have been tempered in some areas, including investment climate and privatization\. The relevance of design is rated Substantial \. 4\. Achievement of Objectives (Efficacy): 1\. To broaden the base of private participation in economic growth (Substantial ) The investment climate improved through removal of administrative barriers\. The time needed to start a business was reduced from 52 days to 11 days, and the cost from 40 percent of per capita income to 18 percent\. These indicators, however, did not meet the ambitious targets set at the restructuring\. Private investment (as a share of GDP) rose from 14 percent in 2003 to 25 percent in 2007, an increase of 11 percent, compared to the target of 8 million\. An increase in FDI of $100 million was achieved (actual increase: $109 million), as was the number of jobs created (target 5,000; actual 5,342)\. Legal reforms met the targets set out in the PAD, including (a) New labor code adopted; (b) New arbitration law completed with implementation underway; (c) improved dissemination of new legislation as the official gazettes became available on-line\. (See PAD, June-2007, page 22\.) The divestiture targets were partially met, with 3 out of 6 enterprises privatized by 2007\. The major enterprises (the port and airline), however, remained under government control\. 2\. To enhance private sector competitiveness ( Substantial ) Tariff reforms and corporate tax reductions have been implemented to align with regional norms; The E-Government program was adopted with plans for e-commerce extensions in an agenda of business facilitation and reduction of compliance costs; There was no data to show the intended gains in efficiency of firms receiving matching grants\. But the revenue target was met (target 10 percent gain; actual 54 percent gain)\. 3\. To further develop the financial sector (Rating: Substantial ) The pension system has been reformed to improve sustainability\. Government funding has been provided to cover arrears and unfunded liabilities\. Two separate pension plans were merged to simplify administration; benefit criteria for social security (FAIMO) were clarified\. Financial supervision has been strengthened, with new laws on financial products, including leasing, insurance and anti-money laundering\. The target on non-performing loans (NPLs), however, may or may not have been achieved, as the formula for NPL calculation was changed\. Nonetheless, the new formula shows a significant decline in NPLs as a share of total loans\. Access to electronic payment services (Visa) has been expanded, with the number and value of transactions exceeding the targets\. 5\. Efficiency: Efficiency is rated Modest for the following reasons: 1\. The Bank failed to establish that the rate of return was adequate to cover the cost of capital\. As noted in the ICR, the information needed to for cost benefit analysis was not available\. The assumptions made and presented in the ICR concerning the efficiency gains of private firms receiving matching grants were not supported by evidence\. 2\. The cost of project implementation was more than twice the reasonable level envisaged in the PAD\. ERR )/Financial Rate of Return (FRR) a\. If available, enter the Economic Rate of Return (ERR) FRR ) at appraisal and the re -estimated value at evaluation : re- Rate Available? Point Value Coverage/Scope* Appraisal Yes 23% 100% ICR estimate Yes 12% 13% * Refers to percent of total project cost for which ERR/FRR was calculated\. 6\. Outcome: This is a project of considerable relevance to the Government, private firms and the Bank, notwithstanding an undue optimism in some areas and a relatively complex design\. The project achieved many -- but not all -- of the key objectives envisaged\. The implementation cost, however, was higher than expected, reducing the value for money\. Overall, the shortcomings are relatively minor and the outcome is rated Satisfactory\. a\. Outcome Rating : Satisfactory 7\. Rationale for Risk to Development Outcome Rating: The risk to development outcome is rated Moderate \. The achievement of the project continues to benefit from both Government ownership and private sector support, including that of key business associations\. In addition, political stability in Cape Verde helps mitigate the risk\. a\. Risk to Development Outcome Rating : Moderate 8\. Assessment of Bank Performance: a\. Quality at entry: Quality at entry is Satisfactory\. The project addressed a priority issue as seen by the Government\. It was well prepared and appraised\. It could have been improved, however, with greater clarity of actions on the divestiture plan and assignment of responsibility for the M&E system\.  at -Entry Rating : Quality -at- Satisfactory b\. Quality of supervision: Supervision is Satisfactory\. Implementation support has been adequate, well staffed (except on M&E) and free of major setbacks\. The task team's effort to scale up Bank support (through additional financing) in response to strong results is commendable\. The delay in addressing some of the issues in the M&E system is an exception\. Quality of Supervision Rating : Satisfactory Overall Bank Performance Rating : Satisfactory 9\. Assessment of Borrower Performance: a\. Government Performance: The Government has been a reliable partner from the beginning\. It has made more progress on economic stability and on structural reforms than most of the neighboring countries\. With the exception of the divestiture program, it has shown strong commitment and ownership throughout\. Government Performance Rating Satisfactory b\. Implementing Agency Performance: The Ministry of Finance, Planning and Regional Development, as well as the Project Coordination Unit delivered results as expected\. The PCU was able to withstand many changes of leadership and implement the project without major interruptions\. An area of weakness was in monitoring and evaluation where data on key performance indicators were not consistently collected and used\. Implementing Agency Performance Rating : Moderately Satisfactory Overall Borrower Performance Rating : Moderately Satisfactory 10\. M&E Design, Implementation, & Utilization: a\. M&E Design: The design of M&E system was adequate, but the use of output delivery as targets reduced its value\. The completion of a new law or regulation (an output) should not be regarded as an outcome indicator\. The outcome is achieved only when the relevant behavior has changed or when the desired conditions prevail\. In addition, the M&E would also have benefited from better specification of data collection responsibility and procedures, including frequency and data coverage\. b\. M&E Implementation:  The M&E system by and large adequately implemented, although some of the indicators, including those related to private firms, were not consistently available in a timely manner\. c\. M&E Utilization: The M&E was well used and disseminated, including assisting the supervision of the Bank\. M&E Quality Rating : Substantial 11\. Other Issues a\. Safeguards: N\.A\. b\. Fiduciary Compliance: N\.A\. c\. Unintended Impacts (positive or negative): N\.A\. d\. Other: 12\. 12\. Ratings : ICR IEG Review Reason for Disagreement /Comments Outcome : Satisfactory Satisfactory Risk to Development Moderate Moderate Outcome : Bank Performance : Satisfactory Satisfactory Borrower Performance : Satisfactory Moderately The implementing agencies is rated Satisfactory Moderately Satisfactory (MS) on account of shortcomings on the M&E system\. As a consequence, the borrower performance must be rated MS, according to the Harmonized Criteria for Evaluation\. Quality of ICR : Satisfactory NOTES: NOTES - When insufficient information is provided by the Bank for IEG to arrive at a clear rating, IEG will downgrade the relevant ratings as warranted beginning July 1, 2006\. - The "Reason for Disagreement/Comments" column could cross-reference other sections of the ICR Review, as appropriate\. 13\. Lessons: 1\. This review agrees with the ICR's lesson on the importance of Government ownership and the existence of project champions in ensuring successful implementation of a complex project\.  2\. This review also agrees with the Government on ensuring the coherence (harmony) of the project with the country's overall initiatives\. This project fits well with both the Government's program and the Bank's active portfolio in Cape Verde\. 3\. Divestiture is always a challenge\. Even in a country that has been a strong performer on structural reforms, like Cape Verde, the privatization agenda can encounter insurmountable difficulty\. 14\. Assessment Recommended? Yes No 15\. Comments on Quality of ICR: The ICR provides adequate information\. It could be improved significantly in the following areas: The discussion of efficacy (pages 15 and 16) needs to be better aligned with the outcomes sought, with a focus on PDOs, rather than the components\. The presentation on efficacy (section F of the Data Sheet) should have been more systematic\. As it stands now, the Table does not correspond to the key performance indicators of the PAD (2003) nor those of the project paper on additional financing (2007)\. It should provide more institutional context for the strong ownership of the Government in most of the areas supported by the project (including e-government, tax and judicial reforms) and the relative weakness in the divestiture component\. The discussion of efficiency (page 17) includes claims that are not supported by available data\. For example, the revenue of firms with matching grants is assumed to grow by 185% each year when actual cumulative growth was 54% over four years (pages 28-29)\. The rating on M&E system (moderately unsatisfactory) seems to give undue weight to shortcomings in one area at the expense of significant results elsewhere\. a\.Quality of ICR Rating : Satisfactory

REVIEW

P097402

 ICRR 13075 Report Number : ICRR13075 IEG ICR Review Independent Evaluation Group 1\. Project Data: Date Posted : 02/24/2009 PROJ ID : P097402 Appraisal Actual Project Name : Pakistan: Second US$M ): Project Costs (US$M): US$46\.7 US$67\.8 Partnership For Polio Eradication Project Country : Pakistan Loan/ US$M): Loan /Credit (US$M): US$46\.7 US$67\.8 Sector Board : HE Cofinancing (US$M): US$M ): Sector (s): Health (100%) Theme (s): Other communicable diseases (50% - P) Child health (50% - P) L/C Number : C4145 Board Approval Date : 01/26/2006 Partners involved : WHO, UNICEF Closing Date : 06/30/2008 06/30/2008 Evaluator : Panel Reviewer : Group Manager : Group : Gayle Martin Denise A\. Vaillancourt Monika Huppi IEGSG 2\. Project Objectives and Components: a\. Objectives: The objective was to assist Pakistan's effort to eradicate poliomyelitis (polio) through the supply of the oral polio vaccine for the country's supplementary immunization activities during 2006-2007\. The KPIs as described in the PAD (p6) are: (i) Timely arrival of the oral polio vaccine at the central stores o f the Expanded Program on Immunization (EPI) in Islamabad (target: at least five weeks before each of the supplemental immunization activities ); (ii) Coverage of supplemental immunization activities in the targeted population (children under-5 years old) in each of the four provinces during 2006 and 2007 (target 85% coverage); and (iii) Number of confirmed polio cases reported (target: zero cases)\. The project was part of an IDA buy -down mechanism for polio eradication projects in polio -endemic countries following an agreement between IDA, the Bill and Melinda Gates Foundation and the UN Foundation \. Achievement of the first two indicators would be assessed through an audit (administered by WHO) within three months of project completion, and would trigger the IDA buy -down (see Section 2d for more about the buy-down mechanism)\. Although the project objective did not change, the specific wording of the target for the first indicator was changed to require arrival of vaccines at the district stores at least 5 days prior to the supplementary immunization activities (instead of vaccines arriving at the central stores 5 months ahead of each of the supplemental immunization activities)\. b\.Were the project objectives/key associated outcome targets revised during implementation? No c\. Components (or Key Conditions in the case of DPLs, as appropriate): The country's Polio Eradication Initiative had three parts : (i) oral polio vaccine procurement; (ii) supplemental operations (including maintenance of the vaccine cold chain, social mobilization, and training ); and (iii) laboratory and epidemiological surveillance\. The project financed the first part (financing for the timely procurement and supply of oral polio vaccine and its effective use ), and therefore the project only had a single component \. The project and its predecessor, the Partnership for Polio Eradication Project, were part of the WHO -led multi-country initiative to contribute to the global eradication of polio \. d\. Comments on Project Cost, Financing, Borrower Contribution, and Dates: Cost The project financed only the procurement of vaccines and therefore the cost and financing of the other Cost\. aspects of the country's Polio Eradication Initiative are not included here \. Actual project cost was (US$67\.8 million) 145% of cost at appraisal (US$46\.7 million)\. Financing \. In June 2007 the Board approved additional financing in the amount of US$ 21\.1 million (in response to increased cases in northern parts of the country bordering Afghanistan and the associated increased vaccine requirements)\. The buy-down converts the terms of the credit to a grant by using the foundation funds to buy down the net present value of the credit, as well as to finance commitment and service charge payments to IDA on behalf of the recipient during project implementation \. The buy-down completion has been extended by 9 months to March 2009\. Dates The project became effective as planned in March 2006 and closed as planned in June 2008\. Dates\. 3\. Relevance of Objectives & Design: Relevance of objectives \. The objective was highly relevant \. Pakistan is one of four countries where polio remains endemic, and the project was consistent with the country's objective to eradicate polio \. The objective was consistent with the Bank's overall assistance ---evidenced by the priorities reflected in the 2006-2009 CAS which refers specifically to communicable disease control within the context of improving the lives of the poor \. The latter was also highlighted in the country's PRSP and reflected in the MTEF (2005-2010)\. The narrow focus on vaccine procurement was appropriate given that the country had substantial experience with polio eradication campaigns and the vaccine procurement was complementary to the program support efforts of other donors, (e\.g\., WHO, UNICEF)\. Relevance of design \. The relevance of the design was substantial\. The project design was simple, and was informed by the experience of the previous project \. The IDA buy-down mechanism served as an incentive for the government to remain committed to the project objectives \. Essentially, it preceded the results -based financing approaches that are currently popular\. Some more attention could have been paid to, the link with other immunization activities in polio-free but vulnerable areas\. In relation to the latter issue, the risk analysis under -estimated the risk of emergence of new cases in polio-free areas due to earthquake and security compromised (rated negligible and moderate; PAD, p11)\. While the role of WHO with regard to the auditing of targets was determined by the international agreement governing this global initiative, the risk analysis could have pre -empted this potential conflict of interest \. Finally, the inclusion of the third KPI was not fully informed by the results chain given that the project narrowly focused on the financing of vaccine procurement, and the eradication of all new polio cases (KPI#3) was dependent not only on vaccine procurement, but also on parts (ii) and (iii) of the Polio Eradication Initiative (as mentioned in Section 2c)\. 4\. Achievement of Objectives (Efficacy): Outputs - Vaccine supply: The project procured 509 million doses of oral polio vaccine, approximately 100 million doses more than anticipated at appraisal thanks to the additional financing \. - National and Sub-national Immunization Days: Over the 2\.5 year project implementation period the vaccine procurement supported a total of 18 National and Sub-national Immunization Days\. The implementation of the immunization days was supported by the complementary inputs from the GOP and the other donors \. Outcomes and Impacts - Timely provision of vaccines (KPI#1): The first KPIs required the timely arrival of the vaccines at the central stores at least 5 weeks prior to the scheduled Supplementary Immunization Activities \. During 2006 and 2007, 0% and 20% of the Supplementary Immunization Activities, respectively, met this target \. In May 2007 the KPI was changed to require arrival of vaccines at the district stores at least 5 days prior to the Supplementary Immunization Activities \. Over the 12 remaining months of the project, this target was met in 90% of the Supplementary Immunization Activities in 2007 and 80% of the activities in 2008\. Although the indicator was not fully met, the WHO performance audit found that all districts received their vaccines 2-3 days before each Supplementary Immunization Activity, and none of the activities were delayed due to late arrival of the vaccines \. (The WHO audit concluded that the shorter period was preferable because the district -level facilities lacked the refrigeration equipment to maintain the integrity of the vaccine cold chain \. The audit recommended that the indicator be changed to 3-5 days)\. - Polio Immunization coverage (KPI#2)\. The immunization days reached an estimated 30 million children in the target age group (under 5 years), and 97% coverage of the target population was achieved, well beyond the target of 85%, the target for the second KPI \. - Polio incidence (KPI#3): The target for the third KPI, namely zero confirmed polio cases was not achieved \. Partial geographic containment of polio virus transm ission was evidenced by the reduction in the number of districts reporting cases from 22 in 2006 to 18 in 2007\. However, in the first half of 2008 as many as 16 districts reported cases\. Some polio-free areas also reported new cases in 2008: for example Islamabad has been polio -free since 2003 and reported a case in 2008\. According to the ICR the factors contributing to the increase in 2008 included: (i) persistent transmission of wild polioviruses in key reservoir areas; (ii) deterioration of security in key reservoirs resulting in a decrease in campaign quality and increase of transmission in those areas; (ii) security-related population movement from reservoir areas to previously polio -free areas; (iii) increase in population susceptibility in polio-free areas due to the recent reduction in the number of polio campaigns and the deterioration of an already weak routine immunization service deliv ery system in 2008; and (iv) sub-optimal impact of the monovalent oral polio vaccine\. The WHO audit concluded that the triggers had sufficiently been met; the buy-down process was initiated and is to be finalized in March 2009\. Efficacy is rated substantial because (i) while the first KPI was not fully met, the WHO performance audit found that none of the immunization activities were delayed due to later arrival of the vaccines (2-3days instead of the targeted 5 days); (ii) the immunization coverage was well in excess of the target and (iii) some of the security-related population movements were beyond the control of the project (although as mentioned in Section 3 this risk was under-estimated in the project design )\. 5\. Efficiency (not applicable to DPLs): Elimination of a disease requires intense efforts and also dedicated resources, as was financed through this project\. But, despite these elevated efforts, the country has not been successful at eliminating polio \. For a variety of factors listed above, there has been a resurgence of polio cases even in areas previously deemed polio -free\. The anticipated returns have therefore not been fully realized and efficiency is rated modest \. Additional factors mentioned in the ICR are: low routine vaccine in polio-free areas; inefficiencies caused by the weak links with routine immunizations; and lack of focus on weak cold chain capacity \. ERR )/Financial Rate of Return (FRR) a\. If available, enter the Economic Rate of Return (ERR) FRR ) at appraisal and the re -estimated value at evaluation : re- Rate Available? Point Value Coverage/Scope* Appraisal No ICR estimate No * Refers to percent of total project cost for which ERR/FRR was calculated\. 6\. Outcome: Outcome is rated moderately satisfactory, based on substantial relevance of objectives and design, substantial efficacy and modest efficiency \. a\. Outcome Rating : Moderately Satisfactory 7\. Rationale for Risk to Development Outcome Rating: The risk to development outcome is rated significant \. There is a high level of government commitment and health worker mobilization in support of the project objectives \. However, despite the important project achievements, the precarious security conditions and related migration into polio -free areas will continue to pose significant challenges to the goal of polio elimination\. a\. Risk to Development Outcome Rating : Significant 8\. Assessment of Bank Performance: Quality at entry \. The Bank did well to prepare the project while the preceding project was still underway in order to prevent gap in the supply of vaccines \. Furthermore, appraisal coincided with difficult conditions (the earthquake relief operations )\. The project was well prepared, spelling out in detail the implementation arrangements, roles and responsibilities for the various partners, and conditions and data requirements to trigger the buy-down\. One weakness was the under-estimation of some key risks, as mentioned in Section 3\. Another weakness was in the selection of one of the KPIs (the KPI dealing with the timely supply of vaccines ) which was kept the same as the previous project\. Although the previous project was not completed at the time of this project's preparation, it is unlikely that the limitations of this KPI (discussed in section 4) only became apparent after project closing\. UNICEF managed the vaccine procurement on a sole source basis, as was the case under the previous project\. This procurement arrangement was part of the global agreement for the buy -down, motivated by the fragility of the market for vaccines and the importance of securing this market (after the collapse of the market in 2000/01) and the competitive vaccine prices UNICEF was able to negotiate (see "Study on Comparative Efficiencies in Vaccine Procurement Mechanisms ", SASHD, World Bank, 2008)\. Quality of supervision \. Supervision was aided by the relatively simple design and the availability of key staff in the country office\. The project team successfully int eracted with the other implementing partners, including WHO and UNICEF\. Despite the narrow conception of the project (limited to vaccine procurement), the Bank team did well to remain engaged in broader policy and implementation matters \. But, Bank supervision could have been more proactive in identifying the problems and offering solutions \. As mentioned, one of the KPIs was amended during project implementation\. While this was a necessary change it is unfortunate that it occurred so late in the project\. It also seems that the amended KPI ignored a practical reali ty on the ground---the lack of refrigeration facilities at district level to ensure integrity of the vaccine cold chain for the 5 days before the Supplementary Immunization Activities, as required by the revised indicator \. a\. Ensuring Quality -at- at -Entry :Moderately Satisfactory b\. Quality of Supervision :Moderately Satisfactory c\. Overall Bank Performance :Moderately Satisfactory 9\. Assessment of Borrower Performance: Government performance \. The high level of government commitment to polio elimination has been sustained over the duration of the two projects, and this commitment continues with the 2008-2010 plan of the Expanded Program on Immunization towards polio elimination \. This commitment was evident in the support, engagement and resource allocation from healt h and allied government departments in the implementation of the Supplementary Immunization Activities at national, provincial and district levels \. Implementing agency performance \. The overall program was implemented by the program management staff of the Expanded Program on Immunization \. All of the 18 planned Supplementary Immunization Activities were implemented, despite it being quite a complex undertaking \. The increase in polio cases in 2008 indicate that although implementation was reasonably successful, important challenges remain \. The ministry has been responsive to these events convening a high -level, multi-agency meeting in June 2008, and making modifications to the current approach (e\.g\., devising a more province-specific strategy for the Expanded Program on Immunization)\. The Bank and the implementing agency share responsibility for : (i) the failure to pro-actively identify the limitations in achieving the KPI under the previous project so that it could be corrected under the follow-on operation; (ii) failure to appreciate the district level refrigeration capacity constraints in revising the KPI; and (iii) failure to maintain adequate coverage in the polio -free zones and slowness in identifying the increase in population susceptibility in the polio -free areas\. a\. Government Performance :Satisfactory b\. Implementing Agency Performance :Moderately Satisfactory c\. Overall Borrower Performance :Moderately Satisfactory 10\. M&E Design, Implementation, & Utilization: Design \. The M&E system built on the design of the first project \. The M&E system included: (i) Supplementary Immunization Activity coverage data; (ii) output monitoring of quality and coverage of the Supplementary Immunization Activities; (iii) Supplementary Immunization Activity outcome monitoring through surveillance for Acute Flaccid Paralysis (symptom of polio virus infection); (iv) periodic progress assessment reports of the Technical Advisory Group and independent coverage and quality evaluations; (v) Vaccine Arrival Reports (VAR) which, besides vaccine arrival time, also provided details of vaccine condition at arrival (temperature, quantities and expiration dates); and (vi) WHO Performance Audit within 3 months of project closing (which would report on timely vaccine procurement, vaccine use, and coverage of target population )\. The KPI dealing with the timely supply of vaccines was kept the same as under the first project \. The limitation of the KPI has been mentioned, and although the previous project was not completed at the time of preparation, it seems unlikely that the weakness of this KPI only became apparent after project closing\. The inclusion of the Performance Audit was an important design feature, but given that WHO was a key implementing partner it may be advisable to use a third party for the audit in the future to avoid a conflict of interest\. Implementation and Utilization \. The project team did well to revise the second KPI, but this was done well into the project's lifespan\. As mentioned in Section 3b, the choice of the third KPI was not fully informed by the results chain given that the project narrowly focused on part (i) of the country's Polio Eradication Initiative, and the eradication of all new polio cases (KPI#3) was dependent not only on vaccine procurement, but also on parts (ii) and (iii) of the Polio Eradication Initiative\. Another area of weakness was the delays in the quarterly progress reporting to the Bank\. Nonetheless, the project's M&E system was implemented as planned, including a post -campaign independent assessment that included household level data \. The WHO Performance Audit provided some important insights into programmatic weaknesses and there is evidence that the information has been incorporated in the strategic planning for 2008-2010\. It is, however, of concern that the various sources of information did not allow for more proactive identification of the increased population susceptibility in the polio -free areas\. a\. M&E Quality Rating : Substantial 11\. Other Issues (Safeguards, Fiduciary, Unintended Positive and Negative Impacts): Fiduciary \. UNICEF was responsible for procurement of the vaccines on a single source basis \. The GOP was therefore not involved with manage ment of the funds\. The project funds were transferred to and managed by UNICEF in accordance with the DCA requirements \. According to the ICR, during implementation (February 2008) UNICEF abandoned the practice of mentioning the source of funding for each supply on respective purchase orders, and this was subsequently reversed at the Bank's request \. The financial management and procurement were subject to an internal and external audit \. UNICEF confirmed that none of these audit reports contained any audit observation with respect to the procurement done utilizing Bank funds \. Environmental safeguards \. The Program had a category C rating for environmental safeguard purposes \. In accordance with WHO guidelines, the oral polio vaccin e was provided in plastic vials and disposed with appropriately\. 12\. Ratings : 12\. ICR IEG Review Reason for Disagreement /Comments Outcome : Moderately Moderately Satisfactory Satisfactory Risk to Development Significant Significant Outcome : Bank Performance : Moderately Moderately Satisfactory Satisfactory Borrower Performance : Moderately Moderately Satisfactory Satisfactory Quality of ICR : Satisfactory NOTES: NOTES - When insufficient information is provided by the Bank for IEG to arrive at a clear rating, IEG will downgrade the relevant ratings as warranted beginning July 1, 2006\. - The "Reason for Disagreement/Comments" column could cross-reference other sections of the ICR Review, as appropriate \. 13\. Lessons: The lessons below complement the lessons listed in the ICR : Successful polio elimination requires intensified Supplemental Immunization Activities as well as a strong routine immunization program\. The project experience showed that polio re -emerged in previously polio-free areas in part because the routine immunization program did not maintain the minimum level of routine immunization coverage to prevent new outbreaks in the face of migration of cases from polio reservoir areas \. The buy-down mechanism is a successful vehicle for creating incentives for governments to invest in communicable disease control\. As remarked by the Borrower (ICR, p26), it provided the necessary results-orientation and momentum for the implementation of the other parts of the overall Polio Eradication Initiative\.  The choice of indicators should take into account the availability of the necessary infrastructure to realistically meet the KPI\. The lack of refrigeration in district -level facilities made the 5 day requirement (as the cut-off for timely arrival of vaccines) inappropriate and modification of the KPI to 3-5 days seems more reasonable\. 14\. Assessment Recommended? Yes No 15\. Comments on Quality of ICR: The ICR quality is rated satisfactory \. It provided a good overview of project implementation, and a frank and objective assessment of the project's achievements as well as its shortcomings \. Furthermore, the ICR contained completion reports from the collaborating agencies (WHO and UNICEF)\. Amidst difficult security conditions and associated restrictions the ICR team did well to innovatively use telecommunications to conduct the ICR mission and assemble the necessary information\. a\.Quality of ICR Rating : Satisfactory

REVIEW

P001321

 Petroleum exploration technical assistance project Report No: ; Type: Report/Evaluation Memorandum ; Country: Kenya; Region: Africa; Sector: Oil & Gas Exploration & Development; Major Sector: Oil & Gas; ProjectID: P001321 Kenya: Petroleum Exploration Technical Assistance Project (Credit 1675-KE) The Implementation Completion Report (ICR) on the Kenya Petroleum Exploration Technical Assistance Project (Credit 1675-KE, approved in FY86), prepared by the Africa Regional Office, with Part II prepared by the Borrower, was reviewed by the Operations Evaluation Department (OED)\. The loan of US$6\.0 million for this project was fully disbursed and closed on December 31, 1993, two years behind schedule\. This was the second Bank operation with a major component supporting the Government of Kenya's petroleum exploration promotion objectives\. The objectives of the project were: (i) to continue to support the Government's efforts to increase the level of petroleum exploration activity in Kenya; and (ii) to help find ways to improve the efficiency of the supply and distribution of petroleum products\. The first objective was to be accomplished through (i) improving the capacity of the National Oil Company of Kenya (NOCK) to acquire, process and store geophysical and geochemical data needed for promoting exploration acreage ; (ii) technical assistance and training to strengthen the capability of NOCK to monitor ongoing oil company activities; and (iii) technical, legal (contractual), and organizational support for NOCK to implement the third round of exploration acreage promotion meetings\. The second objective was to be accomplished through the carrying out of a study of alternative ways to supply and distribute petroleum products\. Project implementation was uneven, and the results to date have been disappointing\. The project components related to petroleum exploration promotion were implemented, but the new information was insufficient to attract new exploration undertakings\. However, some of the companies already active in Kenya did extend their contracts and expand their investment commitments\. As a result of the paucity of new geological information, and the non- availability of some concession areas (since they were still under contract to existing groups), the third round of international promotions, carried out in 1990, failed to lead to any new exploration activity\. Exploration activities initiated as a result of earlier efforts were completed without producing any commercially exploitable discoveries, and the last active concession areas were relinquished in early 1994\. The study on ways to improve the supply of petroleum products was not implemented\. On the positive side, the institutional strengthening components were highly successful\. The technical assistance and training did, however, greatly strengthened NOCK's ability to monitor oil company exploration activities\. It has also established the capacity to implement their new strategy to attract new international exploration activity by producing detailed, integrated analyses of the petroleum potential of smaller basins which, it is hoped, will attract smaller foreign oil companies to take new exploration concessions in the future\. This program is still in progress, and a number of smaller oil companies have expressed at least preliminary interest\. OED rates project outcome as unsatisfactory (instead of satisfactory in the ICR), primarily because the project achievements were negligible for two of the three project objectives (increased exploration activities by international oil companies and improvement in the supply and distribution efficiency of petroleum projects)\. Sustainability is rated as uncertain (instead of likely in the ICR), because continued funding for the promotion activities is uncertain\. The institutional development impact is rated as moderate (instead of substantial in the ICR)\. Bank performance is rated as unsatisfactory, as in the ICR\. The ICR covers all important aspects of project implementation; it is rated satisfactory\. The lessons learned from this project are: first, that international promotion seminars can be counterproductive if they are unable to provide sufficient technical material to demonstrate that the promoted exploration blocks have an attractive undeveloped potential; and second, that if a study is considered important enough to be included in the project's legal documentation, and conditions have not changed to reduce the importance of the study, Bank staff should insist that it be carried out\. The project may be audited\.

REVIEW

P039983

 ICRR 12850 Report Number : ICRR12850 IEG ICR Review Independent Evaluation Group 1\. Project Data: Date Posted : 03/25/2008 PROJ ID : P039983 Appraisal Actual Project Name : 4th Rural Water US$M ): Project Costs (US$M): 55\.70 54\.17 Supply & Sanitation Country : Paraguay Loan/ US$M ): Loan /Credit (US$M): 40\.00 40\.00 Sector Board : WS US$M): Cofinancing (US$M ): Sector (s): Water supply (68%) Sewerage (22%) Central government administration (9%) Sub-national government administration (1%) Theme (s): Decentralization (25% - P) Participation and civic engagement (25% - P) Rural services and infrastructure (25% - P) Rural policies and institutions (25% - P) L/C Number : L4222; L4223 Board Approval Date : 08/28/1997 Partners involved : Closing Date : 12/31/2003 06/30/2007 Evaluator : Panel Reviewer : Group Manager : Group : Emily O'Sullivan Ronald S\. Parker Soniya Carvalho IEGSG 2\. Project Objectives and Components: a\. Objectives: To promote a rapid increase of water supply and sanitation coverage in the rural areas \. A secondary development objective is to modify SENASA's role in the sector from an implementer of projects to an efficiently managed promoter of activities through the shifting of its current activities to the private sector and nongovernmental organizations while still maintaining its regulatory functions \. Achievement of the primary objective would be evaluated based on the increase of provision of water services from the current 20% to 30% at the end of the project\. Achievement of the secondary objective would be indicated by the decrease in the number of staff per system constructed per year and the strengthening of SENASA's regulatory functions\. b\.Were the project objectives/key associated outcome targets revised during implementation? No c\. Components (or Key Conditions in the case of DPLs, as appropriate):  The Loan Agreement, PAD, and ICR are congruent in their descriptions of the project components in all cases except Component 4 in the Loan Agreement which includes an additional activity --improvement of the physical condition of SENASA’s headquarters and regional offices --not present in either the PAD or the ICR; and, Component 3 is referred to as Institutional Development in both the Loan Agreement and the ICR, whereas the PAD refers to it as Technical Assistance\. Component 1 - (Appraisal Estimate: US$32\.8 million; Actual Cost: US$33\.58 million) Water Supply- This component consists of three subcomponents : (1) New water systems: construction of 330 new systems to consist of a deep well (between 100 and 150m), an elevated tank, and a distribution network (both primary and secondary networks )\. (2) Expansion of existing systems : finance the expansion of 10 existing systems which have reached capacity and are in pressing need to expand production, storage and distribution systems \. (3) Water systems for indigenous communities: construction of 35 new water supply systems in the Department of Chaco \. Component 2 - (Appraisal Estimate: US$10\.8 million; Actual Cost: US$5\.75 million) Wastewater disposal- This component will consist of two subcomponents : (1) Sewerage systems: finance the construction - on a pilot basis - of 10 systems where the communities have grown and environmental problems resulting from the lack of sanitation are serious\. (2) On-site systems: finance the construction and distribution of concrete slabs for 21,500 latrines\. Beneficiaries pay for the cost of these slabs \. SENASA carries out community mobilization and the health education activities and supervises the construction of the latrines; the beneficiaries provide the labor and materials for the construction of the latrines \. Component 3 – (Appraisal Estimate: US$5\.0 million; Actual Cost: US$5\.79 million) Technical Assistance- This component includes the following four subcomponents : (1) Institutional strengthening: finance the training of SENASA staff and Juntas so that they can manage the activities and supervise the work under the project \. (2) Pilot program for private providers: finance further studies for the definition of the criteria for private providers and also possible incentives for the private providers to build systems under a build -operate-own model\. (3) Promotion of associations of juntas: assist in the formation of these associations in the various departments of the country and provide technical assistance in the form of training, seminars, and basic office equipment \. (4) National Rural Water and Sanitation Program: finance the preparation of a 5-year national investment plan in order to define the institutional, financial and technical issues in the rural water sector in Paraguay and an investment program \. Component 4 – (Appraisal Estimate: US$7\.1 million; Actual Cost: US$9\.05 million) Institutional Development- This component consists in four subcomponents : (1) engineering designs contracted out to private consulting firms; (2) community mobilization and promotion work contracted out to private firms and /or nongovernmental agencies; (3) finance the supervision consultants for the various civil works that the project generates including the drilling of the wells, the installation of the electromechanical equipment, the testing of the wells, the construction of the water tanks, etc\.; and (4) SENASA administers these contracts and is responsible for their monitoring and supervision \. This subcomponent also finances the environmental impact analyses required for the wastewater systems \. d\. Comments on Project Cost, Financing, Borrower Contribution, and Dates: The closing date was extended three times, extending the implementation period from six to nine -and-a-half years\. Extension was largely the result of changes in the political landscape in Paraguay from 1997-2003 during which the government changed three times \. In addition, the Bank suspended disbursements between December 2002 and April 2003, thus delaying implementation\. In 2003-2004 the political atmosphere stabilized and the closing date for the loan was extended\. The loan was fully disbursed\. Contribution of borrower: (appraisal estimate US$4\.10 million) and (actual US$9\.79 million)\. Contribution of beneficiaries: (appraisal estimate US$11\.60 million) and (actual US$4\.38 million)\. 3\. Relevance of Objectives & Design: Relevance of Project Objectives : The project objectives remained relevant to both the country conditions and the Bank's strategy at the time the ICR was prepared \. The main development objective of the project --to increase water supply and sanitation coverage to the poorest rural areas -- is in line with both the 1997 CAS (time of the appraisal) and the 2004/2007 CAS (most recent) priority to deliver basic social services and reduce poverty, as well as the Government of Paraguay's priority to promote social development \. Both the government and the Bank prioritize the growth of private sector development in order to attract private investment \. The objective to change SENASA's role from one of implementer to promoter of projects by bringing in the private sector and NGOs to carry out projects is in line with this priority\. Relevance of Project Design : The project design was relevant to achieving the project objectives \. Design took into consideration lessons learned from three previous successful projects in Paraguay, thus incorporating community participation, establishment of associations of "juntas," and decentralization and strengthening of SENASA's activities\. Designs for water supply systems and sewerage systems were clear , but also flexible enough to change where demand warranted shifts in the allocation of funds \. The only shortcoming, as noted in the ICR, was the failure to collect information related to the monitoring indicators for project development objectives, the focus was instead on project outputs only\. Monitoring and evaluation were not adequately incorporated into project design \. 4\. Achievement of Objectives (Efficacy): 1\. Rapid increase of water supply and sanitation coverage in the rural areas \. Substantial \. Both the number of communities benefitting from the water supply system component and the number of latrines built exceeded the targets in the PAD\. The objective was to increase provision of water services from 20 percent of the rural population at the time of approval to 30 percent by 2003\. Despite delays in implementation and several closing date extensions, this goal was nearly fulfilled with 28\.5 percent coverage at project closing \. However, the population served with water was less than estimated at appraisal \. This was due in part to overestimation of community population sizes during appraisal\. The expansion of water supply systems in the Eastern Region was only completed in 7 of the 10 systems estimated at appraisal due to a lack of demand given the eligibility requirements \. As well, the construction of sewerage systems in the Eastern Region was drastically reduced in scope as a result of lack of demand \. For the three sewerage systems constructed, the experience was not fully satisfactory due in part to failure to conduct a feasibility study and problems with financial contributions from the communities \. The physical target for the water supply systems in indigenous communities in the Chaco region was exceeded as well as the estimated number of beneficiaries (132% of appraisal estimate)\. Improvements were made in project design to better the quality of water and sanitation facilities\. 2\. Modify SENASA's role in the sector from an implementer of projects to an efficiently managed promoter of activities through the shifting of its current activities to the private sector and nongovernmental organizations while still maintaining its regulatory functions \. Substantial \. The performance indicator selected at appraisal was to decrease the number of SENASA staff per system constructed per year from 6\.0 to 3\.1\. Although the end value was 4\.9, this is not the most appropriate indicator of the achievement of the objective as significant accomplishments were made in institutional strengthening : project implementation activities were successfully contracted to the private sector; pilot program for private sector participation in rural water supply using ouput -based approach; promotion of associations of "juntas"; improvement of technical capacity in the rural water sector; improved financial management through implementation of a unified information system as promoted by the Bank; revision of managerial and administrative structure to increase efficiency and effectiveness in project implementation; construction of a new headquarters; and improved capacity to carry out hydro -geological studies\. Although the "juntas" have been established, the financial viability of these associations remains to be seen as they are not yet self -sustaining\. Shortcomings were found in the ability to collect payments from "juntas" on time, and the results of contracting out community promotion were less than satisfactory \. 5\. Efficiency (not applicable to DPLs): The ex-ante ERR was calculated based on a sample of 8,000 households in communities with and without projects\. Economic benefits were calculated for (a) cash benefits only, and (b) cash benefits plus institutional benefits with ERRs of 9% and 16%, respectively\. The ex-post ERR for both calculations was slightly better than estimated at appraisal with 10% for cash only benefits, and 18% for cash and institutional benefits \. Ex-post ERRs were calculated for the 18 subprojects identified during the pilot phase of the project with an average return of 34% and a range from 0% to 73%, and an average NPV of US$73,950\. The ex-ante ERR and ex-post ERR calculated based on cash and institutional benefits are used as the point value below \. ERR )/Financial Rate of Return (FRR) a\. If available, enter the Economic Rate of Return (ERR) FRR ) at appraisal and the re- re -estimated value at evaluation : Rate Available? Point Value Coverage/Scope* Appraisal Yes 16% 100% ICR estimate Yes 18% 62\.7% * Refers to percent of total project cost for which ERR/FRR was calculated\. 6\. Outcome: The project objectives remained relevant to the Bank and Government's priorities throughout the life of the project \. The project achieved its development objectives, as inferred through achievement of project outputs, and in several cases exceeded appraisal estimates of physical targets \. There were some minor shortcomings, as noted above \. a\. Outcome Rating : Satisfactory  7\. Rationale for Risk to Development Outcome Rating: The "juntas" have been able to successfully finance, construct and manage systems under SENASA's model \. Technical and managerial training was provided to "junta" members to increase efficiency and effectiveness \. The large number of water systems and latrines constructed in a range of rural communities will likely balance the development outcomes between those that are above average and those below \. SENASA's model has been able to withstand political and economic shocks over the last several decades, contributing to a low likelihood of risk events negatively impacting the portfolio of projects \. Moderate risk stems from concerns about funding needs for future repair and replacement of system parts and associated low tariffs; a new metering system to be established by the "juntas" in the future could mitigate this problem \. Privately provided water supply and sanitation services present a moderate degree of risk as the scheme is completely new for SENASA \. Above average risk is associated with the systems in indigenous areas due to their isolation and lack or resources within the communities, as well as SENASA's limited presence at the time of evaluation \. Above average risk is also associated with the sewerage pilots as they face low connection rates, low billing and collection rates, and operation and maintenance costs pose additional financial constraint on "junta" cash flow\. a\. Risk to Development Outcome Rating : Moderate 8\. Assessment of Bank Performance: The overall Bank Performance is rated Satisfactory \. The project design took into account the lessons learnt from three previous Bank projects and objectives were consistent with those in the 1997 CAS\. The Bank assisted in identifying the pilot components, but was less successful in preparing and appraising these components as this step was left for the implementation period \. Considering the poor outcome of the pilot project for sewerage systems, this shortcoming is worth noting \. The Bank was successful in forwarding the improvement of the rural water supply and sanitation sector despite political and economic instability \. Supervision was uneven, but satisfactory on average\. Changes were made to the management team after project preparation and appraisal, and as a result the Bank lost confidence in their work, thus scrutinizing more thoroughly \. This scrutiny was deemed necessary by the Bank, but was also admittedly time consuming and produced delays in subproject design and implementation\. There was a general lack of transparency in reporting by the Bank prior to the mid-term review\. With the new government in 2003, communication between the Bank and SENASA improved markedly\. This helped with transparency, efficiency in decision making, and cooperation \. Supervision of the pilot program for the private provision of water services was highly satisfactory as the Bank allocated substantial supervision resources to assist SENASA in the learning process \. For the sewerage pilot project, the Bank was slow to recognize the underdeveloped capacity of SENASA in promoting, constructing, and financing sewerage systems, but compensated by bringing in experts to help supervise and provide advice to SENASA \. Insufficient resources were dedicated to documenting lessons to be learned from the sewerage pilot and instead the focus was on completing the works, despite problems \. As for supervision of other infrastructure components, Bank performance was satisfactory \. Supervision of institutional strengthening was highly satisfactory \. at -Entry :Satisfactory a\. Ensuring Quality -at- b\. Quality of Supervision :Satisfactory c\. Overall Bank Performance :Satisfactory 9\. Assessment of Borrower Performance: Government performance was highly satisfactory in terms of willingness to support new approaches in rural water supply and sanitation services \. However, the decision to replace SENASA's management team shortly after loan approval had a serious negative impact on project implementation \. SENASA faced challenges during the period of political instability, thus compromising its performance \. Once the new government took over, SENASA was able to make the project its top priority \. a\. Government Performance :Moderately Satisfactory b\. Implementing Agency Performance :Satisfactory c\. Overall Borrower Performance :Satisfactory 10\. M&E Design, Implementation, & Utilization: Design M&E design was modest to weak as the key performance indicators for the development objectives were poorly defined and justified, but those of the outputs were very well defined \. Implementation As a result of the poorly defined objective indicators, data collection was limited to the indicators for outputs during implementation\. Although targets were set in the PAD, the surveys necessary to establish the baseline, follow up on service coverage levels, and incidence of water related diseases were not carried out \. Utilization Focus was on project outputs and deviations from targets were documented \. The concentration on outputs served as evidence of achievement of the objectives in the absence of adequate development objective indicators\. a\. M&E Quality Rating : Modest 11\. Other Issues (Safeguards, Fiduciary, Unintended Positive and Negative Impacts): The project complied with safeguard and fiduciary policies with no significant deviations \. The ICR does not make note of any unintended impacts \. 12\. 12\. Ratings : ICR IEG Review Reason for Disagreement /Comments Outcome : Satisfactory Satisfactory Risk to Development Moderate Moderate Outcome : Bank Performance : Satisfactory Satisfactory Borrower Performance : Satisfactory Satisfactory Quality of ICR : Satisfactory NOTES: NOTES - When insufficient information is provided by the Bank for IEG to arrive at a clear rating, IEG will downgrade the relevant ratings as warranted beginning July 1, 2006\. - The "Reason for Disagreement/Comments" column could cross-reference other sections of the ICR Review, as appropriate \. 13\. Lessons: 1\. The use of output -based subsidies makes it easier to provide subsidies targeted to the poor \. The payment of a direct subsidy to the private constructor -operator is a good incentive for the local private sector to participate in the rural water sub-sector\. 2\. Participation of local communities contributes to the success of private sector financing of rural water supply projects \. This makes the process more transparent and facilitates relations between the private sector and users\. 3\. Government /community collaboration is an effective mechanism for providing water supply services to the rural population \. A collaborative approach allows both groups to utilize their strengths, thus producing outputs of higher quality that the ones each would achieve working alone \. 4\. Pilot projects offer a practical approach to institutional and organizational change in the sector, as by -doing on a small scale \. The severity of the consequences of they provide opportunities for learning -by- failure is reduced\. 5\. Increasing per -capita costs can result from provision of services to smaller and more distant and dispersed communities \. This is due to insufficient economies of scale and the application of the same technology and design criteria to all projects \. Exploration of possibilities to increase the cost-effectiveness of the systems should be emphasized in future projects \. 6\. Substantial up -front work to determine community demand for a given service should be carried out in order to avoid ineffective and inefficient interventions \. The use of a supply-driven approach for the provision of sewerage services in this project failed to undertake this important step and faced high fiscal costs, inefficient sector investments, poor service coverage, and poor targeting of subsidies \. 7\. Budgetary constraints for day -to-to-day activities severely hamper the effectiveness of a public sector organization in important areas like social promotion, technical assistance to communities, and follow -up on projects \. 8\. Building on the successes of previously implemented projects can improve the likelihood that a project will produce successful results as well \. 9\. Contracting out for community promotion services may not produce satisfactory results \. The reasons for this include lack of coordination between firms carrying out promotion and construction, for example; or, in the case of one firm carrying out both activities, promotion may be deemed a lower priority\. 10\. Close supervision and dialogue combined with flexible project design allowing incremental changes can improve component outputs \. 11\. Failure to confront implementation issues early on can result in significant delays \. It may prevent management from taking action to help resolve project issues \. 12\. Isolated communities require at least as much attention as communities that are easier to reach \. Promoters assigned to them need to be instructed to spend the same amount of time interfacing with the community organization as they do with those easier to access \. 14\. Assessment Recommended? Yes No Why? This project is a departure from the earlier SENASA projects in Paraguay in that it is attempting to provide service to communities in the extremely remote and difficult to access Chaco region \. This aspect of the project experience, as well as the pilot project for private providers, should be of interest to the IEG Water Study \. 15\. Comments on Quality of ICR: The ICR is Satisfactory overall\. The ICR could have included more evidence regarding the benefits of the physical targets, particularly as related to improving female and child health \. More detail could have been provided with regard to SENASA's plans to improve outreach to the isolated indigenous communities covered under the project \. The ICR makes note of the difficulty experienced by SENASA in collecting payments from the "juntas," but does not elaborate on the reasons this issue was not dealt with early on \. Finally, more detail could have been provided regarding the effects of increased per -capita costs of water supply, as well as how widespread these effects were observed\. a\.Quality of ICR Rating : Satisfactory

REVIEW

P000787

Document of The World Bank FOR OFFICIAL USE ONLY Report No\. 15582 IMPLEMENTATION COMPLETION REPORT GABONESE REPUBLIC ROAD MAINTENANCE PROJECT (LOAN 3046-GA) March 25, 1996 Infrastructure Operations Division Central Africa and Indian Ocean Department Africa Region This document has a restricted distribution and may be used by recipients only in the performance of their official duties\. Its contents may not otherwise be disclosed without World Bank authorization\.  CURRENCY EQUIVALENTS Name of Currency: CFA Franc (CFAI;) Year CFAF US$1\.0 equivalent 1988 309 1989 336 1990 285 1991 283 1992 265 1993 280 1994 550 WEIGHTS AND MEASURES 1 meter (m) = 3\.28 feet (ft) I kilometer (km) = 0\.62 mile (mi) 1 square kilometer (km ) = 0\.39 square mile (sq\. mi) 1 metric ton (t) = 2,205 pounds (lb) FISCAL YEAR January 01 -- December 31 ABBREVIATIONS AND ACRONYMS AfDB African Development Bank / Banque Africaine de Developpement CG2R Road Research Center of Gabon / Centre de Recherches Routires du Gabon DERA Directorate for Road and Airport Maintenance / Direction de l'Entretien des Routes et Aerodromes DGEP General Directorate of Studies and Programmation / Direction Generale des Etudes et de la Programmation DGTP General Directorate of Public Works / Direction Generale des Travaux Publics DOM Directorate of Equipment / Direction de l'Outillage Mecanique ERR Economic Rate of Return / Taux de rentabilite &conomique ETTPF Technical School for Public Works / Ecole des Techniciens des Travaux Publics du Gabon FAC French Cooperation / Fonds d'Aide et de Cooperation LBTPG Public Works Laboratory / Laboratoire du Bdtiment et des Travaux Publics MTPECAT Ministry of Public Works, Equipment, Construction and Territorial Development/ Ministere des Travaux Publics, de la Construction, et de lIAmgnagement du Territoire PARR Road Network Improvement Project / Projet d'Aminagement du Reseau Routier SAL Structural Adjustment Lending / Pret d'Ajustement Structurel SAR Staff Appraisal Report / Rapport dEvaluation  FOR OFFICIAL USE ONLY GABONESE REPUBLIC ROAD MAINTENANCE PROJECT Loan 3046-GA IMPLEMENTATION COMPLETION REPORT Table of Contents Page Preface \. (i) Evaluation Summary \. (ii) PART I: PROJECT IMPLEMENTATION ASSESSMENT A\. Statement/Evaluation of Objectives \.1 B\. Achievement of Objectives \.2 Institutional Development \.2 Financial Achievements \.6 Physical Achievements \.7 C\. Major Factors Affecting the Project \.7 D\. Project Sustainability \.7 E\. Bank Performance \.7 F\. Borrower Performance \.8 G\. Assessment of Outcome \.9 H\. Future Operations \.9 1\. Key Lessons Learned \.9 PART II: STATISTICAL INFORMATION Table 1: Summary of Assessments \.1\.1\. 1\. Table 2: Related Bank Loans/Credits \.12 Table 3: Project Timetable 13 Table 4: Loan Disbursements: Cumulative Estimated and Actual \.14 Table 7: Studies Included in the Project \.16 Table 8B: Loan Allocation by Category \. 17 Table 10: Status of Legal Covenants \. 18 Table 11: Compliance with Operational Manual Statements \. 22 Table 12: Bank Resources: Staff Input \. 22 Table 13: Bank Resources: Missions \. 23 Appendixes: A\. Mission's Aide-Memoire B\. Map IBRD 20594 This document has a restricted distribution and may be used by recipients only in the performance of their official duties\. Its contents may not otherwise be disclosed without World Bank authorization\.   (i) IMPLEMENTATION COMPLETION REPORT GABONESE REPUBLIC ROAD MAINTENANCE PROJECT Loan 3046-GA PREFACE This is the Implementation Completion Report (ICR) for the Road Maintenance Project in Gabon, for which Loan 3046-GA in the amount of US$30\.0 million equivalent was approved on July 10, 1989 and made effective on October 5, 1989\. The Loan 3046-GA was closed on June 30, 1995, following a second extension of the original closing date of December 31, 1993\. The last disbursement took place on November 8, 1995\. A balance of US$462,351 was cancelled on January 5, 1996\. Cofinancing for the project was provided by AfDB and Government sources\. Tle ICR was prepared by Messrs\. Kyriakos and Gerard Tenaille, consultants, under the responsibility of the Infrastructure Division, Central Africa and Indian Ocean Departnent\. It is based on the Staff Appraisal Report, the Loan Agreement and additional clauses to the Agreement and material in the project file\. The Borrower did not provide an evaluation report or summary, but provided comments which are included in Part I of this ICR\.   (ii) IMPLEMENTATION COMPLETION REPORT GABONESE REPUBLIC ROAD MAINTENANCE PROJECT LOAN 3046-GA EVALUATION SUMMARY Introduction 1\. The Bank had not been involved in the transport sector since 1975, when the Second Highway Project was completed\. The First Highway Project (Loan 385-GA, US$12\.0 million, 1964) was for the reconstruction of three road sections, and the Second Highway Project (Loan 580-GA, US$6\.0 million, 1969) for the reconstruction of another two road sections\. Then, over several decades, large investments were made in the railway and civil aviation sub-sectors, and roads were neglected\. As a result, the road network deteriorated so severely that its condition becamne a mnajor bottleneck to the country's economy\. In 1988, the Governnent decided, with the help of the World Bank and the African Development Bank, to upgrade its road system through improved maintenance and rehabilitation of the existing road network (para\. 1)\. Project Objectives 2\. The main objectives of the project were to: (a) preserve the Government's investment in the road network and extend its useful life; (b) optimize the Government's limited resources available for road maintenance; (c) maintain vehicle operating costs at a reasonable and stable level; (d) improve access to productive agricultural and forestry areas; (e) develop a national capacity to plan, manage and supervise road maintenance and rehabilitation, gradually taking over in-line positions held by foreign experts; and (f) initiate changes in policies regarding road maintenance organization and methods of execution (para\.2)\. 3\. These objectives, although very clear, proved unreasonable\. Given the lack of competent, trained people to be assigned to the project, it was unwise to execute two-thirds of the road maintenance program by force account (US$58\.4 million)\. On the whole, these objectives were very demanding both institutionally and financially for the Borrower, which had to finance US$77\.4 million of the project cost, including taxes, when at appraisal its share was estimated at 44\.5 percent, i\.e\. US$48\.9 million (para\.3)\. Implementation Experience and Results 4\. The project was carried out primarily through massive technical assistance: eighteen technical assistant expatriates, 12 financed by the Bank loan, for a cost of US$10 million, plus six financed by French Cooperation, and it had no impact, from a long-term perspective, on institutional development (para\.6)\. 5\. The physical objectives were substantially achieved\. Transport conditions were significantly enhanced\. The length of roads actually maintained was virtually the same as envisaged at appraisal\. For  (iii) bridge repairs, only 16 out of a total of 29 bridges were repaired\. The road network was extended from 7,200 km to 7,600 km and traffic conditions improved significantly (para\.23)\. The top management of the General Directorate of Public Works (DGTP) was competent and committed to reform\. This made the introduction of a set of reforms proposed by the technical assistance team possible\. Reforms included the introduction of rigorous road maintenance planning (para\. 10)\. 6\. On the other hand, two major measures were deferred until the end of the project but never implemented: the institutional reforms of the Directorate for Road and Airport Maintenance (DERA) and of the Directorate of Equipment (DOM)\. From the beginning of the project, the reforms were subject to endless studies, discussions, repeated reminders from Bank supervision missions, and postponement of scheduled dates for official decisions\. The real issue at stake was that their effective implementation required unpopular and courageous decisions to carry out massive lay-offs in the midst of a particularly difficult economic situation (para\.8)\. 7\. The training program was moderately successful\. The final objective, however, could not be achieved because the implementation period was too short and did not allow for a gradual transfer of in-line positions from foreign technical assistants to competent and trained nationals (paras\. 16-17)\. 8\. The Government fulfilled its commitment to secure local funding required for project completion, even exceeding its anticipated portion by 58 percent\. However, delays in the release of budget and local fund disbursements resulted in untimely payment of suppliers which adversely affected performance\. The cost accounting system was poor, and did not ensure proper pricing for works executed by force account (para\. 19)\. 9\. At appraisal in 1989, the project cost was estimated at CFAF 34 billion, all taxes included (US$110 million)\. During the project life, several factors caused the project cost to increase to CFAF 37\.8 billion (US$122\.3 million): (a) additional purchase of road construction equipment; (b) further road deterioration between the appraisal date in July 1988 and the project execution starting date in April 1991; (c) underestimation of unit cost and physical quantities at appraisal; and (d) additional supervision of works required for contracted-out maintenance program\. In addition, due to the extension of the implementation period, the cost of the technical assistance also increased from US$6\.5 to US$12\.0 million\. By the end of 1993, total actual project costs amounted to CFAF 47\.5 billion all taxes included (para\.21)\. 10\. Project implementation was completed at the end of 1994, with a one-year delay, because the construction schedule estimated at appraisal was not realistic\. The closing date was extended by one year to allow completion of the project, and another extension was granted to June 30, 1995, in order to finance some institutional studies for the road sector reorganization\. 11\. On the whole, the Bank's performance was not satisfactory: (a) the preparation team accepted the program prepared by a consulting firm on behalf of the Government in November 1987 and did not object to the huge volume of maintenance works to be carried out by force account; (b) the pre- appraisal mission, in April 1988, was devoted to discussions to reduce the project scope and costs; (c) the appraisal mission which took place in July 1988 did not devote enough time and expertise for proper evaluation of the project, despite the importance of the technical and financial implications of the force account works, the risk linked to total reliance on expatriate technical assistance for its implementation, and the complex nature of the institutional reforn program proposed; (d) Bank supervision of physical implementation in particular was insufficient: only one field visit was carried out, almost at project  (iv) completion, by the task manager who was himself not an engineer; and (e) Bank reporting on the project was generally insufficient (paras\.27-30)\. 12\. The Borrower's performance was mixed: satisfactory for the preparation of the project, but unsatisfactory for its implementation and completion\. On financial aspects, the Goverment exceeded its commitment to secure local funding required for project completion\. However, delays in the release of budget and local fund disbursements resulted in untimely payment of suppliers and additional costs which adversely affected project performance\. The institutional reforms proved difficult to implement The Government never made a decision on the reform of DERA and DOM, which the Bank insisted on for years\. The physical components of the project were implemented reasonably well, but this is due to the technical assistance more than to the local staff, who were appointed late or not at all (paras\.32-34)\. 13\. In conclusion, the outcome of the project has been unsatisfactory (para\.35) and its sustainability uncertain (para\.26)\. Conclusions, Future Operations, and Key Lessons Learned 14\. The main lessons are that: (a) the force account has proven an ineffective and inappropriate method of road maintenance, as has already been demonstrated in other similar countries; (b) the Department of Equipment (DOM) is a heavy financial burden impeding any attempt at improvement; and (c) traiing should be viewed within the broader perspective of a long-term human resource development strategy\. All these will require commitment to and continuity in a necessary reform process from the Government, road organization and donors (para\.4 1)\. 15\. For future operations, all mechanized works should be executed by private contractors, and the existing fleet of public works equipment should be sold to private firms\. A Road Network Improvement Project (PARR), financed by many extemal donors, is under implementation, but these important investments should be selective and aim at transport rather than infrastructure needs\. Overall, a transport project should assist the Government in resolving the institutional issues which were neglected under the Road Maintenance Project (Ln\. 3046-GA), specifically the increased participation of the private sector in road maintenance and the establishment of financial mechanisms for road capital preservation\.   IMPLEMENTATION COMPLETION REPORT GABONESE REPUBLIC ROAD MAINTENANCE PROJECT LOAN 3046-GA PART I: PERFORMANCE ASSESSMENT Background 1\. The Road Maintenance Project came more than ten years after the previous Bank support to Gabon in the road sub-sector, and was the Bank's first involvement in road maintenance in this country\. It was viewed as a complement to the other SAL measures (Loan 2933-GA, approved on April 21, 1988) aimed at restructuring the five main transport parastatals and correcting the investment imbalances in the various transportation modes\. Over several decades, large investments had been made in the railway and civil aviation sub-sectors, and roads had been neglected\. As a result, the road network deteriorated so severely that its condition became a mnajor bottleneck to the country's economy\. In 1988, the Government decided, with the help of the World Bank and the African Development Bank, to upgrade its road system through improved maintenance and rehabilitation of the existing road network\. A\. STATEMENT/EVALUATION OF OBJECTIVES Project Objectives 2\. According to the SAR, the objectives of the project were to: (a) preserve Govemment's investment in the road network and extend its useful life; (b) optimize the Governmment's limited resources available for road maintenance; (c) maintain vehicle operating costs at a reasonable and stable level; (d) improve access to productive agricultural and forestry areas; (e) develop a national capacity to plan, manage and supervise road maintenance and rehabilitation, gradually taking over in-line positions held by foreign experts; and (f) initiate changes in policies regarding road maintenance organization and methods of execution\. 3\. These objectives, although clear, proved unreasonable\. The project design did not fit these objectives\. The four-year period allocated for implementation was too short and unmealistic\. Given the lack of competent and trained people in the road sector, it was unwise to execute two-thirds of the road maintenance by force account (US$58\.4 million)\. At the time of appraisal, this was justified by the obligation to use existing equipment but, as soon as the project started, a large part of this equipment was found to be beyond repair and most of it had to be replaced\. Moreover, force account did not conform to the SAL's objectives to enhance private sector development\. On the whole, these objectives were very demanding, both institutionally and financially for the Borrower, which had to finance US$77\.4 million of the project cost, including taxes, when at appraisal its share was estimated at 44\.5 percent, i\.e\. US$48\.9 million\.  2 Project Description 4\. The project components were: (a) The carrying out, by contract, of a three-year programn of road mnaintenane comprising: (i) routine maintenance on about 460 kan of priority paved roads; (b) improved maintenance of some 1,300 km of unpaved roads; and (c) urgent repairs on 29 steel bridges; (b) The carrying out, by force account, of routine maintenance on some 5,200 kmn of unpaved roads for the first two years\. The third year, this capacity was to expand to cover the earth roads under the responsibility of MTPECAT (some 6,500 kIn); (c) Training of road maintenance staff, (d) Institutional strengthening of the Ministry of Public Works, Equipment, Construction and Territorial Development (MTPECAT), with the help of technical assistance (18 experts over 2 years, later extended to 3\.5 years); and (e) The carrying out of technical and economic studies for the development of the road sector\. 5\. The main risks were expressed in the SAR: first, the possibility of not achieving all the institutional objectives, including performance targets for force account works; second, insufficient level of funding or untimely release of local funds; and third, local pressure to do works not in the program\. Only the third risk did not materialize\. B\. ACHIEVEMENT OF OBJECTIVES INSTITUTIONAL DEVELOPMENT 6\. The main institutional objective was to develop an indigenous capacity to plan, manage and supervise road maintenance and rehabilitation, gradually taking over in-line positions now held by foreigners\. This objective was not met, for several reasons: (a) Even though the technical assistance under the project was massive: 18 TA expatriates, 12 financed by the Bank loan, for a cost of US$10 million, plus six financed by the French Cooperation, it had no impact, from a long-term perspective, on institutional development, because the work was mainly done by the expatriates, not by their Gabonese counterparts\. From the short-term perspective of an emergency program, technical assistance was well conceived, as it penritted to build up, out of a precarious situation and in a very short period of time, a capable field maintenance capacity that could implement satisfactorily a considerable number of maintenance works\. (b) Some counterparts were appointed late in the project life and others were not appointed at all\. For example, the counterpart to the cost accounting specialist was appointed in February 1993, and no counterpart was assigned to the Training Unit\.  3 (c) The ability to transfer skills to local staff varied widely amnong expatriates, and many trainees lacked the minimum required qualifications for the job\. (d) The three-year duration of the training program was too short, considering the weaknesses of some of the nationals to be trained\. For these reasons, the Borrower requested the Bank to extend the technical assistance contract by one year\. The Bank approved the request in part for key expatriates\. 7\. In conclusion, technical assistance would still be badly needed if road maintenance continued to be made by force account, which is the main sector issue\. It would be much easier and cost- effective to maintain the road network by contract with private companies\. Technical assistance could be reduced to a minimum level, as could the need for competent national staff in the public service\. 8\. An Action Plan was annexed to the SAR as Annexes 4-14 and to the Loan Agreement as Schedule 5\. It included institutional, functional and operational measures necessary for project implementation\. This Action Plan did not achieve most of its objectives\. Two major measures were deferred until the end of the project: the institutional reformns of the Directorate for Road and Airport Maintenance (DERA) and of the Directorate of Equipment (DOM)\. Since the beginning of the project, these reforms were subject to endless studies, discussions, repeated reminders from Bank supervision missions, and postponement of scheduled dates for official decisions\. The real issue at stake was that their effective implernentation required unpopular and courageous decisions to cariy out massive lay-offs in the midst of a particularly difficult economic situation\. Directorate for Road and Airport Maintenance (DERA) 9\. The DERA regional organization has a vertical structure with separate autonomous subdivisions and specialized maintenance task brigades within each subdivision\. This vertical structure creates rigidity, which leads to two main issues\. The first, equipment breakdown in the field, is common, resulting in an interruption of activity for the entire brigade\. Shortages of spare parts, lengthy procurement processes, and aging fleets cause work interruptions which might last months\. Due to the rigidity and mismanagement of the present organization, there is no flexibility for borrowing equipment from other brigades, renting equipment, or making changes in schedule, in order to keep working and maintain an acceptable rate of productivity\. The second type of issue relates to the fact that each regional directorate and each of its subdivisions have their own equipment, workshop, and spare parts stock\. In many cases, a costly redundancy results\. Judicious grouping, better coordination, real management of the equipment pool and maintenance, and better work planning and execution could introduce significant benefits\. General Directorate of Public Works (DGTP) 10\. The top management of the General Directorate of Public Works (DGTP) was competent and committed to reform\. This made the introduction of a set of reforms proposed by the technical assistance team possible\. The most prominent project achievement was the setting up of a rigorous road maintenance planning, controlling and monitoring system which involves the following elements: (a) Assessment, by the subdivision engineer, of road conditions, based on a visual inspection\. The purpose of the assessment is to verify empirical rules of the Road  4 Research Center of Gabon, which relates roughness to traffic and type of soi, which serves as a basis for programming; (b) Assessment of maintenance needs based on the findings of the previous step and a catalogue of the 12 standardized types of maintenance works; (c) Setting performance standards in light of previous years' actual performance; (d) Preparation of annual work load and budget program by each directorate from the data collected, performance standards, and a set of service levels\. Regional budget requests are summed up and presented to the Government\. If fewer funds than requested are allocated, adjustments are made by reducing the level of maintenance service; and (e) Monitoring of work progress through performance reports submitted weekly and monthly\. In addition, the regional offices and headquarters hold monthly meetings to evaluate the performance for the month\. Any major difference is accounted for\. The system has instilled a sense of accountability and competition, as the comparison of work performance is discussed openly among the staff of the regional directorates\. 11\. This system could prove to be an effective and efficient tool if the following weaknesses were addressed: (a) Annual planning based on rolling pluri-annual programming would be a better methodology, more consistent with useful road life\. Setting up this methodology is envisaged under a consultancy study\. However, the provision of updated and reliable data on road and structure conditions, traffic, and construction and maintenance costs will be essential to the implementation of this useful tool; (b) Two parallel General Directorates from MTPECAT: DGTP and the General Directorate of Studies and Programmation (DGEP) are both involved in planning\. It should be envisaged that the DGEP becomes an entity within DGTP, since the current structure does not allow for close coordination between the two Directorates\. 12\. On the performance side, DGTP still suffers from major technical weaknesses: (a) The project has put emphasis on quantity, i\.e\. the average daily output, rather than on the quality of works; (b) The assessment of quality is not based on conformity to defined specifications, but on the subjective appreciation of the subdivision engineer; (c) Due to the force account nature of its operations, cost is a secondary element and not of particular concem for DERA management; (d) Road linear diagrams do exist, but they are not updated and do not report maintenance operations that have been executed\.  5 13\. A Computerized Road Data Bank, a costly and sophisticated system, has been put in place, but is not yet operational because of the lack of trained technicians and shortage of engineers capable of using it\. Directorate of Equipment (DOM) 14\. Great weaknesses within the DOM remain, constituting a heavy burden that could jeopardize project sustainability\. During the project, a great effort was made in terms of acquisition of equipment (CFAF 10\.5 billion, or US$35 million), purchase of tools and spare parts, workshop and building improvements, as well as in setting up procedures and written instructions for preventive maintenance, inspection, repair monitoring, etc\. But there are still a lot of shortcomings: (a) Equipment: The current equipment fleet includes about 583 serviceable units, with a replacement value of CFAF 20 billion (US$40 million)\. No renewal policy has been set up and implemented even though it would be necessary to rnew about CFAF 2\.5 billion of equipment (US$5\.0 million) on a yearly basis\. In a few years, this could become critical, resulting in a costly increase for repairs and spare parts, and consequently in more frequent breakdowns and work interruptions\. In any case, difficult and costly decisions have to be taken, as no provisions have been made in the budget for such purposes; and (b) Maintenance: Equipment maintenance has not really improved\. Since equipment was new, road work maintenance was not gready affected\. Regional workshops have not been strengthened enough to provide human skills, organization, space management and spare parts supply compatible with the fleet maintenance needs\. 15\. A Bank-financed study has been carried out under the project to review the possibility of contracting out operation and maintenance of the equipment to a private company with the Ministry remaining the owner of the equipment\. Although this proposal would partly solve the problem, another, more definite solution would entail selling this equipment by auction to various contractors\. Training 16\. The various operations to be undertaken under the project comprised: (a) Training of the existing personnel for the nmchanized crews constituted under the program (34 crews); (b) Basic training of personnel to be hired to constitute these crews; (c) Individual training courses abroad for 18 professionals, and study trips; and (d) Specific training seminars for the supervisory staff ofthe regional and local units\. 17\. This training program was moderately successful\. Two hundred and eighty-eight individuals were trained compared to the 426 envisaged at appraisal\. These included remmen, gang leaders, operators, drivers, chief mechanics, and mechanics\. In addition, about seven counterpart  6 employees were trained on the job by the expatriate technical assistants\. The average training duration was 15 months, which is a bit too short to ensure a gradual taking-over of line positions\. 18\. In conclusion, the institutional development objectives of the project were partly reached\. The amount of work carried out by force account was far too large\. The Ministry did not have enough competent staff to do the job\. Private contractors were not given the opportunity to bid for works\. The component required massive technical assistance which executed the project almost entirely on its own\. A large fleet of equipment was acquired under the project, but is poorly maintained\. The best solution would be to scale down this force account operation and eventually dissolve the operation by contracting out to the private sector the road maintenance works, and selling the equipment\. FINANCIAL ACHIEVEMENTS 19\. The Government fulfilled its commitment to secure the local funding required for project completion, even exceeding its anticipated portion by 58 percent\. Disbursements of external funds were satisfactory, under the control of a special unit, assisted by the technical assistance team\. Budgeting and disbursement procedures improved (for external financing only)\. However, delays in release of budget and local fund disbursements resulted in untimely payment to suppliers and adversely affected performance\. The cost accounting system was poor, and did not ensure proper pricing for works executed by force account\. 20\. The establishment of a Road Fund was envisaged to secure sustained conditions for a steady local funding of road maintenance\. A detailed study was carried out at the end of the project, with Bank financing which provided the various elements to set up the Road Fund\. 21\. Project cost was estimated, at appraisal in 1989, at CFAF34 billion, all taxes included (US$110 million)\. During the project's life, several factors caused an increase in the project cost to CFAF 37\.8 billion (US$122\.3 million): (a) additional purchase of road construction equipment; (b) further road deterioration between the appraisal date in July 1988 and the project execution starting date in April 1991; (c) underestimate of unit cost and physical quantities at appraisal; and (d) additional supervision of works required for the contracted-out maintenance program\. By the end of 1993, total actual project costs amounted to CFAF 47\.5 billion, all taxes included\. Major reasons for the CFAF 10 billion overrun are: (a) CFAF 4\.4 billion for replacetnent of existing equipment; (b) CFAF 5\.0 billion for financing unplanned emergency works; (c) CFAF 0\.8 billion for studies, training, and technical assistance for 1993\. 22\. In conclusion, the main cause of the big increase in project cost is the execution of road maintenance by force account\. The cost of the technical assistance required by these force account operations increased from US$6\.5 million to US$12\.0 million (representing up to 40 percent of the IBRD Loan)\. The equipment purchase increased from US$23 million to US$38 million (although only US$7 million were disbursed from the loan, representing 23 percent of the IBRD Loan)\.  7 PHYSICAL ACHIEVEMENTS 23\. Transport conditions were significantly enhanced\. The length of roads actually mnaintained was virtually the same as envisaged at appraisal\. For bridge repairs, only 16 out of a total of 29 bridges were repaired\. The road network was extended from 7,200 km to 7,600 km and traffic conditions improved significantly\. Therefore, the physical objectives were substantially achieved\. Economic Evaluation 24\. In 1988, an economic evaluation study was entrusted by the Government to a consultant, in view of soliciting Bank financing\. The study was carried out on the basis of updated road conditions and traffic data obtained from surveys conducted by the Ministry, the Road Research Center (CG2R) and the National Laboratory (LBTPG)\. For contracted-out maintenance works, the study showed for earth roads an average rate of retum of about 100 percent, ranging from 14 percent to over 200 percent and, for paved roads, an average rate of retum of 26 percent, ranging from 12 percent to over 60 percent\. For force account works, the study showed a rate of return of 43 percent, for an assumed 5\.610 km network, incorporating the costs of equipment purchases, technical assistance and training\. Economic justification of the project after completion is difficult, because of the absence of (a) reliable data, and (b) a cost accounting system providing proper maintenance unit costs\. Nevertheless, in 1993, DGTP issued a traffic count report which showed erratic figures and presented the economic evaluation of the forecasted 1994 road maintenance program\. The economic indicator used to justify the program was the ratio vehicle operating benefits (B) over costs of the works (C)\. The results show that the average ratio (B/C) is 9 for unpaved roads, and that for at least 90 percent of the road network this ratio is over 1\. This report concludes that the program was considered economically viable\. C\. MAJOR FACTORS AFFECTING THE PROJECT 25\. The major factors affecting the project were: (a) the budget situation, difficult from project inception, did not allow timely allocation of funding, which resulted in delays in disbursement of local funds, late delivery of spare parts, and late payments to suppliers; and (b) insufficiently trained national staff\. As a result, the maintenance work program slowed\. D\. PROJECT SUSTAINABILITY 26\. The project's fundamental aim to put in place sustainable mechanisms for financing and mnanaging road maintenance was partially achieved\. The public finance situation, aggravated because of the 50 percent devaluation of the CFAF, left the country unable to provide enough funds for the maintenance of past investment\. The Road Fund for road maintenance has not been established\. There is a serious lack of mid-level managerial skills and technical assistance\. The maintenance of the huge fleet of public works equipment purchased under the project will continue to absorb a large part of the budget allocated to road maintenance\. Therefore, project sustainability is uncertain\. E\. BANK PERFORMANCE 27\. The Bank's performance for the preparation of the project was not satisfactory\. The preparation team accepted the program prepared by a consulting firm on behalf of the Government in November 1987, and did not object to the huge volume of maintenance works to be carried out by force account\. The pre-appraisal mission in April 1988 was devoted to discussions to reduce project  8 scope and costs\. The appraisal mission which took place in July 1988 did not devote enough time and expertise for proper evaluation of the project, despite the importance of the technical and financial implications of the force account works, the risk linked to total reliance on expatriate technical assistance for implementation, and the complex nature of the institutional reform program proposed\. 28\. Bank supervision of physical implementation in particular was insufficient\. Although the Bank carried out ten supervision missions during the project implementation period (twice a year on average), half of which included a highway engineer, only one field visit was carried out, almost at project completion, by the task manager, who was not an engineer\. There was no visit to workshop facilities\. Another field visit took place only for the purpose of preparing the ICR The quality of follow-up varied widely, depending on the task manager in charge\. This clearly indicates that the Bank has devoted little time to field work supervision, and did not get a first-hand knowledge of actual perforrmance through direct contact with the reality in the field\. In addition, five task managers were responsible for the project over a period of six years, which provided no continuity for the implementation\. 29\. Concerning procurement, there was a rmisprocurement for the purchase of tires\. Although a claim had been received from the lowest bidder, the Bank sent a no-objection telex approving the selection of a bidder whose price was CFAF 60 million higher (about US$200,000)\. After review by its central procurement unit, the Bank sent another telex canceling its approval, but the Borrower ignored this latter decision and signed the contract with the previously selected supplier, and paid a first amount from the Special Account\. It took years to resolve the issue and to get the Government to reimburse the disbursed amount to the Special Account\. 30\. Bank reporting on the project (aide-memoires, back-to-office and complete supervision reports) was generally insufficient\. F\. BORROWER PERFORMANCE 31\. The Borrower's performance is mnixed\. On the financial aspects, the Government fulfilled its commitment to secure local funding required for project completion far beyond expectations\. However, delays in the release of budget and local fund disbursements resulted in untimely payment to suppliers and additional costs, and adversely affected the project performance\. 32\. The institutional reforms proved difficult to implement\. The Government never made a decision on the reform of DERA and DOM, which the Bank insisted on for years\. 33\. The physical components of the project were implemented reasonably well, but this is due to the technical assistance more than to local staff, who were appointed late or not at all\. 34\. In conclusion, the overall performance of the Borrower was satisfactory for the preparation of the project, but unsatisfactory for its implementation and completion\.  9 G\. ASSESSMENT OF OUTCOME 35\. The main failure of the project was due to the large number of the works to be carried out by force account (about US$60 million, compared to US$30 million for works under contracts)\. This jeopardized sustainability and rendered the institutional development of the road sector difficult to implement\. No attention was given during project preparation to foster and enhance the private sector role in the provision of road maintenance\. This will be a big issue for the Transport Sector Project now under preparation\. The project was clearly designed from a short-term perspective -the general approach was sound in assessing road network conditions and maintenance needs, and setting performance targets\. But the project failed to meet sustainability conditions from a long-term perspective\. It is therefore not satisfactory\. H\. FUTURE OPERATIONS 36\. On June 10, 1994, a Transport Sector Technical Assistance Project (Loan 3777-GA) was approved by the Board for US$5\.2 million equivalent\. The project is designed to be an integral part of the Government's overall strategy following the adjustment of the CFA franc\. The project objectives are to: (a) strengthen the institutional management capacity of the Borrowees transport and urban sectors; (b) establish a transport sector strategy and an investment plan, including the promotion of improved sector efficiency, increased competition, reduction of transport costs, and a decrease in subsidies to public enterprises in the transport sector; (c) prepare a transport sector restructuring plan; (d) establish an urban sector development strategy; and (e) execute an urban infrastructure improvement program in Libreville using labor-based methods\. Effectiveness was declared on June 23, 1995\. 37\. This project will be a useful tool in designing an exhaustive reform of the transport sector and to prepare the Transport Sector Project, scheduled for presentation to the Board in the first quarter of 1997\. This future project should assist the Government in resolving the institutional issues wvhich were neglected under the Road Maintenance Project (Loan 3046-GA), specifically the increased participation of the private sector in road maintenance and the establishment of financial mechanisms for road capital preservation\. In particular, financing should be secured through the Road Fund, for which studies were carried out under the Road Maintenance Project\. This Fund should be fed by road taxes and budgetary allocations\. In particular, the timber industry should contribute more extensively: (a) to road maintenance financing, because this sector is largely responsible for road deterioration; and (b) to new investments they request in their area\. All mechanized works should be executed by private contractors and the existing fleet of public works equipment should be sold to private firms through auctions\. Gravel roads in remote areas should be maintained through labor-intensive methods, under the technical and financial responsibilities of the local governments\. 38\. The Road Network Improvement Project (PARR), financed by many external donors, is under implementation\. These investments should be more selective and meet transport rather than infrastructure needs\. Overall, the Transport Sector Project should be conceived according to a multi- modal approach combining roads, railway, air and waterways\. 1\. KEY LESSONS LEARNED 39\. To make the best use of scarce resources devoted to the road subsector, the Government, donors and the Road Agency should share a common long-term commitment to a road development  10 strategy including construction, paving, rehabilitation, and periodic and routine maintenance\. In the case of the Road Maintenance Project, the project failed to set the foundation for a sustained road development system because of the lack of such a commitment\. Government commitmnent to funding should not be limited to securing a certain amount of funding, but should also ensure a timely and dependable flow of funds, in order to allow road agencies to plan and implement their programs efficiently\. This requires an integrated set of financial, fiscal, institutional and legal actions to be conceived within a broad and unified multi-year financing and budgeting perspective\. The establishment of a well conceived Road Fund may be considered to achieve the above objectives, provided the Government is strongly committed\. 40\. The local authorities would have to be persuaded of the efficiency of concentrating scarce resources on properly planned road rehabilitation and maintenance works rather than on new construction and improvement works\. The trade-off between road expenditure options have to be quantified to make comparisons and choices under funding constraints\. Road agencies cannot exceed their limited financial and technical resources\. Taking their capacity limits into consideration, it appears that the economical and practical choice will be to retain and mnaintain a core road network\. 41\. The main lessons are: (a) force account has proved to be an ineffective and inappropriate method of road maintenance, as has already been demonstrated in similar countries; (b) the Department of Equipment (DOM) is a heavy financial burden impeding any attempt to improvement; and (c) training should be viewed within the broader perspective of a long-term human resource development strategy\. All these will require a commitment to a necessary and continuing reformn process from the Government, road organization and donors\. 42\. On the Bank side, it can be assumed that the quality of the project would have been better if road engineers had been more involved at both preparation and supervision stages\. In the future, it is recommended that sufficient local funding, satisfactory financial mechanisms, sale of equipment and privatization of maintenance works be conditions of preparation and effectiveness for the next Bank- financed road project\.  11 IMPLEMENTATION COMPLETION REPORT GABONESE REPUBLIC ROAD MAINTENANCE PROJECT Loan 3046-GA PART II: STATISTICAL INFORMATION Table 1: Summary of Assessments Achievement of objectives Substantial Partial Negligible Non applicable Macro policies 0 0 0 0 Sector policies 0 E0 0 Financial objectives 0 0 0 0 Institutional development 0 0 0 ° Physical objectives El 0 0 0 Poverty reduction 0 0 0 e Gender issues 0 0 0 Other social objectives 0 0 0 Environmental objectives 0 0l 0 Public sector management 0 0 o Private sector development 0 0 0 Project sustainability Likely Unlikely Uncertain 0 0 0 Bank performance Highly satisfactory Satisfactory Deficient Identification 0 0 0 Preparation assistance 0 0 1 Appraisal 0 0 E Supervision 0 0 O Borrower performance Highly satisfactory Satisfactory Deficient Preparation 0 1 0 Implementation 0 0 E Covenant compliance 0 0 Operation 0 0 Highly Satisfactory Unsatisfactory Highly unsatisfactory satisfactory Assessment of outcome 0 0 13 0  12 Table 2: Related Bank Loans/Credits Loan/Credit Title 1 Purpose Year of | Status Approval Preceding Operations I First Highway Project Reconstruction of three road 1964 Completed sections (N'Djole-Alembe (40 1968 km), Alembe-Ayem (65 km), and Alembe-Lalara (80 km))\. 2\. Second Highway Project Reconstruction of two road 1969 Completed sections Lalara-Mitzic (55 km), 1975 and Lalara-Koumameyong (64 km) Following Operations 1\. Transport Sector Technical To help the Govermnent prepare a 1994 Ongoing Assistance Project coherent transport sector strategy and an investment plan to support mid-term sector and macro development; restructure the sector; strengthen local capacity to manage the sector; and contribute to the employment generation policy by developing labor-based methods\. 2\. Transport Sector Project 1997R  13 Table 3: Project Timetable Steps in Project Cycle Date Planned Date Actual/ Latest Estimate Identification (Executive January 21, 1988 Project Summary) Preparation April 5, 1988 Appraisal June 25, 1988 July 15, 1988 Negotiations October 31, 1988 February 15, 1989 Board Presentation March 28, 1989 April 27, 1989 Signing July 10, 1989 July 10, 1989 Effectiveness October 5, 1989 October 5, 1989 Mid-term Review Project Completion June 30, 1993 June 30, 1995 Loan Closing December 31, 1993 June 30, 1995  14 Table 4: Credit Disbursements - Cumulative Estimated and Actual (US$ million) Africa Profile Appraisal Actual as % of for Transport Fiscal Year Estimate Actual Estimate Projects FY 89 Jun\.30,1989 2\.00 0\.00 0\.00 0\.00 FY 90 Sep\. 30, 1989 3\.50 0\.00 0\.00 0\.00 Dec\. 31, 1989 5\.50 0\.00 0\.00 0\.00 Mar\. 31, 1990 7\.50 2\.00 26\.67 0\.45 Jun\. 30, 1990 9\.00 2\.00 22\.22 0\.90 FY91 Sep\.30,1990 11\.00 2\.00 18\.18 1\.95 Dec\. 31, 1990 13\.00 5\.88 45\.23 3\.00 Mar\. 31, 1991 14\.50 8\.20 56\.55 4\.20 Jun\. 30,1991 16\.50 10\.00 60\.61 6\.60 FY92 Sep\. 30, 1991 18\.50 11\.84 64\.00 7\.80 Dec\. 31, 1991 20\.50 14\.84 72\.39 9\.60 Mar\. 31,1992 22\.00 16\.37 74\.41 11\.40 Jun\.30, 1992 23\.50 17\.99 76\.55 13\.80 FY 93 Sep\.30, 1992 25\.00 19\.19 76\.76 16\.20 Dec\. 31, 1992 26\.50 21\.13 79\.74 17\.40 Mar\. 31, 1993 27\.50 22\.16 80\.58 18\.60 Jun\. 30, 1993 28\.50 23\.92 83\.93 20\.40 FY94 Sep\. 30, 1993 29\.50 25\.91 87\.83 22\.20 Dec\. 31, 1993 30\.00 27\.47 91\.57 23\.40 Mar\. 31,1994 30\.00 27\.58 91\.93 24\.60 Jun\. 30, 1994 30\.00 27\.91 93\.03 25\.20 FY 95 Sep\. 30, 1994 30\.00 28\.48 94\.93 25\.80 Dec\. 31, 1994 30\.00 28\.95 96\.50 27\.00 Mar\. 31, 1995 30\.00 28\.95 96\.50 28\.20 Jun\. 30, 1995 30\.00 28\.95 96\.50 28\.50 FY 96 Sep\. 30, 1995 30\.00 29\.17 97\.23 28\.80 Dec\. 31, 1995 30\.00 29\.54 98\.47 29\.10 Mar\. 31, 1996 29\.40 Jun\. 30, 1996 29\.70 Note\. Cancellabon amount: US$ 0\.46 million\.  15 Chart 1: Disbursements 30 25 --'\. - \. \. \. 90 - 9\. \. \. \.9 95 9 ~~~~~~~\. \. \. \. , \.,-, -\.,,-\., \., \. g\. 20 -ff O^ 89~~ ~ ~ ~~ ~ ~~ ~ ~~ ~ ~~ ~ ~~ ~ ~~~~~~~~~~~~~~~~~~~~~~~~~~~~ Es 919t9 4 59 FY I___ _ __ _ __  16 Table 7: Studies Included in the Project J Purpose Status Impact 1\. Reorganization of DOM Make the department more Completed No decision efficient made 2\. Road Fund Study Study for the creation of the Completed No decision Road Fund taken 3\. Privatization of road To develop private involvement Completed No decision maintenance in road maintenance taken 4\. Pluri-annual programming of To improve road maintenance Completed Satisfactory road maintenance programming 5\. Training program for To improve capabilities of Completed Under personnel of MEC MEC personnel implementation 6\. Reinforcement of human To increase productivity of Completed Under resources management in civil servants implementation DCP (Direction Centrale des Personnels) 7\. Environmental impact of To protect environment Completed Negligible road maintenance programs  17 Table 8B: Loan Allocation by Category (in US$) Appraisal Revised Category Estimate (05/12/92) Actual Balance 1\. Regional Workshops 600,000 470,000 438,221 0 2\. Road Equipment a\. Purchase 2,600,000 6,350,000 6,911,409 -471,408 b\. Rehabilitation 1,000,000 950,000 942,953 0 3\. Consumable Goods a\. Road Maintenance 14,500,000 11,312,000 9,762,545 103,930 b\. Training 700,000 100,000 0 0 4\. Consultant Services 6,500,000 10,063,000 11,398,733 121,267 5\. Operating Costs 900,000 100,000 0 0 6\. Training, Fellowships 200,000 300,000 45,010 44,990 7\. Unallocated 3,000,000 355,000 0 240,000 8\. Special Account 39,779 -38,779 Total | 30,000,0001 30,000,0001 30,000,0001 0  18 TABLE 10: Status Of Legal Covenants Loan Agreement Section Covenant Status Original Revised Description of Covenant Comments Type Fulfillment Fulfillment Date Date 2\.02(b) F OK Undefined The Borrower shall, for the purpose Fulfilled\. of the Project, open and maintain in CFA a special account in the Libreville branch of BEAC on terms and conditions satisfactory to the Bank\. Deposits into, and payments out of, the Special Account shall be made in accordance with the provisions of Schedule 6 to the Loan Agreement\. 3\.01(b) The Borrower shall carry out the See Annex\. Project in accordance with the Action Plan set forth in Schedule 5 of this Agreement 3\.03 M Continuous Beginning November 30, 1989, and The 1994 investment not later than November 30 of each budget in the transport year thereafter, the Borrower shall sector was commented forward to the Bank for its review during the appraisal and comments, its proposed annual mission of the transport program of transport expenditures for Sector Technical the following year and shall finalize Assistance Project\. The said program, taking the Bank's Government decided to comments into consideration\. remove the extension of the Libreville Airport which is unlikely to be economically justified, and should receive low priority after rehabilitation/improve- ment of secondaiy airports\. 3\.04 M SOON Continuous Begirning November 30, 1989, and Fulfilled until 1993\. The not later than November 30 of each 1994 road maintenance year thereafter, the Borrower shall program has not yet been forward to the Bank for its approval, transmitted to the Bank\. its proposed annual programs of road maintenance to be carried out under Parts A and B of the Project during the following calendar year\. 3\.05 M OK Continuous Except as the Bank shall otherwise Road maintenance works agree, the Borrower shall include in by contract were financed each of its annual programs of road by ADB\. maintenance by contract, to be carried out under Part A of the Project, only works technically and economically justified and attaining an ERR of at least 10% when estimated to exceed CFA 200 million per contract\. 4\.01(a) F OK Continuous The Borrower shall maintain records Fulfilled\. and accounts adequate to reflect in accordance with sound accounting practices the operations, resources and expenditures in respect of the Project of the departments or agencies of the Borrower responsible for carrying out the Project\.  19 4\.0l(bXi) F OK Continuous The Borrower shall have the records Fulfilled\. and accounts, including those for the Special Account, for each fiscal year audited\. 4\.01(bXii) F OK Continuous The Borrower shall furnish to the Fulfilled\. Bank as soon as available but in any case not later than six months after the end of each such year, the report of such audit\. 4\.01(bXiii) F OK Continuous The Borrower shall furnish to the Fulfilled\. Bank such other information concerning said records and accounts and the audit thereof as the Bank shall from time to time reasonably request\. 4\.01(cXi) M OK Continuous The Borrower shall maintain in Fulfilled\. accordance with section 4\.01 (a) records and accounts reflecting such expenditures\. 4\.01(cXii) M OK Continuous The Borrower shall retain, until at Fulfilled\. least one year after the Bank has received the audit report for the fiscal year in which the last withdrawal from the Loan Account was made\. all records evidencing such expenditures\. 4\.01(cXiii) M OK Continuous The Borrower shall enable the Fulfilled\. Bank's representatives to examine such records\. 4\.01(cXiv) F OK Continuous The Borrower shall ensure that such Fulfilled\. records and accounts are included in the annual audit and that the report of such audit contains a separate opinion by said auditors\. 4\.02(a) T OK Undefined The Borrower shall carry out a study The study was completed on road user taxes according to terms in August 1992\. of reference satisfactory to the Bank 4\.02(b) T OK Jan 1, 1990 The Borrower shall furnish to the A study was carried out in Bank for its review and comments a 1993 to prepare the proposed program prepared on the creation of a Road Fund\. basis of the above-mentioned study The study needs to be and aimed at ensuring an appropriate revised taking into contribution from heavy vehicle users account the impact of the to the cost of road maintenance\. CFAF devaluation\. 4\.02(c) T RVS July 1, 1990 Dec\. 31, 1994 The Borrower shall undertake the The program still needs above-mentioned program according to be defined (see to a timetable, all as determined in above)\. Assistance in agreement with the Bank\. this respect will be provided during the additional year of project execution and is included in the Action Plan justifying the extension __________ ____________ _____________________________ of the Closing Date\.  20 ANNEX Execution of Action Plan defined in Schedule 5 of the Loan Agreement Section Covenant Status Original Revised Description of Covenant Comments Type Fulfillment Fulfillment Date Date 1 (a) M OK Undefined The Borrower shall maintain in Fulfilled\. position a qualified and experienced coordinator responsible in liaison with the Bank and other external donors as to the road maintenance program to be carried out under Parts A and B of the Project\. 1 (b) M RVS Oct 1, 1989 The Borrower shall establish an The institutional intenninisterial committee, in charge framework of pubic works of coordinating the execution of the should be revised during Program with the other sectors of the the execution of the economy\. proposed Transport Sector Technical Assistance Project\. I (cxi) M OK Jan 1, 1990 The Borrower shall take all Fulfilled\. necessary measures to place regravelling and regrading units under the direct command of the regional subdirectorate of DERA\. I (cXii) M SOON Jan 1, 1990 Feb 28, 1994 The Borrower shall establish within Prioty was givento DERA units to be responsible for monitoring the execution planning and monitoring the of the Program and execution of the Program, including establishing annual maintenance of road structures\. program of road maintenance works\. Improving planning is one of the objectives of the Action Plan to be implemented during the additional year of Project execution after extending the Closing Date\. I (cxiii) M OK Jan 1, 1990 The Borrower shall introduce Fulfilled\. incentives particularly for executive and supervisory personnel and supervisors of mechanized maintenance units\. I (c)(iv) F RVS Jan 1, 1990 The Borrower shall continue to Separation in budget provide in its national annual budget between operating separate allocations by line items for expenditures and road maintenance, so that (a) investment costs is unclear operating budgets relating to when works are executed maintenance on force account, by force account\. This internally financed, and (b) capital would require a budgets relating to maintenance on a modification of the law contractual basis and when actually defining the methodology financed on force account, are clearly for preparing the national earmarked\. budget and cannot be achieved in the short term and at the sectoral level\. This will be considered during the preparation for the transport sector _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _strast ate g y  21 1 (CXV) M OK Jan 1, 1990 The Borrower shall establish budget Fulfilled\. and appropriation regulations for the units responsible for Project execution to improve management efficiency and accelerate supply management\. 2 (aXi) M OK Oct 1, 1989 The Borrower shall recruit and Fulfilled but the action assign executive and supervisory needs to be continued\. staff, qualified and experienced in adequate numbers, to the training program to be carried out under Part \._________ _______ ___________ ____________ C of the Project\. 2 (aXii) M OK Oct 1, 1989 The Borrower shall assign Gabonese Fulfilled but the action technical personnel as counterparts needs to be continued\. to expatriate technical assistance specialists, for purposes of training and gradual takeover of _______ ___________ responsibilities under the Program\. 2 (bXi) M OK Jan 1, 1990 The Borrower shall asses the needs Fulfilled but the action in Gabonese professionals, at the needs to be continued in a level of engineer and advanced longer-term perspective\. technical personnel required to strengthen MTPECAT's central and regional services and take over responsibilities under the Program\. 2 (bXii) F SOON Jan 1, 1990 July 31, 1994 The Borrower shall introduce a Part (a), and (b) computerized system for (a) the management of the annual programming and budgeting equipment are among the of road maintenance works in objectives of the Action accordance with output standards Plan to be implemented acceptable to the Bank; (b) the during the additional year management of finances, personnel, of project execution\. Part materials and equipment; and (c) the (c) was implemented in cost accounting and cost pricing of July 1993 but needs to be maintenance works\. tested; this will be done in 1994\. 2 (bXiii) M OK Jan 1, 1990 The Borrower shall introduce Fulfilled\. procedures for the regular monitoring and follow-up of Project execution on the basis of field visits and periodic progress reports\. 3 (aXi) M OK Oct 1, 1989 The Borrower shall assign Fulfilled but standards maintenance and manual need to be raised\. maintenance teams in accordance with output standards acceptable to the Bank\. 3 (aXi) M OK Oct 1, 1989 The Borrower shall arrange for the Fulfilled in 1992\. checking and thorough overhaul of all items of maintenance equipment over a period of at least two months for each year\. 3 (b) M SOON Continuous During the period of execution of the The turnover of personnel Project except in case of exceptional has been high, but should circumstances, the Borrower shall decrease now that ensure that all personnel involved in satisfactory and skilled the Project with supervisory or personnel have been technical responsibilities remain in appointed in all major their functions and in the same supervisory and technical location\. positions\.  22 Table 11: Compliance with Operational Manual Statements Fully Complied with\. Table 12: Bank Resources - Staff Input l FY | | LENP || LENA |F LENN | | SPN | ICR | TOTAL | |n the Field 1988 13\.0 13\.0 5\.0 1989 1\.0 18\.6 6\.7 0\.8 27\.1 10\.0 1990 14\.9 14\.9 8\.0 1991 9\.5 9\.5 4\.0 1992 15\.3 15\.3 8\.0 1993 9\.6 9\.6 3\.0 1994 4\.8 4\.8 2\.0 1995 0\.3 2\.1 2\.4 2\.0 1996 _______ _ 6\.0 6\.0 1\.0 | TOTAL 14\.0 18\.6 6\.7 55\.2 8\.1 102\.6| 43\.0  23 Table 13: Bank Resources - Missions Perfornce Rating Specialized Number Days staff skills Implement Development Types of Project Cycle Month/year of persons in field represented Status Objectives Problems Preparation 11/87 4 10 IEF n/a n/a Pre-appraisal 04/88 3 11 IIE nla n/a Appraisal 07/88 2 3 IE n/a nla Post-Appraisal 10/88 3 8 IEF n/a n/a None Supervision 1 10/89 2 8 IE 1 I None Supervision 2 01-02/90 2 13 IE 2 2 None Supervision 3 09/90 1 5 I 2 2 None Supervision 4 11/91 2 11 EE 2 2 None Supervision 5 02/92 1 4 E 1 1 None Supervision 6 05/92 1 4 E 2 2 Financial Supervision 7 02/93 3 5 EEF 2 2 Financial Supervision 8 11/93 3 12 EFF 3 3 Institutional Supervision 9 03/94 2 10 EFI 3 3 Institutional Supervision 10 09/94 3 5 EFI 3 3 Institutional Completion 06/94 1 13 I 3 3 Institutional Key to Specialization: 1: Engineer E: Economist F: Financial Analyst  Appendix A REPUBLIQUE GABONAISE PROJET TREENNAL D'ENTRETIEN ROUTIER\. PRET 3046-GA RAPPORT D'ACHEVEMENT DU PROJET Aide-memoire de la mission du 14 au 27 juin 1994 1\. Une mission de supervision du Projet Triennal d'Entretien Routier a ete effectuee par Mr\. Kyriakos, Consultant de la Banque mondiale, du 14 au 27 juin 1994 A Libreville\. La mission remercie Mr\. Ebang-Assoumou, Coordonnateur du projet, Mr Nkili-Bengone, Directeur General des Travaux Publics, et tous leurs collaborateurs pour l'accueil qui lui a et reserve, pour l'organisation des entretiens et des visites sur le terrain, et pour l'excellente collaboration aux travaux de la mission\. OBJECTIFS DE LA MISSION 2\. Les objectifs de la mission etaient de: (a) presenter le cadre du Rapport d'Achevement en cours de preparation par la Banque; (b) discuter la preparation par l'Emprunteur de sa propre evaluation du Proj et et de sa contribution A l'elaboration du rapport; (c) d'ajouter A la connaissance livresque du projet les visites et les rencontres avec les acteurs sur le terrain; et (d) de discuter avec l'Emprunteur son point de vue sur l'execution du projet et les perspectives d'averur\. 3\. Cadre du Rapport d'Achevement du Projet\. Le rapport est organise autour de neuf themes: (a) adequation des objectifs initiaux du projet aux besoins de l'Emprunteur; (b) degre de realisation des objectifs du projet; (c) facteurs qui ont influenc6 l'execution du projet; (d) perennite du projet; (e) performance de la Banque; (f) performance de l'emprunteur; (g) evaluation des resultats du projet; (h) operations futures; et (i) le,ons tirees et application dans des projets futurs\. 4\. Evaluation du Projet par l'Emprunteur et Contribution de l'Emprunteur A l'Elaboration du Rapport d'Achevement du Projet\. La Banque recQmmande A ses Emprunteurs de proceder A leur propre evaluation du projet, et de transmettre cette evaluation A la Banque\. Le rapport de l'Emprunteur est ensuite integre sans modification dans le rapport produit par la Banque\. Il pourrait etre organise selon les neuf themes ci-dessus\. II ne devrait pas depasser une dizaine de pages\. 5\. Visite et Rencontres avec les Acteurs sur le Terrain\. La mission a visite certaines realisations du PTER dans les Directions Regionales du Nord-Ouest (DRNO) et du Sud-Ouest (DRSO)\. Elle a visite les installations de la DRSO, des subdivisions de Fougamou et Ndende, et l'Ecole de formation de Fougamou\. La mission a parcouru un chantier de rechargement effectue  Projet Triennal d'Entretien Routier Page 2 de 5 par des forestiers\. Outre les personnels de la Direction Generale des Travaux Publics A Libreville, la mission a rencontre les quatre directeurs regionaux\. 6\. Point de Vue de I'Emprunteur et Perspectives d'Avenir\. Les themes abordes ont concerne le besoin d'une programmation multiannuelle de 1'entretien routier; le besoin d'une strategie globale de developpement du reseau routier; les problemes de ressources humaines, de formation et le r6le de l'assistance technique; les problemes de gestion du parc de materiel; et le recours aux entreprises privees\. Au-dela de ces themes g6n6raux, les discussions ont evoque les difficultes de mise en place de la comptabilite analytique et de la banque de donnees routieres\. OBSERVATIONS ET RECOMMANDATIONS\. 7\. Les efforts deployes ont conduit A des resultats positifs sur le terrain et une amelioration sensible des conditions sur le reseau routier par rapport aux conditions initiales tres difficiles\. Ces resultats peuvent etre attribues A: (a) une direction du projet pleinement engagee dans son execution, maitre de son deroulement et motivee dans l'atteinte des objectifs, (b) une assistance technique utilement mise a profit; (c) la mise en place d'un systeme de suivi efficace associant la sanction, la promotion, l'incitation et la formation; et (d) des moyens adequats tant au niveau des financements que des equipements\. 8\. Certaines de ces conditions ayant maintenant change (l'assistance technique est partie, le materiel a vieilli, le financement local est reduit), la reflexion en cours sur les perspectives de l'entretien routier doit viser A preserver certains acquis et A mettre en place une organisation perenne moins sensible a l'evolution des conditions d'execution de l'entretien routier\. 9\. Programmation multi-annuelle\. Cette programmation devrait accompagner la prograrnmation annuelle des travaux mise en place pendant le PTER\. Cette derniere methode a permis de repondre a l'urgence des travaux de reouverture du reseau\. Elle s'av&re toutefois couteuse dans la mesure ou, les capacites ne repondant pas a l'accroissement des besoins, 1'entretien courant ne peut assurer un maintien des conditions acceptables sur l'ensemble du reseau, et oui il doit etre soutenu par des actions regulieres de rehabilitation pour remettre ces conditions A niveau\. La programmation multi-annuelle devrait permettre de d6terminer comment utiliser au mieux les capacites en tenant compte des contraintes, notamment financieres\. 10\. II faudrait veiller A ce que le consultant qui va realiser l'etude de programmation de l'entretien routier ne se contente pas d'importer un modele complique, comme cela s'est produit pour la banque de donnees routieres\. Les procedures informatiques devraient etre elabor6es en collaboration avec les futurs utilisateurs\. Les donnees A collecter devraient etre simples sur la base de schemas d'itineraires manuels et d'indications visuelles associees a des mesures d'uni\.  Projet Triennal d'Entretien Routier Page 3 de 5 11\. Renforcement des capacites locales de gestion et d'execution de l'entretien routier\. Les efforts devraient etre portes sur cinq axes: (a) mieux identifier les besoins; (b) ameliorer les procedures de financement de l'entretien routier et d'utilisation de ces financements; (c) ameliorer les procedures de gestion du materiel de travaux publics; (d) mettre en place des structures plus efficaces; et (e) renforcer les capacites humaines\. Mieux identifier les besoins\. * Realiser une campagne de comptages pour disposer de donnees fiables, celles des annees precedentes ne l'etant pas suffisamment et presentant des inconsistances\. a Realiser une campagne de mesures d'uni\. Les donnees ne sont pas disponibles malgre l'existance de quatre Bump Integrator\. * RKaliser une campagne de prospection de nouveaux gites de materiaux fiables\. a Etablir un catalogue de degradations faisant le lien entre degradations et remedes\. * Effectuer une campagne d'inspection visuelle des routes\. * Effectuer une campagne de pesage d'essieux\. * Entamer une nouvelle reflexion sur les normes d'entretien\. Actuellement, elles reposent theoriquement sur la classe de trafic et l'uni mais en fait l'empirisme du subdivisionnaire prevaut\. Ameoliorer les procedures de financement de l'entretien routier et d'utilisation de ces financements\. * Reduire les sujetions et aleas actuels des budgets de fonctionnement et d'investissement en creant un Fonds Routier\. Un projet de texte vient d'etre prepare tenant compte des observations de la Banque Mondiale\. Une etude de mise en place de ce fonds devrait demarre'rrapidement\. * Recourir A des sources additionnelles de financement\. Les travaux importants realises pour les forestiers se traduisent par de lourdes charges d'investissement, puis ensuite d'entretien\. II serait juste d'exiger leur contribution financiere A ces travaux\. De meme, il serait envisageable de demander une participation aux populations locales beneficiaires de l'ouverture d'une route\. * Limiter la responsabilit6 de la DGTP A un reseau compatible avec ses moyens financiers\.  Projet Triennal d'Entretien Routier Page 4 de 5 * Entreprendre avec l'appui des bailleurs de fonds une action de sensibilisation de l'opinion et des autorites gouvemementales et locales\. Ameliorer lesprocedures de gestion du materiel de travaux publics\. * Le texte de reforme de la D\.O\.M\. n'est toujours pas disponible\. La structure pyramidale actuelle est trop rigide\. Des economies d'echelle sont possibles en regroupant par exemple des parcs ateliers pas trop distants les uns des autres\. Le bon etat du materiel n'a pas incite A mettre en place des modes de gestion efficace et rigoureuse de leur entretien\. II y a eu trop de lenteurs dans les decisions\. Le choix des hommes n'a pas toujours et heureux\. * Le parc devrait etre dimensionne selon les capacites de gestion d'une DOM restructuree\. Mettre en place des structures plus efficaces\. * Le debat Regie-Entreprise devrait etre pense en terme de complementarite et non d'opposition\. L'objectif est d'arriver a une mobilisation efficace et maximale des ressources tant dans le secteur prive que dans le secteur public\. Le fonctionnement de la regie devrait etre oriente vers l'esprit et la methode de lentreprise\. Le PTER a reussi A inculquer le sens du rendement quantitatif II s'agit de developper celui de la qualite et du cout\. * Un plan d'action devrait etre prepare pour developper la complementarite de la regie et de lentreprise\. Un essai a et entrepris pour faire participer les populations locales A l'entretien des dependances dans le cadre de petites entreprises utilisant des techniques A haute intensite de main d'oeuvre\. Des petites entreprises pourraient aussi etre utilisees pour les travaux de construction et d'entretien de petits ouvrages\. * Une cellule de programmation devrait etre cre6e aupres du DGTP pour distinguer la fonction de programmation de celle d'execution, et pour etre un organe de reflexion permanent pour le responsable\. Renforcer les capacites humaines\. * Une strategie A long terme devrait etre elaboree\. Pour parer au plus pgrss6, le PTER a porte l'effort sur la formation intensive des unites de production sur le terrain\. Les actions de formation ont ete limitees au court terme et a l'horizon du projet\. Elles se sont arretees brutalement a I'achevement de celui-ci alors que les besoins restent importants\. * La strategie A long terme pourrait inclure la preparation dans des ecoles, des instituts techniques, et une formation post-scolaire avant le recrutement\. * Un plan d'action devrait etre prepare pour rendre operationnels la comptabilite analytique et la banque de donnees routieres; soutenir l'action de restructuration de la D\.O\.M\.; selectionner  Projet Triennal d'Entretien Routier Page 5 de 5 et former les personnels qui seront responsables de l'execution des campagnes identifiees ci-dessus pour une meilleure connaissance des besoins d'entretien routier\. * Une extension de l'assistance technique a long terme de devrait pas etre systematiquement ecartee a ce stade encore precaire du niveau professionnel\. * Le plan de carriere qui a ete prepare recemment devrait etre un outil important pour valoriser et motiver les personnels de l'entretien routier\. Ce plan doit encore recevoir l'aval des autorites politiques\. II fonde le recrutement, la promotion, 1'encadrement et la formation sur des bases objectives de qualification et de merite\. 12\. Execution des travaux d'entretien\. * JUne formation devrait etre assuree aux subdivisionnaires\. L'effort de formation de PTER a ete concentre sur la formation des unites de production sur le terrain et des personnels des directions regionales\. Les subdivisionnaires ont toutefois un r6le important dans 1'encadrement et l'organisation des chantiers, ce qui suppose une formation adequate\. * La maintenance de donnees routieres est importante pour conserver la memoire des travaux realises, de l'evolution des conditions de la route, etc\. * Les unites de production devraient etre informees du couit des operations et ce facteur devrait etre integre dans la mesure des performances\. = Le L\.B\.T\.P\.G\. devrait etre associe aux travaux d'entretien\. II 1'est deja aux travaux neufs a l'entreprise\. - lDe maniere a assurer l'objectivite des resultats de l'entretien routier, une unite de controle devrait etre creee relevant directement du DGTP\.  C A M E R 0 0 N T\. EY\.-odi Ebo\.T\. ,5-ae\.Iiv Eb\.b\.n \.ctor,I 3, I "~~~~~~~~~~ ~~~ F~~ U - PEOPLE'S REPUBLIC EQUATORIAL ~~~~"'I AssokNgaum ~~OF THE / -~~~~~~~~~~' r~~~~~~~~~' ~E fCONGO d-\.e~~~~~~~~~~~~~~~ -i C\.p~ ~~- Wedo-e a C--- s- clb~~~~~~~~~ M\.k\. J' s\.u 0* 0*~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ CI\.;\.d ~ ~ ,,\. D_roo K\.ouo ~~~~icr \.2~~~~~PA--- I j Moob~~l-i A4r I B-e Tdnbovgo RESEAU ROUTIER~~~~REPBLI O- iL~~~~~~~~~~~~~~~~~~- b, >~~~~~~~~~Eteis Rue inme rnu E,,M! ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ Zn d~~~~~Zn '- Sete N~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~Rrt CONT_RAilroads\. \. Completed RardiGe NiotilA -' ] CENTRAL Cliemin~~~~~~~~~~~~~~~~~~~RAAU Ae Ler ENtRPISE Pt,eG -, - COUtROON 1 ~~~~~~~~~~~~~~~~~~~~~~~~~ Mfnnclire\.fi4 N- A T I ASmomMps-fP- \.sU'\. EQiurv,uX - 4 ~~'Aeropart lnternotionnl piu\. Ci Z- A A\. Au-re ARopodt Regin nnae nSi 4 tractS Forest Resernes and NotionalR ParNi-P\.ks c-5" \.i F-ss n-v n so mo l\. CapitaCe Normal e\.m\.r\.emr\.eas\.-\.a\.o\.ure\.,,,\.u Frontir\. ReAionole ,\.o,, oo\.u\.mae,\. ,,,u\.ne, enS\.- oOeh\., A\.,p\., -Region, Raudobi,E\.s \.- - vr\.oo * ~~~ e\.,uS\.,\.,\.i,\.,,menc\.i\.i\.,m-\.mm \.ee\.sr,ea I -- Pron~~F\.,\.tree R--rnoe 0\. \.i\. \.k Am N \. u i iR- t \. Nt\.C\.    IMAGING Report No: 155832 Type: ICP

REVIEW

P090723

Document of The World Bank FOR OFFICIAL USE ONLY Report No: ICR00005020 INTERNATIONAL DEVELOPMENT ASSOCIATION IMPLEMENTATION COMPLETION AND RESULTS REPORT (IDA 46490 and IDA 56920) ON A CREDIT IN THE AMOUNT OF SDR 74\.3 MILLION (US$109\.94 MILLION EQUIVALENT) TO THE REPUBLIC OF VIETNAM FOR THE VIETNAM LIVESTOCK COMPETITIVENESS AND FOOD SAFETY PROJECT December 27, 2019 Agriculture and Food Global Practice East Asia and Pacific Region This document has a restricted distribution and may be used by recipients only in the performance of their official duties\. Its contents may not otherwise be disclosed without World Bank authorization\.  CURRENCY EQUIVALENTS (Exchange Rate Effective June 30, 2019) Vietnamese Dong Currency Unit = (VND) VND 23,275\.00 = US$1 FISCAL YEAR July 1–June 30 ABBREVIATIONS AND ACRONYMS AF Additional Financing AMR Antimicrobial Resistance AFSP Agri-Food Safety Project ASF African Swine Fever CPF Country Partnership Framework DAH Department of Animal Health DARD Department of Agriculture and Rural Development DLP Department of Livestock Production DONRE Department of Natural Resources and Environment EA Economic Analysis EMF Environmental Management Framework ERR Economic Rate of Return FAO Food and Agriculture Organization of the United Nations GAHP Good Animal Husbandry Practices GDP Gross Domestic Product GHG Greenhouse Gas GoV Government of Vietnam HPAI Highly Pathogenic Avian Influenza ICR Implementation Completion and Results Report KPI Key Performance Indicator LIFSAP Livestock Competitiveness and Food Safety Project LPZ Livestock Planning Zone MARD Ministry of Agriculture and Rural Development MIS Management Information System NPV Net Present Value O&M Operation and Maintenance OIE World Organisation for Animal Health PAD Project Appraisal Document PCU Project Coordination Unit PCR Project Completion Report PDO Project Development Objective PPMU Provincial Project Management Unit WOP Without Project WP With Project Regional Vice President: Victoria Kwakwa Country Director: Ousmane Dione Regional Director: Benoit Bosquet Practice Manager: Dina Umali-Deininger Task Team Leader(s): Hardwick Tchale, Binh Thang Cao ICR Main Contributor: Franck Berthe  TABLE OF CONTENTS DATA SHEET \. 1 I\. PROJECT CONTEXT AND DEVELOPMENT OBJECTIVES \. 5 A\. CONTEXT AT APPRAISAL \.5 B\. SIGNIFICANT CHANGES DURING IMPLEMENTATION \. 13 II\. OUTCOME \. 16 A\. RELEVANCE OF PDOs \. 16 B\. ACHIEVEMENT OF PDOs (EFFICACY) \. 17 C\. EFFICIENCY \. 24 D\. JUSTIFICATION OF OVERALL OUTCOME RATING \. 25 E\. OTHER OUTCOMES AND IMPACTS (IF ANY) \. 26 III\. KEY FACTORS THAT AFFECTED IMPLEMENTATION AND OUTCOME \. 28 A\. KEY FACTORS DURING PREPARATION \. 28 B\. KEY FACTORS DURING IMPLEMENTATION \. 29 IV\. BANK PERFORMANCE, COMPLIANCE ISSUES, AND RISK TO DEVELOPMENT OUTCOME \. 31 A\. QUALITY OF MONITORING AND EVALUATION (M&E) \. 31 B\. ENVIRONMENTAL, SOCIAL, AND FIDUCIARY COMPLIANCE \. 33 C\. BANK PERFORMANCE \. 35 D\. RISK TO DEVELOPMENT OUTCOME \. 36 V\. LESSONS AND RECOMMENDATIONS \. 37 ANNEX 1\. RESULTS FRAMEWORK AND KEY OUTPUTS \. 39 ANNEX 2\. BANK LENDING AND IMPLEMENTATION SUPPORT/SUPERVISION \. 55 ANNEX 3\. PROJECT COST BY COMPONENT \. 57 ANNEX 4\. EFFICIENCY ANALYSIS \. 59 ANNEX 5\. BORROWER, CO-FINANCIER AND OTHER PARTNER/STAKEHOLDER COMMENTS \. 74 ANNEX 6\. PROJECT STORIES \. 75 ANNEX 7\. SUPPORTING DOCUMENTS \. 77  The World Bank Vietnam Livestock Competitiveness and Food Safety (P090723) DATA SHEET BASIC INFORMATION Product Information Project ID Project Name P090723 Vietnam Livestock Competitiveness and Food Safety Country Financing Instrument Vietnam Investment Project Financing Original EA Category Revised EA Category Partial Assessment (B) Partial Assessment (B) Organizations Borrower Implementing Agency Socialist Republic of Vietnam LIFSAP PCU Project Development Objective (PDO) Original PDO The project development objectives (PDOs) are to increase the production efficiency of household-based livestock producers, to reduce the environmental impact of livestock production, processing and marketing, and to improve food safety in livestock product supply chains (mainly meat) in selected provinces\. Page 1 of 77  The World Bank Vietnam Livestock Competitiveness and Food Safety (P090723) FINANCING Original Amount (US$) Revised Amount (US$) Actual Disbursed (US$) World Bank Financing 65,260,000 65,183,272 62,790,000 IDA-46490 44,680,000 42,266,844 42,640,000 IDA-56920 Total 109,940,000 107,450,116 105,430,000 Non-World Bank Financing 0 0 0 Borrower/Recipient 23,770,000 0 26,970,770 Total 23,770,000 0 26,970,000 Total Project Cost 133,710,000 107,450,116 132,400,000 KEY DATES Approval Effectiveness MTR Review Original Closing Actual Closing 22-Sep-2009 10-Mar-2010 25-Mar-2013 31-Dec-2015 30-Jun-2019 RESTRUCTURING AND/OR ADDITIONAL FINANCING Date(s) Amount Disbursed (US$M) Key Revisions 29-Nov-2018 97\.43 16-Jan-2019 97\.43 Change in Loan Closing Date(s) KEY RATINGS Outcome Bank Performance M&E Quality Satisfactory Satisfactory Modest Page 2 of 77  The World Bank Vietnam Livestock Competitiveness and Food Safety (P090723) RATINGS OF PROJECT PERFORMANCE IN ISRs Actual No\. Date ISR Archived DO Rating IP Rating Disbursements (US$M) 01 08-Jun-2010 Satisfactory Satisfactory 1\.59 02 10-Jun-2011 Satisfactory Satisfactory 4\.05 03 06-Apr-2012 Moderately Satisfactory Moderately Satisfactory 6\.46 Moderately 04 27-Feb-2013 Moderately Unsatisfactory 18\.60 Unsatisfactory 05 20-Oct-2013 Moderately Satisfactory Moderately Satisfactory 27\.82 06 30-Dec-2013 Moderately Satisfactory Moderately Satisfactory 32\.27 07 18-Oct-2014 Satisfactory Satisfactory 49\.47 08 22-Apr-2015 Satisfactory Satisfactory 59\.01 09 09-Nov-2015 Satisfactory Satisfactory 62\.72 10 12-May-2016 Satisfactory Moderately Satisfactory 66\.85 11 21-Nov-2016 Satisfactory Moderately Satisfactory 70\.85 12 18-May-2017 Satisfactory Moderately Satisfactory 75\.79 13 18-Nov-2017 Satisfactory Moderately Satisfactory 81\.42 14 16-May-2018 Satisfactory Satisfactory 91\.03 15 30-Dec-2018 Satisfactory Satisfactory 98\.02 16 04-Nov-2019 Satisfactory Satisfactory 106\.48 SECTORS AND THEMES Sectors Major Sector/Sector (%) Agriculture, Fishing and Forestry 66 Agricultural Extension, Research, and Other Support 10 Activities Fisheries 28 Livestock 28 Page 3 of 77  The World Bank Vietnam Livestock Competitiveness and Food Safety (P090723) Health 34 Health 34 Themes Major Theme/ Theme (Level 2)/ Theme (Level 3) (%) Finance 18 Finance for Development 18 Agriculture Finance 18 Urban and Rural Development 65 Rural Development 65 Rural Markets 18 Rural Infrastructure and service delivery 38 Land Administration and Management 9 Environment and Natural Resource Management 18 Renewable Natural Resources Asset Management 18 Biodiversity 9 Landscape Management 9 ADM STAFF Role At Approval At ICR Regional Vice President: James W\. Adams Victoria Kwakwa Country Director: Victoria Kwakwa Ousmane Dione Director: John A\. Roome Benoit Bosquet Practice Manager: Hoonae Kim Dina Umali-Deininger Hardwick Tchale, Binh Thang Task Team Leader(s): Xiaolan Wang Cao ICR Contributing Author: Franck Cesar Jean Berthe Page 4 of 77 The World Bank Vietnam Livestock Competitiveness and Food Safety (P090723) I\. PROJECT CONTEXT AND DEVELOPMENT OBJECTIVES A\. CONTEXT AT APPRAISAL Context 1\. At the time of appraisal, the project was consistent with the World Bank’s Vietnam Country Partnership Framework (CPF) for 2011–2015\. Specifically, it supported three of its four objectives: (a) improved business environment by strengthening competitiveness and providing a level playing field for household livestock producers; (b) stronger inclusive growth by making basic services accessible and affordable to the poor, namely the rural smallholder livestock producers; and (c) the sustainable management of natural resources and environment by introducing livestock waste treatment technology to limit environmental pollution\. 2\. Progress in reducing rural poverty\. At the time of appraisal, agricultural growth had significantly contributed to the reduction of rural poverty in Vietnam\. Within agriculture, the expansion of smallholder livestock production had been a major contributor to increasing household/farm incomes and reducing rural poverty\. 3\. Livestock production in the economy\. In 2009, the agriculture sector accounted for 22 percent of gross domestic product (GDP) and more than 60 percent of employment, of which the livestock subsector accounted for 27 percent of agriculture’s contribution to GDP (about 6 percent of total GDP)\. Livestock production was on a fast-growing trajectory, with pig production being a major contributor and projected account of the sub-sector to reach about 42 percent of agriculture GDP by 2020\. 4\. Rising demand for livestock products\. The meat production increased from an estimated 2\.0 million tons in 2000 to 3\.3 million tons in 2007, an average annual increase of 7\.5 percent, following rapidly rising demand driven by increasing incomes and growth of the middle class\. The average annual meat consumption in Vietnam was about 40 kg per capita in 2009, with a projected increase to 57 kg per capita by 2020\. Pork and poultry dominated meat consumption with 76 percent and 13 percent of the total meat market, respectively\. 5\. Livestock production as a major source of income for households\. In 2009, livestock played a significant role in generating income in rural Vietnam, as it was dominated by small-scale household pig and poultry production\. The output of household-based livestock producers comprised about 70 percent of the overall livestock sector production\. An estimated 8\.3 million households produced poultry and 7 million household pigs\. For poor households, livestock was a major source of food and a means to save and accumulate capital\. Raising livestock in addition to cash crops has contributed to diversification of livelihoods in rural communities\. Livestock also provided draught power, transport, organic fertilizer, and a source of cash\. 6\. Challenges faced by household-based livestock producers\. At the time of project preparation, household-based livestock producers faced several constraints when trying to intensify their production and become more competitive and profitable: (a) limited knowledge of—and access to—innovations, resulting from weak extension services; (b) reactive rather than preventive disease control driven by weak Page 5 of 77 The World Bank Vietnam Livestock Competitiveness and Food Safety (P090723) decentralized animal health services and limited understanding of the basic concepts of on-farm biosecurity; (c) lack of farmer organization, preventing sharing experiences, learning new husbandry practices, and commanding greater purchasing and bargaining power for such production inputs as animal feed; and (d) inability to meet food safety standards\. They also faced constraints due to limited access to capital\. In a rural finance system where the only collateral accepted by commercial banks was a land tenure certificate, it was difficult to access large financial support and expand the farming scale\. Finally, with limited numbers of farms having waste treatment technologies, livestock production was also a source of groundwater and surface water pollution\. 7\. The threat of animal diseases\. The 2003 highly pathogenic avian influenza (HPAI) epidemic put the lives and livelihoods of an estimated 8\.3 million household poultry producers at risk\. The economic impact of the epidemic illustrated that highly contagious animal diseases in pigs and poultry could bankrupt a producer with a single outbreak\. Such disease outbreaks placed the small-scale household producers at serious risk, whether from lack of knowledge, lack of access to veterinary services, or the absence of basic biosecurity procedures\. In addition, the lack of technical and financial resources affected the overall resilience of household livestock producers to external shocks and increased the risk of losing market shares in favor of medium- and large-scale commercial producers\. Under the World Bank’s Global Program for Avian Influenza Control and Human Pandemic Preparedness and Response (GPAI) program, Vietnam benefited from the Avian and Human Influenza and Human Pandemic Preparedness (2007–2014) Project, which was rated ‘highly satisfactory’ by the Independent Evaluation Group\. 8\. Challenges faced by the veterinary services\. The performance of the veterinary services was assessed in 2007 by the World Organisation for Animal Health (OIE), with a follow-up assessment and a good agriculture practices analysis in 2010\. Field services to cover livestock diseases were weak\. Veterinary curricula were in need of review, especially in undergraduate training and epidemiology\. Laboratory services at the central level were considered well organized with capable staff\. Disease surveillance remained weak and reactive\. Chronic underfunding of veterinary services had left the service short of equipment, field transport, and recurrent operating budgets\. These constraints had temporarily been lifted during the HPAI crisis (see paragraph #6)\. The crisis caused the Government of Vietnam (GoV) to rethink its view of veterinary services as an important tool in countering devastating losses cause by infectious disease epidemics\. 9\. Livestock competitiveness and food safety\. Food safety standards form an important part of the quality elements of competitiveness, defined as the ability of the producers to capture part of the market through production efficiency, favorable product attributes, and/or particular appeal to consumer preferences\. As urban incomes increase, expectations for food safety also increase\. In 2009, more than 90 percent of Vietnam’s consumers were serviced by local meat markets, most of them without proper hygienic conditions or waste treatment\. These meat markets were supplied by backyard and local small- scale slaughterhouses, with unhygienic conditions and an absence of proper meat inspections\. In addition to food safety, the benefits of upgrading slaughterhouses and markets included enhancing disease surveillance and control in high-risk areas\. To keep pace with the large-scale production, household producer competitiveness and food safety needed to exist as interlinking phases along the meat marketing chain\. Efficient meat production by the household producer (competitiveness), with access to hygienic meat markets that are attractive to consumers (food safety), was to generate higher demand (profitability)\. Page 6 of 77 The World Bank Vietnam Livestock Competitiveness and Food Safety (P090723) 10\. Household-based livestock producers at the interface of rural and urban economies\. As higher incomes for urban dwellers led to increased meat consumption, more demand for meat could also increase incomes for household producers in rural areas, provided they could overcome the above- mentioned constraints and become more competitive and safer\. Providing these producers with an opportunity to compete in the rapidly expanding meat market was identified as a way to improve rural income\. 11\. The preparation of the project benefited from a long-standing involvement of the World Bank in the agriculture sector\. Over the decade before the project, the World Bank had provided substantial support to the agricultural sector in Vietnam and intensively engaged with the GoV on the broader agenda of poverty alleviation, rural development, and agriculture competitiveness\. All IDA-financed agricultural projects had included a livestock component\. Also, the World Bank had been deeply involved in the response to the HPAI crisis, thereby becoming one of the key partners of the Government in the livestock sector and forging strategic alliances with other stakeholders\. 12\. Analytical underpinning\. In 2006, the World Bank supported the Ministry of Agriculture and Rural Development (MARD) to prepare the Vietnam Food Safety and Agricultural Health Action Plan, commissioned the Food and Agricultural Organization of the United Nations (FAO) to conduct a study on the Competitiveness of the Livestock Sector in Vietnam, and supported OIE to assess the performance of veterinary services (see paragraph #7)\. These initiatives had established a sound basis on which to build a project that would address important constraints relating to livestock competitiveness and food safety and contribute to further increases in rural income in Vietnam\. 13\. International experience and knowledge\. The GoV was also interested in tapping into the international experience of the World Bank which had supported similar projects elsewhere in the region and the Regional Livestock Waste Management in East Asia Project financed by the Global Environmental Facility and implemented in China, Thailand, and Vietnam\. Theory of Change (Results Chain) 14\. Theory of change (ToC)\. A theory of change was not prepared at appraisal\. However, an ex-post ToC is presented below (figure 1), based on the project components and Results Framework which define long-term goals and changes were implied by each component\. 15\. The project objective was to increase the production efficiency of household-based livestock producers; to reduce the environmental impact of livestock production, processing, and marketing; and to improve food safety in livestock product supply chains (mainly meat) in selected provinces\. A first critical step was to improve animal husbandry practices of household-based producers, together with the upgrading of slaughterhouses and meat markets and the strengthening of the institutional capacity in biosecurity, basic epidemiology, disease control, farm, slaughterhouse and other related waste management, quality of livestock feeds, sale and use of feed additives, hygiene standards, and meat inspection\. 16\. The initiatives introduced by the project required a new mindset (good animal husbandry practices [GAHP], hygiene, and food safety), which called for implementation to involve stakeholders and enhance adoption and sustainability\. The initiatives were reinforced through robust institutional Page 7 of 77 The World Bank Vietnam Livestock Competitiveness and Food Safety (P090723) strengthening and capacity building\. At the institutional level, the capacity of the livestock production department would be strengthened by developing/updating (a) GAHP standards, procedures, and methodology for monitoring and certification and (b) guidelines and regulations for biosecurity, livestock waste management, quality of livestock feeds, sale and use of feed additives, hygiene standards, and meat inspection\. In addition, training and capacity building would be provided to GoV services on new GAHP certification, information collection, and dissemination\. Training, awareness raising, and technical assistance would be provided to implementing agencies, MARD technical departments (Department of Livestock Production [DLP] and Department of Animal Health [DAH]), representatives of local government, and stakeholder groups to familiarize them with the new approaches\. 17\. At the farm level (households), the project planned to invest in adoption of GAHP and improved technologies in existing livestock production area to improve biosecurity and waste management and increase vaccination coverage for common disease for animals\. The project also planned to pilot the concept of livestock production zones (LPZ), to promote the establishment of cooperatives, and partnerships with private sector\. Farmers would be trained on GAHP, improved quality of feed, better ration formulation/feed balancing for animals, animal husbandry practices, biosecurity and GAHP demonstration models were implemented in communes\. Matching grants supporting construction of biodigesters, composting facilities, slurry treatment, and implementation of biosecurity measures were considered for farmers\. These, in the short term, would help increase efficiency of household-based livestock producers while reducing the environmental impact of livestock production\. This was also aimed at enhancing the quality of services (livestock production and animal health) and increase support to farmers to implement GAHP along with monitoring and inspection of farms\. The piloting of LPZ was proposed through financing of upgrading basic public infrastructures (roads, electricity, and water supply system), capacity-building activities of livestock production and veterinary services on GAHP, basic epidemiology, data recording and disease monitoring, upgrading of waste management through the implementation of biodigesters infrastructure, and financing for biosecurity measures at the farm and communal level\. The livestock producer groups would be established through the project and provided with extension services\. The groups (collaborative groups and cooperatives) were intended to encourage harmonized/collaborative implementation of upgrades and improved practices, which also required a behavioral change\. The pilot would be evaluated to assess results and sustainability for potential scaling- up\. 18\. At the processing level (slaughterhouses), the project would finance upgrades and improvements of meat slaughterhouses and wet markets, adoption of food and safety standards and implementation of waste treatment and management\. The proposed activities included upgrading of slaughterhouse and market waste treatment and management; purchasing of equipment for safe and hygienic slaughtering; butchering and meat handling throughout the value chain; and training on food safety of veterinary staff, butchers, and middlemen\. In addition, meat inspectors would be trained on proper meat inspection\. Also, the provincial sub-DAH was to be equipped for proper meat inspection\. This aimed to contribute to enhancing quality of services, as well as monitoring and inspection of markets, and slaughterhouses\. The project also planned to establish and maintain sero-surveillance, allowing for the detection of targeted diseases in the project areas as well as feed quality testing, which would inform farmers about reliable sources of feed with quality control\. These, in the short term, would help reducing the environmental impact of the sector during processing, and marketing and improving food safety in livestock product supply chains in selected provinces\. Page 8 of 77 The World Bank Vietnam Livestock Competitiveness and Food Safety (P090723) 19\. The results chain presented in figure 1 was formulated using the following critical assumptions: (i) local and provincial agencies and representatives of different sectors would collaborate, considering their different mandates, priorities, and interests; (ii) farmers would be willing to adopt GAHP practices; (iii) institutional capacity (Department of Agriculture and Rural Development [DARD] and Department of Natural Resources and Environment [DONRE]) would be sufficiently enhanced to support farmers and conduct regular monitoring and inspections activities; (iv) upgrade of infrastructures and adoption of good practices would help reducing disease risk and impact on environment; and (v) success from the project would be maintained, replicated and scaled up by government\. Page 9 of 77 The World Bank Vietnam Livestock Competitiveness and Food Safety (P090723) Figure 1\. Results Chain Page 10 of 77  The World Bank Vietnam Livestock Competitiveness and Food Safety (P090723) Project Development Objectives (PDOs) 20\. The PDO was to increase the production efficiency of household-based livestock producers, to reduce the environmental impact of livestock production, processing and marketing, and to improve food safety in livestock product supply chains (mainly meat) in selected provinces\. Key Expected Outcomes and Outcome Indicators 21\. The key outcomes and performance indicators (KPIs) were the following: (a) Increased production efficiency of household-based livestock producers: i\. livestock (pigs)mortality reduced ii\. livestock (chickens) mortality reduced iii\. livestock (pigs) fattening times shortened iv\. livestock (chicken) fattening times shortened v\. livestock (pigs) herd numbers increased vi\. livestock (chicken) flock numbers increased (b) Reduced environmental impact of livestock production, processing and marketing: i\. Households supported by the project with lessened adverse environmental impact from their production ii\. Small slaughterhouses supported by the project with lessened adverse environmental impact from slaughtering iii\. Medium and large slaughterhouses supported by the project meeting national environmental standards iv\. Wet markets supported by the project meeting national environmental standards (c) Improved food safety in livestock product supply chains (mainly meat) in selected provinces: i\. Small slaughterhouses upgraded by the project producing meet of improved quality and safety ii\. Medium and large supported slaughterhouses meeting national food safety standards iii\. Supported wet markets meeting national meat quality and safety standards iv\. Direct project beneficiaries, of whom % female\. 22\. The project intended to support up to 12 provinces located in four geographical production clusters: Thanh Hoa and Nghe An (Central North); Hanoi, Hai Phong, Thai Binh, Hung Yen, and Hai Duong (North); and Cao Bang (Northern Border); and Ho Chi Minh City, Long An, Dong Nai, and Lam Dong (South), which supply the Greater Hanoi and Ho Chi Minh City Metropolitan markets\. These four clusters Page 11 of 77  The World Bank Vietnam Livestock Competitiveness and Food Safety (P090723) correspond to the four ‘at risk’ production regions, as per the risk assessment performed during the project preparation (see annex 1 of the Project Appraisal Document [PAD] for detailed assessments)\. Components 23\. Component A: Upgrading Household-based Livestock Production and Market Integration\. (Total IDA allocation US$89\.79 million, of which original IDA allocation US$53\.77 million and Additional Financing [AF] allocation US$36\.02 million; total Government counterpart funding US$3\.32 million and private sector funding US$16\.61 million; total IDA disbursed was US$86\.81 million, actual Government funding US$5\.25 million, and actual private sector contribution US$18\.83 million)\.1 This component would support the improvement of competitiveness of household-based livestock production; food safety and hygiene along the meat supply chain linking household producers, slaughterhouses, and local meat markets; and environmental management of livestock waste\. This would be achieved through three subcomponents implemented by DARDs in each of the project provinces\. 1\. Promoting GAHP in existing livestock production areas\. The subcomponent would finance (i) the training of farmers, extension officers, and animal production, and veterinary staff in the application of GAHP including feed conversion technology, proactive disease control measurements, and others; (ii) the forming of the producer groups to have better negotiation power to reduce the feed cost and improve access to market; (iii) the provision of equipment and goods to strengthen provincial- and district-level livestock services delivery, including animal disease control and surveillance; (iv) support to waste management and biosecurity investments at the farm level (that is, matching grants for constructing biogas digesters and biosecurity measures); (v) support to DARD and the DONREs for monitoring feed quality and environment impact; and (vi) the design and implementation of a pilot livestock identification system for pigs\. 2\. Piloting LPZs\. This subcomponent would support the producers in the LPZ to increase competitiveness through (i) consultant services for spatial planning, design, and ex post evaluation of the LPZs; (ii) the construction of basic public infrastructure, including small access roads and electricity and water supply systems; (iii) the provision of livestock production and veterinary services and training in data recording and disease monitoring with the establishment of livestock producer groups; and (iv) support to waste management and biosecurity investments at the farm level (for example, biogas digesters) and communal level (for example, central lagoon and pipe systems)\. 3\. Upgrading slaughterhouses and meat markets\. This subcomponent would support the processing and markets linking with the household producers through (i) eligible civil works for upgrading slaughterhouses and meat markets with links to household producers to improve their hygienic conditions and waste treatment and management; (ii) basic equipment for safe and hygienic slaughtering and meat handling; (iii) training of meat inspectors to carry out proper inspection; (iv) training of veterinary staff, butchers, and middlemen; and (v) equipment and operating costs for provincial sub-DAHs to implement meat inspection\. 1The financing numbers provided in this document were sourced from Bank records and the Government implementation completion report\. While the Bank and Government records were overall consistent, there were slight differences due to rounding and different exchange rates applied\. Page 12 of 77  The World Bank Vietnam Livestock Competitiveness and Food Safety (P090723) 24\. Component B: Strengthening Central-Level Livestock and Veterinary Services (Total IDA allocation US$8\.48 million, of which original IDA US$4\.21 million and AF allocation US$4\.27 million; total Government counterpart funding US$0\.18 million and private sector funding US$0\.0 million; total IDA disbursed was US$7\.15 million, actual Government funding was US$0\.02 million)\. This component would support the strengthening of the capacity of DLP and DAH under MARD in developing and monitoring the implementation of animal health including livestock disease, biosecurity, animal production technology, food safety, and livestock waste management policies and technical standards\. The component would finance (a) consultant services to review and update the GAHP standards and guidelines and to carry out strategic studies; (b) the training of trainers in GAHP (for example, production efficiency, disease control and prevention, regulatory enforcement for DLP, and integrated risk management and meat inspection for DAH); (c) piloting of innovative approaches (for example, breed quality certification, true-labeling feed quality certification); (d) equipment and incremental costs for DLP to monitor livestock breed and feed quality and for DONRE to monitor livestock waste management and environmental compliance; and (e) equipment and incremental costs for DAH to support disease surveillance and prevention and meat inspection at the provincial level as well as the upgrading of the collection and monitoring of zoo sanitary and food safety data\. 25\. Component C: Project Management, Monitoring and Evaluation (Total IDA allocation US$9\.87 million, of which original IDA allocation US$7\.28 million and AF allocation US$2\.59 million; total Government counterpart funding US$3\.65 million and private sector funding US$0\.0 million; total IDA disbursed was US$11\.71 million and actual Government funding US$2\.87 million)\. This component would support project implementation through the strengthening of coordination of the various government agencies at central, provincial, and district levels, and the monitoring and evaluation (M&E) of project activities and impact\. This component would be implemented by a Project Coordination Unit (PCU) appointed by MARD at the national level and Provincial Project Management Units (PPMUs) at the provincial level\. The component would finance (a) an international Chief Technical Assistant and national consultants to strengthen the project management capacity of the PCU and PPMUs, (b) equipment and incremental staff and operating costs for the PCU and PPMUs, and (c) project M&E through consultant services, training, workshops, and studies\. B\. SIGNIFICANT CHANGES DURING IMPLEMENTATION Revised PDO and Outcome Targets 26\. The PDO was not revised throughout the project; it remained identical for the AF period\. A number of indicators were amended for the AF; they are summarized in table 1\. Page 13 of 77  The World Bank Vietnam Livestock Competitiveness and Food Safety (P090723) Table 1\. Result Framework and Its Revisions in the AF Original project indicators AF indicators Comment/Justification PDO Indicator 1\. Increase Increase efficiency of household- Changed wording order to express the production efficiency of based livestock production through objective more precisely household-based livestock adoption of GAHP producers Reducing mortality rate by Livestock mortality rates reduced More specific targets for the AF period, 30% from 15% to 10% for pigs and from set in light of the project’s experience\. 41% to 29% for poultry The wording order were changed to Reducing fattening period by Livestock fattening times shortened improve clarity\. Measuring units were 15% from 135 to 116 days for pigs and changed from ‘percentage of’ to from 66 to 56 days for poultry absolute number for ease of monitoring Increasing the size of flocks by Herd/flock numbers increased from and clarity\. 15% 26 to 40 for pigs and from 935 to 1,800 for poultry PDO Indicator 2\. Reduce Unchanged environmental impact of livestock production, processing, and marketing Percentage of livestock Households supported by the Specification of the targeted number of producers supported by the project with lessened environment households\. No environmental standard project meeting impacts from their production for household-level production exists\. environmental standards (from 9,905 in Year 5 to 25,000 in The indicator was revised to capture (from 0 to 70%) Year 9)\. precisely the nature of the project support to GAHP households to reduce the adverse environmental impacts of household livestock production\. Percentage of Small slaughterhouses supported Added to monitor progress of the work slaughterhouses supported by by the project with lessened with small slaughterhouses introduced the project meeting adverse environmental impact from by the project at midterm\. environmental standards slaughtering (from 124 in Year 5 to (from 0 at the baseline to 90% 310 in Year 9)\. in Year 5) Medium and large slaughterhouses Medium and large slaughterhouses supported by the project meeting separated from small slaughterhouses, national environmental standards as the provided project assistance was (from 19 in Year 5 to 40 in Year 9)\. different\. Percentage of meat markets Wet markets supported by the Numerical target replaced percentage\. supported by the project project meeting national meeting environmental environmental standards (from 311 standards (from 0 at the in Year 5 to 500 in Year 9)\. baseline to 90% in Year 5) PDO Indicator 3\. Improve food Unchanged safety in livestock product supply chains, mainly meat, in selected provinces Percentage of Small slaughterhouses supported Added to monitor progress of the work slaughterhouses supported by by the project producing meat with with small slaughterhouses introduced the project operating at the improved quality and safety (from by the project\. national hygienic standards 143 in Year 5 to 335 in Year 9)\. Page 14 of 77  The World Bank Vietnam Livestock Competitiveness and Food Safety (P090723) Original project indicators AF indicators Comment/Justification (from 0 at the baseline to 90 in Year 5) Revised Components 27\. The components and subcomponents were not revised (see next para)\. Other Changes 28\. An IDA additional financing in the amount of US$44\.68 million with a project restructuring was approved in October 2015\. The AF activities emphasized capacity building initiatives, including support to cooperatives and less formal groups for production and marketing, improving management of meat markets, and assistance to GoV for legal and policy dialogue and reform\. 29\. A first project restructuring was approved on November 2018 to: • Reduce the project end target for the intermediate outcome Indicator ‘Groups of livestock producer households in priority production areas having received GAHP certification’ from 1,200 to 700 • Replace the intermediate outcome indicator ‘Animal Breeding and Feeding Center appointed National Reference Center’ which was replaced by ‘National Center for Veterinary Hygiene Inspection No\. I appointed National Reference Center’ 30\. A second project restructuring was approved in January 2019 to extend the project closing date from December 31, 2018, to June 30, 2019\. Rationale for Changes and Their Implication on the Original Theory of Change 31\. The AF and associated restructuring were aimed at scaling up the interventions, consolidating achievements of the first phase and improving the project’s sustainability, i\.e\.: • Scale up interventions for GAHP household producers, wet markets, and small slaughterhouses to enhance impact, with targets higher than the originals as geographic coverage was expanded within the 12 original project provinces\. These activities were primarily in Component A\. • Consolidate achievements of the first phase and improve the project’s sustainability nationwide by (a) building on the GAHP households’ achievements by introduction of a group/cooperative approach for households as the medium for development of livestock production under Component A and (b) increasing support for institutionalization by the GoV of its successes such as adoption of the food safety guidelines as national standards and strengthening and accreditation of the laboratory network under Component B\. 32\. The first restructuring aimed at adjusting the target for one intermediate outcome indicator and replacement for another intermediate outcome indicator\. This was meant to correct the earlier oversight Page 15 of 77  The World Bank Vietnam Livestock Competitiveness and Food Safety (P090723) in the AF PAD and to be in line with MARD’s feasibility study agreed upon at the AF negotiations\. This was also meant to reflect MARD’s decision of assigning the National Center for Veterinary Hygiene Inspection No\. I to be a National Reference Center instead of the Animal Breeding and Feeding Center with the support from the LIFSAP\. 33\. With the second restructuring, the closing date was extended to allow for the completion of project activities delayed because of constraints placed by the GoV on IDA budget allocations in 2016\. The reason for this proposed no-cost six-month extension was to enable the project to improve the quality of the remaining investments and properly complete some of the ongoing work due to accumulated delays since 2016 when the project was not sufficiently allocated implementation budget\. At the same time, it was expected that the no-cost extension of closing date would help MARD use some of the resources gained through SDR-US$ exchange to support the preparation of the proposed Agriculture Food Safety Project (AFSP)\.2 34\. These changes did not alter the long-term objective of the project nor the PDO outcome indicators in the results chain\. II\. OUTCOME A\. RELEVANCE OF PDOs Assessment of Relevance of PDO and Rating Rating: High 35\. To date, the PDO remains in alignment with the World Bank’s Country Partnership Strategy for 2018–2022 (Report Number 111771), which has three focus areas to (a) enable inclusive growth and private sector participation, (b) invest in people and knowledge, and (c) ensure environmental sustainability and resilience, with governance as a cross-cutting engagement area\. The project also contributed to the CPF’s objective of broadening the economic participation of ethnic minorities, women, and vulnerable groups and, to a growing extent, to future developments to be supported by the CPF’s Focus Area 1 (Enable Inclusive Growth and Private Sector Participation), in which the promotion of private sector participation and agribusiness development and enhancement of trade competitiveness are emphasized for the agriculture sector\. 36\. The project’s objective is also consistent with the Government’s development priorities outlined in the 2011–2020 Socioeconomic Development Strategy and subsequent 2016–2020 Socioeconomic Development Plan (Resolution No\.142/2016/QH13), in which the GoV sets the objectives for future development including reforms and growth targets on “a new environmentally sustainable growth model based on improved productivity and competitiveness, and investments in infrastructure development”\. 2The GoV also expressed its intention to extend the project further after June 30, 2019, by another year to help respond to the ASF\. However, this never materialized because the official request was not delivered on time and the World Bank Management advised the task team to proceed to close the project and prepare the Implementation Completion and Results Report (ICR)\. Page 16 of 77  The World Bank Vietnam Livestock Competitiveness and Food Safety (P090723) 37\. The objectives of the project are also in line with the Agricultural Restructuring Plan in the agricultural sector toward increased added values and sustainable development approved by the Prime Minister under Decision No\. 899 /QD-TTg dated in June 2013, with the objective “to maintain growth, improve efficiency and competitiveness through increased productivity, quality and added values, to better meet the needs and tastes of domestic consumers and to boost exports \.” and “\. to reduce greenhouse gas emissions and other negative impacts on the environment\.” An updated Agricultural Restructuring Plan was signed in 2018, with which project objectives remain aligned\. 38\. The project objectives were fully consistent with objectives set out in restructuring the livestock production toward increased added values and sustainable development, approved by the Minister of Agriculture and Rural Development under Decision No\. 984 / QD-CN dated in September 2014 with the aim of “promoting the advantages of some types of livestock production to enhance productivity, quality, competitiveness and added values; sustainable development to contribute to ensuring social security and environmental protection\.” 39\. The objectives of the project also remain relevant to the national concerns regarding food safety\. In particular, they are still in line with the national strategy on food safety for 2011–2020 and vision to 2030 approved by the Prime Minister under Decision No\. 20/2014/QD-TTg dated January 2012\. The project was an important step for the World Bank to enter into a longer-term engagement with Vietnam on this issue\. After the project was closed, the Minister of MARD officially requested the World Bank to continue providing support for a follow-up operation on food safety built on the achievements of the LIFSAP\. B\. ACHIEVEMENT OF PDOs (EFFICACY) Assessment of Achievement of Each Objective/Outcome 40\. By the closing date, the project had achieved all its outcomes\. The project has benefited 155,728 direct beneficiaries (of which 49 percent are female beneficiaries), about 15 percent higher than the target of 135,000 direct beneficiaries\. 41\. For most of the outcome indicators, such as the reduction in pig and chicken mortality rates, shortening of fattening/finishing times, and increase in the number of pigs/birds per herd/flock, the end- of-project targets have been exceeded\. The summary of levels of achievement for all the KPIs is shown in table 2\. The results reported here are aggregated from the 12 implementing Provinces\. Page 17 of 77  The World Bank Vietnam Livestock Competitiveness and Food Safety (P090723) Table 2\. Summary of Results, Expressed in Terms of Achievements for Each Objective Outcome Original With AF Actual Unit of End of Project Outcome Indicator baseline baseline Achievement Measurement Target (2019) 2010 2015 2019 Outcome 1: Increase the Production Efficiency of Household-Based Livestock Producers Livestock mortality rates Percentage of pigs 15 11\.8 10 10 reduced Percentage of 41 31\.12 13\.9 29 chickens Livestock fattening times Days for pigs 135 118 116\.03 116 shortened Days for poultry 66 58 55\.96 56 Number of pigs/birds per Number of pigs 26 31 40\.00 40 herd/flock increased Number of birds 935 1,400 1,826 1,800 Outcome 2: Reduce the Environmental Impact of Livestock Production, Processing, and Marketing Households supported by the Households — 10,999 25,172 25,000 project with lessened3 adverse environment impacts from their production Small slaughterhouses Number — 193 303 310 supported by the project with lessened adverse environmental impact from slaughtering Medium and large Number — 42 70 40 slaughterhouses supported by the project meeting national environment standards Wet markets supported by Number — 378 572 500 the project meeting national environmental standards Outcome 3: Improve Food Safety in Livestock Product Supply Chains in Selected Provinces Small slaughterhouses Number — 235 373 350 upgraded by the project producing meat of improving quality and safety Supported wet markets Number — 378 572 500 meeting national meat quality and safety standards Direct project beneficiaries Number — 120,819 155,728 135,000 (including female) (49% female) Source: Project M&E Records, 2015 and 2019; some of the achieved figures have been rounded up\. 42\. The project has increased the production efficiency at three levels (outcome 1): (a) individual household-based livestock producers, (b) collaborative groups and cooperatives, and (c) LPZ\. 3 Improved waste management measures adopted\. Page 18 of 77  The World Bank Vietnam Livestock Competitiveness and Food Safety (P090723) (a) At the micro level, for household-based livestock producers, the project achievement relates to increased flock/herd size, reduced mortality, and reduced fattening times, all being reflective of the project performance through adoption of GAHP by small producers, intensification of extension services, grants for investments relating to animal health (including biosecurity, quarantine areas, footbaths, disinfection, vaccination, good quality feed without antibiotics or hormones), disease monitoring and reporting, inspection for GAHP compliance and certification\. According to the Government’s Project Completion Report (2019) and as reflected in the project’s M&E records, the average pig herd size per GAHP household supported by the project has increased from 26 heads at project start in 2010 to 40 heads (increase of 55 percent)\. Chicken flock size averages increased from 935 heads per GAHP household to 1,826 heads during the same period\. Thus, more than 100 percent of the targets were achieved (pigs: 40 heads/household; chicken: 1,800 heads/household)\. The adoption of GAHP with 715 groups of livestock producers being GAHP certified was key to achieving the PDOs in combination with the increased support from better capacitated extension workers and veterinary staff particularly in epidemiology, data recording, disease monitoring, GAHP standards, and so on\. It was also critical to reduce mortality among animals\. This is reflected in the achievement of the following PDO indicators: (a) average mortality rates for pigs and chicken were reduced from 15 percent (pigs) and 41 percent (chicken) in 2010 to 10 percent for pigs (that is, the target) and 13\.9 percent for chicken (target 29 percent); (b) average livestock fattening times were shortened from 135 days (pigs) and 66 days (chicken) in 2010 to 116 days (pigs) and 56 days (chicken), respectively, thereby fully achieving the targets (see table 2)\. These results have led to improved biosecurity and disease control at farm, slaughterhouses, and market levels\. Vaccination for common diseases for animals reached 93\.7 percent\. (b) At the meso level (GAHP household collaborative groups and cooperatives), the number of collaborative groups (n = 232) and cooperatives (n = 19) established is also reflective of the project performance\. According to the Government’s Project Completion Report (2019), a total of 1,217 farmers in collaborative groups were supported by the project\. Collaborative groups and cooperatives were able to secure links with sellers to access quality inputs at lower prices, links with buyers to provide critical mass quantities of meat, and also technical assistance\. Cooperatives were to establish productive alliances with traders, transporters, slaughterhouses, markets, breeders, and feed suppliers\. Higher levels of efficiency were obtained through the collaborative/cooperative model\. The joint purchase of animal feed by collaborative groups helped member households save from VND 400 to VND 720 per kg of animal feed, accounting for 2\.8–5\.1 percent of production cost (According to the Government’s Project Completion Report, 2019)\. Page 19 of 77  The World Bank Vietnam Livestock Competitiveness and Food Safety (P090723) Box 1\. Good Animal Husbandry Practices Animal husbandry is the branch of agriculture concerned with animals (livestock) that are raised for meat, milk, eggs, or other products\. It includes day-to-day care, selective breeding, and the raising of livestock\. Animal husbandry practices range from dehorning cattle to preventing injury to herd mates and farm hands to methods for housing livestock, providing adequate nutrition, devising breeding strategies, and managing pets that live in the household\. GAHP are all actions involved in primary production and distribution of food products of agricultural origin and livestock to ensure animal health and welfare, food safety as well as the protection of the environment and of the people who work on farms\. The Livestock Competitiveness and Food Safety Project (LIFSAP) developed 'GAHP for household-based Production Handbook' for swine4 and for chickens5\. The LIFSAP GAHP handbook covers nine topics: location of housing, housing and livestock production tools, animal breeding management, animal feed, drinking water, veterinary hygiene, consumption of animal, livestock waste management and environmental protection, and recording and filing\. The recommendations are classified as ‘must comply with’ and ‘need or should comply with’\. The LIFSAP GAHP handbook displays recommendations under the forms of stylized illustration (figure 2)\. Figure 2\. Example of Recommendation Provided by the LIFSAP GAHP Handbook Source: LIFSAP GAHP Handbook\. 4 Swine: https://drive\.google\.com/open?id=11rMDb3OPQhMPeHv31moujGglfq3OFz1Q\. 5 Chicken: https://drive\.google\.com/open?id=13MIPDYcRS6PwYn8VcRZB9hEKmh7nejUC\. Page 20 of 77  The World Bank Vietnam Livestock Competitiveness and Food Safety (P090723) (c) At the macro level (LPZ), the project piloted one scheme (designed as a miniature and enhanced GAHP zone) demonstrating that geographical concentration of the livestock activities enables higher efficiency (ease of extension and veterinary services, common wastewater treatment facilities, common waste management approaches, GAHP on a deeper basis in all participating farms, animal health activities across the livestock population, and so on)\. For example, in LPZ, proportion of vaccination for common diseases of pigs reached 95\.8 percent (Government’s Project Completion Report, 2019)\. 43\. The project achieved environmental benefits at three levels (Outcome 2): (a) livestock producers, (b) slaughterhouses, and (c) meat markets: (a) The project has supported a total of 25,172 households in improvement of waste management measures to reduce negative environmental impacts from livestock production\. Financial, technology transfer, and knowledge support were provided for 17,493 households and construction of biodigesters (biogas works), 1,608 households and construction of composting pits\. In addition, 6,371 households received technology transfer support through provision of guidance on upgrading to a proper waste treatment system\. It led to a reduction in (i) methane emissions from manure; (ii) greenhouse gas (GHG) emissions by reducing the use of traditional fuels; and (iii) GHG emissions by using fertilizers from bio-slurry to replace chemical fertilizers\. (b) The project supported in total 373 slaughterhouses (70 medium- and large-scale with more than 30 pigs per day and 303 small-scale with 10–30 pigs per day) upgraded to improved veterinary and sanitation adaptation, which enabled the slaughterhouses to meet GoV environmental standards, and the project achieved 124 percent of the target of 350 slaughterhouses\.6 Slaughterhouses supported by the project had simple or degraded wastewater treatment systems before upgrading them or constructing new\. The project contributed to improved quality of post- treatment wastewater discharged into the environment, thereby reducing environmental pollution\. (c) The project has upgraded 572 meat markets with a total of 20,538 counters, achieving 114 percent of the overall target for the project of 500\. All upgraded meat markets have been supported in improvement of waste and wastewater treatment, resulting in reduced environmental pollution\. A total of 572 wet markets and medium/large slaughterhouses supported by the project met national environmental standards\. 44\. The project contributed to improved food safety at three levels (Outcome 3): (a) livestock producers, (b) slaughterhouses, and (c) meat markets: (a) On farms, the results of food safety monitoring in project GAHP areas of seven provinces based on 204 pork samples of GAHP households showed that 100 percent of meat samples were negative in tests for chemical contamination; the samples contained neither hormones nor any 6The lower than the project target for small slaughterhouses (303 instead of 310) was due to the preference of the GoV for medium to large slaughterhouses compared to small and more numerous facilities\. As a result, the target for medium and large slaughterhouses supported by the project meeting national environment standards was exceeded (70 instead of 40)\. Page 21 of 77  The World Bank Vietnam Livestock Competitiveness and Food Safety (P090723) banned substances\. The same holds true for animal feeds when tested for hormones and banned substances\. (b) Food safety monitoring at slaughterhouses has shown a reduced and low microbial contamination on carcass samples and slaughter tools, which demonstrates the effectiveness of project interventions in terms of upgrading structures and creating awareness in slaughterhouse operators to comply with existing regulations\. However, the food safety monitoring also revealed areas for improvement in slaughtering and handling procedures in some slaughterhouses to improve meat quality, hygiene, shelf life, and consumer trust\. (c) According to food safety monitoring at meat markets (see figure 3), around 90 percent of pork meat samples meet the required criteria on microbial contamination (Escherichia coli, Salmonella) criteria, while for chicken around 75 percent of samples met the requirement for E\. coli criteria and 92 percent met the criteria required for Salmonella\. At the same time, there are still some shortcomings and challenges, in particular regarding the use of appropriate equipment, with potential risks of microbial contamination of meat traded in the upgraded markets\. However, the GoV will continue to address these issues in coordination with local authorities, meat market management boards, and sub-DAHs by providing recommendations, guidance, and supervision to enforce required operation procedures and improve food safety\. 45\. The project had significant spillover effects through its capacity-building activities\. An additional 43,076 households outside the project benefited from GAHP trainings (22,906 project households were trained in GAHP)\. It is the result of enhanced capacity at the Livestock Department and Animal Health Department\. The approach of collaborative GAHP groups has spread to other provinces\. Box 2\. Comment from a Project Beneficiary Ms\. Nguyen Thi Kim Tuyet (born in 1969) in Hung Nhon Hamlet, Hung Loc Commune, Thong Nhat District, Dong Nai Province\. Ms\. Tuyet said, each year her family raised 2 cohorts, about 300 pigs each\. Currently, her family has more than 280 pigs with 30 sows and more than 250 porkers, reaching about 20 tons per cohort\. The current price of pig (January 2018) purchased by traders is VND 35,000 per kg, and hence her family receives a profit of about VND 4,000 per kg\. If the price remains unchanged or increases slightly, her family can have some savings to cover all expenses and restart a new herd at the beginning of next year\. Upon being asked, “What is the biggest benefit that your family gets when participating in the LIFSAP project?” Ms\. Tuyet shared , “After six years of participating in the LIFSAP project, the biggest thing my family got was the opportunity to approach and learn advanced farming methods and techniques\.” Currently, she is able to take care of pigs herself and treat some simple diseases for pigs\. Ms\. Cuc, VietGAHP team leader at Hung Nhon Hamlet, Hung Loc Commune, Thong Nhat District, Dong Nai Province, happily shared, “Even after the project ends, our VietGAHP team will continue to maintain activities so that we can exchange, learn and help each other\. ” See also project stories in annex 6\. Page 22 of 77  The World Bank Vietnam Livestock Competitiveness and Food Safety (P090723) Figure 3\. Examples of Wet Markets, before and after Project Implementation Source and photo credit: LIFSAP Justification of Overall Efficacy Rating Rating: Substantial 46\. In terms of outcomes, the project achieved its objectives of increasing production efficiency of household producers through the adoption of GAHP by reducing animal and bird mortality rates, shortening the fattening period, and increasing the size of flocks and herds, and reducing negative environmental impact through the percentage of project-supported livestock producers, slaughterhouses, and meat market that have met environmental standards and improved food safety through the adoption of national hygiene standards\. 47\. The successes from the project have gone beyond the project beneficiaries, resulting in positive impacts throughout the poultry and pig sector\. They have been widely replicated by other farmers Page 23 of 77  The World Bank Vietnam Livestock Competitiveness and Food Safety (P090723) throughout the project areas and are good practices to be shared with other provinces\. All but one of the end-of-project results targets at the component level were either met or exceeded\. 48\. The project also helped to increase resilience of farmers as indicated by fewer African swine fever (ASF) outbreaks in GAHP farmers than those who practiced conventional pig husbandry\. LIFSAP data showed lower incidence of ASF infections in pigs that have been reared by the GAHP farmers compared to the average national rate of infection and mortality of pigs due to ASF infection\. For example, data collected in Hanoi, in early October 2019, indicated that the percentage of ASF-affected households applying GAHP was lower (21\.3 percent) compared to the overall percentage (38\.9 percent)\. Also, the Livestock Planning Zone developed by the LIFSAP remained free from the infection at the time of project closing (see details on ASF outbreak in Vietnam in Box 3 below)\. C\. EFFICIENCY Assessment of Efficiency and Rating Rating: Substantial 49\. The project has achieved or overachieved most indicator targets in the Results Framework while spending only about 96 percent (US$105\.43 million) of the total IDA funding (original plus additional financing) of US$109\.94\. Actual counterpart funding (government and private sector was higher than allocated\. This indicates that the project has been highly efficient in terms of converting project resources into results\. The project team also demonstrated a higher level of implementation efficiency as they addressed emerging implementation challenges in a time and effective manner\. 50\. The estimate of the overall project economic analysis (EA) is based on the livestock production benefits and the economic benefits from investments in biogas digesters\. The potential economic benefits from project support to improved food safety at the levels of livestock producers, slaughterhouses, and meat markets have not been included in the project EA due to the limited data to support a credible analysis\. Translation of food safety benefits in economic terms was not planned in the project\. Globally, cost of unsafe food in low- and middle-income economies is estimated to be around US$110 billion in lost productivity and medical expenses each year7\. The ICR mission recommended that in subsequent projects (such as for example, the proposed Agri-Food Safety Project (P171187) there is a need to collect data on economic benefit of the enhanced food safety to provide evidence of improvement achieved and related economic gains through food safety project interventions\. 51\. The preliminary results show that the project contributed significantly toward improving incomes of the supported pig and poultry farmers while improving the food safety for a large number of consumers, as estimated using the standard methodology for estimating project’s economic returns (annex 4)\. Income increases of slaughterhouse and meat market operators have not been estimated\. 7Jaffee, Steven; Henson, Spencer; Unnevehr, Laurian; Grace, Delia; Cassou, Emilie\. 2019\. The Safe Food Imperative: Accelerating Progress in Low- and Middle-Income Countries\. Agriculture and Food Series; Washington, DC: World Bank\. © World Bank\. https://openknowledge\.worldbank\.org/handle/10986/30568 License: CC BY 3\.0 IGO\. Page 24 of 77  The World Bank Vietnam Livestock Competitiveness and Food Safety (P090723) Significant increases in profitability of many operators resulting from the project are expected, although data have not been made available\. 52\. The economic and financial analysis (EFA) results presented in table 3 shows that the project has generated economic returns above what was estimated at appraisal, even without including the potential economic benefits from improved food safety in the analysis\. The benefits remain robust at different sensitivity scenarios of increased/reduced benefits\. Table 3\. Summary of Overall Project Economic Analysis and Sensitivity Analysis Change Pig benefits Base case +10% −10% −20% −30% −40% Poultry benefits Base case +10% −10% −20% −30% −40% Period of analysis: 25 years ERR 23\.4% 26\.5% 20\.4% 17\.4% 14\.4% 11\.4% NPV at 9% VND, millions 6,605,967 7,523,019 5,688,914 4,771,862 3,854,810 2,937,758 US$, millions 287\.2 327\.1 247\.3 207\.5 167\.6 127\.7 Period of analysis: 20 years ERR 22\.5% 25\.8% 19\.3% 16\.1% 12\.8% 9\.3% NPV at 9% VND, millions 4,361,054 5,043,191 3,678,918 2,996,782 2,314,646 1,632,510 US$, millions 189\.6 219\.3 160\.0 130\.3 100\.6 71\.0 Source: World Bank estimates\. Note: ERR: Economic rate of return; NPV: Net present value\. 53\. Regarding green-house gas (GHG) emission, the Government team has not been able to estimate the increase or reduction in GHG emissions as a result of the project interventions\. Therefore, carbon pricing scenarios have not been included in the estimated ERR\. Project interventions, such as biodigesters for example, are expected to have contributed to an overall positive impact on GHG emission by reducing relative emissions through more sustainable treatment of animal waste\. D\. JUSTIFICATION OF OVERALL OUTCOME RATING Rating: Satisfactory 54\. The overall outcome rating is Satisfactory, which is based on the project’s high relevance, substantial efficacy, and substantial efficiency\. The project succeeded in increasing production efficiency of household producers, reducing negative environmental impact, improving food safety along the pig and poultry value chains, and increasing volume of sales and profit made by slaughterhouses and meat traders\. The project contributed to significantly improving incomes of the supported pig and poultry farmers (as shown in the financial and economic analysis) while improving the food safety for a large number of consumers\. Page 25 of 77  The World Bank Vietnam Livestock Competitiveness and Food Safety (P090723) E\. OTHER OUTCOMES AND IMPACTS Gender 55\. According to the Government’s Project Completion Report (2019), the number of women benefiting of the project is significant, 76,307, despite being below target in terms of share (49 percent of beneficiaries versus an end target of 55 percent)\. The project benefited about 10 different ethnic groups\. The project reached 13,467 women farmers with agricultural assets and services and 13,720 women farmers adopted improved agricultural technology\. The bulk of women beneficiaries are reached through the project market activities (including women from ethnic minority) as most meat vendors are female\. The quality of impact on women with market activities included improved working conditions and occupational safety through training (for example, food safety) and better equipment (for example, ventilators and upgraded counter); more efficient processing and sale of meat products (that is, less time spent at the market) allowing women to spend more time on other tasks and activities, in some cases increased volume of sale due to the disappearance of vendors on the side of the market; and increased knowledge of consumers of GAHP meat\. The group has been guided in the management and monitoring of savings and loans on the principle of self-governance, openness, and transparency\. 56\. To ensure women’s full participation and benefits from activities, the project worked in coordination with the Central Vietnam Women's Union, the provincial Women's Union to improve livestock awareness, behavioral change, and strengthening links among women participating in GAHP\. Institutional Strengthening 57\. The project has provided concrete examples of what the GoV can do to improve (on farm) hygiene and food safety among smallholders and small businesses in Vietnam\. This has always been a challenging task and the LIFSAP has delivered a proof of concept in this respect, as the first donor-supported project to take on such a difficult issue\. The experience of the LIFSAP has shaped the design of the institutional strengthening in the proposed Agri-Food Safety Project (AFSP, P171187) which the World Bank and the GoV have agreed to prepare and implement to scale up some of the successful interventions implemented under the LIFSAP to enhance food safety\. 58\. The project has strengthened the capacity of DLP and DAH through training and development of tools (manuals, guidelines, and so on)\. As a result, DLP and DAH are able to provide quality support to farmers in terms of biosecurity, livestock waste management, quality of livestock feeds, sale and use of feed additives, hygiene standards, and quality and frequency of meat inspection\. It will be important for MARD to keep and enhance the institutional capacity gains of DLP and DAH by developing a long-term capacity-building plan to maintain and enhance its gains\. It would require planning and budgeting for refresher training, scaling up of current training, and training materials (development/printing/translation in ethnic minority language)\. In addition, veterinary undergraduate curricula have been upgraded with provision of courses on food safety along animal sourced food value chains\. 59\. The project acted as a proof of concept for a number of new approaches used in livestock production and management, such as for example, introduction of good animal husbandry practices (GAHP), the application of bio-security measures for disease control and prevention and the piloting of Livestock Planning Zones (LPZ)\. These new approaches and concepts have been reflected in the Page 26 of 77  The World Bank Vietnam Livestock Competitiveness and Food Safety (P090723) formulation of the Livestock Law and the Veterinary Law, contributing to (a) feed quality monitoring program by changing the feed quality management method from feed portfolio management method to feed quality management; (b) supporting DLP to develop farm information monitoring system software and system software to provide market information about livestock products; (c) humanitarian treatment of animals for slaughtering; and (d) institutionalization of animal disease monitoring and tools to manage the small slaughterhouses by the requirements on veterinary hygiene for small slaughterhouses\. 60\. The project has contributed to the reinforcement of institutional capacity through the training of the workforce\. As an example, a total of 4,628 agricultural and veterinary extension workers were trained on GAHP processes, GAHP certification process, disease reporting systems, livestock waste management, and food safety (Project M&E Records, as highlighted in the Government’s Project Completion Report, 2019)\. About 10,665 veterinary staff in charge of supervising slaughterhouse operation and quarantine at slaughterhouses and markets were trained\. Nineteen cooperatives were established with 552 members\. 61\. Since 2016, the project phased out from monitoring animal feed at local agencies and transferred this annual task to specialized agencies in charge\. Aflatoxin B1 mycotoxin was not found in livestock feed at the households, which indicated their high awareness and knowledge in selecting and preserving materials and animal feed\. The design and procedures of the slaughterhouses’ and wet markets’ management and operation have been followed by all units throughout the country\. Currently, MARD is also reviewing for dissemination and application during implementation of the New Rural Development Program in the whole country\. Mobilizing Private Sector Financing 62\. The project helped stakeholders along the meat value chain (pig and poultry) to establish and consolidate productive alliances or partnerships to ensure well-functioning markets to supply quality and safe meat products, as well as inputs (feed, veterinary drugs, and services) to producers\. By supporting the upgrading of medium- and large-scale slaughterhouses, through matching grants mechanism, the project leveraged private sector funding to support the pig and poultry sector\. 63\. In late 2016 and 2017, pig production in the whole country suffered from a deep and prolonged decline in the price down to VND 17,000–25,000 per kg, which was much lower than the production cost\. Pig farmers had to leave the barn empty or stop raising livestock, but the GAHP households still produced owing to clear production plans and fixed consumption contracts with businesses and purchasing units\. Right after the pig price recovered at the end of 2017, all GAHP households had increased their herds again while non-GAHP households had not been able to conduct reproduction due to losses\. 64\. The project has helped develop 30 product brands in 12 provinces such as Soc Son hill free-range chicken, Ha Noi A–Z (clean pork A–Z) of Hoang Long Cooperative - Hanoi Herbal pork\. Poverty Reduction and Shared Prosperity 65\. The project had a positive impact on ethnic minorities and women\. Some minorities adopted GAHP but could not get certified (mainly because they could not meet the A type criterion on record keeping); nevertheless, these groups benefited from GAHP support training and equipment\. Page 27 of 77  The World Bank Vietnam Livestock Competitiveness and Food Safety (P090723) Other Unintended Outcomes and Impacts 66\. Gas from biodigester is used as fuel for cooking food, cooking animal feed, and water boiling\. The project was able to establish that each household saved from US$15 to US$20 per month by looking at savings in terms of gas, wood, coal, and so on\. Biodigester also contributes to other impacts that cannot always be measured such as less flies, reduction of bad smell, no mosquito larva, and less coliform density\. In some cases, the leftovers from the biodigester were used as compost fertilizer for rice fields\. 67\. The project was an example to the government on how to conduct different awareness campaign (newspaper, TV, radio, electronic papers, and so on) on GAHP meat to increase consumers’ knowledge on the benefits of GAHP meat and potentially increase demand for safe livestock from farm to fork\. This experience has also been useful to manage the ASF crisis\. 68\. There are several spillover effects: (a) the upgrading of market also benefited other traders (fish and vegetables traders) and (b) farmers neighboring GAHP areas started learning from their neighbors and implementing GAHP\. 69\. The project has contributed to addressing the challenge of antimicrobial resistance (AMR) by promoting GAHP, which implies better prevention of infectious diseases and the prudent use of antibiotics in the pig and poultry sectors, the segments of the livestock sector that generally have the highest use of antibiotics\. Antimicrobials are widely used in both humans and livestock and have greatly contributed to better human and animal health\. However, these benefits are being threatened by the global emergence of AMR\. Because humans and animals often share the same bacteria and may be treated with the same types of antibacterial drugs, resistance to antibiotics is the most critical aspect of AMR for the livestock sector\. One way to mitigate the emergence of AMR is to reduce the overall use of antibiotics by combining prudent and medically rational use with other disease preventive measures\. III\. KEY FACTORS THAT AFFECTED IMPLEMENTATION AND OUTCOME A\. KEY FACTORS DURING PREPARATION 70\. The project introduced new concepts and approaches to sustainable livestock management, which required enough time to be understood and customized to the local context\. For example, concepts such as GAHP, biosecurity measures, food safety practices, livestock waste management, while not entirely new to Vietnam, were not consistently applied by various stakeholders along the pig and poultry livestock value chains\. Most of these concepts and approaches required a mindset change in terms of practices and behaviors, much more than just investments\. As such mainstreaming such concepts required enough time and a clear approach and design to ensure success in the implementation of the new concepts\. 71\. Given the novelty of the approaches introduced under the LIFSAP, there was need for a lot of capacity building of technical staff in the responsible departments of MARD and at the provincial DARDs to ensure their active participation in the training of producers and other stakeholders in the new concepts and approaches to sustainable livestock production\. This, too, required a lot of time and Page 28 of 77  The World Bank Vietnam Livestock Competitiveness and Food Safety (P090723) adequate planning, including the review of procedures and manuals to conform to the new concepts and approaches\. B\. KEY FACTORS DURING IMPLEMENTATION 72\. Overall, the positive project results can be attributed to a combination of factors including appropriate project design targeted to local conditions; demonstrated benefits to stakeholders and farmers leading to adoption of the methods introduced or promoted; support provided by the Government through funding, laws, and regulations which were put in place; endorsements, for example, its collaboration in awareness raising which contributed to behavioral changes in project agencies and management, and the facilitation and technical support provided by local government agencies\. However, there were also challenges during project implementation, which slowed down the project during some periods of implementation and disbursement\. 73\. It took MARD and the provinces more than two years to familiarize themselves with the project approach\. It was only after the advanced midterm review that the project came back on track\. 74\. There was market fluctuation due to food scares over lean meat substance abuse and unstable export to China through informal channels\. 75\. Budget and funding constraints\. As mentioned in relation to the second restructuring, constraints were placed by the GoV on IDA budget allocations in 2016, leading to project activities being delayed and need for the closing date to be extended\. 76\. The ongoing ASF outbreak is likely to have negatively affected (or even reverse) some of the project outcomes, achieved through interventions\. LIFSAP beneficiary households have been less affected by ASF at the onset of the outbreaks—because of the application of GAHP including the implementation of biosecurity measures\. However, the advantage of GAHP may be wiped out by the magnitude of the ASF crisis (see also box 3)\. 77\. Some of the new concepts/approaches, such as the LPZ, raised a lot of expectations at design but during implementation it became clear that environmental, economic, technical risks needed to have been considered and as such a decision was made to just implement a pilot scheme through which such risks could be re-examined further before scaling up\. The LPZ pilot has worked quite well and lessons will be drawn for the GoV to consider its scaling-up in the new Livestock Development Strategy\. Page 29 of 77  The World Bank Vietnam Livestock Competitiveness and Food Safety (P090723) Box 3\. ASF and Biosecurity in Vietnam Smallholders Pig Value Chains The ASF was reported in Vietnam in February 2019\. Since then, the disease —which can kill up to 100 percent of infected pigs—has spread to all 63 provinces/cities and resulted in culling of 5,800,000 in an attempt to control the disease\. As of September 2019, the pig population in the country is 19 percent less than that of 2018 indicating a large damage to the country’s pig industry\. ASF virus is highly resistant and can live in pigs, in cooked (<70°C, <30 min) or uncooked pork products, wastes (blood, faeces, and tissues), and in the contaminated environment between 11 days and more than 33 months\. Thus, in the absence of a vaccine against ASF, increased biosecurity combined with stamping out of infected pigs and those pigs that have been exposed to the virus (for example, came in contact with the infected ones - suspected) remain the main means to control the outbreaks\. Costs of such measures, on top of morbidity and mortality, have a tremendous impact not only on farmers’ livelihood but also on the pig value chain as a whole\. The challenge is to implement foolproof biosecurity in Vietnam’s pig and pork industry, particularly in household - based systems\. Pig production in Vietnam is largely in the hands of smallholders with complex value chains\. This includes, but is not limited to, pig production units of various scales (minimum one pig in a household to several hundred pigs for fattening and breeding stocks) and service providers: breeders, brokers, feed traders, transporting of live animals, live animal markets, abattoirs (households, small scale, and industrial scale), transportation of carcasses, meat and other edible by-products, and traditional pork production and trading\. The LIFSAP developed a set of GAHP, which have been adopted by the project beneficiary pig producers and beyond\. Throughout implementation of the project, the mortality of pigs was reduced from 15 percent in 2015 to 10 percent in 2019\. It is likely that the mortality has been counted after excluding the pigs that were stamped out for ASF control purpose\. In response to the outbreak, the biosecurity component of GAHP was strengthened to reduce risk of transmission of the disease\. LIFSAP data tend to show lower incidence of ASF infections in pigs that have been reared by the GAHP farmers compared to the average national rate of infection and mortality of pigs due to ASF infection\. For example, data collected in Hanoi, in early October 2019, indicated that the percentage of ASF-affected households applying GAHP was lower (21\.3 percent) compared to the overall percentage (38\.9 percent)\. Also, the Livestock Planning Zone developed by the LIFSAP remained free from the infection at the time\. However, the continuing increasing number of outbreaks and outbreaks lasting longer than 30 days tends to indicate that the country is losing ground in controlling ASF (figure 4), which will likely affect LIFSAP beneficiaries as well\. Lessons learned are the following: (a) the adoption of GAHP that has evidently resulted in reduced pig mortality in household-based pig production caused by common pig diseases; (b) while additional biosecurity measures for containing ASF in household-based pig production were developed through the LIFSAP, this has not been fully able to contain ASF, most likely because they have not been implemented methodically; (c) ASF is a disease transmitted to animal by human activities and so farmer awareness and education on biosecurity remain crucial to prevent spread of ASF and its economic impact; and (d) professional communication needs to build a general awareness among public\. Overall, because backyard and household-based pig and pork operations in Vietnam provide substantial support to households’ livelihood, implementation of locally effective biosecurity measures through the adoption of GAHP and community based participatory approaches remains the most effective tool for containing spread of ASF in the country\. Page 30 of 77  The World Bank Vietnam Livestock Competitiveness and Food Safety (P090723) Figure 4\. Cumulative Number of Affected Communes Per Week in Vietnam Source: Food and Agriculture Organization of the UN (FAO) 2019\. IV\. BANK PERFORMANCE, COMPLIANCE ISSUES, AND RISK TO DEVELOPMENT OUTCOME A\. QUALITY OF MONITORING AND EVALUATION (M&E) M&E Design 78\. The Results Framework included adequate indicators to capture the project outcomes and sub- outcomes even if they would have benefited from being designed in a clearer manner\. The M&E system was designed for most of the project data to be collected through the government system with no external evaluations conducted except for the end evaluation, which confirmed the accuracy of the data collected by the project\. The staffing arrangements were adequately designed for data to be regularly collected by veterinary services and GAHP officers from GAHP leaders (GAHP leaders collect data from farmers for their group), markets, and slaughterhouses\. The staffing to support the M&E system was robust both at the national and provincial levels\. In addition, detailed and user-friendly reporting formats were developed by the project for beneficiaries to report on project progress and outcomes\. The project would have, nevertheless, benefited from more detailed definitions for some of the indicators such as the number of beneficiaries adopting GAHP\. This indicator is broad as it includes some indirect/partial beneficiaries of the project\. Also, there was no detailed definition of a ‘functional’ GAHP cooperative, so that the indicator could be clearly monitored with a checklist based on the definition\. The M&E system would also have benefited from diversification of data sources (outside of government system) and tools (qualitative evaluations, case studies, thematic evaluation [gender/ethnic minorities], and so on)\. It would Page 31 of 77  The World Bank Vietnam Livestock Competitiveness and Food Safety (P090723) have enhanced triangulation of data, helped explore/understand some issues/success in depth to further develop lessons learned, better address needs of women/ethnic minorities, and ensure potential scale- up\. The project design did not plan for the development of a management information system (MIS)\. It could have been helpful during implementation to explore having a simple web-based MIS for some of the key results indicators (it could have helped save time and would have provided real time access to key data)\. 79\. The design of the M&E system was adequate despite shortcomings and remained relevant even after the project was restructured and was able to capture data for the indicators, which were changed with the processes of restructuring\. The project, however, did not plan for an end line impact assessment, which would have provided for a proper assessment of attribution\. However, this shortfall was corrected by ensuring that the system collected data on control groups against which project impacts could be deduced\. M&E Implementation 80\. The M&E system was capable of reporting efficiently on activities, outputs, and outcome\. It even included data, which were regularly collected by veterinary services and GAHP officers from GAHP leaders (GAHP leaders collect data from farmers for their group), markets, and slaughterhouses\. A large amount of data was also collected beyond the Results Framework indicators (for example, data on the impact of biodigesters, data collected on the quality of capacity building), but there was limited analysis of data collected at the district, provincial, and national levels due to staff time constraints\. It led to some underreporting of project results and potentially less lessons learned\. 81\. The quality of data was ensured by regular data auditing conducted by veterinary services, GAHP officers, PPMU, and PCU staff\. Early challenges with the baseline were overcome, and a good end line to baseline comparative data was generated which helped in preparing the Government’s Project Completion Report at the original closing date in 2015 (PCR 2015) as well as informing largely the data used in the preparation of the World Bank’s ICR\. An independent impact assessment study could not be undertaken mainly due to the uncertainty regarding the project closing date, as the Government had intended to extend the project beyond the revised closing date of June 30, 2019, to have the project continue to facilitate the fight against the ASF epidemic\. M&E Utilization 82\. The M&E system was an effective management tool, useful in gauging progress and informing the strategic decision-making process\. The information collected through the M&E system helped the Government to make timely and well-informed decisions on many issues including, but not limited to, disease outbreak preparedness, the financial impact of biodigesters, and the speeding-up of the upgrading of meat markets and slaughterhouses, for example\. Justification of Overall Rating of Quality of M&E 83\. The overall quality of the program M&E is rated Modest\. The M&E system was adequately designed and satisfactorily implemented with some shortcomings (see sections above)\. The reporting under the Results Framework is available and highlighted in the Project Completion Report (PCR) and the M&E Page 32 of 77  The World Bank Vietnam Livestock Competitiveness and Food Safety (P090723) Records\. Nevertheless, the project did not conduct the final independent impact evaluation to address issues of project impacts attributable to project interventions\. However, even though the independent impact assessment was not conducted, the data presented in the final Project Completion Report (i\.e\. Government’s ICR included data on control groups for some indicators\. That ICR however rated overall M&E quality as Modest due to the lack of the independent impact evaluation\. B\. ENVIRONMENTAL, SOCIAL, AND FIDUCIARY COMPLIANCE Environmental Safeguards 84\. At appraisal, the LIFSAP was assigned an environmental category of B – partial assessment\. Two environmental safeguard policies were triggered: OP 4\.01 (environmental assessment) and OP 4\.09 (Pest Management)\. MARD prepared an Environmental Management Framework (EMF) which was approved and disclosed before appraisal of the original project\. The EMF included mechanisms for screening and excluding activities that might cause significant adverse impacts on the environment and measures for mitigating other possible environmental impacts\. During implementation, the PCU and PPMUs monitored the environmental, health and safety aspects closely according to the EMF\. Mitigation measures have been applied at various stages of project implementation including detailed design, bidding, construction, and operations\. Environmental compliance of the project improved as the project progressed and was rated Satisfactory in the last implementation support missions\. However, the EMF needed to be updated to include the requirements to comply with OIE Code Chapters on animal welfare and address environmental pollution resulting from chemicals for cleaning and disinfection purposes\. 85\. Overall, the project has brought about significant positive environmental impacts by reducing pollution levels from animal husbandry processes including at farms, slaughterhouses, and wet markets\. The 9,391 biogas digesters built under the project helped managing biochemical oxygen demand, total suspended solids, total-N, total-P, and coliforms; however, sometimes the biogas digesters have been overloaded due to excess number of pigs being raised\. Also, the quasi totality of N and P nutrients is found in effluents, and there is uncertainty on how biogas outflow is used, be on production sites, markets or slaughterhouses\. To overcome overloads, 142 post-biogas effluent treatment schemes were built in Hai Phong, Hai Duong, Thanh Hoa, Nghe An, and Ho Chi Minh City to help reduce pollution from pig cages\. In addition, the biogas digesters also help reduce GHG emission, estimated at 40,800 tons of CO2 equivalent per year\. The benefited households can also save about VND 2 million per month when using biogas for cooking\. Environmental performance at 100 percent of the 235 slaughterhouses and 97\.8 percent of the 378 wet markets supported by the project has been improved; among these, 80 percent of the supported slaughterhouses and 60 percent of the wet markets have their treated effluent meeting applicable Vietnamese standard QCVN 40 - column B\. More importantly, the project helped raise environmental and food safety awareness for a large number of officers and farmers with 84,000 trainees participating in the training on GAHP processes, waste management, and biosecurity\. 86\. Through the project, environmental management capacity has also been built at both central and provincial levels, particularly on livestock waste management and environmental quality monitoring (laboratories and sampling) and reporting\. With DONRE involvements and extensive environmental quality monitoring program designed as part of the project, a relative comprehensive database has been built proving the treatment efficiency of the project investments\. Page 33 of 77  The World Bank Vietnam Livestock Competitiveness and Food Safety (P090723) Social Safeguards 87\. On social safeguards, the project triggered two policies: OP4\.12 (Involuntary Resettlement) and OP 4\.10 (Indigenous Peoples)\. MARD reviewed and updated the Resettlement Policy Framework (RPF) and Ethnic Minority Policy Framework (EMPF) which together with the related management tools (the Resettlement Plan and Ethnic Minority Development Plan) were disclosed before the appraisal of the original project\. However, throughout its implementation the project did not result in any displacement, while land acquisition was minor and applied only in upgraded market\. Compensation was paid following the agreed framework and no complaint was reported from the local people\. Project information was delivered to local farmers in a proper manner, at the right time, and at no cost\. A Policy Framework for Ethnic Minority Development was formulated to set out the policy, principles, and mechanisms to ensure equitable participation of the ethnic minority people and to address the impacts of the project investments on ethnic minority communities\. As a result of the implementation of the Policy Framework for Ethnic Minority Development, ethnic minority people benefited from the project and they were well informed, consulted, and no grievances were reported\. The project established a clear, updated, and systematic data of beneficiaries aggregated by ethnicity, gender, and economic status\. The suggestion for the project was to continue monitoring operation of slaughterhouses to ensure they create no environmental and social problem after the closure of the project and also ensure GAHP such as storing slaughtered pigs in closed containers and providing safety uniform/equipment to workers\. The project’s compliance with social safeguards was rated Satisfactory\. Procurement 88\. The procurement actions agreed with the client based on the findings of the procurement capacity assessment, which were fully implemented\. Procurement planning has been undertaken well\. The client prepared the initial 18-month Procurement Plan at the appraisal stage and the subsequent detailed annual procurement plans for each procurement package during the implementation years\. The procurement performance was assessed to be consistent with the World Bank’s procurement guidelines and the legal agreements\. The World Bank frequently provided technical support to the client such as procurement and contract management trainings\. By the closing date, the project had successfully implemented 867 packages of all kinds with total contract awarded value of US$81\.42 million, including 530 civil works, 288 goods, and 49 consulting service packages\. There were a few cases of rebidding; however, they were conducted successfully and therefore no major complaint was received during the bidding processes\. No mis-procurement was declared during project implementation\. 89\. Shortcomings observed during the World Bank’s supervision missions included (a) slightly slow preparation, submission, and updating of procurement plans from the provinces; (b) lengthy and sometimes inadequate bid evaluation and approval processes; (c) a few errors in procurement documents’ preparation; and (d) delays in budget allocation leading to delays in payment as stipulated in the contract provisions\. However, procurement capacity of the PCU and PPMUs had improved over time due to timely and comprehensive support of the World Bank through discussions, workshops, and training courses on procurement/contract management organized by the PCU in collaboration with the World Bank\. The training provided better procurement and contract management knowledge for PPMUs and procurement staff to improve the quality of bidding documents, bid evaluation, and contract management of the PCU and PPMUs\. This contributed to speeding up the project’s procurement progress Page 34 of 77  The World Bank Vietnam Livestock Competitiveness and Food Safety (P090723) each year and significantly improving the bidding documents and evaluation reports\. The overall procurement performance of the project is rated Satisfactory\. Financial Management 90\. The FM reviews in regular supervision missions identified that an adequate financial management system was in place that could provide, with reasonable assurance, accurate and timely information that the IDA credit proceeds were being used for the intended purposes\. The project FM rating ranged from primarily Moderately Satisfactory to recent Satisfactory ratings in 2018 and 2019\. The reviews also recognized adequacy of financial management staffing, accounting and internal control systems, maintenance of supporting documents in the project and implementation of the recommendations from the annual audits\. During project implementation, the Bank team acknowledged the efforts from the PMU in managing FM work, monitoring fund flows and consolidating FM reports from the 12 participating provinces\. The PMU also played an active role in closely conducting the internal control procedures and internal audits at all project implementing agencies\. Regular quarterly financial reports with acceptable quality have been submitted on time\. 91\. Annual audited financial reports have been mostly submitted to the Bank on time with unqualified (clean) audit opinions\. The project accounting systems were observed to be in order and payments were well-controlled\. Independent performance audit is a good practice and provides another layer of control in addition to the checks on outputs performed by the project and the supervising consultants\. C\. BANK PERFORMANCE Quality at Entry 92\. The World Bank’s performance at entry was Satisfactory\. The project was designed with a sound concept, providing appropriate expertise and new initiatives to address the difficult issue of food safety along the food chain\. Measures to ensure quality at entry were adequate and possible risks correctly identified\. The project was also prepared with a high level of interest and commitment from the Government\. Ownership was also strongly indicated in the preparation plans presented to the World Bank during the preparation phase and the Government’s participation in the preparation missions\. 93\. The project design was built on the Government’s existing systems and structures with appropriate plans to mobilize and strengthen these for project implementation\. Adequate budget and technical assistance were allocated for capacity building of implementing agencies, and an appropriate implementation support plan was developed to provide timely support to these agencies during project implementation\. Quality of Supervision 94\. The World Bank’s performance during supervision was satisfactory\. Missions were regularly carried out twice a year with adequate skills mix and enough field time\. Interim technical missions were also carried out wherever needed to provide additional training to the PCU and PPMUs and help them unlock implementation constraints\. There was close supervision and follow-up during the early, challenging stages of implementation and throughout the project\. The supervision reports closely tracked targets to Page 35 of 77  The World Bank Vietnam Livestock Competitiveness and Food Safety (P090723) ensure links with impact\. Problems were reported and addressed promptly by the World Bank Task Team Leaders and the safeguards and fiduciary specialists stationed in-country, and assistance was provided with on-site visits and appropriate national or international expertise was mobilized when required\. Close coordination with the Government implementation teams was effective in moving the project forward\. 95\. For technical support, the World Bank provided its own expertise and coordinated with the FAO through its Cooperation Program to bring in international specialists to assist the project in technical matters such as food safety and biosecurity\. The team also collaborated with the International Livestock Research Institute and the OIE\. With regard to M&E, the World Bank, with the PCU, held several training workshops for the PPMUs until data quality and reporting improved\. The World Bank was prompt in addressing concerns stated in the World Bank’s internal review processes\. The task team addressed design complexity by adjusting Subcomponent A\.1 in Component A, in relation to LPZs, during the preparation of the AF\. The World Bank team was responsive and proactive in project restructuring to make the necessary changes on time to unblock implementation constraints\. Justification of Overall Rating of Bank Performance 96\. Satisfactory\. Project preparation and supervision processing was timely and effective, with strong skills mix and good collaboration with the Government teams\. Close follow-up in supervision assisted Government teams in reaching targets toward the end of the project\. D\. RISK TO DEVELOPMENT OUTCOME 97\. The PDO is likely to be sustained because the capacity and skills developed with the project support will remain in the provinces among the implementing agencies, technical agencies, farms, slaughterhouses, and markets\. The LIFSAP can be considered as a milestone in the longer-term perspective of improving the safety of the food chain\. Its impact was on a small scale within the targeted areas and focused mainly on pig and poultry sectors\. There is a need to scale up GAHP throughout the country for those value chains as well as other sectors of the food system\. The proposed follow-up AFSP is expected to build on the LIFSAP foundations and substantially scale up the adoption of good practices for food safety to create greater impact on the country’s food systems\. 98\. Substantial risks remain in inappropriate implementation of GAHP or backsliding, with impact on productivity as well as outbreak of diseases and environmental pollution if provinces, farmers, and operators revert to old practices\. Some practices (for example, growth promoters) have been institutionalized into Government laws and regulations; therefore, the policy risks are low from this point of view\. However, the risks are substantial in implementation and enforcement, especially in terms of resources allocation in the context of high levels of public debt\. There is a risk that the premium price for animal source food produced under GAHP certification is insufficient to maintain the incentive of good practices\. There is also a risk of inadequate budget for maintaining the upgraded infrastructure (that is, wet markets) after the project closes\. The authorities need to work with the private sector and local beneficiaries on cost recovery approaches to ensure they can fully cover both operation and maintenance (O&M) costs, as this is the only way to ensure the sustainability of the investments supported by the project\. Page 36 of 77  The World Bank Vietnam Livestock Competitiveness and Food Safety (P090723) 99\. Animal diseases are constant threats to the development and sustainability of the livestock sector, causing destruction of the stocks, market disruption, additional costs for health management and disease control, and increases in the vulnerability of the local population\. Effects from the ongoing outbreak of ASF are substantial with high number of animals dying from the disease or being culled for disease control (see box 3)\. This is serious as it could also mean the exclusion of many smallholder farmers from the business unless concerted efforts are made to facilitate restocking (after addressing biosecurity and GAHP issues)\. These risks are not new as they were identified during the project preparation\. The relative resilience of project areas and beneficiaries, compared to other areas in the country, demonstrates the value of GAHP and increased biosecurity\. However, the scaling-up of the LIFSAP approach and additional risk management options should be further examined and included for mitigation in the follow-up project\. V\. LESSONS AND RECOMMENDATIONS 100\. Importance of the project on the national Livestock Strategy --being developed-- and how the interventions implemented under the LIFSAP will help shape the future of the livestock industry in Vietnam\. Notable interventions such as GAHP for better on-farm practices and improved productivity, biosecurity and animal health management, biodigesters and reduced environmental impact, and LPZs will contribute to this strategy because the LIFSAP provides a proof of concept on those particular aspects and results are available to inform the strategy under discussion and preparation\. To this effect, some points would deserve special attention: integrating animal welfare into GAHP, improving biosecurity and animal health management to higher levels and along the value chain (for example, including transport), and refining the LPZ concept based on the evaluation of the pilot scheme\. Of even greater importance, the LIFSAP should inform the strategy on sustainability along three main thrusts of environment and climate change, animal health and veterinary public health, and equity\. 101\. Replicability of the slaughterhouse and wet market models introduced under the project—and the extent to which these models will be replicated and sustained going forward\. The upgrading of the slaughterhouses and wet markets has improved the hygienic conditions in the slaughter and processing and marketing of meat (pig and chicken) compared to the situation before the project\. However, questions linger as to whether the more elaborate slaughterhouses and wet markets supported under the project will be replicated after the project\. This will depend on whether the private sector will be able to afford the cost of establishing these structures, including affording the routine operations and maintenance costs of running such structures\. This largely depends on whether their business has been boosted due to increased demand for meat, given the more hygienic conditions\. This is an area, which should be considered for further scaling-up and support under the proposed AFSP\. 102\. Linking of the project’s interventions on the future projects such as the proposed A FSP—and the extent to which the LIFSAP can inform the design of some interventions under the AFSP\. The proposed AFSP will benefit from several lessons learned during the implementation of the LIFSAP\. This project will aim to improve food safety management systems and infrastructure in targeted cities and reduce food safety risks in selected value chains\. In terms of food safety, transformative changes and upgrades are needed\. The aim should be to not simply react to immediate concerns or even to have food safety management capacity catch up to the past accumulation of food safety hazards but to put in place systems, practices, and knowledge which will be able to anticipate and manage emerging issues and restore consumers’ trust and confidence as diets and demographics continue to change\. Any investments Page 37 of 77  The World Bank Vietnam Livestock Competitiveness and Food Safety (P090723) to improve food safety management and restore consumers’ trust and confidence are critical for economic development, trade strengthening, social stability, and environmental protection\. The LIFSAP has demonstrated high effectiveness of an integrated food chain approach combining improved regulatory oversight, support to production of clean agricultural products, upgrades in market infrastructure (for example, slaughterhouses, wholesale markets, and wet markets), and measures to change farmer and food handler practices\. These and other approaches need to be implemented at greater scale and replicated across a range of food value chains in which the safety of primary, intermediate, or final products poses a risk to consumers as well as a risk to the competitiveness and livelihoods of Vietnamese farmers, food manufacturers, and food service providers\. Building from the lessons of the LIFSAP, another aim of the AFSP investments will be to crowd in private investments in slaughterhouses and wholesale food markets through matching grants and/or investment in essential public infrastructure needed for these facilities to operate effectively\. Through the implementation of the LIFSAP, much has been learned about the scope and limitations of certain approaches\. There has been less experience in Vietnam with applying progressive programs to raise awareness and improve practices among market and street food vendors and in engaging and empowering consumers\. However, much can be learned from interventions in these areas in other Asian countries to ensure that the AFSP builds upon the LIFSAP in areas where it has not been as effective in promoting a safe food system\. 103\. Ensuring a robust design for the M&E system\. It will be critical for new projects to have a more robust M&E design that will include (a) at least two quantitative evaluations for the midterm review and end line (with impact evaluations with control group when relevant); (b) other independent qualitative evaluations to further explore issues and impacts (such as gender, awareness of consumers on GAHP, quality of implementation of biosafety measures); and (c) plan for the development of an MIS\. It will imply budgeting and planning for evaluations, MIS, other M&E activities, and development of a detailed M&E manual at the design stage\. It would enhance triangulation of data, help further explore/understand/analyze some issues/success in depth to further develop lessons learned, better address needs of women/ethnic minorities, and ensure potential scale-up\. Then, the M&E system will be able to play its full role for management and learning\. \. Page 38 of 77  The World Bank Vietnam Livestock Competitiveness and Food Safety (P090723) ANNEX 1\. RESULTS FRAMEWORK AND KEY OUTPUTS8,9 A\. RESULTS INDICATORS A\.1 PDO Indicators Objective/Outcome: Increase production efficiency of household-based livestock producers Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Direct project beneficiaries Number 105609\.00 135000\.00 155728\.00 31-Dec-2014 30-Jun-2019 30-Jun-2019 Female beneficiaries Percentage 47\.70 55\.00 49\.00 Comments (achievements against targets): over-achieved in terms of direct project beneficiaries; although, only partially achieved for female beneficiaries\. There is no baseline available in 2010; this indicator was introduced for the AF, along with female beneficiaries, which had become one of the required core sector indicators to be collected in 2015\. 8 Most baselines were not available at project approval and were added at the time of the AF, as shown in the table\. Baselines for 2010, where available, have been included in the comments\. 9 Except otherwise specified, all data to assess achievements have been provided by the Government\. Page 39 of 77  The World Bank Vietnam Livestock Competitiveness and Food Safety (P090723) Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Increase the Production Percentage 11\.80 10\.00 10\.00 Efficiency of Household- based Livestock Producers 01-Nov-2015 30-Jun-2019 30-Jun-2019 through: a) livestock (pigs) mortality rates reduced Comments (achievements against targets): achieved\. The original target of the project was to reduce the mortality rate by 30%\. At project closing, the mortality rate in pig farms was reduced by 30%, from a 15% baseline in 2010 to 10% currently\. Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Increase the Production Percentage 31\.12 29\.00 13\.90 Efficiency of Household- based Livestock Producers 01-Nov-2015 30-Jun-2019 30-Jun-2019 through: b) Livestock (chickens) mortality rates reduced Comments (achievements against targets): over-achieved\. The original target of the project was to reduce the mortality rate by 30%\. At project closing, the mortality rate in poultry farms was reduced by more than 33%, from a 41% baseline in 2010 to 13\.9% mortality currently\. Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Page 40 of 77  The World Bank Vietnam Livestock Competitiveness and Food Safety (P090723) Increase the Production Days 118\.00 116\.00 116\.03 Efficiency of Household- based Livestock Producers 01-Nov-2015 30-Jun-2019 30-Jun-2019 through: c) livestock (pigs) fattening times shortened Comments (achievements against targets): achieved\. The original target of the project was to reduce the fattening time by 15%\. At project closing, the fattening time for pigs was reduced by 15\.5%, from an estimated 135 days baseline in 2010 to 116 days currently\. Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Increase the Production Days 58\.00 56\.00 55\.96 Efficiency of Household- based Livestock Producers 01-Nov-2015 30-Jun-2019 30-Jun-2019 through: d) Livestock (poultry) fattening times shorterned Comments (achievements against targets): achieved\. The original target of the project was to reduce the rearing time by 15%\. At project closing, the rearing time for poultry was reduced by 15\.2%, from an estimated 66 days baseline in 2010 to 55\.96 days currently\. Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Increase the Production Number 31\.00 40\.00 40\.05 Efficiency of Household- based Livestock Producers 01-Nov-2015 30-Jun-2019 30-Jun-2019 Page 41 of 77  The World Bank Vietnam Livestock Competitiveness and Food Safety (P090723) through: e) Herd/flock (pigs) numbers increased Comments (achievements against targets): achieved\. The original target of the project was to increase the average size of the flocks/herds by 15%\. At project closing, the average size was increased significantly (more than 30%), from an estimated average size of pig herds of 25\.6 animals in 2010 to 40\.05 today\. Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Increase the Production Number 1400\.00 1800\.00 1826\.00 Efficiency of Household- (Thousand) based Livestock Producers through: f) Herd/flock 01-Nov-2015 30-Jun-2019 30-Jun-2019 (poultry) numbers increased Comments (achievements against targets): achieved\. The original target of the project was to increase the average size of the flocks/herds by 15%\. At project closing, the average size of poultry flocks was significantly increased (more than 40%), from an estimated average size 935 birds in 2010 to 1826 currently\. Objective/Outcome: Reduce the environmental impact of livestock production, processing and marketing Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Reduce the Environmental Number 11000\.00 25000\.00 25172\.00 Impact of Livestock Production, Processing and 01-Nov-2015 30-Jun-2019 30-Jun-2019 Marketing through: a) Page 42 of 77  The World Bank Vietnam Livestock Competitiveness and Food Safety (P090723) Households supported by the project with lessened adverse environment impacts from their production Comments (achievements against targets): achieved\. The project has slightly exceeded the target\. There was no baseline provided in 2010\. In 2014, the project had supported 9905 households with lessened adverse environment impacts from their production\. Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Reduce the Environmental Number 193\.00 310\.00 303\.00 Impact of Livestock Production, Processing and 01-Nov-2015 30-Jun-2019 30-Jun-2019 Marketing through: b) Small slaughterhouses supported by the project with lessened adverse environmental impact from slaughterin Medium and large Number 42\.00 40\.00 70\.00 slaughterhouses supported by the project meeting national environmental standards Comments (achievements against targets): over-achieved\. There was no baseline provided in 2010\. The project has slightly exceeded the target, overall\. However, it is worth noting the partial achievement for small slaughterhouses (303 vs 310) compared to an over-achievement for large slaughterhouses (70 vs 40)\. The Government changed its preference towards medium and large slaughterhouses over to small operations; and this explains the over- achievement of medium and large slaughterhouses\. Page 43 of 77  The World Bank Vietnam Livestock Competitiveness and Food Safety (P090723) Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Reduce the Environmental Number 378\.00 500\.00 572\.00 Impact of Livestock Production, Processing and 01-Nov-2015 30-Jun-2019 30-Jun-2019 Marketing through: d) Wet markets supported by the project meeting national environmental standards Comments (achievements against targets): over-achieved\. No baseline available in 2010\. In 2014, a total of 311 wet markets has been supported by the project to meet national environmental standards\. Overall, the project has achieved 114% of the target\. Objective/Outcome: Improve food safety in livestock product supply chains in selected provinces Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Medium and large supported Number 25\.00 40\.00 70\.00 slaughterhouses meeting national environmental 01-Nov-2015 30-Jun-2019 30-Jun-2019 standards Comments (achievements against targets): over-achieved\. No baseline available in 2010\. In 2014, only 19 medium and large slaughterhouses had been supported by the project to meet national environmental standards\. Overall, the project has achieved 175% of the target\. Page 44 of 77  The World Bank Vietnam Livestock Competitiveness and Food Safety (P090723) Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Improve Food Safety in Number 235\.00 350\.00 373\.00 Livestock Product Supply Chains in selected provinces 01-Nov-2015 30-Jun-2019 30-Jun-2019 through: a) Small slaughterhouses upgraded by the project producing meat of improving quality and safety Comments (achievements against targets): achieved\. No baseline available in 2010\. In 2014, 143 small slaughterhouses had been supported by the project to meet national environmental standards\. Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Improve Food Safety in Number 378\.00 500\.00 572\.00 Livestock Product Supply Chains in Selected Provinces 01-Nov-2015 30-Jun-2019 30-Jun-2019 through: c) Supported wet markets meeting national meat quality and safety standards Comments (achievements against targets): over-achieved\. No baseline available in 2010\. In 2014, 311 wet markets had been supported by the project to meet national environmental standards\. Overall, the project has achieved 114% of the target\. Page 45 of 77  The World Bank Vietnam Livestock Competitiveness and Food Safety (P090723) Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Improve Food Safety in Number 25\.00 40\.00 70\.00 Livestock Product Supply Chains in Selected Provinces 01-Nov-2015 30-Jun-2019 30-Jun-2019 through: b) Medium and large supported slaughterhouses meeting national food safety standrads Comments (achievements against targets): over-achieved\. No baseline available in 2010\. In 2014, only 19 medium and large slaughterhouses had been supported by the project to meet national environmental standards\. Overall, the project has achieved 175% of the target\. A\.2 Intermediate Results Indicators Component: Upgrading Household-based Livestock Production and Market Integration Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Component A: Upgrading Number 456\.00 700\.00 715\.00 Household-based Livestock Production and Market 01-Nov-2015 30-Jun-2019 30-Jun-2019 Intergration through: a) Groups of livestock producer households in priority Page 46 of 77  The World Bank Vietnam Livestock Competitiveness and Food Safety (P090723) production areas having received GAHP certification Comments (achievements against targets): achieved\. No baseline available for 2010\. Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Component A: Upgrading Number 0\.00 100\.00 232\.00 Household-based Livestock Production and Market 01-Nov-2015 30-Jun-2019 30-Jun-2019 Integration through: b) GAHP collaborative groups are established and in effective operation Comments (achievements against targets): over-achieved\. No baseline available for 2010\. Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Component A: Upgrading Number 0\.00 15\.00 19\.00 Household-based Livestock Production and Market 01-Nov-2015 30-Jun-2019 30-Jun-2019 Intergration through c) GAHP cooperatives are established and in effective operation Page 47 of 77  The World Bank Vietnam Livestock Competitiveness and Food Safety (P090723) Comments (achievements against targets): achieved\. No baseline available for 2010\. Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Component A: Upgrading Percentage 90\.00 90\.80 93\.70 Household-based Livestock Production and Market 01-Nov-2015 30-Jun-2019 30-Jun-2019 Integration through: d) Proportion of vaccination coverage for common diseases for animals owned by project HHs Comments (achievements against targets): over-achieved\. No baseline available for 2010\. According to the Government completion report, the vaccination coverage in GAHP households is even higher, 95\.8%, well above the target\. It is also important to note that the project has carried-out sero- surveillance for most common diseases of pigs and poultry to be monitored\. Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Component A: Upgrading Number 235\.00 350\.00 373\.00 Household-based Livestock Production and Market 01-Nov-2015 30-Jun-2019 30-Jun-2019 Integration through: f) Slaughterhouses inspected Comments (achievements against targets): achieved\. No baseline available in 2010\. All slaughterhouses supported by the project have been inspected\. Page 48 of 77  The World Bank Vietnam Livestock Competitiveness and Food Safety (P090723) Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Component A: Upgrading Number 378\.00 500\.00 572\.00 Household-based Livestock Production and Market 01-Nov-2015 30-Jun-2019 30-Jun-2019 Intergration through: g) Meat Markets inspected Comments (achievements against targets): achieved\. No baseline available in 2010\. All markets supported by the project have been inspected\. Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Component A: Upgrading Number 0\.00 30\.00 30\.00 Household-based Livestock Production and Market 01-Nov-2015 30-Jun-2019 30-Jun-2019 Integration through: e) Slaughterhouses supported by project certified gor GMP/GHP/HACCP Comments (achievements against targets): achieved\. Component: Strengthening Central-Level Livestock and Veterinary Services Page 49 of 77  The World Bank Vietnam Livestock Competitiveness and Food Safety (P090723) Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Component B: Strengthening Number 0\.00 30\.00 30\.00 Central -level Livestock and Veterinary Services through: 01-Nov-2015 30-Jun-2019 30-Jun-2019 a) brand-name of GAHP products adopted and sustainably developed Comments (achievements against targets): achieved\. Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Component B: Strengthening Yes/No N Y Y Central-level Livestock and Veterinary Services through: 01-Nov-2015 30-Jun-2019 30-Jun-2019 b) Food safety good practices included in the national veterinary curriculum Comments (achievements against targets): achieved\. Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Component B: Strengthening Yes/No N Y Y Page 50 of 77  The World Bank Vietnam Livestock Competitiveness and Food Safety (P090723) Central-level Livestock and 01-Nov-2015 30-Jun-2019 30-Jun-2019 Veterinary Services through: c) Animal Breeding and Feeding Center appointed National Reference Center National Center for Yes/No N Y Y Veterinary Hygiene Inspection No\. I appointed National Reference Center Comments (achievements against targets): achieved\. The National Center for Veterinary Hygiene Inspection No\. I was appointed National Reference Center\. Component: Project Management, Monitoring and Evaluation Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Farmers reached with Number 11201\.00 23071\.00 25172\.00 agricultural assets or services 01-Nov-2015 30-Jun-2019 30-Jun-2019 Farmers reached with Number 48\.00 55\.00 53\.50 agricultural assets or services - Female Comments (achievements against targets): over-achieved in terms of number of farmers reached by the project; although, only partially achieved for female farmers, with a final percentage of 53\.5% instead of the targeted 55%\. Page 51 of 77  The World Bank Vietnam Livestock Competitiveness and Food Safety (P090723) Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Farmers adopting improved Number 11201\.00 25000\.00 26312\.00 agricultural technology 01-Nov-2015 30-Jun-2019 30-Jun-2019 Farmers adopting improved Number 5280\.00 13750\.00 13720\.00 agricultural technology - Female Farmers adopting improved Number 5720\.00 11250\.00 12175\.00 agricultural technology - male Comments (achievements against targets): achieved\. Although the gender targets are not fully achieved\. Page 52 of 77 The World Bank Vietnam Livestock Competitiveness and Food Safety (P090723) B\. KEY OUTPUTS BY COMPONENT Objective/Outcome 1: Increase production efficiency of household-based livestock producers 1\. Direct project beneficiaries, of which percentage of female 2\. Livestock mortality rates reduced (pigs and poultry) Outcome Indicators 3\. Livestock (pigs and poultry) fattening times shortened 4\. Herd/flock numbers (pigs and poultry) increased 1\. Groups of livestock producer households in priority production areas having received GAHP certification 2\. GAHP collaborative groups are established and in effective operation 3\. GAHP cooperatives are established and in effective operation 4\. Proportion of vaccination coverage for common diseases for animals owned by project Intermediate Results Indicators households 5\. Proportion of vaccination coverage for common diseases for animals owned by project households 6\. Slaughterhouses inspected 7\. Meat markets inspected 8\. Slaughterhouses supported by project certified for GMP/GHP/HACCP 1\. GAHP standards, procedures, and methodology for monitoring and certification updated/established\. 2\. Livestock producers trained on GAHP\. Key Outputs by Component 3\. GAHP practices adopted by farmers\. (linked to the achievement of the 4\. Farmers certified in GAHP\. Objective/Outcome 1) 5\. GAHP demonstration models in communes implemented\. 6\. Producers’ performance on GAHP monitored\. 7\. Extension workers and veterinary staff at commune/district level trained and equipped to provide GAHP training to producers\. Page 53 of 77 The World Bank Vietnam Livestock Competitiveness and Food Safety (P090723) Objective/Outcome 2: Reduce the environmental impact of livestock production, processing, and marketing 1\. Households supported by the project with lessened adverse environmental impacts from their production 2\. Small slaughterhouses supported by the project with lessened adverse environmental impact Outcome Indicators from slaughtering 3\. Medium and large slaughterhouses supported by the project meeting national environmental standards 4\. Wet markets supported by the project meeting national environmental standards Intermediate Results Indicators 1\. Brand-name of GAHP products adopted and sustainably developed 1\. Environmental pollution, diseases, and food quality regularly assessed by DONRE\. Key Outputs by Component 2\. Vaccination coverage increased\. (linked to the achievement of the 3\. Matching grants support for construction of biodigesters, composting facilities, slurry Objective/Outcome 2) treatment, and implementation of biosecurity measures\. Objective/Outcome 3: Improve food safety in livestock product supply chains in selected provinces 1\. Small slaughterhouses upgraded by the project producing meat of improved quality and Outcome indicators safety 2\. Supported wet markets meeting national meat quality and safety standards 1\. Food safety good practices included in the national veterinary curriculum Intermediate Results Indicators 2\. National Center for Veterinary Hygiene Inspection No\. I appointed National Reference Center 1\. LPZ concept successfully implemented\. 2\. Waste management and biodigester infrastructure upgraded\. Key Outputs by Component 3\. Slaughterhouses and meat markets waste treatment and management upgraded\. (linked to the achievement of the 4\. Equipment for safe and hygienic slaughtering and meat handling purchased\. Objective/Outcome 3) 5\. Meat inspectors trained on proper meat inspection\. 6\. Veterinary staff, butchers, and middlemen trained on food safety\. 7\. Provincial sub-DAHs equipped to implement meat inspection\. Page 54 of 77 The World Bank Vietnam Livestock Competitiveness and Food Safety (P090723) ANNEX 2\. BANK LENDING AND IMPLEMENTATION SUPPORT/SUPERVISION A\. TASK TEAM MEMBERS Name Role Preparation Son Thanh Vo Task Team Leader (AF) Binh Thang Cao Task Team Leader Thang Toan Le Procurement Specialist Ha Thuy Tran Senior Financial Management Specialist Hoa Thi Phuong Kieu Team Member Nga Thuy Thi Nguyen Procurement Team Thao Cong Nguyen Social Specialist Son Van Nguyen Environmental Specialist Franck Berthe Team Member Tam Thi Do Team Member (Program Assistant) Stephan Forman Senior Livestock Specialist Ijeoma Emenanjo Natural Resources Management Specialist Nina Masako Eejima Senior Counsel Implementation Franck Berthe ICR Main Author/ ICR Team Leader Hardwick Tchale Task Team Leader Binh Thang Cao Task Team Leader Thang Toan Le Procurement Specialist Ha Thuy Tran Senior Financial Management Specialist Hoa Thi Phuong Kieu Team Member Nga Thuy Thi Nguyen Procurement Team Thao Cong Nguyen Social Specialist Son Van Nguyen Environmental Specialist Page 55 of 77  The World Bank Vietnam Livestock Competitiveness and Food Safety (P090723) B\. STAFF TIME AND COST Staff Time and Cost Stage of Project Cycle No\. of staff weeks US$ (including travel and consultant costs) Preparation FY05 9\.100 60,347\.32 FY06 24\.494 107,335\.03 FY07 13\.562 78,387\.89 FY08 25\.760 139,513\.11 FY09 28\.799 93,501\.50 FY10 8\.775 45,272\.18 Total 110\.49 524,357\.03 Supervision/ICR FY10 10\.150 60,300\.26 FY11 16\.525 70,899\.53 FY12 15\.875 68,004\.73 FY13 43\.382 126,743\.39 FY14 24\.663 83,591\.38 FY15 19\.850 86,128\.18 FY16 19\.567 81,190\.33 FY17 36\.372 243,959\.71 FY18 22\.175 145,845\.38 FY19 13\.160 102,314\.12 FY20 8\.020 70,366\.47 Total 229\.74 1,139,343\.48 Page 56 of 77 The World Bank Vietnam Livestock Competitiveness and Food Safety (P090723) ANNEX 3\. PROJECT COST BY COMPONENT10 IDA Additional Actual IDA IDA Amount at Percentage of Financing disbursed at Components Approval Approval (US$ millions) Project11 Closing (US$, millions) (percent) (US$, millions) Upgrading Household- 53\.8 36\.02 86\.57 96\.4 based Livestock Production and Market Integration Strengthening Central- 4\.2 4\.27 7\.15 84\.4 Level Livestock and Veterinary Services Project Management, 7\.2 2\.59 11\.71 119\.6 Monitoring and Evaluation Total 65\.2 44\.6812 105\.43 96\.0 Total Project Financing Plan (Original and Additional Financing, US$ million) Financier Component IDA Gov Private Total Parent Project A\. Upgrading Household-Based Livestock Production and Market 53\.8 1\.9 10\.4 66\.0 Integration B\. Strengthening Central-Level Livestock Production and Veterinary 4\.2 0\.2 0\.0 4\.3 Services C\. Project Management and Monitoring and Evaluation 7\.2 1\.4 0\.0 8\.7 Total Cost Parent Project 65\.2 3\.4 10\.4 79\.0 Additional Financing A\. Upgrading Household-Based Livestock Production and Market 36\.02 1\.42 6\.25 43\.69 Integration B\. Strengthening Central-Level Livestock Production and Veterinary 4\.27 0\.09 0\.0 4\.36 Services C\. Project Management and Monitoring and Evaluation 2\.59 2\.24 0\.0 4\.83 D\. Contingency 1\.8 0\.0 0\.0 1\.8 Total Cost Additional Financing 44\.68 3\.75 6\.25 54\.68 Total Parent and Additional Financing A\. Upgrading Household-Based Livestock Production and Market 89\.82 3\.32 16\.65 109\.69 Integration B\. Strengthening Central-Level Livestock Production and Veterinary 8\.47 0\.29 0\.0 8\.66 10 The figures in the second table show Bank financing along with Government and Private counterpart financing\. The figures in annex 3 are consistent with the figures in the original project (see the original PAD on page 44, table 1: Project costs; and table 3 on page 19 of the Additional Financing Project Paper)\. 11 Includes original appraisal estimate and the AF\. 12 The total includes a contingency of US$1\.8 million (see the second table in this annex)\. Page 57 of 77 The World Bank Vietnam Livestock Competitiveness and Food Safety (P090723) Services C\. Project Management and Monitoring and Evaluation 9\.79 3\.64 0\.0 13\.53 D\. Contingency 1\.8 0\.0 0\.0 1\.8 Total Cost All Project (Original + Additional Financing) 109\.88 7\.25 16\.65 133\.68 Source: Additional Financing Project Paper (table 4 – Project Financing Plan, Page 20); small rounding errors noted in the Financing Plan prepared at Additional Financing\. Page 58 of 77 The World Bank Vietnam Livestock Competitiveness and Food Safety (P090723) ANNEX 4\. EFFICIENCY ANALYSIS A\. Introduction and Methodology 1\. The EFA of the project at completion is based on quantifiable economic and financial benefits from improved (a) competitiveness and profitability of pig and poultry producers supported by the project and (b) environmental management of livestock waste\. Benefits from improved food safety resulting from project interventions have been described and estimated; however, these were not included in the overall project EFA\. The latter would have required to make a number of assumptions for which there is presently no sound basis due to lack of data\. However, the results of the EFA presented in table 4\.1 clearly show that the project is likely to generate economic returns above what was estimated at appraisal, even without including food safety benefits in the analysis\. 2\. The project has achieved or overachieved most indicator targets in the Results Framework, while spending less than the originally planned\.13 This indicates that the project has been highly efficient in terms of converting project resources into results\. Table 4\.1 provides an overview of the achievement of main project outcomes and outputs that are relevant for the EFA\. A comparison between the project costs at appraisal and the actual disbursement is presented in annex 3\. 3\. The project has reached 160,000 direct beneficiaries and 25,472 farmers have been reached with agricultural assets or services, corresponding to average costs (a) per direct beneficiary of US$767 (based on total project costs) and (b) per farmer reached with agricultural assets or services of US$1,306 (considering costs of Subcomponent A\.1)\. As there were no targets set at appraisal, it is not possible to assess project efficiency in terms of the actual costs per beneficiary/farmer reached, in relation to the planned costs\. However, the analysis allows for a comparison with similar projects in the region in the ICR (see table 4\.3 which also provides cost per slaughterhouse/meat market upgraded and per biodigester provided to farmers)\. Table 4\.1\. Overview of Main Project Outcomes and Outputs Related to Economic and Financial Analysis Baseline End of Project (EOP) RF Indicator Unit 2010 Target Actual c (%) d (%) Increase the production efficiency of household-based livestock producers PDO Livestock mortality rates reduced Pig % 15 10 10 100 −33 Chicken % 41 29 13\.9 208 −67 PDO Livestock fattening times shortened Pig Day 135 116 116\.03 100 −14 Chicken Day 66 56 55\.96 100 −15 PDO Herd/flock numbers increased Pig No\. 26 40 40\.05 101 55 Chicken No\. 935 1,800 1,826 101 195 Reduce the environmental impact of livestock production, processing, and marketing PDO Households supported by the project No\. 0 25,000 25,172 101 n\.a\. with lessened adverse environment 13 Includes total IDA funding of US$ 109\.94 million (original plus additional financing) of which US$105\.43 million was actually disbursed by project completion, representing about 96% of the total IDA funding\. Page 59 of 77 The World Bank Vietnam Livestock Competitiveness and Food Safety (P090723) Baseline End of Project (EOP) RF Indicator Unit 2010 Target Actual c (%) d (%) impacts from their production PDO Small slaughterhouses supported with No\. 0 310 303 98 n\.a\. lessened adverse environmental impact from slaughteringa PDO Medium and large slaughterhouses No\. 0 40 70 175 n\.a\. supported meeting national environmental standardsb PDO Wet markets supported by the project No\. 0 500 572 114 n\.a\. meeting national environmental standards Improve food safety in livestock product supply chains in selected provinces PDO Slaughterhouses upgraded by the No\. 0 350 373 106 n\.a\. project producing meat of improving quality and safety PDO Supported wet markets meeting No\. 0 500 572 114 n\.a\. national meat quality and safety standards PDO Direct project beneficiaries 0 135,000 160,000 119 n\.a\. Component A: Upgrading Household-based Livestock Production and Market Integration IR Farmers reached with agricultural No\. 23,107 25,472 110 n\.a\. 0 assets or services IRe Farmers adopting improved agricultural No\. 0 25,000 26,312 105 n\.a\. technology IR Groups of livestock producer No\. 0 700 714 102 n\.a\. households in priority production areas having received GAHP certification IR GAHP collaborative groups are Groups No\. 0 100 232 232 n\.a\. established and in effective operation GAHP collaborative cooperatives are No\. 0 15 19 127 n\.a\. established and in effective operation — Number of GAHP households in Pig No\. 0 n\.a\. 21,983 n\.a\. n\.a\. operation Chicken No\. 0 n\.a\. 923 n\.a\. n\.a\. Source: Project Progress Report, October 2019\. Note: RF = Results Framework indicator; IR = Intermediate result; n\.a\. = Not applicable\. a\. Up to 30 heads per day\. b\. >30 heads per day\. c\. Actual as percentage of target\. d\. Change from baseline to end-of-project actual\. e\. Indicator is actually at the PDO level\. Page 60 of 77 The World Bank Vietnam Livestock Competitiveness and Food Safety (P090723) Table 4\.2\. Main Project Outputs and Cost Per Unit of Output Average Cost Per Unit No\. of Units (US$) Item Unit Original Original AF Total AF Total project project Direct project beneficiaries reacheda Person 120,819 160,000 160,000 606 767 767 Farmers reached with agricultural assets or Household 11,201 14,271 25,472 1,652 1,034 1,306 servicesb Slaughterhouses upgradedc No\. 235 133 368 e e e Meat markets upgradedc No\. 378 165 543 e e e Biogas digesters provided to farmersd No\. 9,391 8,102 17,493 f f f Note: a\. Number of units cumulative (original project and AF); based on total project costs\. b\. Based on costs of Subcomponent A\.1\. c\. Based on total costs of slaughterhouse/meat market upgrading\. d\. Based on total costs of biogas digesters provided\. e\. Presently, no breakdown of Subcomponent A\.3 Upgrading Slaughterhouses and Meat Markets costs available\. f\. Presently, no breakdown of biogas digester cost by original project/AF is available\. B\. Assessment of Project Outcomes on Livestock Production Pig Production 4\. The analysis was carried out separately for the two main production systems, (a) finishing only and (b) breeding and finishing, and for three farm size categories\. The results are summarized in table 4\.3\. The average number of production cycles per year per sow is 2\.1 for without project (WOP, non-GAHP farmers) and with project (WP, GAHP farmers supported by project) farmers across all farm size categories\. Overall, it can be observed that the average number of cycles of pig finishing per year for the ‘finishing only’ farmers is higher than for the ‘breeding and finishing’ farmers, with lower average weight per finished pig for the first group\. It should be noted that sales of finished pigs and revenues per household do not always reflect the different farm size categories (for example, average sales in the category ‘breeding and finishing’, WOP > 80 pigs are lower than in the category 25–80 pigs)\. This results from a relatively small sample size in these categories with some farmers producing less than what the farm size category suggests\. 5\. Given the large differences of production scales within farm size categories and between WOP and WP farmers, the average revenue and net profit were calculated per kg meat sold\. As can be seen from table 4\.3, the average net profit per kg meat sold (household labor valued) for WP households is significantly above the average net profit for WOP households (see exception in table footnote c)\. On the basis of the average volume of sales in each category and the average net profit per kg meat sold, the average net profit per household was calculated showing a considerable increase for the WP households for both production systems and all farm size categories\. Page 61 of 77  The World Bank Vietnam Livestock Competitiveness and Food Safety (P090723) Table 4\.3\. Pig Production Survey - Summary of Results Production System Finishing Breeding and Finishing Farm Size Category (no\. of pigs) <25 25–80 >80c <25 25–80 >80 WOP WP WOP WP WOP WP WOP WP WOP WP WOP WP Avg\. no\. of sows in production 3\.1 3\.7 9\.4 10\.9 11\.3 18\.0 Avg\. no\. of cycles/sow per year 2\.1 2\.1 2\.1 2\.1 2\.1 2\.1 Mortality rate of pigs until finishinga n\.a\. n\.a\. n\.a\. n\.a\. n\.a\. n\.a\. n\.a\. n\.a\. n\.a\. n\.a\. n\.a\. n\.a\. Avg\. no\. of cycles of pig finishing per year 2\.5 2\.6 2\.7 2\.4 2\.6 2\.1 2\.2 2\.1 1\.9 2\.1 2\.0 2\.1 Avg\. sales of finished pigs per year Head 46 39 76 64 86 228 47 43 70 77 54 94 Kg 4,237 3,767 7,146 6,002 8,205 27,842 4,989 4,502 7,221 7,779 5,814 9,640 VND (thousands)/kg 43\.4 46\.6 45\.8 49\.2 50\.3 43\.6 44\.7 46\.3 44\.7 46\.6 47\.1 46\.9 VND, thousands 172,228 174,943 326,781 293,493 411,236 1,173,258 219,106 210,138 317,231 356,750 271,666 424,569 Avg\. weight per finished pig Kg 90 97 100 94 90 115 103 103 101 101 110 105 Per kg meat sold Total revenueb VND, thousands 43\.7 46\.8 46\.2 49\.3 50\.4 43\.6 45\.7 47\.9 45\.5 47\.8 50\.0 47\.7 Total costs - household labor not valued VND, thousands 33\.1 30\.2 34\.4 28\.4 34\.7 32\.3 28\.4 28\.9 30\.8 29\.4 38\.3 32\.5 Net profit - household labor not valued VND, thousands 10\.6 16\.6 11\.8 20\.9 15\.7 11\.4 17\.3 19\.0 14\.7 18\.3 11\.7 15\.1 Total costs - household labor valued VND, thousands 39\.8 34\.2 37\.7 33\.1 36\.1 34\.6 37\.1 37\.1 36\.3 36\.3 41\.3 38\.3 Net profit - household labor valued VND, thousands 3\.9 12\.6 8\.5 16\.2 14\.3 9\.0 8\.6 10\.8 9\.2 11\.4 8\.7 9\.3 US$ 0\.2 0\.5 0\.4 0\.7 0\.6 0\.4 0\.4 0\.5 0\.4 0\.5 0\.4 0\.4 Per average household Net profit - household labor valued VND, thousands 16,525 47,394 60,503 97,057 117,197 251,660 42,710 48,773 66,692 88,802 50,368 89,986 Increment VND, thousands 30,869 36,554 134,463 6,063 22,111 39,618 US$ 1,342 1,589 5,846 264 961 1,723 Note: a\. Number of averages can be calculated as the large majority of farmers did not report mortality or reported zero mortality, which may not reflect the situation\. Mortality rates reported ranged from 1 percent to 8 percent for WP farms and 2 percent to 10 percent for WOP farms\. b\. Including recovery value of culled sow, sales of piglets, sales of finishers, sales of manure, value of biogas\. c\. Based on only three households with the production system ‘finishing’ for each WP and WOP in the farm size category > 80 pigs , for which survey data was usable\. Net profit per kg meat sold not comparable due to small sample size and large difference in sales between WOP and WP farmers\. Page 62 of 77  The World Bank Vietnam Livestock Competitiveness and Food Safety (P090723) 6\. On the basis of pig production survey data, conservative assumptions were made to develop average production models which were used for the overall project EFA\. For each production system and farm size category, the net profit per kg meat sold and the sales per household were estimated for an average WOP household\. For the WP (GAHP) households, a 20 percent increase of net profit per kg meat sold as well as of pig sales per household was assumed\. Table 4\.4 provides the details\. Table 4\.4\. Assumptions for EA - Pig Production Households Production System Finishing Breeding and Finishing Farm Size Category (no\. of pigs) <25 25–80 >80 <25 25–80 >80 WOP WP WOP WP WOP WP WOP WP WOP WP WOP WP Net profit per kga VND, 4\.0 4\.8 8\.0 9\.6 9\.0 10\.8 8\.0 9\.6 9\.0 10\.8 9\.0 10\.8 thousands Incrementb VND, 0\.8 1\.6 1\.8 1\.6 1\.8 1\.8 thousands Pig sales per household kg 4,000 4,800 7,000 8,400 10,000 12,000 4,000 4,800 7,000 8,400 10,000 12,000 per year Incrementc kg 800 1,400 2,000 800 1,400 2,000 Net profit per VND, 16,000 23,040 56,000 80,640 90,000 129,600 32,000 46,080 63,000 90,720 90,000 129,600 household per yeara thousands Increment VND, 7,040 24,640 39,600 14,080 27,720 39,600 thousands Source: Estimated based on farm survey data\. Note: a\. Household labor valued\. b\. Assumption: 20 percent increase for WP\. c\. Assumption: 20 percent increase for WP\. 7\. In the absence of exact information about the distribution of farm sizes and building on the assumptions made for the ICR EFA for the original project, it has been assumed that 50 percent of GAHP households supported by the project keep less than 25 pigs, 30 percent 25–80 pigs, and 20 percent more than 80 pigs\. The distribution between the two main production systems has been estimated on the basis of farm survey data\. Table 4\.5 gives an overview\. The assumptions presented in Tables 4\.4 and 4\.5 were used in the overall EA of the project presented in section E\. Table 4\.5\. Number of Pig Production GAHP Farmers Supported by Project by Production System and Farm Size Category Farm Size Category (no\. of pigs) Production System Total <25 25–80 >80 Breeding and finishing 8,573 5,474 4,001 18,048 Finishing only 2,418 1,121 396 3,935 Total 10,992 6,595 4,397 21,983 Farm size category share of total 50% 30% 20% Note: Farm size category share of total estimated\. Share of production system estimated based on survey data in table 4\.3\. Page 63 of 77  The World Bank Vietnam Livestock Competitiveness and Food Safety (P090723) Poultry Production 8\. Broilers\. On average, the surveyed WP (GAHP) broiler farms had more than double the number of broilers in production (2,535) than the WOP (non-GAHP) farms (1,222)\. WOP farmers had on average lower mortality rates and more broiler cycles per year, with increased average weights of broilers sold\. Average net profit per broiler place and year (household labor valued) for WP farms was VND 66,000, which is 71 percent above the net profit per broiler place for the WOP farms (VND 39,000)\. Multiplying the average net profit per broiler place with the average number of broiler places, the calculated average net profit per household for WP farms is VND 167 million, around 3\.5 times the average net profit for WOP farms (see table 4\.6)\. Table 4\.6\. Poultry Production Survey - Summary of Results: Broilers WOP WP Increment a Avg\. total no\. of broilers in production per household 1,222 2,535 1,312 107% Avg\. no\. of broiler cycles/year 2\.6 2\.8 0\.2 7% Avg\. mortality rate per cycle 7\.1% 4\.5% −2\.6% −37% Avg\. total number of broilers sold per household per year 3,131 6,855 3,724 119% Avg\. weight of broiler sold kg 2\.0 2\.1 0\.1 3% Avg\. total weight of broiler sold per household per year kg 6,690 13,650 6,960 104% Per broiler place and year (average) Total revenue VND, thousands 311 343 33 11% Total costs - household labor not valued VND, thousands 246 235 −11 −4% Net profit - household labor not valued VND, thousands 64 108 44 68% Total costs - household labor valued VND, thousands 272 277 5\.2 2% Net profit - household labor valued VND, thousands 39 66 27 71% Per average household and year Net profit - household labor valued VND, thousands 47,342 167,758 120,417 254% US$ 2,058 7,294 5,236 254% Source: Farm survey data\. Note: a\. Number of broiler places\. 9\. On the basis of the above survey data, an average broiler production model was developed which was used for the overall project EA, assuming for the average WP farm a 20 percent increase above the average WOP farm for (a) number of broilers in production, (b) net profit per broiler place, and (c) total weight of broilers sold per year\. Table 4\.7 provides the details\. The assumptions can be considered conservative, as the actual average number of chickens per project GAHP poultry producer (not differentiated between broiler and layer farms) was reported to be 1,826 for the Results Framework indicator monitoring\. Table 4\.7\. Assumptions for EA - Poultry Production Households: Broilers WOP WP Avg\. no\. of broilers in production per household a 1,200 1,440 Incrementb 240 20% Net profit per broiler place per year VND, thousands 39\.0 46\.8 Incrementc VND, thousands 7\.8 20% Total weight of broilers sold per household per year kg 6,690 8,028 Page 64 of 77  The World Bank Vietnam Livestock Competitiveness and Food Safety (P090723) Incrementd kg 1,338 20% e Net profit per household per year VND, thousands 46,800 67,392 Increment VND, thousands 20,592 44% Source: Estimated based on farm survey data (see table 4\.6)\. Note: a\. Number of broiler places\. b\. Assumption: 20 percent increase for WP\. c\. Assumption: 20 percent increase for WP\. d\. Assumption: 20 percent increase for WP\. e\. Household labor valued\. 10\. Layers\. While the surveyed WP (GAHP) layer farms had on average 890 layers less than the average surveyed WOP (non-GAHP) farms, WP farms had on average lower mortality rates and slightly more layer cycles per year, with higher numbers of eggs per layer and per year\. Average net profit per layer and per year (household labor valued) for WP farms was VND 48,000, which is 41 percent above the net profit per broiler place for the WOP farms (VND 34,000)\. Given the fact that the flock size of project poultry farmers has doubled since project start (see table 4\.2), it is safe to assume that the average flock size of WP layer farms is not below the average flock size of WOP layer farms\. Consequently, for the calculation of average net profit per household, the average number of layers for the WOP farms was also used for WP farms\. Details are provided in table 4\.8\. Table 4\.8 Poultry Production Survey - Summary of Results: Layers WOP WP Increment Average no\. of layers in production per household a 5,475 4,585 −890 −16% Average no\. of layer cycles per year 0\.76 0\.77 0\.01 2% Mortality rate per year 5\.2% 4\.4% −0\.8% −15% Per layer and year (average) No\. of eggs produceda 216 225 8 4% Total revenueb c VND, thousands 387 410 23 6% Total costs - household labor not valued VND, thousands 329 345 16 5% Net profit - household labor not valued VND, thousands 58 65 7 13% Total costs - household labor valued VND, thousands 353 362 9 3% Net profit - household labor valued VND, thousands 34 48 14 41% Per average household and year Net profit - household labor valued VND, thousands 188,421 264,852 76,431 41% US$ 8,192 11,515 3,323 41% Source: Farm survey data\. Note: a\. Higher average number of layers for WOP sample does not reflect trend of increasing numbers of layers with project support\. b\. Including eggs sold, unsold, and home consumption\. c\. Eggs unsold and home consumption valued\. 11\. The assumptions for the average layer model which was developed for the overall project EA on the basis of the above survey data are presented in table 4\.9\. Table 4\.9\. Assumptions for EA - Poultry Production Households: Layers WOP WP Page 65 of 77  The World Bank Vietnam Livestock Competitiveness and Food Safety (P090723) Avg\. no\. of layers in production per household 4,000 4,400 Incrementa 400 10% Net profit per layer per year VND, thousands 34\.0 40\.8 Incrementb VND, thousands 6\.8 20% Sales of eggs per layer per year kg 216 225 c Increment kg 9 4% Sales of eggs per household per year Egg number 864,000 990,000 Incrementd Egg number 126,000 15% Net profit per household per yeare VND, thousands 136,000 179,520 Increment VND, thousands 43,520 32% Source: Estimated based on farm survey data (see table 4\.8)\. Note: a\. Assumption: 10 percent increase for WP\. b\. Assumption: 20 percent increase for WP\. c\. Assumption: 4 percent increase for WP\. d\. Household labor valued\. e\. Household labor valued\. 12\. As the share of broiler and layers farms out of the total number of poultry GAHP farms supported by the project is presently not known, a share of 80 percent (broiler) and 20 percent (layer) has been assumed (see table 4\.10)\. The numbers will be updated once actual data are available\. The assumptions presented in tables 4\.7, 4\.8, and 4\.9 were used in the overall EA of the project presented in section E\. Table 4\.10\. Number of Poultry Production GAHP Farmers Supported by Project by Production System Production System Total Share of total (%) Broiler 738 80 Layer 185 20 Total 923 100 Note: Based on estimated share of production system of total number of farmers\. Will be updated once project data are available\. 13\. Impact on production\. On the basis of tables 4\.7, 4\.8, 4\.9, and 4\.10, the impact of the project on production of meat and eggs was estimated\. As can be seen from table 4\.11, pig production by project GAHP farmers accounts for an estimated 4\.3 percent of total pig production in Vietnam, while project poultry GAHP farmers produce around 0\.6 percent of broilers and 1\.7 percent of eggs in the country\. Table 4\.11\. Estimated Project Impact on Production Total production project GAHP pig farmersa Ton 160,916 4\.3%d Total pig production in Vietnamb Ton 3,733,300 Incremental production project GAHP pig farmers Ton 48,011 1\.3%d Total production project GAHP poultry farmersc Broiler Ton 5,928 0\.6%d Layer Egg (million) 182\.8 1\.7%d Total poultry production in Vietnamb Broiler Ton 1,031,900 Layer Egg (million) 10,637 Incremental production project GAHP poultry farmers Broiler Ton 988 0\.1%d Layer Egg (million) 23\.3 0\.2%d Note: a\. 2019; estimated based on tables 4\.8 and 4\.9\. b\. 2017; General Statistics Office of Vietnam\. Page 66 of 77  The World Bank Vietnam Livestock Competitiveness and Food Safety (P090723) c\. 2019, estimated based on tables 4\.11, 4\.13, and 4\.14\. d\. Estimated percentage of total production in Vietnam\. C\. Assessment of Environmental Benefits Overview 14\. The project achieved environmental benefits at three levels: (a) livestock producers, (b) slaughterhouses, and (c) meat markets\. The EFA attempts a quantification of some of the environmental benefits at the livestock producers (farm) level, while the benefits at the slaughterhouse and meat market level are also briefly described below\. 15\. Farm level\. The project has supported a total of 25,472 households in improvement of waste management measures to reduce negative environmental impacts from livestock production\. Support was provided for 17,493 households in construction of biogas works, 1,608 households in construction of composting pits, and 6,371 households with guidance on upgrading to a proper waste treatment system (see table 4\.12)\. Table 4\.12\. Project Support to Improved Livestock Production Waste Management Measures No\. of households Measure Phase 1 AF Phase Total Construction of biogas works 9,391 8,102 17,493 Construction of composting pits 1,608 0 1,608 Guidance on upgrading to proper waste treatment system 0 6,371 6,371 Total improvements of waste management measures 10,999 14,473 25,472 Source: Project Progress Report October 2018\. Note: Numbers will be updated once inconsistencies have been resolved\. 16\. Slaughterhouses\. The project supported in total 368 slaughterhouses (68 medium- and large- scale with more than 30 pigs per day and 298 small scale with 10–30 pigs per day) in upgrading for improvement of veterinary and sanitation hygiene which meets Government’s environmental standards, thereby achieving 105 percent of the target in the Results Framework of 350 slaughterhouses\. While all the slaughterhouses supported had simple or degraded wastewater treatment systems before upgrading/newly constructing, the project contributed to improved quality of post-treatment wastewater discharged into the environment, thereby reducing environmental pollution (see relevant section in PCR)\. 17\. Meat markets\. The project has upgraded 543 meat markets with a total of 20,538 counters, achieving 109 percent of the overall target for the project of 500\. All upgraded meat markets have been supported in improvements of waste and wastewater treatment\. Presently, 499 meat markets have been handed over and are in operation\. The quality of the wastewater of meat markets after upgrade has been improved significantly, resulting in reduced environmental pollution (see relevant section in PCR)\. Results 18\. At the farm level, the livestock production waste management measures introduced by the project helped reduce not only environmental pollution but also GHG emissions through reducing (a) Page 67 of 77  The World Bank Vietnam Livestock Competitiveness and Food Safety (P090723) methane emissions from manure, (b) GHG emissions by reducing the use of traditional fuels, and (c) GHG emissions from the use of chemical fertilizers by replacing them with fertilizer from biogas residues\. 19\. The ICR of Phase 1 in 2015 estimated that the introduction of biogas digesters would reduce CO 2 emissions from approximately 442 tons of manure per day, corresponding to 40,800 tons of CO2 per year\. It was also stated that the use of gas generated from biogas for cooking reduces methane (CH4), emissions, although this has not been quantified\. It was estimated that the installation of a biogas digester producing gas for cooking and replacing other fuels (liquefied petroleum gas, coal, wood, and other materials) would save each household on average VND 3\.4 million every year\. This amounts to annual overall savings of around VND 32 billion for the 9,391 biogas digesters established by the project in Phase 1\. The value of by-products, such as residues and wastewater, obtained from biogas production and mostly reused as fertilizer for irrigation and fish farming had not been quantified\. 20\. The 40,800 tons of CO2 emissions reduced per year represent 40,800 certified emission reductions\.14 Based on an assumed price per certified emission reduction of US$10, the resulting estimated annual revenues from the introduction of biogas digesters in Phase 1 amounted to US$408,000 per year\. The impact of the project interventions at the farm level on GHG reductions and the economic value for the overall project will be estimated once the relevant data are available\. 21\. Tables 4\.13 and 4\.14 present cost-benefit analyses for standard biogas digesters introduced in Phase 1 and AF phase (unit costs still to be verified)\. It can be seen that for both scenarios, investment in biogas digesters yields satisfactory returns to the farmer (above the opportunity cost of capital), even without estimating the economic value of the environmental benefits as described earlier\. Table 4\.13\. Cost-Benefit Analysis of Investment in One Biogas Digester - Phase 1 1 2 3 4–20 Investment costs VND, thousands 4,452 O&M costsa 11% of investment costs per year VND, thousands 500 500 500 Value of biogasb VND, thousands 1,806 1,806 1,806 Net incremental benefit VND, thousands −4,452 1,306 1,306 1,306 Useful life 20 years 10 years Internal rate of return 29\.1% 25\.6% NPV at 9% VND, millions 6\.64 3\.10 US$ 289 135 Source: Investment costs, O&M costs and value of biogas based on ICR EFA for the original project\. Note: a Lump sum per year: VND 500,000\. b\. Estimated value of fertilizer and replacement of fuel/electricity\. Table 4\.14\. Cost-Benefit Analysis of Investment in One Biogas Digester - AF Phase 1 2 3 4–20 Investment costs VND, thousands 15,000 O&M costs 5% of investment costs per year VND, thousands 750 750 750 14Certified emission reductions are an emissions unit issued by the Clean Development Mechanism Executive Board for emission reductions achieved by Clean Development Mechanism projects and verified by a Designated Operational Entity under the rules of the Kyoto Protocol, which may be traded in emissions trading schemes\. Page 68 of 77  The World Bank Vietnam Livestock Competitiveness and Food Safety (P090723) 1 2 3 4–20 Value of biogas VND, thousands 3,500 3,500 3,500 Net incremental benefit VND, thousands −15,000 2,750 2,750 2,750 Useful life 20 years 10 years Internal rate of return 17\.5% 11\.4% NPV at 9% VND, millions 8\.82 1\.36 US$ 383 59 Source: Investment costs from the PCU, O&M costs estimated, value of biogas estimated based on farm survey\. Note: a\. Estimated value of fertilizer and replacement of fuel/electricity\. D\. Assessment of Food Safety Benefits Overview 22\. The project contributed to improved food safety at three levels: (a) livestock producers, (b) slaughterhouses, and (c) meat markets\. The food safety benefits have been described in qualitative terms and the number of consumers benefiting from improved food safety has been estimated\. Furthermore, an attempt was made to estimate the economic impact of improved food safety resulting from the project\. Under Subcomponent B\.2: Support for DAH Enhancing Biosecurity and Disease Control, food safety monitoring has been implemented to ensure livestock products are monitored at all three levels: (a) farm-level inspections, (b) slaughter control, and (c) veterinary hygiene inspection at upgraded slaughterhouses and meat markets\. 23\. Farm level\. The results of food safety monitoring in project GAHP areas of seven provinces based on 204 pork samples of GAHP households showed that 100 percent of meat samples were negative, containing neither hormones nor any banned substances\. The same holds true for hormones and banned substances in animal feed (see relevant section in PCR)\. 24\. Slaughterhouses\. Food safety monitoring at slaughterhouses has shown a reduced and low microbial contamination on carcass samples and slaughter tools, which demonstrates the effectiveness of project interventions in terms of upgrading structures and creating awareness in slaughterhouse operators to comply with existing regulations\. However, the food safety monitoring also revealed areas for improvement of slaughter procedures in some slaughterhouses to improve meat quality and hygiene (see relevant section in PCR)\. Table 4\.15 provides an overview of project support to upgrading of slaughterhouses\. It is estimated that a total of 2\.6 million consumers benefit from project support to slaughterhouses in terms of access to safe meat (assuming an average meat consumption per capita of 40 kg per year)\. Table 4\.15\. Project Support to Upgrading of Slaughterhouses Slaughterhouses Handed Over and in Operation Medium/Large Small Scalea Total Scaleb Total no\. of slaughterhouses 298 68 366 Avg\. no\. of pigs slaughtered per slaughterhouse per yearc 2,500 12,000 4,265 Total no\. of pigs slaughtered by all slaughterhouses per yearc 745,000 816,000 1,561,000 Page 69 of 77  The World Bank Vietnam Livestock Competitiveness and Food Safety (P090723) Avg\. liveweight per pig slaughtered (kg) 95 95 95 Avg\. liveweight of pigs slaughtered per slaughterhouse per year 237\.5 1,140\.0 405\.2 (ton) Total liveweight of pigs slaughtered by all slaughterhouses per 70,775 77,520 148,295 year (ton) Avg\. share of carcass weight of liveweight (%) 72 72 72 Avg\. carcass weight of pigs slaughtered per slaughterhouse per year 171\.0 820\.8 291\.7 (ton) Total carcass weight of pigs slaughtered by all slaughterhouses per 50,958 55,814 106,772 year (ton) Note: a\. Up to 30 heads per day\. b\. >30 heads per day\. c\. Estimated\. 25\. Meat markets\. According to food safety monitoring at meat markets, around 90 percent of pork meat samples meet the requirements on micro-organism (E\. coli, Salmonella) criteria, while for chicken around 75 percent of samples meet requirements on E\. coli criteria and 92 percent meet Salmonella criteria\. At the same time, there are still some shortcomings and challenges, in particular regarding the use of appropriate equipment, with potential risks of microbial contamination of meat traded in the upgraded markets\. However, the project is addressing these issues in coordination with local authorities, meat market management boards, and sub-DAHs by providing recommendations, guidance, and supervision to enforce required operation procedures and improve food safety (see relevant section in PCR)\. Table 4\.16 provides an overview of project support to upgrading of meat markets\. It is estimated that at least 1\.8 million consumers benefit from project support to meat markets in terms of access to safe meat (assuming that most of the estimated 116,000 consumers of other meat marketed in the upgraded markets are consumers of pork meat)\. Table 4\.16\. Project Support to Upgrading of Meat Markets Total Pork Other Total no\. of upgraded meat markets 543 No\. of upgraded meat counters in operation 20,538 20,000 538 Avg\. quantity of meat sold per counter and per market day (kg)a 50 30 Avg\. no\. of market days operating per counter and per month 6 6 Avg\. no\. of months per counter operating per year 12 12 Avg\. quantity of meat sold per counter per year (kg) 3,600 2,160 Avg\. quantity of meat sold per market per year (ton) 132\.6 2\.1 Estimated total quantity of meat sold by all upgraded markets per year (ton) 72,000 1,162 Estimated meat consumption per capita per year (kg) 40 10 Estimated no\. of consumers benefiting from upgraded markets per year 1,800,000 116,208 Note: a\. Estimated\. Results 26\. On the basis of the above analysis, table 4\.17 presents the estimated number of consumers that benefit directly from improved food safety at the levels of livestock producers, slaughterhouses, and meat markets\. The calculations were based on the estimated volumes of meat produced, slaughtered, and marketed, as well as the number of eggs produced, assuming average annual per capita consumption\. The Page 70 of 77  The World Bank Vietnam Livestock Competitiveness and Food Safety (P090723) overall numbers of benefiting consumers include (a) 2\.9 million from GAHP pig production, (b) 590,000 from GAHP broiler production, (c) 1\.2 million from GAHP egg production, (d) 2\.7 million from safe pork meat from upgraded slaughterhouses, (e) 1\.8 million from safe pork meat from upgraded meat markets, and (f) 116,000 from other safe meat from upgraded meat markets\. 27\. An attempt was made to estimate the economic impact of improved food safety on the basis of the assumption that 1\.8 million consumers have access to safe meet from upgraded meat markets and that between 1 and 5 percent of consumers suffered from food poisoning at least once per year in the absence of the improved meat markets\. Furthermore, for an average case of food poisoning, it has been assumed that (a) cost of treatment is VND 414,000 and (b) three working days will be lost with an income loss per day of VND 100,000\. Table 4\.18 presents the results, showing estimated total annual benefits from avoided food poisoning of US$560,000, US$1\.12 million, and US$2\.79 million for the scenarios with 1, 2, and 5 percent of consumers avoiding food poisoning\. Table 4\.17\. Estimated Number of Consumers Benefiting from Improved Food Safety No\. of Unit Units A\. Support to livestock production Pig production Total production of project GAHP farmers (liveweight)a Ton 160,916 Estimated no\. of consumers benefiting from GAHP pig production b No\. 2,896,480 Poultry production Broilers Total production of project GAHP farmersc Ton 5,928 Estimated no\. of consumers benefiting from GAHP broiler production d No\. 592,788 Layers Total production of project GAHP farmersc Egg (million) 182\.8 Estimated no\. of consumers benefiting from GAHP egg production e No\. 1,218,360 B\. Support to upgrading of slaughterhouses Total liveweight of pigs slaughtered per yearf Ton 148,295 Estimated no\. of consumers benefiting from upgraded slaughterhouses b No\. 2,669,310 C\. Support to upgrading of meat markets Estimated total quantity of pork meat sold by all upgraded meat markets per year Ton 72,000 (ton)g Estimated no\. of pork meat consumers benefiting from upgraded meat markets h No\. 1,800,000 Estimated total quantity of other meat sold by all upgraded meat markets per year Ton 1,162 (ton)g Estimated no\. of other meat consumers benefiting from upgraded meat markets d No\. 116,208 Note: a\. Estimated based on tables 4\.8 and 4\.9\. b\. Assumption: Average share of carcass weight of liveweight: 72 percent\. Estimated average meat consumption per capita per year: 40 kg\. c\. Estimated based on tables 4\.11, 4\.13, and 4\.14\. d\. Assumption: Estimated average meat consumption per capita per year: 10 kg\. e\. Assumption: Estimated average egg consumption per capita per year: 150 eggs\. f\. Estimated based on table 4\.19\. g\. Estimated based on table 4\.20\. h\. Estimated average meat consumption per capita per year: 40 kg\. Page 71 of 77  The World Bank Vietnam Livestock Competitiveness and Food Safety (P090723) E\. Overall Project EA 28\. The overall project EA is based on the livestock production benefits and the economic benefits from investments in biogas digesters as presented earlier\. As explained, the potential economic benefits from project support to improved food safety at the levels of livestock producers, slaughterhouses, and meat markets have not been included in the project EA as there are no data that would support a credible analysis\. The impact of the project on GHG reductions was not done because the Government team was not able to estimate the increase or reduction in GHG emissions as a result of the project interventions\. Therefore, carbon pricing scenarios have not been included in the estimated ERR\. However, project interventions, such as biodigesters for example, are expected to have contributed to an overall positive impact on GHG emission by reducing relative emissions through more sustainable treatment of animal waste\. 29\. The period of analysis is 25 years as it had been also used at appraisal, with a second scenario for 20 years\. All project costs have been included in the EA (including IDA credit, Government and private sector contribution), using a Standard Conversion Factor of 0\.9 which had been used for the EFA at appraisal and ICR for the original project prepared in 2015 to convert project costs into economic costs that also exclude taxes\. O&M costs of slaughterhouse and market structures, as well as of biogas digesters supported by the project, have been calculated at 5 percent of investment costs per year and included for the entire period of analysis\. 30\. The ERR for the base case is 23\.4 percent for the 25-year scenario and 22\.5 percent for the 20- year scenario\. The calculated NPV at 9 percent discount rate is US$287\.2 million for the 25-year scenario and US$189\.6 million for the 20-year scenario (see table 4\.18)\. A sensitivity analysis has been conducted reflecting different scenarios of increased/reduced benefits\. As can be seen, the ERR remains acceptable at 9\.3 percent (above the social discount rate of 9 percent recently being used for World Bank-funded investment projects in Vietnam), even for a 40 percent reduction in benefits from both pig and poultry production\. Table 4\.18\. Summary of Overall Project EA and Sensitivity Analysis Change Pig benefits Base case +10% −10% −20% −30% −40% Poultry benefits Base case +10% −10% −20% −30% −40% Period of analysis: 25 years ERR 23\.4% 26\.5% 20\.4% 17\.4% 14\.4% 11\.4% NPV at 9% VND, millions 6,605,967 7,523,019 5,688,914 4,771,862 3,854,810 2,937,758 US$, million 287\.2 327\.1 247\.3 207\.5 167\.6 127\.7 Period of analysis: 20 years ERR 22\.5% 25\.8% 19\.3% 16\.1% 12\.8% 9\.3% NPV at 9% VND, millions 4,361,054 5,043,191 3,678,918 2,996,782 2,314,646 1,632,510 US$, million 189\.6 219\.3 160\.0 130\.3 100\.6 71\.0 31\. It can be concluded that the project contributed to significantly improving incomes of the supported pig and poultry farmers15 while improving the food safety for a large number of consumers\. 15 While income increases of slaughterhouse and meat market operators have not been estimated, the available data also Page 72 of 77  The World Bank Vietnam Livestock Competitiveness and Food Safety (P090723) The results clearly show that the project is likely to generate economic returns above what was estimated at appraisal, even without including the potential economic benefits from improved food safety in the analysis\. suggest significant increases in profitability of many operators resulting from the project\. Page 73 of 77  The World Bank Vietnam Livestock Competitiveness and Food Safety (P090723) ANNEX 5\. BORROWER, CO-FINANCIER AND OTHER PARTNER/STAKEHOLDER COMMENTS 1\. A stakeholder meeting with the LIFSAP team including participants from four provinces (Hanoi, Hai Phong, Thai Binh, and Hung Yen) which directly participated in the project was held on November 13, 2019\. At the meeting, the draft ICR was presented and discussed with the key project implementers and stakeholders from the provincial DARDs\. The stakeholders provided some comments and recommendations to improve the overall consistency of the ICR\. 2\. Overall, they indicated that the storyline is accurate, and the proposed ratings are consistent with the status of the project at completion\. The project implementation team and stakeholders did not have major specific objections to the draft ICR\. However, they suggested that the ICR should be reviewed in light of the following issues: • Clarification of the data\. The summary of results for the KPIs is consistent with the project M&E records\. However, on the number of beneficiaries, the implementation team suggested showing the number of both direct and indirect beneficiaries\. Due to the definition of direct beneficiaries (as in the original PAD), the number of people who benefited from the project seems so little relative to the investments and the time of implementation of the project\. However, in reality the number of beneficiaries should be big, given that the project interventions such as wet markets and slaughterhouses benefited entire communities directly and indirectly\. For instance, they indicated that the upgrading of wet markets and slaughterhouses, particularly those strategically located in main cities and towns (for example, Hanoi and Ho Chi Minh), benefited millions of people in terms of the supply of safe and high-quality meat products (pork and chicken)\. This means that the real number of beneficiaries could be several millions of people\. The meeting resolved that for the ICR, the reports should clearly highlight the number of direct beneficiaries (achieved by the end of project), estimated as per the definition of direct project beneficiaries agreed at design\. In the PCR, the implementation team will highlight both the direct and indirect beneficiaries and also demonstrate how these numbers are estimated\. • Estimation of ERR\. Given the issue of the number of beneficiaries, the implementation team considers the ERR and NPV to be rather underestimated\. However, the team considers the analysis, the data used, and most of the assumptions made to be consistent with their expectations\. • Vietnamese version of the ICR\. The team proposed that the ICR should be converted to Vietnamese so that it can be widely circulated to all the implementing teams at the provincial level\. The team suggested that, time permitting, they should consolidate any further comments from the implementers and stakeholders at the provincial level and submit the comments to the Task Team at the World Bank\. • Reconciliation of the ICR and Government’s PCR\. The Government implementation team expects that the key data used in the two reports (ICR and PCR) should be consistent with each other\. They suggested using the translated version of the ICR to ensure that any issues with inconsistent data are addressed before both documents can be made available in the public domain\. Page 74 of 77  The World Bank Vietnam Livestock Competitiveness and Food Safety (P090723) ANNEX 6\. PROJECT STORIES Improvement of Food Safety and Production Efficiency through Development of Value Chain Head office of Soc Son Hill Chicken Production and Consumption Association in Hanoi Store of Hoang Long Cooperative in Hanoi A-Z pork of Hoang Long Cooperative in Hanoi Source and photo credit: LIFSAP Mr\. Nguyen Van Dong – Chairman of Soc Son Hill Chicken production and consumption Association said, “Soc Son Hill Chicken chain is a great success – thanks to LIFSAP’s great contribution\. It is because of the fact that LIFSAP project has helped the Association build links, closed chain of production – slaughter – consumption to increase the value of Soc Son Hill Chicken products\.” Dong said, “Previously, the production of Soc Son hill chickens was at small scale, scattered, without any linkages, and lack of facilities for preliminary processing and slaughtering\. Therefore, chickens were only sold in the traditional way which sells live chicken to Traders who squeeze price\. They often fall into the scene of bumper crop – low price\. In December 2014, I and some members established Soc Son Hill Chicken production and consumption Association\. The livestock producers involved in the Association were trained and supervised the implementation of VietGAHP under the project\. In 2016, the LIFSAP project provided me financial support for construction of a slaughterhouse to create a closed chain\. At present, the Association has 30 members with production scale of 60-70 thousand chickens per year\. All chickens of the Association are slaughtered ensuring hygiene and signed selling contract with businesses Page 75 of 77  The World Bank Vietnam Livestock Competitiveness and Food Safety (P090723) for consumption\. Therefore, the selling price of chicken increased more than 10% and the average net profit of households reached from VND 29-34 million /household/year\.” Farm of Dong’s family Mr\. Nguyen Van Dong and members of Soc Son Hill Chicken Production and Consumption Association discuss plans for production and trading Soc Son Hill Chickens are slaughtered ensuring food Soc Son Hill Chickens are packaged ensuring food hygiene and safety hygiene and safety Source and photo credit: LIFSAP Page 76 of 77  The World Bank Vietnam Livestock Competitiveness and Food Safety (P090723) ANNEX 7\. SUPPORTING DOCUMENTS 1\. Project Appraisal Document for the original project, approved August 27, 2009 (Report No\. 50161- VN)\. 2\. Project Paper on the Proposed Additional Credit, approved June 9, 2015 (Report No\. 91212-VN)\. 3\. Selected Implementation Status and Results Reports, Aide Memoires, and Management Letters prepared by the World Bank Task Teams (filed in the operations portal)\. 4\. Government’s Project Completion Report for the original project, dated December 30, 2015\. 5\. Government’s Project Completion Report for the overall implementation period, including the Additional Financing, dated November 12, 2019\. Page 77 of 77

REVIEW

P087256

Document of The World Bank Report No: ICR0000501 IMPLEMENTATION COMPLETION AND RESULTS REPORT (IDA-37720 IDA-37721 IDA-H0400) ON A CREDIT IN THE AMOUNT OF US$ 272 MILLION EQUIVALENT TO THE UNITED REPUBLIC OF TANZANIA FOR A A FIRST SERIES OF POVERTY REDUCTION SUPPORT CREDITS (PRSC1-3) June 12, 2007 Poverty Reduction and Economic Management 2 Eastern Africa 1 Africa Region  CURRENCY EQUIVALENTS (Exchange Rate Effective April 20, 2007) Currency Unit = Tanzania Shilling (TSh) US$ 1\.00 = TSh 1,270\.50 FISCAL YEAR July 1 June 30 ABBREVIATIONS AND ACRONYMS AAP Annual Assessment and Action Plan PCR Primary Completion Rate (PCR) ALDB PEDP Primary Education Development ASDP Program CEM Country Economic Memorandum PEFAR Public Expenditure and Financial CFAA Accountability Review CPAR Country Procurement Assessment PER Public Expenditure Review Report PER-MTEF Public Expenditure Review and DHS Demographic and Health Survey Medium Term Expenditure DP Development Partners Framework GDP Gross Domestic Product PFMRP Public Financial Management GoT Government of Tanzania Reform Program HIV/AIDS Human Immune Deficiency PFMRP Public Financial Management Virus/Acquired Immune Deficiency Reform Program Syndrome PO-RALG President Office, Regional ICA Administration and Local IMF International Monetary Fund Government KfW Kreditanstalt fuer Wiederaufbau PRBS Poverty Reduction Budget Support (KfW Development Bank) PRS Poverty Reduction Strategy M&E Monitoring and Evaluation PRSC Poverty Reduction Support Credit MDA Ministry Department and Agency PSAC Programmatic Structural Adjustment MDG Credit MKUKUT Mpango wa Kukuza Uchumi na PSIA A Kupunguza Umaskini Tanzania SME Small and Medium Enterprises MMS Mkukuta Monitoring System TSMP Tanzania Statistical master Plan MTEF Medium Term Expenditure UPE Framework VPO Vice President Office? PAF Performance Assessment WBI World Bank Institute Framework Vice President: Obiageli Katryn Ezekwesili Country Director: Judy O'Connor Sector Manager: Kathie Krumm Task Team Leader: Robert Johann Utz ICR Team Leader Paolo Zacchia  Tanzania First Series of Poverty Reduction Support Credits (PRSC1-3) CONTENTS Data Sheet A\. Basic Information B\. Key Dates C\. Ratings Summary D\. Sector and Theme Codes E\. Bank Staff F\. Results Framework Analysis G\. Ratings of Program Performance in ISRs H\. Restructuring 1\. Program Context, Development Objectives and Design \. 1 2\. Key Factors Affecting Implementation and Outcomes \. 4 3\. Assessment of Outcomes\. 7 4\. Assessment of Risk to Development Outcome\. 13 5\. Assessment of Bank and Borrower Performance \. 15 6\. Lessons Learned\. 17 7\. Comments on Issues Raised by Borrower/Implementing Agencies/Partners\. 18 Annex 1 Bank Lending and Implementation Support/Supervision Processes\. 19 Annex 2\. Beneficiary Survey Results\. 22 Annex 3\. Stakeholder Workshop Report and Results\. 23 Annex 4\. Summary of Borrower's ICR and/or Comments on Draft ICR\. 24 Annex 5\. Comments of Cofinanciers and Other Partners/Stakeholders\. 25 Annex 6\. List of Supporting Documents \. 26 MAP  A\. Basic Information Program 1 Tanzania First Poverty Country Tanzania Program Name Reduction Support Credit IDA-37720,IDA- Program ID P074072 L/C/TF Number(s) 37721,IDA-H0400 ICR Date 04/23/2007 ICR Type Core ICR REPUBLIC OF Lending Instrument PRC Borrower TANZANIA Original Total XDR 96\.4M Disbursed Amount XDR 96\.5M Commitment Implementing Agencies Ministry of Finance Cofinanciers and Other External Partners Official Cofinanciers: KfW (Germany) PRBS partners: African Development Bank (AfDB) European Union (EU) Canada DENMARK FINLAND JAPAN Netherlands NORWAY SWEDEN SWITZERLAND IRELAND UK-funded DFID Program 2 Second Poverty Country Tanzania Program Name Reduction Support Credit Program ID P074073 L/C/TF Number(s) IDA-39650,IDA-H1180 ICR Date 04/23/2007 ICR Type Core ICR UNITED REPUBLIC Lending Instrument PRC Borrower OF TANZANIA Original Total XDR 102\.6M Disbursed Amount XDR 102\.6M Commitment  Implementing Agencies Ministry of Finance Cofinanciers and Other External Partners Official Cofinanciers: KfW (Germany) PRBS partners: African Development Bank (AfDB) European Union (EU) Canada DENMARK FINLAND JAPAN Netherlands NORWAY SWEDEN SWITZERLAND IRELAND UK-funded DFID Program 3 Tanzania Poverty Country Tanzania Program Name Reduction Support Credit 3 Program ID P087256 L/C/TF Number(s) IDA-41100 ICR Date 04/23/2007 ICR Type Core ICR THE REPUBLIC OF Lending Instrument DPL Borrower TANZANIA Original Total XDR 103\.8M Disbursed Amount XDR 103\.8M Commitment Implementing Agencies Ministry of Finance Cofinanciers and Other External Partners Official Cofinanciers: KfW (Germany) PRBS partners: African Development Bank (AfDB) European Union (EU) Canada DENMARK FINLAND JAPAN Netherlands NORWAY SWEDEN SWITZERLAND IRELAND UK-funded DFID  B\. Key Dates Tanzania First Poverty Reduction Support Credit - P074072 Process Date Process Original Date Revised / Actual Date(s) Concept Review: 05/08/2002 Effectiveness: 07/18/2003 07/18/2003 Appraisal: 02/26/2003 Restructuring(s): Approval: 05/29/2003 Mid-term Review: Closing: 06/30/2004 03/31/2006 Second Poverty Reduction Support Credit - P074073 Process Date Process Original Date Revised / Actual Date(s) Concept Review: 11/18/2003 Effectiveness: 09/15/2004 09/15/2004 Appraisal: 03/29/2004 Restructuring(s): Approval: 07/29/2004 Mid-term Review: Closing: 06/30/2005 06/30/2005 Tanzania Poverty Reduction Support Credit 3 - P087256 Process Date Process Original Date Revised / Actual Date(s) Concept Review: 02/01/2005 Effectiveness: 10/20/2005 10/20/2005 Appraisal: Restructuring(s): Approval: 09/08/2005 Mid-term Review: Closing: 06/30/2006 06/30/2006 C\. Ratings Summary C\.1 Performance Rating by ICR Tanzania First Poverty Reduction Support Credit - P074072 Outcomes Satisfactory Risk to Development Outcome Moderate Bank Performance Satisfactory Borrower Performance Satisfactory Second Poverty Reduction Support Credit - P074073 Outcomes Satisfactory Risk to Development Outcome Moderate Bank Performance Satisfactory Borrower Performance Satisfactory  Tanzania Poverty Reduction Support Credit 3 - P087256 Outcomes Moderately Satisfactory Risk to Development Outcome Moderate Bank Performance Moderately Satisfactory Borrower Performance Moderately Satisfactory C\.2 Detailed Ratings of Bank and Borrower Performance (by ICR) Tanzania First Poverty Reduction Support Credit - P074072 Bank Ratings Borrower Ratings Quality at Entry Satisfactory Government: Satisfactory Quality of Supervision: Satisfactory Implementing Agency/Agencies: Satisfactory Overall Bank Overall Borrower Performance Satisfactory Performance Satisfactory Second Poverty Reduction Support Credit - P074073 Bank Ratings Borrower Ratings Quality at Entry Satisfactory Government: Satisfactory Quality of Supervision: Satisfactory Implementing Agency/Agencies: Satisfactory Overall Bank Overall Borrower Performance Satisfactory Performance Satisfactory Tanzania Poverty Reduction Support Credit 3 - P087256 Bank Ratings Borrower Ratings Quality at Entry Satisfactory Government: Moderately unsatisfactory Quality of Supervision: Moderately Satisfactory Agency/Agencies: Implementing Satisfactory Overall Bank Moderately SatisfactoryPerformance Overall Borrower Performance Moderately Satisfactory  C\.3 Quality at Entry and Implementation Performance Indicators Tanzania First Poverty Reduction Support Credit - P074072 Implementation QAG Assessments Performance Indicators (if any) Rating: Potential Problem Program at any time No Quality at Entry None (Yes/No): (QEA) Problem Program at any Quality of time (Yes/No): No Supervision (QSA) None DO rating before Closing/Inactive status Satisfactory Second Poverty Reduction Support Credit - P074073 Implementation QAG Assessments Performance Indicators (if any) Rating: Potential Problem Program at any time No Quality at Entry None (Yes/No): (QEA) Problem Program at any Quality of time (Yes/No): No Supervision (QSA) None DO rating before Closing/Inactive status Satisfactory Tanzania Poverty Reduction Support Credit 3 - P087256 Implementation QAG Assessments Performance Indicators (if any) Rating: Potential Problem Program at any time No Quality at Entry None (Yes/No): (QEA) Problem Program at any Quality of time (Yes/No): No Supervision (QSA) None DO rating before Closing/Inactive status Satisfactory D\. Sector and Theme Codes Tanzania First Poverty Reduction Support Credit - P074072 Original Actual Sector Code (as % of total Bank financing) Central government administration 40 40 General agriculture, fishing and forestry sector 20 20 Micro- and SME finance 10 10 Sub-national government administration 20 20  Water supply 10 10 Theme Code (Primary/Secondary) Environmental policies and institutions Secondary Secondary Municipal finance Primary Primary Public expenditure, financial management and Primary Primary procurement Rural markets Primary Primary Tax policy and administration Secondary Secondary Second Poverty Reduction Support Credit - P074073 Original Actual Sector Code (as % of total Bank financing) Agricultural marketing and trade 20 20 Central government administration 20 20 General agriculture, fishing and forestry sector 20 20 General public administration sector 20 20 Other domestic and international trade 20 20 Theme Code (Primary/Secondary) Administrative and civil service reform Primary Primary Environmental policies and institutions Primary Primary Other financial and private sector development Primary Primary Public expenditure, financial management and Primary Primary procurement Rural policies and institutions Primary Primary Tanzania Poverty Reduction Support Credit 3 - P087256 Original Actual Sector Code (as % of total Bank financing) Central government administration 45 45 General agriculture, fishing and forestry sector 35 35 General industry and trade sector 15 15 Law and justice 5 5 Theme Code (Primary/Secondary) Export development and competitiveness Secondary Secondary Legal institutions for a market economy Primary Primary  Personal and property rights Secondary Secondary Public expenditure, financial management and Primary Primary procurement Regulation and competition policy Secondary Secondary E\. Bank Staff Tanzania First Poverty Reduction Support Credit - P074072 Positions At ICR At Approval Vice President: Obiageli Katryn Ezekwesili Callisto E\. Madavo Country Director: Judy M\. O'Connor Judy M\. O'Connor Sector Manager: Kathie L\. Krumm Frederick Kilby Task Team Leader: Robert Johann Utz Benno J\. Ndulu ICR Team Leader: Paolo B\. Zacchia ICR Primary Author: Paolo B\. Zacchia Second Poverty Reduction Support Credit - P074073 Positions At ICR At Approval Vice President: Obiageli Katryn Ezekwesili Callisto E\. Madavo Country Director: Judy M\. O'Connor Judy M\. O'Connor Sector Manager: Kathie L\. Krumm Kathie L\. Krumm Task Team Leader: Robert Johann Utz Robert Johann Utz ICR Team Leader: Paolo B\. Zacchia ICR Primary Author: Paolo B\. Zacchia Tanzania Poverty Reduction Support Credit 3 - P087256 Positions At ICR At Approval Vice President: Obiageli Katryn Ezekwesili Gobind T\. Nankani Country Director: Judy M\. O'Connor Judy M\. O'Connor Sector Manager: Kathie L\. Krumm Kathie L\. Krumm Task Team Leader: Robert Johann Utz Robert Johann Utz ICR Team Leader: Paolo B\. Zacchia ICR Primary Author: Paolo B\. Zacchia  F\. Results Framework Analysis Program Development Objectives (from Program Document) (i)Sustain and accelerate economic growth and broaden its impact: Reducing income poverty is one of the key focus areas of the MKUKUTA\. Private sector and rural development are the two areas where reforms are expected to have the biggest impact on reducing income poverty in Tanzania\. Reforms in the areas of agricultural and rural development are intended to improve producer incentives and raise agricultural profitability and thus enhance incomes in rural areas, where poverty is most widespread and most deeply entrenched\. Measures include improving export crop quality, reducing marketing cost and the tax burden on farmers and improving access to markets and finance\. With respect to private sector development, the focus will be on strengthening of the business environment, in particular for SMEs, and legal and administrative reforms to enhance the functioning of land, credit, and labor markets\. (ii) Support results orientation of public service delivery: The second area of impact is through monitoring and leveraging progress in the implementation of sectoral programs to reduce poverty, covering the priority sectors identified in the first Poverty Reduction Strategy (PRS), i\.e\., primary education, basic health, water, rural roads, agricultural research and extension, the judiciary, and HIV/AIDS\. The PRSC-3 policy dialogue focuses on the establishment of a robust monitoring and evaluation system that allows an assessment of the impact and results of sectoral programs\. The information derived from the monitoring and evaluation system will then feed into the assessment of progress towards the MKUKUTA objectives\. Finally, the resources provided through the PRSC-3 complement government and other donor resources in financing priority programs for poverty reduction\. The well developed participatory Public Expenditure Review and Medium Term Expenditure Framework (PER-MTEF) process provides a mechanism for the monitoring of the use of resources\. (iii) Enhance public sector performance: Measures in this area will have a direct impact on poverty reduction as they enhance public sector capacity to implement poverty reduction programs in the priority sectors and generate additional funds for poverty reduction by reducing leakages in the form of low allocative or operational efficiency of public expenditures\. Key areas of reform include strengthening of financial management through the implementation of the public financial management reform program, strengthening of the national audit office, implementation of pay reform coupled with improved performance management in the public sector, procurement reform, the implementation of anti-corruption strategies, and enhanced efficiency in the use of development assistance\. (iv) Strengthen environmental management: Finally, the PRSC-3 also supports government's efforts to enhance the environmental sustainability of Tanzania's development program\. The MKUKUTA identifies this as an important element of efforts to improve the quality of life and social well-being\.  Revised Program Development Objectives (as approved by original approving authority) Note on the results-framework The Development Objective indicators presented below apply to the whole medium-term program of three PRSC as laid out in the PRSC 1 program document\. The program PDO are recorded under the PRSC 1 box below, while the PRSC 2 and 3 boxes are left void\. Intermediary indicators were not laid out in PRSC 1, and a list was devised under PRSC2 and 3, but never really owned by government\. Therefore, only the intermediary indicators which are system generated are reported\. To assess the PRSC1-3 according to the new ICR standards, a results framework based on the current specifications had to be retro-fitted\. This has entailed certain choices as to the selection of specific PDO indicators, extrapolating from the relevant sections in the PRSC 1 document, as well as the adjustment to certain elements of the results framework that were not fully aligned with the current standards\. In particular, in order to measure the impact of the program, the ICR uses, for flow variables, three-year average of the indicator over the program period with a one year lag, while for stock variable, it uses values achieved after the end of the program period\. For the baseline values to be comparable, it uses for flow variables, three-year average for the period preceding the program\. This may contradict at times the baseline indicated in the PRSC documents, but given the volatility inherent in single year figures, and the need to consistently compare the baseline with the achieved target value, the use of three-year averages for flow variables is considered most consistent and sound\. The PDO retained for the series of programmatic PRSC1-3 have been structured to cover: (i) the overarching objective of the PRSC1-3, (ii) PDOs under the specific pillars of the PRSC1-3 program (with the exception of pillar 2 and 4, where it proved excessively complex to define a good PDO indicator)\. (a) PDO Indicator(s) Tanzania First Poverty Reduction Support Credit - P074072 Original Target Formally Actual Value Indicator Baseline Values (from Revised Achieved at Value approval Target Completion or documents) Values Target Years Indicator 1 : Broad based progress on PRS indicators assessed through PRSP progress reports Value (quantitative or Satisfactory Satisfactory Satisfactory Qualitative) Date achieved 10/01/2001 10/01/2005 10/01/2005 Comments (incl\. % Annual PRS progress reports have documented a satisfactory progress of PRS achievement) implementation from 2003-2005\.  Indicator 2 : Agriculture GDP growth rate Value (quantitative or 4\.6% 5% 5% Qualitative) Date achieved 01/01/2002 01/01/2005 01/01/2005 Comments (incl\. % baseline indicator is calculated as period average from 2000 to 2002; target achievement) and actual indicators are calculated as period average from 2003 to 2005 Indicator 3 : Industry GDP growth rate Value (quantitative or 7\.8% 8-10% 10\.3% Qualitative) Date achieved 01/01/2002 01/01/2005 01/01/2005 Comments (incl\. % baseline indicator is calculated as period average from 2000 to 2002; target achievement) and actual indicators are calculated as period average from 2003 to 2005 Indicator 4 : Percentage of population below income-poverty line1 Value (quantitative or 38% 19% 19-32% Qualitative) Date achieved 01/01/1991 2010 2010 Comments (incl\. % Date for the "target" is 2010, indicator value for "actual at target date" is achievement) projection for 2010 as of April 2007 Indicator 5 : Progress on efficiency of government systems (financial management, procurement, public sector) Value (quantitative or not applicable Good progress Good progress Qualitative) Date achieved 01/01/2002 10/01/2005 10/01/2005 Comments indicator based on assessments contained in the annual Public Expenditure (incl\. % Review , the CFAA, and the IMF's Public Expenditure Management Annual achievement) Assessment and Action Plan (AAP) 1 See Annex 7 for a technical discussion  Tanzania Second Poverty Reduction Support Credit - P074073 Original Target Formally Actual Value Indicator Baseline Values (from Revised Achieved at Value approval Target Completion or documents) Values Target Years Tanzania Third Poverty Reduction Support Credit - P087256 Original Target Formally Actual Value Indicator Baseline Values (from Revised Achieved at Value approval Target Completion or documents) Values Target Years (b) Intermediate Outcome Indicator(s) Tanzania First Poverty Reduction Support Credit - P074072 Original Target Formally Actual Value Indicator Baseline Value Values (from Achieved at approval Revised Completion or documents) Target Values Target Years This ISR covers only the IDA reflows attached to PRSC-1\. Indicator 1 : Outcome indicators discussed in PRSC-2 ISR Disburseme Value nt of IDA (quantitative or reflows of Disbursement of Qualitative) US$ 190,00 IDA reflows 0 Date achieved 06/30/2004 06/30/2004 Comments (incl\. % achievement) Tanzania Second Poverty Reduction Support Credit - P074073 Original Target Formally Actual Value Indicator Baseline Value Values (from Achieved at approval Revised Completion or documents) Target Values Target Years Tanzania Poverty Reduction Support Credit 3 - P087256 Original Target Formally Actual Value Indicator Baseline Value Values (from Achieved at approval Revised Completion or documents) Target Values Target Years  G\. Ratings of Program Performance in ISRs Tanzania First Poverty Reduction Support Credit - P074072 Actual No\. Date ISR Archived DO IP Disbursements (USD millions) 1 11/08/2004 Satisfactory Satisfactory 132\.56 2 06/29/2005 Satisfactory Satisfactory 132\.56 Tanzania Second Poverty Reduction Support Credit - P074073 Actual No\. Date ISR Archived DO IP Disbursements (USD millions) 1 09/28/2004 Satisfactory Satisfactory 150\.54 2 05/12/2005 Satisfactory Satisfactory 150\.54 Tanzania Third Poverty Reduction Support Credit - P087256 Actual No\. Date ISR Archived DO IP Disbursements (USD millions) 1 12/28/2005 Satisfactory Satisfactory 149\.59 2 10/04/2006 Satisfactory Satisfactory 149\.59 H\. Restructuring (if any)  1\. Program Context, Development Objectives and Design In view of the commitment of the Tanzania Country Team to the donor harmonization process in Tanzania, this evaluation builds as much as possible on the assessments and evaluations carried out jointly by the donors involved in the Poverty Reduction Budget Support group (PRBS), in particular the "Joint Evaluation of General Budget Support Tanzania 1995 ­ 2004" of November 2004, and the PRBS Annual Review Reports for FY 2003, 2004 and 2005\. It also incorporates the findings of the simplified ICRs for PRSC 1 and 2\. It introduces new elements to the assessment only in as much new information has become available since the joint reports were prepared\. 1\.1 Context at Appraisal (brief summary of country macroeconomic and structural/sector background, rationale for Bank assistance) Starting in the late 1980s, but implemented with vigor mainly since the mid-l990s, Tanzania carried out a broad structural and social reform agenda\. After the initial objectives of macrostabilization and removal of key distortions in the economy had been attained, reforms focused on improving economic governance, providing an enabling environment for private sector activities, and enhancing public service delivery for poverty reduction\. As a consequence of its strong performance, Tanzania gained access to irrevocable debt relief by reaching the completion point under the enhanced HIPC Initiative in December 2001\. Tanzania's macroeconomic performance improved during the second half of 90s, with GDP growth reaching on average almost 4 percent per annum, and picked up further to 5\.1 percent in 2000, 6\.2 percent in 2001, and 7\.2 percent in 2002\. It does not appear from the best available data that the incidence of income poverty fell significantly between the early 1990s and 2000/01\. The national poverty headcount declined from about 38 percent to 35 percent\. However, because the 1991/92 survey had a small sample size and the 2000/01 survey had some sampling issues, that difference is within the margin of error for the two surveys and, therefore, we cannot conclude that poverty declined\. It was only in Dar es Salaam that the measured change was statistically significant, reducing the proportion of those in poverty from 28 to 18 per cent\. The lack of real progress on poverty in the 90s was due mainly to 2 factors: the lackluster growth performance in the first half, and the concentration of growth in Dar es Salaam in the later 90s\. Poverty in Tanzania was therefore still at unacceptably high levels and the HIV/AIDS pandemic posed a major threat to the achievements made on all fronts\. The programmatic series of PRSC 1 to 3 were build on previous reforms undertaken by the United Republic of Tanzania with the aim of supporting the implementation of Tanzania's Poverty Reduction Strategy (PRS)\. The first PRSC covering FY03 would 1  deepen the reform agenda defined under the Programmatic Structural Adjustment Credit (PSAC) and lay the ground for attacking income poverty more aggressively through at least two further single-tranche PRSCs covering FY04 and FY05\. The switch from a PSAC to a PRSC also addresses several lessons learned during the implementation of the PSAC\. Key among these is the adoption of a single tranche, an ex-post conditionality framework, which avoids uncertainty in disbursement linked to within-year conditionality\. Tanzania launched the participatory PRS process in 1999 with the preparation of an interim PRS, followed by the approval of a full PRS in 2000 (PRS1), covering FY02 to 04, which was then extended through progress report in the following two fiscal year, until a new PRSP became effective in FY07\. The programmatic series of PRSC1-3 did overlap only for two year with the original time span of the PRS1 (one year in terms of disbursement, since they are ex-post instruments)\. This is most evident in the dating of the PRS1 target year for indicators which is 2003, i\.e\. the period covered by the second PRSC\. The PRSC1-3 were the first policy lending instruments fully integrated in a harmonized donor support mechanism, the Poverty Reduction Budget Support (PRBS), established in October 2001 by 9 DPs\. The principles of PRBS were a single assessment process and a unified performance assessment process, from which all DPs would draw their policy matrix and result framework\. The motivation for this effort derives from the clear desire of both GoT and the development partners to ensure that all operations adopt: a clear poverty focus guided by the homegrown PRS, coherence in policy dialogue at cross-cutting levels and in sector wide programs, enhanced efficiency in policy dialogue and performance assessment and enhance flexibility and predictability of resource flows\. The Performance Assessment Framework (PAF)/Policy matrix, including the set of prior actions and triggers for PRSC1-3 was developed in close cooperation with the government, the PRBS donors and the Bank\. 1\.2 Original Program Development Objectives (PDO) and Key Indicators (as approved) (i) Sustain and accelerate economic growth and broaden its impact: Reducing income poverty is one of the key focus areas of the MKUKUTA\. Private sector and rural development are the two areas where reforms are expected to have the biggest impact on reducing income poverty in Tanzania\. Reforms in the areas of agricultural and rural development are intended to improve producer incentives and raise agricultural profitability and thus enhance incomes in rural areas, where poverty is most widespread and most deeply entrenched\. Measures include improving export crop quality, reducing marketing cost and the tax burden on farmers and improving access to markets and finance\. With respect to private sector development, the focus will be on strengthening of the business environment, in particular for SMEs, and legal and administrative reforms to enhance the functioning of land, credit, and labor markets\. 2  (ii) Support results orientation of public service delivery: The second area of impact is through monitoring and leveraging progress in the implementation of sectoral programs to reduce poverty, covering the priority sectors identified in the first Poverty Reduction Strategy (PRS), i\.e\., primary education, basic health, water, rural roads, agricultural research and extension, the judiciary, and HIV/AIDS\. The PRSC-3 policy dialogue focuses on the establishment of a robust monitoring and evaluation system that allows an assessment of the impact and results of sectoral programs\. The information derived from the monitoring and evaluation system will then feed into the assessment of progress towards the MKUKUTA objectives\. Finally, the resources provided through the PRSC-3 complement government and other donor resources in financing priority programs for poverty reduction\. The well developed participatory Public Expenditure Review and Medium Term Expenditure Framework (PER-MTEF) process provides a mechanism for the monitoring of the use of resources\. (iii) Enhance public sector performance: Measures in this area will have a direct impact on poverty reduction as they enhance public sector capacity to implement poverty reduction programs in the priority sectors and generate additional funds for poverty reduction by reducing leakages in the form of low allocative or operational efficiency of public expenditures\. Key areas of reform include strengthening of financial management through the implementation of the public financial management reform program, strengthening of the national audit office, implementation of pay reform coupled with improved performance management in the public sector, procurement reform, the implementation of anti-corruption strategies, and enhanced efficiency in the use of development assistance\. (iv) Strengthen environmental management: Finally, the PRSC-3 also supports government's efforts to enhance the environmental sustainability of Tanzania's development program\. The MKUKUTA identifies this as an important element of efforts to improve the quality of life and social well-being\. 1\.3 Revised PDO (if any, as approved by original approving authority) and Key Indicators, and Reasons/Justification 1\.4 Original Policy Areas Supported by the Program (as approved): Rural Development Private sector Development Debt management Domestic revenue Budget formulation and management Public Service reform Financial Management Procurement Anti-corruption Aid management Environment Poverty Monitoring and Evaluation 3  1\.5 Revised Policy Areas (if applicable) 1\.6 Other significant changes (in design, scope and scale, implementation arrangements and schedule, and funding allocations) 2\. Key Factors Affecting Implementation and Outcomes 2\.1 Program Performance (supported by a table derived from a policy matrix) Overall program performance, as described in the PAF, has generally been sound, with broad-based progress on most fronts, as reported in the General Budget Support Annual Review reports for FY 03, 04 and 05, as well as in the ICRs for PRSC1 and 2\. Two main areas of the program have shown less than anticipated progress: anti-corruption, and crop board reform, the latter issue prompting a reduction in the amount of PRSC3 by US$ 25 million\. Those 2 issues were certainly difficult ones, since as of April 2007, crop board reform is still in the works, and a new anti-corruption law is still in discussion in parliament\. PRSC 1 List prior actions from Legal Agreement/ Program Document Status PRS 1\. Published a stakeholder-reviewed PRS progress report for 2001/02 and Completed the PHDR, including HBS and ILFS findings\. 2\. Presented the second annual PRS progress report for 2001/02, which Completed was satisfactory to IDA\. Debt Management 3\. Presented the amended Loans, Guarantees and Grants Act Number 30 Completed of 1974 for parliamentary approval to ensure a prudential debt contracting and management system for government and independent public institutions\. Financial Management 4\. Approval by the GOT of the revised PFMRP, which includes the key Completed agreed recommendations of the CFAA\. Rural Development 5\. Finalized the ASDP framework and process document and adopted it Completed for implementation\. Institutional Reforms 6\. Implemented pay enhancement for civil servants in line with the Completed approved budget for 2002/03\. PSD 7\. Approval of an implementation plan for the BEST program by the Completed integrated framework steering committee\. 4  PRSC 2 List prior actions from Legal Agreement/ Program Document Status 1\. Drafted amendments to the Land Act and presented them to parliament\. Completed 2\. Phase labor legislation (Employment Relations, Collective Labor Completed Relations, Dispute Resolutions, and Labor Market Institutions) presented to parliament\. 3\. Reviewed the business licensing system after consultation with Completed stakeholders, prepared a position paper on business licensing reforms, and submitted to Parliament amendments to the Business Licensing Act 1972, introducing reforms of the business licensing system\. 4\. Local government taxes and levies rationalized\. Completed 5\. Approved budget 200314 in line with PRS objectives, delineating Completed budget codes for priority sectors and items\. 6\. Budget execution for 2002103 and 2003104 (FQ1 and FQ2) in line Completed with the approved budget and with PRS priorities, consistently reported as per identified expenditure budget codes for priority sectors, and in 2003104 also by identified codes for priority items\. 7\. Pay enhancement in line with the approved budget for FY04\. Completed 8\. Joint PFMRP Steering Committee reviewed (i) the establishment of a Completed management structure and (ii) the detailed annual work plan and budget for the first phase of implementation of the PFMRP\. 9\. Prepared a draft bill amending the Public Procurement Act of 200 1 Completed reflecting the CPAR recommendations, and submitted a letter from the Attorney General confirming that said bill will be presented for parliamentary approval during the 2004 budget session\. 10\. Local Government Authority Tender Boards constituted and Completed established under the new Regulations\. 11\. Prepared annual borrowing and repayment plan (both concessional Completed and non-concessional loans), inclusive of borrowing limits, and presented it to Parliament as part of the annual budget\. 12\. Progress in strengthening and sustaining capacity of the VPO Completed secretariat to support and monitor implementation of the PRS according to an updated action plan to be approved by Government\. 13\. Progress in strengthening and sustaining capacity of PO-RALG for Completed collecting, collating, and analyzing administrative data according to an updated action plan to be approved by Government\. 5  PRSC 3 List prior actions from Legal Agreement/ Program Document Status Finalized and obtained Government approval of the strategic plan for Completed operationalization of the Land and Village Land Acts\. New business licensing framework under implementation in a phased Completed strategy\. Building on the results of the Crop Boards review, Government approval Partially of a strategy to reform two crop boards consistent with ASDS\. completed Approved budget 2004/05 in line with PRS objectives, delineating budget Completed codes for priority sectors and items\. Budget execution for 2003/04, and 2004/05 (FQ 1 and FQ 2), in line with Completed approved budget and with PRS priorities, consistently reported as per identified expenditure budget codes for priority sectors and items\. Pay enhancement consistent with the approved budget for 2004/05, and Completed the overall thrust of the pay reform strategy\. Progress in the implementation of the PFMRP\. Completed The Government establishes the Regulatory Authority for procurement Completed and decentralizes procurement to Procurement Authorities\. 2\.2 Major Factors Affecting Implementation: Government ownership of the program and its commitment to the joint PRBS process have been strong, and a key factor ensuring prompt implementation\. In situation where delays in the implementation of policy actions occurred, as under PRSC2, the Government, under leadership of the Ministry of Finance, took swift action to bring back the program on track\. Domestic political considerations rightly appear to have a dominant influence in the choice and implementation of reforms, and while the yearly selection of triggers, and the ex-post nature of financing allow for a more flexible matching of PRSC policy areas with the government policy choices, there is still considerable scope for divergence\. The capacity of government in policy and planning is limited, with key senior policy staff lacking strong institutional and technical backing, and being swamped by administrative tasks\. The ability to analyze policy options or convince the political level is therefore problematic with respect to complex reform agendas, and can sometime lead to hesitation in implementation, or to unsuccessful policy choice (e\.g\. in agriculture)\. In some cases, this may also have led to misread the real commitment of the Authorities to implement the reforms under PRSC\. 6  2\.3 Monitoring and Evaluation (M&E) Design, Implementation and Utilization: Underlying processes for monitoring the PRSCs were the yearly PER process, and the establishment of a poverty monitoring system that regularly reported on the implementation of the PRS through yearly Poverty and Human Development Reports\. The specific monitoring of the PRSC was harmonized within the Annual Review process which involved a mid-term review around March-April and an Annual Review in October, which included inputs from various parts of government, civil society and the PRBS donors\. The PRSC results framework was rudimentary by today's standards, and although it has evolved over the three operations, it still left much to be desired in tracking program implementation, especially with respect to the ultimate development objectives\. 2\.4 Expected Next Phase/Follow-up Operation (if any): The PRSC 1-3 are being followed up by another set of programmatic PRSC that support the implementation of a second PRS, labeled MUKUKUTA, that was approved in 2005\. PRSC4 was approved by the Board on April 10, 2006, and PRSC5 on April 24, 2007\. 3\. Assessment of Outcomes 3\.1 Relevance of Objectives, Design and Implementation (to current country and global priorities, and Bank assistance strategy) Rating: Highly satisfactory PRSC1: highly satisfactory; PRSC2: highly satisfactory; PRSC3: highly satisfactory PRSC1 to 3 were highly relevant to the country's objectives, and to the specific circumstances of aid coordination in the country\. Based on the analysis of poverty trends in the 90s, the PRSC medium-term framework rightly focused on strong rural growth as a way to attack poverty, while maintaining strong momentum in the modern economic sector, through an improved investment climate\. It also rightly complemented sectoral social programs by focusing on result-oriented monitoring, and on the improved performance of government systems, as another critical condition for productive use of budget support funding\. The focus on Environment, given the high reliance of Tanzania on natural resources and tourism, was also highly relevant\. The integration of PRSC with the harmonized process for budget support (PRBS) was also important in implementing the Bank's institutional commitment towards harmonization, reducing transaction costs for the government, and simplifying policy dialogue\. 7  3\.2 Achievement of Program Development Objectives (including brief discussion of causal linkages between policy actions supported by operations and outcomes) The review of the program development objectives covers: (i) the overarching objective of the PRSC1-3, (ii) the specific evaluation of PDOs under each of the four specific pillars of the PRSC1-3 program Overarching objective: Broad-based progress toward achieving the PRS objectives The PRSC1 program documents states that "Broad-based progress toward achieving the PRS objectives is the key results area against which the effectiveness of PRSC support should be judged"\. The lack of specificity with respect to baseline and target values of indicators, and of the timing of the objectives in the PRSC1-3 results-framework, however, makes it difficult to precisely assess the achievements of the program development objectives\. Whether progress or achievement is the key criteria of evaluation remains therefore ambiguous\. The annual PRSP progress reports and other assessments emanating from the Poverty Monitoring System all point to significant progresses that have been made with respect to the overall PRS objectives (a list of indicators covering PRS key indicators was included in Annex 7 of the PRSC1 program document)\. The large increase in donor assistance, and in budget support, accompanied by a significant increase in domestic revenues, has allowed a rapid expansion of public expenditure in key areas targeted by the PRS, and has supported broad progress in the underlying indicators towards the PRS objectives\. However, in several critical areas where progress has been realized, such as income poverty, universal primary education2, or infant and under-five mortality, the country appears unlikely to come close to achieving the PRS objectives by 2010, or even of the MDGs by 2015\. Sustain and accelerate economic growth and broaden its impact The objective of poverty reduction supported by the program was rightly predicated on an increase in GDP growth in agriculture\. That increase, over the implementation period, has been on target, but overall quite moderate\. The role of the policy impulse in increasing agriculture growth is doubtful\. The policy supported by PRSC1-3 was predicated upon a package of measures to "improve agricultural productivity and profitability, the key objectives of the Agricultural Sector Development Strategy"\. Agricultural growth appears, however, to have been driven mainly by an extension of cultivated areas rather than increases in land yields, which have been in most cases declining moderately, in many cases stable, and in a very few cases having impressive increases\. On the policy front, although important achievements in agricultural reforms 2 See Annex 7 for a technical discussion 8  were achieved under the PRSC1-3 supported program, such as the operationalization of the new land legislation, reform of microfinance legislation and regulations, removal of local government `nuisance' taxes, progress has been slow on some of the key reforms in the sector, in particular crop board reform which was a key trigger for PRSC, and was only partially completed under PRSC3 (and not yet fully achieved as of April 2007)\. The PRSC1-3 also targeted higher growth in the industrial sector\. Industrial growth has been strong, driven by the mining sector and by manufacturing\. The good dynamism of exports and private investment testify to the solidity of growth in the sector, and it stems partly from some progress in improving the business environment, which however still ranks quite low internationally, according to the latest Doing Business rankings\. Significant achievements in this area include the rationalization of the business licensing regime, including the abolition of licensing fees for small enterprises and the removal of annual licensing requirements\. Revised labor legislation is another important element of the reforms undertaken as part of Tanzania's efforts to improve the functioning of factor and product markets\. This has led to significant improvement from 2003 to 2005 in the Doing Business indicators for the cost and capital requirements for opening a business, although indicators on rigidity of labor or on contract enforcement have not shown any improvements\. It has also led to a positive reform momentum in this area, with Tanzania, still in low rankings but qualifying as one of the top reformers in 2005/06 Doing Business report\. The impact of industrial sector growth on overall poverty is however limited, given the low labor intensity of the mining sector, the still relatively small scale of the manufacturing sector, and its geographical concentration in the capital area\. More generally, overall growth of 6\.8 percent of GDP at market prices during the period from 2000 to 2005 has been strong\. However, increased government spending has been an important engine of economic growth on the demand side, contributing 3\.8 percentage points to the annual average of 6\.8 percent overall GDP growth\. The net demand impact of government spending has been mostly spurred by a large increase in development aid\. It is therefore likely that part of the increase in GDP growth has been driven by the demand effect of donor financial support, rather than by supply side response to policy reforms\. Lack of up-to-date poverty data prevents a precise assessment of poverty trends over the period in consideration\. The 2007 Household Budget Survey will allow to have a clearer picture of poverty by mid 2008\. Assessment of poverty trends therefore has to be based on projections\. Notwithstanding robust GDP growth from 2001 to 2005, growth in per-capita private consumption may have been quite moderate, due to still large population growth and to the large increase in the share of investment and public consumption in GDP (data on private consumption in the National Accounts are uncertain because of a significant statistical discrepancy)\. Therefore, the estimated poverty evolution over the PRSC1-3 implementation period, and consequently the projection over the 2010 or 2015 horizon, 9  vary greatly depending on the measure of income used, whether per capita GDP or per capita private consumption\. Given that income poverty is measured on the basis of household consumption, using per-capita private consumption is the standard accepted method\. Poverty projections for Tanzania using the higher measure, i\.e\. GDP per capita, and assuming no significant worsening of income distribution, entail that the projected per capita GDP growth of rate of 4 percent would result in a decline in poverty to 19 percent by 2010 and to 11 percent by 2015, which would be consistent with achieving Tanzania's poverty reduction targets\. The projection using the more conservative per- capita private consumption, even with no degradation in income distribution, indicates, however, that it is highly unlikely that the PRS objective of halving income poverty by 2010 will be reached, and neither the MDG date of 2015 seems attainable\. In the event of worsening distribution, the poverty objectives would be even more difficult to achieve\. The PRSC 1 program document diplomatically stressed the somewhat unrealistic nature of that objective\. On balance, although poverty appears to be on the retreat, it is unlikely that Tanzania is on a path of sustained poverty reduction close to the levels envisaged by the PRS, particularly in rural areas where most of the poor are concentrated\. Support results orientation of public service delivery A regular system of reporting on both the PRS and sectoral outcomes has been introduced under the Mkukuta Monitoring Master Plan, and with partial exceptions, Tanzania can now count itself quite well served in terms of the reporting of comparable data on impacts, while the analysis of those data by the Research and Analysis Working Group may be considered one of the successes of the Mkukuta Monitoring System\. There remains a serious lack of data on the outputs and outcomes of government services\. The picture may differ between sectors and sub-sectors (e\.g\. education and health are positive exceptions) but observations made by informed Tanzanian practitioners and researchers within and outside of government suggest that administrative data systems remain weak\. More significantly, the analysis of the quality of underlying processes is consistent with the judgments on the raw numbers\. For the purposes of policy making and monitoring, this is a worrying gap\. It is partly being addressed through ongoing work on strengthening the Mkukuta Monitoring System (MMS) and the Tanzania Statistical Master Plan (TSMP)\. Overall the ability to monitor and understand poverty trends in Tanzania is still weak, due to low frequency, and limited scope of poverty surveys\. At this time, the available poverty surveys are the two Household Budget Surveys of 1991 and 2000\. The latest HBS was fielded in 2007\. The use of household budget surveys rather than more detailed Household Living Standards Measurement Surveys is a limiting factor\. On the positive hand a number of sectoral surveys, such as the 2001 and 2006 Labor Force Surveys, the 2002 Agricultural Sample Census, the 2003 HIV Indicator Survey, the 2004 Demographic and Health Survey, bring useful, if not fully comparable, data for M&E\. Enhance public sector performance 10  The objective under this pillar was to enhance public sector capacity to implement poverty reduction programs in the priority sectors and generate additional funds for poverty reduction by reducing leakages in the form of low allocative or operational efficiency of public expenditures\. As mentioned earlier, the large increase in access to social services financed through increased revenue and foreign aid indicates that government systems have been able to translate higher resources into higher levels of service delivery, in particular in the social sectors\. Citizen satisfaction as measured through Service Delivery Survey has increased significantly, although around 25 percent of all clients were still dissatisfied with central government services and 50-75 percent with local government services\. The Pubic Expenditure Review Process, the CFAA, and the IMF's Public Expenditure Management Annual Assessment and Action Plan (AAP) all document how government financial management systems have improved over time\. The picture is undoubtedly positive, and the capacity of government institutions to manage public resources has undoubtedly increased\. There have been significant improvements in technical capacity in areas such as macroeconomic planning, sector strategic planning and performance budgeting, resulting from initiatives such as the PRSP, and the MTEF\. The PER process has facilitated improvements in the analysis of budget performance, and has improved the quality of the overall budget process\. However, it is unclear whether the improvements realized in budgeting are actually having the impact they should have in terms of better spending decisions across sectors and within sectors\. The totality of these reforms does not amount, necessarily to a change in incentives for spending agencies\. The Country Procurement Assessment Report (CPAR) of 2003 highlighted significant problems in the procurement systems\. Improvements in this area since then have been significant\. A new procurement Act was approved in 2004, and has separated the regulatory function from the executive function, establishing a regulatory body, the Public Procurement Regulatory Authority, that started functioning in 2006\. The Procurement function was decentralized to MDAs, and, at the local government, councilors have been excluded from the bidding process\. Although weaknesses remain, the overall framework has improved considerably\. On public sector management, the government started implementing its pay reform strategy in the public service\. The policy dialogue helped to elevate the dialogue on the issue of compensation beyond the technical level and to keep the momentum on pay increases\. Although during that period progress in reaching the targets was below expectation, the focus remained on attracting and retaining key skills, namely professional, managerial and technical staff\. Because of the dialogue under the three PRSCs, compensation has received high priority on both the political and technical agenda of government\. Listening non-state actors on the performance of the public service has also become a more regular feature of the dialogue\. 11  This progress has translated into a slightly improved perception of overall governance, as it is captured by the WBI's Worldwide Governance Indicators\. However, most of these indicators show no significant progress between 2003 and 2005 in Tanzania, in particular with respect to Government effectiveness and control of corruption\. On government effectiveness there has been slow but steady progress until 2004\. On the control of corruption, there had been significant improvement in indicator for the period up to 2003, but is difficult to attribute the improvement in 2003 to the PRSC 1, since no prior action for that operation (approved April 2003) dealt directly with the issues, nor was there much substantive achievements on control of corruption in the broader policy framework for that operation (PAF) in FY03\. The extent of effective prioritization of public expenditures towards the PRS goals is also relative\. Analysis has shown that while allocation towards PRS priorities in the budget has increased in absolute terms, in terms of relative share this has not been consistently the case over the period\. In particular, there has been a relative expansion in the administration sector budget on the recurrent side, whilst the share of the budget going to local authorities has remained the same\. In some sectors, most notably education, there has been a large increase in administrative overheads\. There are significant deviations between approved budget allocations and actual expenditures across and within spending agencies, indicating that the priorities articulated in the budget are not always followed through in terms of expenditures\. There also remains substantial scope for increasing the efficiency of public expenditure\. While a major expansion in the levels of service delivery was achieved, it remains unclear whether efficiency has improved, as there have been limited changes in the patterns of expenditure in the sectors\. The impression is "more of the same", and that some key constraints to service delivery have not been addressed, both in terms of quantity and quality\. Strengthen environmental management Strengthen environmental management was the fourth pillar of PRSC1-3, although on the ground impact is difficult to measure because of the lack of definition of impact indicators and baselines\. In terms of intermediate achievements, one should record the passing of the new National Environmental Management Act, 2004, and the establishment o f an appropriate institutional framework, which provides the basis for improved environmental management in the future\. There has been increased awareness of the linkages within the relevant institutions and initiation of policy dialogue between the Vice President's Office and relevant sectoral ministries having the mandate for natural resources management\. While capacity building for environmental management and sustainable natural resources management remain challenges, several development partners and the Bank are providing support to the key government institutions to address these priorities\. There are ongoing discussions regarding the potential for a Sector Wide Approach for environmental management with an annual environmental review process in support o f implementing the National Environmental Management Act\. 12  Overall assessment of achievement of Program Development Objectives On balance, there has been significant progress in the implementation of the PRS, through the financing of scale-up access to social services within improving government management systems, although progress on the policy and efficiency front have not been sufficient to clearly put the country on track to reach its most ambitious PRS objectives\. The programmatic series of PRSC 1-3 is assessed as moderately satisfactory with respect to the achievement of Program Development Objectives Ratings: moderately satisfactory PRSC1: satisfactory; PRSC2: satisfactory; PRSC3: moderately satisfactory 3\.3 Justification of Overall Outcome Rating (combining relevance, achievement of PDOs) Ratings: satisfactory PRSC1: satisfactory; PRSC2: satisfactory; PRSC3: satisfactory The high relevance of the operation, coupled with the moderately satisfactory achievement of program development objective support an overall satisfactory rating of the PRSC 1-3 program\. 3\.4 Overarching Themes, Other Outcomes and Impacts (if any, where not previously covered or to amplify discussion above) (a) Poverty Impacts, Gender Aspects, and Social Development (b) Institutional Change/Strengthening (particularly with reference to impacts on longer-term capacity and institutional development) There has been significant strengthening of government systems in macroeconomic planning, budgeting, financial management and procurement\. (c) Other Unintended Outcomes and Impacts (positive or negative) 3\.5 Summary of Findings of Beneficiary Survey and/or Stakeholder Workshops (optional for Core ICR, required for ILI, details in annexes) 4\. Assessment of Risk to Development Outcome Ratings: Moderate PRSC1: Moderate; PRSC2: Moderate; PRSC3: Moderate The increase in economic growth has been significantly influenced by increased levels of foreign aid through higher government consumption and investment between 2000-2005\. 13  Maintaining GDP growth rates in the order of 7% per year, in the absence of ever increasing foreign aid, could be problematic and consequently the poverty-reduction outlook is uncertain\. In the area of rural development and agriculture, which is key to rapid reduction of poverty, the lack of a dependable and clear policy stance, and the weak record on land productivity, all point out to risks to the sustainability of the positive achievements in terms of growth in the sector\. Relatively modest progress in the efficiency of public expenditures and in the quality of key public services, notwithstanding a big growth in the scale of services and, in access of the poor (in particular to primary education) mean that the impact of recent improvement on the well-being, and productivity of the poor might not materialize on a large scale\. BOX 1\. THE JOINT EVALUATION OF GENERAL BUDGET SUPPORT- TANZANIA 1995 - 2004 SUMMARY AND COMMENTS Methodology The evaluation utilised the GBS Evaluation Framework recently approved by the OECD-DAC Evaluation Network\. The Evaluation Framework distinguishes five levels: Level One: Inputs by GBS Donors\. Level Two: Immediate effects (on the relationship between aid, the national budget and national policy processes)\. Level Three: Outputs (consequent changes in the financing and institutional framework for public spending and public policy)\. Level Four: Outcomes (interactions between the public sector and the wider economy and society, specifically with regard to the proximate determinants of poverty reduction)\. Level Five: Impacts (in terms of the empowerment of the poor and the improvement of their real incomes)\. This ICR draws on the conclusions mainly under levels 3 to 5\. Synthesis of Conclusions Notwithstanding the increased rates of GDP growth achieved in recent years in Tanzania, the country is not yet succeeding in reducing poverty\. This is because the structure of growth is skewed towards urban rather than rural areas, towards mining and services rather than agriculture and towards the richer rather than the poorer\. Without significant policy and institutional changes, this situation is likely to continue\. There is evidence of the sorts of changes required beginning to be put into place\. In particular, there have been important changes to improve the business environment and to improve the administration of justice\. Macroeconomic fundamentals are in place and improvements are being made within the financial sector\. GBS has supported these improvements ­ by providing discretionary resources to facilitate macroeconomic management, by helping to strengthen the core agencies addressing these issues and by providing a framework for promoting dialogue on these questions and for exerting pressure for progress\. On the other hand, the GBS contribution should not be overstated: fundamentally, progress has been driven by the internal political commitment to achieving change in these areas\. There are other outcome areas, where GBS is not successfully facilitating such changes\. On the policy side, the constraints on agriculture sector growth remain to be properly addressed\. On the service delivery side, while access has improved, the poor still predominantly fail to use government services and in large part this is due to shortfalls in efficiency and in quality\. Poor service delivery outcomes can in turn be traced back to weaknesses at the output level: the efficiency of public expenditure remains low, intra-government incentives ­ in particular, the incentives for improved results, remain weak and the democratic pressure that might drive improvements is substantially absent\. Is it reasonable to assume that GBS ­ perhaps in increased volumes ­ might successfully facilitate change in these areas in the future ? Clearly not, or at least not without parallel changes to strengthen policy making, budget formulation and scrutiny, and to improve internal incentives\. Such internal changes would be facilitated considerably by a continued 14  reduction in the number of aid projects and programmes within the public sector\. The Bank PRSC team had a number of comments and reservation on the report which are succinctly reported below\. It was thought that the quality of the assessment to be uneven across the five levels of assessment, with the analysis of levels four and five much weaker than that of the first three levels\. The report was also deemed to have used a generic evaluation framework for GBS, but without discussion of how the framework relates to the specific objectives of the PRBS\. It was also observed that there is no discussion of the PRBS objectives in the report and at various places one gets the sense that the PRBS is assessed against objectives that were never part of the PRBS design\. 5\. Assessment of Bank and Borrower Performance (relating to design, implementation and outcome issues) 5\.1 Bank Performance (a) Bank Performance in Ensuring Quality at Entry (i\.e\., performance through lending phase) Ratings: satisfactory PRSC1: satisfactory; PRSC2: satisfactory; PRSC3: satisfactory PRSC1-3 were prepared by the country team with significant contributions from country office staff which played a crucial role in both substance (by providing local knowledge) and contribution (coordination with Government, donors and HQ)\. Under the direction of a proactive Country Director (based in the country office), the team has continued to strive to support Tanzania in the implementation of its poverty reduction strategy\. The Bank team had to face some of the trade-offs implied by the harmonization framework\. The 2004 ICA for instance made clear the critical constraint represented by the energy sector, but it proved difficult to convince the other partners to introduce this policy area in the policy matrix\. The Bank showed both flexibility and resolve in dealing with delay or shortfall in program implementation\. With both PRSC2 and PRSC3, the Bank delayed appraisal to allow government to fully implement its program under the credit, and for PRSC3 the Bank decided to cut the credit amount as a result of lack of satisfactory implementation in one of the key program areas\. (b) Quality of Supervision (including M&E arrangements) Ratings: satisfactory PRSC1: satisfactory; PRSC2: satisfactory; PRSC3: moderately satisfactory Supervision of these operations was carried out with a high level of government involvement and leadership and harmonization with a group of 12 donors, using a 15  common performance assessment framework and a joint review process\. In this context, the Bank's multisectoral team sustained a high-level and intense dialogue with the government and other development partners\. The detailed PAF underpinning the first three PRSCs has, however, led to a greater focus on whether actions contained in the PAF have been completed or not, with relatively less dialogue on results and limited flexibility to acknowledge changing priorities or strategies\. There may have however been insufficient focus on the implementation through public expenditures of the policy supported by PRSC1-3\. The PER process which initially supported a strong substantive dialogue between the Government, the Bank and other Development Partners has become more process-oriented, and gradually weakening into more of a routine activity\. Regarding the partial completion of the crop board reform benchmark, which lead to a reduction of USD 25 million of the PRSC 3 amount, the Bank built a solid dialogue by carrying out a PSIA that was widely discussed and led to a good understanding with government on specific reform needs, while underscoring continued differences in a few areas\. Although the government demonstrated its commitment by starting to implement key PSIA recommendations, a downward adjustment of the loan amount came in response to partial achievement of the policy benchmark\. This was a measured response to the partial policy achievement, with the size of the reduction reflecting the relevance of the reforms in the overall program\. The Bank may have underestimated the political economy complications of such reform and consequently, the time required to develop constituencies for change\. (c) Justification of Rating for Overall Bank Performance Ratings: satisfactory PRSC1: satisfactory; PRSC2: satisfactory; PRSC3: moderately satisfactory Solid institutional arrangements for preparation and supervision of the PRSC operations with key leadership from the Government, and a high level of harmonization with other Development Partners providing budget support have resulted in overall good performance by the Bank\. 5\.2 Borrower Performance (a) Government Performance Ratings: Satisfactory PRSC1: satisfactory; PRSC2: satisfactory; PRSC3: moderately unsatisfactory The Government of the United Republic of Tanzania played an active role in the preparation of the Credits, under the direction of the Permanent Secretary of the Ministry of Finance, and the sense of program ownership was strong among the government officials\. Reflecting this strong ownership, government implementation of the program 16  was effective and satisfactory\. The Government of Tanzania was proactive in meeting the requirements called for by the Credit, although delay in program implementation occurred under PRSC 2 led to a postponement of appraisal and negotiations to allow for more time to complete the prior-actions\. Under PRSC 3, timing was extended to allow for completion of the prior actions, but eventually resulted in the prior action on crop boards not being met\. The GoT was committed to address the issues of the enabling environment in agriculture and engaged positively with the Bank on the PSIA and follow up dialogue\. It, however, committed to a course of action on which it was unable to deliver\. In subsequent years, it actively engaged in an approach that gave more attention to the stakeholder process, and covered all crop boards at the same time, rather than the previous, more selective approach\. This demonstrates both the government's persistence and reflects the complexity of the issues and the ability of the government to learn from, and build on, partially successful approaches\. (b) Implementing Agency or Agencies Performance Ratings: Satisfactory PRSC1: satisfactory; PRSC2: satisfactory; PRSC3: satisfactory The Ministry of Finance under the direction of the Senior Permanent Secretary coordinated PRBS donors, including the Bank, and monitored the policy program underpinning the PRSC1-3\. MoF took the lead in trying to remedy slow implementation by line ministries\. The MoF was generally effective in doing so, although there is a sense that in some instances, intervention could have occurred earlier in the process and that a more continuous monitoring of the program in difficult areas might have been warranted\. (c) Justification of Rating for Overall Borrower Performance Ratings: Satisfactory PRSC1: satisfactory; PRSC2: satisfactory; PRSC3: moderately satisfactory The strong program ownership by the government at large, and the effective leadership of the ministry of Finance as the implementing agency, notwithstanding occasional slippages, supports an overall satisfactory rating of borrower performance\. 6\. Lessons Learned (both operation-specific and of wide general application) Government ownership of the reform agenda is the single most important factor determining the success of reforms\. The performance assessment framework has proven useful for the monitoring of reforms, but linking disbursement decisions to specific actions has been a two edged sword\. While in some cases this has helped to accelerate the pace of reaching a specific milestone, in other instances, the processes of dialogue and conditionality have become closely interwoven, crowding out the space for a dispassionate, objective and non-committal sharing of views\. 17  The focus on a large number of actions contained in the PAF may also have reduced the strategic focus of the budget support\. There appears to be a tension between broad-based progress, which is necessary to ensure improvements of government institutions and systems, and more focused policy dialogue to align PRSC with the critical bottlenecks to growth and poverty reduction\. More focus on public expenditure efficiency and effectiveness, and implementation of policy through the budget may be required\. This may require a significant revamping of the PER process, to bring it back to supporting effective and timely dialogue on key budget priorities between the government and the DPs\. On agricultural policy, or other complex issues which are critical to the achievement of the poverty-reduction objective, the Bank might also need to provide a higher degree of resources and attention\. Sustainable achievements on economic growth will also depend on more incisive structural improvements on the supply-side to boost competitiveness and private consumption\. Greater focus by the Bank on these, and some other key issues, is potentially easier in the current harmonization framework, where the follow-up on the broader agenda through the PAF is ensured\. The issue of focus was raised repeatedly in ROC meetings\. The policy dialogue related to the PAF has not been accompanied by a significant extension of the scope of domestic accountability, and it has remained a dialogue between government and a group of donors, with little direct input from other stakeholders\. This underlines the importance of linking PRSC support more strongly to domestic processes as a means to support government accountability to local stakeholders\. Following PRSC3, the wider PRBS group undertook an extensive redesign of budget support, in part drawing on experience with the earlier operations\. There were three main elements of the redesign\. First was to ensure a better match between the coverage of the PAF and the MKUKUTA ­ this element led to the widening of sector coverage in the PAF, removing some of the difficulties the Bank encountered in the earlier PRSC's over inclusion of key sectors such as energy\. Second was a simplification of the PAF, including a drastic reduction in the total number of elements in the PAF from in excess of one hundred to not more than thirty\. Thirdly, the review process was redesigned to draw as much as possible on national processes, open to domestic stakeholders, such as sector reviews and the annual PER process\. Following PRSC operations also improved on the quality and specificity of the results framework to allow a better tracking of the program effectiveness\. 7\. Comments on Issues Raised by Borrower/Implementing Agencies/Partners (a) Borrower/Implementing agencies (b) Cofinanciers Comments received from cofinanciers in annex 5\. (c) Other partners and stakeholders (e\.g\. NGOs/private sector/civil society) 18  Annex 1 Bank Lending and Implementation Support/Supervision Processes (a) Task Team members P074073 ­ Tanzania Second Poverty Reduction Support Credit Names Title Unit Responsibility/ Specialty Lending Supervision Denis Maro Biseko Public Sector Specialist AFTPR Serigne Omar Fye Sr Environmental Spec\. AFTS1 Indumathie V\. Hewawasam Sr Environmental Spec\. AFTS2 Manush A\. Hristov Counsel LEGAF Rogati Anael Kayani Consultant SDNCA Marius Koen Sr Financial Management Specia OPCFM Allister J\. Moon Lead Economist AFTP2 Denyse E\. Morin Sr Public Sector Spec\. AFTPR Philip Isdor N\. Mpango Senior Economist AFTP2 Emmanuel A\. Mungunasi Research Analyst AFTP2 Mary-Anne D\. Mwakangale Program Assistant AFCE1 Vedasto Rwechungura Program Officer AFTPS Mercy Mataro Sabai Sr Financial Management Specia AFTFM Arlette Sourou Program Assistant AFTP2 Pascal Tegwa Sr Procurement Spec\. AFTPC Robert Townsend Senior Economist SASAR Michael D\. Wong Sr Private Sector Development AFTPS P087256 - Tanzania Third Poverty Reduction Support Credit Names Title Unit Responsibility/ Specialty Lending Serigne Omar Fye Sr Environmental Spec\. AFTS1 Indumathie V\. Hewawasam Sr Environmental Spec\. AFTS2 Manush A\. Hristov Counsel LEGAF Rogati Anael Kayani Consultant SDNCA Marius Koen Sr Financial Management Specia OPCFM Allister J\. Moon Lead Economist AFTP2 Philip Isdor N\. Mpango Senior Economist AFTP2 Emmanuel A\. Mungunasi Research Analyst AFTP2 Mary-Anne D\. Mwakangale Program Assistant AFCE1 Vedasto Rwechungura Program Officer AFTPS Alema E\. Siddiky Consultant AFCF2 Arlette Sourou Program Assistant AFTP2 Robert Townsend Senior Economist SASAR Michael D\. Wong Sr Private Sector Development AFTPS Supervision Denis Maro Biseko Public Sector Specialist AFTPR Serigne Omar Fye Sr Environmental Spec\. AFTS1 Indumathie V\. Hewawasam Sr Environmental Spec\. AFTS2 19  Johannes G\. Hoogeveen Senior Economist AFTP2 Manush A\. Hristov Counsel LEGAF Allister J\. Moon Lead Economist AFTP2 Denyse E\. Morin Sr Public Sector Spec\. AFTPR Philip Isdor N\. Mpango Senior Economist AFTP2 Emmanuel A\. Mungunasi Research Analyst AFTP2 Mary-Anne D\. Mwakangale Program Assistant AFCE1 Vedasto Rwechungura Program Officer AFTPS Dieter E\. Schelling Lead Transport Specialist AFTTR Arlette Sourou Program Assistant AFTP2 Pascal Tegwa Sr Procurement Spec\. AFTPC Robert Townsend Senior Economist SASAR Michael D\. Wong Sr Private Sector Development AFTPS (b) Staff Time and Cost Supervision was carried out concurrently with Preparation of next operation in sequence\. P074072 - Tanzania First Poverty Reduction Support Credit Staff Time and Cost (Bank Budget Only) Stage No\. of staff weeks USD Thousands (including travel and consultant costs) Lending FY02 29 145\.57 FY03 85 345\.41 FY04 2 1\.55 Total: 116 492\.53 Supervision FY02 0\.00 FY03 0\.00 FY04 4 17\.63 Total: 4 17\.63 P074073 ­ Tanzania Second Poverty Reduction Support Credit Staff Time and Cost (Bank Budget Only) Stage No\. of staff weeks USD Thousands (including travel and consultant costs) Lending FY03 11\.13 FY04 377\.96 FY05 43\.71 Total: 432\.80 Supervision Total: 0\.00 20  P087256 - Tanzania Third Poverty Reduction Support Credit Staff Time and Cost (Bank Budget Only) Stage No\. of staff weeks USD Thousands (including travel and consultant costs) Lending FY04 0\.80 FY05 90 440\.26 FY06 14 48\.83 Total: 104 489\.89 Supervision Total: 0\.00 21  Annex 2\. Beneficiary Survey Results (if any) 22  Annex 3\. Stakeholder Workshop Report and Results (if any) 23  Annex 4\. Summary of Borrower's ICR and/or Comments on Draft ICR No comments were received from the borrower 24  Annex 5\. Comments of Cofinanciers and Other Partners/Stakeholders Comments from KfW: General 1\. The design of the PRSC accurately reflects Tanzania's development needs\. Fully in line with Paris Agenda, it is fully integrated in the multi-donor Poverty Reduction Budget Support structure\. This safeguards a harmonised conduct by Development Partners and a reduction of transactions costs\. It also ensures valuable input by the World Bank to support the Government of Tanzania to implement the MKUKUTA effectively and to further strengthen the budget support instrument jointly with other budget support donors\. 2\. The German Government through KfW co-finances the World Bank's PRSC programme\. This co-financing arrangement has proven to be mutually beneficial\. The collaboration between the World Bank Task Team Leader and Members and KfW's Programme Manager has been exceptional and should be commended\. Specific Comments 3\. PER / MTEF: The ICR Report rightly contains several references to the PER and MTEF process (p\. 3, 11, 15f)\. However, it should be pointed out more explicitly that this process has not improved over the years\. To the contrary, a worrisome deterioration can be noted\. Ownership and credibility of the MTEF seems to be increasingly weak\. The PER dialogue has not been effective for some time\. 4\. Major Factors Affecting Implementation (p\. 6): We agree that limited capacity may have led to slow or even stalling reform implementation\. However, vested interests and a lack of political will may also have contributed to implementation delays in some areas (e\.g\. anti-corruption activities, pay reform in particular allowances)\. 5\. Achievement of Program Development Objectives: "Broad-based progress towards achieving the PRS objective" (p\. 8): In light of the last Household Budget Survey having been published in 2001, it is open to discussion whether income poverty has indeed decreased\. (NB: In this context the Ugandan example may be noted where despite robust growth rates the 2003 HBS reported an increase in income poverty\.)\. Taking into account the lack of current data, we would exert caution with respect to quoting reduced income poverty as an example for progress\. 6\. Lessons Learned: Redesign of the PAF: Further efforts are required to enhance credibility of temporary process actions as well as outcome indicators, i\.e\. their outcomes/ results need to be measurable, assessed annually and realistic (achievable within a year also taking into account the political willingness to do so)\. Britta Oltmann Director Special Programmes Uganda and Tanzania 25  Annex 6\. List of Supporting Documents Annual Review Reports, FY03 04, 05 Joint Evaluation of General Budget Support Tanzania 1995 ­ 2004", November 2004 Simplified ICR for PRSC1 and PSRC 2 CEM 2007 PEFAR, various years Public Expenditure Management Annual Assessment and Action Plan (AAP), IMF, various years 26  Annex 7\. Technical Annex on primary education and income poverty Education To date the impact of Primary Education Development Program has been assessed using administrative data\. It demonstrates a large increase in net and gross primary school enrollment, the former increasing from 58% in 1999 to 96% in 2004\. Using data collected from the families from which school going children originate allows verifying the results reported based on administrative data and permits to assess who, rich or poor, benefited most from the introduction of universal primary education\. From October 2004 to February 2005 a nationally (and regionally) representative Demographic and Health Survey (DHS) was implemented by the National Bureau of Statistics\. This survey collected, amongst others, information about the educational attainment of household members aged 5 years and above, current schooling attendance for those aged 5-24 years and collected information about asset ownership\. The latter has been used to construct an index of household wealth\. Consequently it is possible to consider school attainment by wealth class\. A comparable DHS was fielded in 1996 so that before PEDP, after PEDP comparison can be made\. Using these sources, net enrollment increased by 40% from 49\.2% in 1996 to 70\.5% in 2004 while the gross enrollment rate increased from 75% to 95%\. These are impressive achievements, though insufficient to achieve the Mkukuta or MDG target of complete net enrollment in primary education by respectively 2010 and 2015\. As primary school lasts 7 years, this target has a 7-year lead time\. So achieving the Mkukuta target requires complete enrollment of children from the age of starting in 2003\. In practice, by 2004, only 27% of children aged 7 were enrolled in grade 1, and 20% of the 8-year olds were enrolled in grades 1 or 2, implying that this Mkukuta target will not be achieved\. Unless enrollment rates increase dramatically by 2008, the MDG goal will also not be achieved\. It is also important to note that the actual wording of the MDG is "Ensure that, by 2015, children everywhere, boys and girls alike, will be able to complete a full course of primary schooling"\. This does not translate directly as being 100% primary NER\. Analytical work on how to measure the MDG summarized in a World Bank publication from 2003, Achieving Universal Primary Education by 2015: A Chance for Every Child, concludes that the MDG should be measured by the Primary Completion Rate (PCR)\. This has been universally accepted among the World Bank, UNESCO, and the UN system generally\. The Primary Completion Rate is defined in World Development Indicators; it is "calculated by taking the total number of students in the last grade of primary school, minus the number of repeaters in that Grade, divided by the total number of children of official age\." The data also allow to consider how enrollment in primary and secondary education is distributed across different wealth quintiles\. It demonstrates that in 2004 17\.8% of children enrolled in primary school originated from the poorest quintile\. This is an improvement over 1996 when only 15\.9% was enrolled\. Access to primary school was 27  already relatively equally distributed before UPE and became more equally distributed once PEDP was introduced\. Note however that if the aim is that all children should have equal probability of attending primary school, the fraction of children from the poorest households should exceed 20%\. The reason being that households in the poorest quintile have on average, more children of school-going age\. In 2004 for instance, a household from the poorest quintile had on average 1\.23 children aged 7-13 while a household from the wealthiest quintile had 0\.89 children in that age category\. Poverty Projecting poverty forward from 2001, it is prudent to use per capita growth rates of consumption\. Whereas between 1999 and 2000 (the period for which the poverty simulations were done) the overall increase in GDP and consumption is comparable (i\.e\. the average growth rate for the period are comparable--the annual pattern is different), this fails to be the case since 2000\. 1990-2000: all growth rates are aligned Increase pvt consumption 1990-2000 43% Increase GDP1990-2000 48% Increase Got consumption 1990-2000 43% 2001-2005: divergence of growth rates Increase pvt consumption 2001-2005 23% Increase GDP 2001-2005 34% Increase GoT consumption 2001-2005 71% Average pc\. growth pvt consumption 2001-2005 2\.3% Average pc\. growth GDP 2001-2005 4\.6% Average pc growth of GoT consumption 2001-2005 11\.2% On the assumption of 4\.6% pc consumption growth, poverty would have dropped from 35\.8% to 25\.3% in 2005\. But when private consumption growth is 2\.3% poverty would only have dropped to: 30\.2%\. Unfortunately the Economic Survey numbers do not permit to distinguish between rural and urban consumption/GDP growth, so that one can only work with one consumption growth rate\. If rural consumption growth is less than urban consumption growth or if intra-sectoral inequality increased, the decline in poverty will be overestimated\. One reason why after 2000 consumption growth no longer tracks GDP growth is the increase in Government consumption\. Note that the source of data makes a difference\. Whereas the previous is based on the economic survey, the ALDB suggests the following growth rates: Average pc\. growth pvt consumption 2001-2005 0\.9% Average pc\. growth GDP 2001-2005 3\.6% Average pc growth of GoT consumption 2001-2005 14\.2% At a per capita growth rata of 0\.9% poverty would have dropped to 33\.6% in 2005\. 28  IBRD 33494R1 TANZANIA SELECTED CITIES AND TOWNS MAIN ROADS PROVINCE CAPITALS RAILROADS NATIONAL CAPITAL PROVINCE BOUNDARIES RIVERS INTERNATIONAL BOUNDARIES 30°E 32°E 34°E 36°E This map was produced by the Map Design Unit of The World Bank\. The boundaries, colors, denominations and any other information shown on this map do not imply, on the part of The World Bank Group, any judgment on the legal status of any territory, or any To To 0° endorsement or acceptance of such boundaries\. Tororo ororo 0° To To UGANDAUGANDAKampalaKampala To To Kampala Kampala Lake Kagera To To Victoria Nakuru Nakuru K E N Y A Bukoba Musoma Mara To To Nakuru Nakuru BuoenBuoen RWANDARWANDA KAGERAKAGERA M A R A 2°S 2°S Lake MwanzaMwanza Natron ToKama Kama M WA N Z A Simiyu A R U S H A KilimanjaroKilimanjaro (5895 m) (5895 m) BURUNDIBURUNDI ArushaArusha MoshiMoshi O To To Yalova alova Lake Malindi Malindi G Kibondoowosi Moy Kibondo S H I N YA N G A Eyasi Lake ShinyangaShinyanga Manyara N KahamaKahama Pangani KILIMANJARO 4°S OCONGO Nzega Nzega Steppe BabatiBabati Same Same MasaiMasai C K I G O M A SteppeSteppe PEMBA NORTH F KasuluKasulu MANYARAMANYARA KigomaKigoma SingidaSingida OFO\.PEREP KaliuaKaliua Kondoa Kondoa Tabora aboraIwembere SINGIDASINGIDA Wete PEMBA Tanga SOUTH TA B O R A TA N G A Mkoani ZANZIBAR R\. Lake Ugalla Manyoni Manyoni NORTH Tanganyika DODOMADODOMA Mts\. Mkokotoni ZANZIBAR SOUTH & MEDEM\. ami ZanzibarZanzibar Koani CENTRAL MpandaMpanda D O D O M A Nguru Wami ZANZIBAR D MorogoroMorogoro KibahaKibaha WEST R U K W A Dar es Salaam Rungwa Great MOROGOROMOROGORO DAR ES SALAAM Ruaha P WA N I Lake IringaIringa 8°S Sumbawanga Rukwa M B E Y A Range I R I N G A Utete Utete 8°S MpuiMpui Mbeya Rufiji INDIAN Kilwa Mbeya Mbeya Kilombero Matandu Kivinje Tunduma unduma To To Kasama Kasama Kipengere OCEAN Njombe Njombe L I N D I 10°S To To Kasama Kasama Range Mbemkuru Lindi 10°S Mtwara ZAMBIAZAMBIA To To SongeaSongea Masasi Masasi TANZANIAKasunguKasungu Lake R U V U M A MTWARA MTWARA Tunduru unduru Malawi Ruvuma To To ChiúreChiúre To To 12°S To To Marrupa Marrupa MOZAMBIQUEMOZAMBIQUE LichingaLichinga 0 50 100 150 200 Kilometers 32°E 34°E 36°E 0 50 100 150 Miles 40°E NOVEMBER 2007

REVIEW

P081159

 Document of The World Bank Report No: ICR2093 IMPLEMENTATION COMPLETION AND RESULTS REPORT (IDA-39280 IDA-H0970 TF-53572) ON A CREDIT IN THE AMOUNT OF SDR 3\.4 MILLION (US$ 5\.0 MILLION EQUIVALENT) AN IDA GRANT IN THE AMOUNT OF SDR 3\.9 MILLION (US$5\.8 MILLION EQUIVALENT) AND A GLOBAL ENVIRONMENT FACILITY GRANT IN THE AMOUNT OF US$ 4\.5 MILLION TO THE REPUBLIC OF TAJIKISTAN FOR A COMMUNITY AGRICULTURE AND WATERSHED MANAGEMENT PROJECT December 10, 2012 Sustainable Development Sector Department Central Asia Country Department Europe and Central Asia Region  CURRENCY EQUIVALENTS (Exchange Rate Effective October 17, 2012) Currency Unit = Somoni TJS 1\.00 = US$ 0\.210 US$ 1\.00 = TJS 4\.764 FISCAL YEAR [January 1 – December 31] ABBREVIATIONS AND ACRONYMS Agency of Technical Cooperation and International Fund for Food and ACTED IFAD Development Aid (French) Agriculture AKF Agha Khan Foundation JDC Jamoat Development Committee CAS Country Assistance Strategy JRC Jamoat Resource Centers Committee CAP Community Action Plan IDA International Development Association Community Agriculture and Watershed Mountain Societies Development Support CAWMP MSDSP Management Project Program CBO Community Based Organization NBFO Non Bank Financial Organization Consultative Group on International National Social Investment Fund of CGIAR NSIFT Agricultural Research Tajikistan Canadian International Development Swedish International Development CIDA SIDA Agency Agency CIG Common Interest Group PMP Pest Management Plan CPS Country Partnership Strategy PMU Project Management Unit DFA Development Financing Agreement PPAP Pilot Poverty Alleviation Project EA Environmental Assessment PRSP Poverty Reduction Support Program Rural Infrastructure and Rehabilitation EMF Environmental Management Framework RIRP Project FAO Food and Agriculture Organization SCNP State Commette for Nature Protection FO Facilitating Organization PCU Project Coordination Unit FPSP Farm Privatization Support Project SLSC State Level Steering Committee GAA German Agro Action SPAP Second Poverty Alleviation Project GDP Gross Domestic Product TAAS Tajik Academy of Agricultural Sciences GEF Global Environment Facility UNDP United Nations Development Program MCI Mercy Corps International WDA Watershed Development Committee MOA Ministry of Agriculture WUA Water User Association International Center for Agricultural Ministry of Amelioration and Water ICARDA MAWRM Research in the Dry Areas Resources Management Local Government (Oblast, Raion or Rural Reconstruction and Development LG RRDP Jamoat level) Program Vice President: Philippe H\. Le Houerou Country Director: Saroj Kumar Jha Sector Manager: Kulsum Ahmed Project Team Leader: Bobojon Yatimov ICR Team Leader: Craig Meisner ii  TAJIKISTAN Community Agriculture and Watershed Management Project CONTENTS DATA SHEET \. iv A\. Basic Information \. iv B\. Key Dates \. iv C\. Ratings Summary \. v D\. Sector and Theme Codes \. vi E\. Bank Staff \. vii F\. Results Framework Analysis \. vii G\. Ratings of Project Performance in ISRs \. xi H\. Restructuring (if any) \.xii I\. Disbursement Profile \.xiii 1\. Project Context, Development and Global Environment Objectives and Design \. 1 2\. Key Factors Affecting Implementation and Outcomes \. 8 3\. Assessment of Outcomes \. 15 4\. Assessment of Risk to Development Outcome and Global Environment Outcome \. 18 5\. Assessment of Bank and Borrower Performance \. 18 6\. Lessons Learned \. 20 7\. Comments on Issues Raised by Borrower/Implementing Agencies/Partners \. 22 Annex 1\. Project Costs and Financing \. 23 Annex 2\. Outputs by Component \. 25 Annex 3\. Economic and Financial Analysis \. 33 Annex 4\. Bank Lending and Implementation Support/Supervision Processes \. 35 Lending \. 36 Annex 5\. Beneficiary Survey Results \. 37 Annex 6\. Stakeholder Workshop Report and Results \. 46 Annex 7\. Summary of Borrower's ICR and/or Comments on Draft ICR \. 47 Annex 8\. Comments of Cofinanciers and other Partners/Stakeholders \. 70 Annex 9\. List of Supporting Documents \. 71 MAP iii  DATA SHEET A\. Basic Information Community Agriculture & Country: Tajikistan Project Name: Watershed Management Project IDA-39280, IDA-H0970, TF- Project ID: P077454, P081159 L/C/TF Number(s): 53572 ICR Date: 12/05/2012 ICR Type: Core ICR Lending Instrument: SIL, SIL Borrower: REPUBLIC OF TAJIKSTAN Original Total XDR 7\.30M,USD Disbursed Amount: XDR 7\.30M,USD 4\.50M Commitment: 4\.50M Environmental Category: F/F Focal Area: B Implementing Agencies: Community Agriculture and Watershed Management Project Management Unit Co-financiers and Other External Partners: B\. Key Dates Community Agriculture & Watershed Management Project - P077454 Process Date Process Original Date Revised / Actual Date(s) Concept Review: 10/15/2002 Effectiveness: 11/25/2004 11/25/2004 11/25/2004 11/25/2004 05/25/2005 05/25/2005 Appraisal: 02/12/2004 Restructuring(s): 10/09/2008 10/09/2008 04/27/2011 04/27/2011 Approval: 06/15/2004 Mid-term Review: 05/12/2008 05/12/2008 Closing: 04/30/2011 04/30/2012 Community Agriculture & Watershed Management GEF Project - P081159 Process Date Process Original Date Revised / Actual Date(s) Concept Review: 10/15/2002 Effectiveness: 11/30/2004 11/25/2004 11/25/2004 11/25/2004 Appraisal: 02/12/2004 Restructuring(s): 10/08/2008 10/08/2008 04/27/2011 04/27/2011 Approval: 06/15/2004 Mid-term Review: 05/12/2008 05/12/2008 Closing: 04/30/2011 04/30/2011 iv C\. Ratings Summary C\.1 Performance Rating by ICR Outcomes Satisfactory GEO Outcomes Satisfactory Risk to Development Outcome Moderate Risk to GEO Outcome Moderate Bank Performance Satisfactory Borrower Performance Moderately Satisfactory C\.2 Detailed Ratings of Bank and Borrower Performance (by ICR) Bank Ratings Borrower Ratings Quality at Entry Satisfactory Government: Satisfactory Implementing Quality of Supervision: Satisfactory Moderately Satisfactory Agency/Agencies: Overall Borrower Overall Bank Performance Satisfactory Moderately Satisfactory Performance C\.3 Quality at Entry and Implementation Performance Indicators Community Agriculture & Watershed Management Project - P077454 Implementation Performance Indicators QAG Assessments (if any) Rating: Potential Problem Project at any time Yes Quality at Entry (QEA) None (Yes/No): Problem Project at any time Quality of Supervision No None (Yes/No): (QSA) DO rating before Closing/Inactive Satisfactory status Community Agriculture & Watershed Management GEF Project - P081159 Implementation Performance Indicators QAG Assessments (if any) Rating: Potential Problem Project at any time No Quality at Entry (QEA) None (Yes/No): Problem Project at any time Quality of Supervision No None (Yes/No): (QSA) GEO rating before Closing/Inactive Satisfactory Status v D\. Sector and Theme Codes Community Agriculture & Watershed Management Project - P077454 Original Actual Sector Code (as % of total Bank financing) Agricultural extension and research 10 10 General agriculture, fishing and forestry sector 49 49 Roads and highways 8 8 Sub-national government administration 25 25 Water supply 8 8 Theme Code (as % of total Bank financing) Biodiversity 24 24 Land administration and management 25 25 Other rural development 25 25 Participation and civic engagement 13 13 Rural services and infrastructure 13 13 Community Agriculture & Watershed Management GEF Project - P081159 Original Actual Sector Code (as % of total Bank financing) Animal production 25 25 Crops 30 30 Forestry 20 20 Irrigation and drainage 25 25 Theme Code (as % of total Bank financing) Land administration and management 40 40 Other social development 20 20 Rural non-farm income generation 20 20 Water resource management 20 20 vi E\. Bank Staff Community Agriculture & Watershed Management Project - P077454 Positions At ICR At Approval Vice President: Philippe H\. Le Houerou Shigeo Katsu Country Director: Saroj Kumar Jha Dennis N\. de Tray Sector Manager: Kulsum Ahmed Marjory-Anne Bromhead Project Team Leader: Bobojon Yatimov Thirumangalam V\. Sampath ICR Team Leader: Craig M\. Meisner ICR Primary Author: Craig M\. Meisner Community Agriculture & Watershed Management GEF Project - P081159 Positions At ICR At Approval Vice President: Philippe H\. Le Houerou Shigeo Katsu Country Director: Saroj Kumar Jha Dennis N\. de Tray Sector Manager: Kulsum Ahmed Marjory-Anne Bromhead Project Team Leader: Bobojon Yatimov Thirumangalam V\. Sampath ICR Team Leader: Craig M\. Meisner ICR Primary Author: Craig M\. Meisner F\. Results Framework Analysis Project Development Objectives (from Project Appraisal Document) The project objective was to build the productive assets of rural communities in selected mountain watersheds, in ways that sustainably increase productivity and curtail degradation of fragile lands and ecosystems\. Revised Project Development Objectives (as approved by original approving authority) The PDO was not revised\. Global Environment Objectives (from Project Appraisal Document) The global environmental objective was to entail protection of globally significant mountain ecosystems by mainstreaming sustainable land use and biodiversity conservation considerations within agricultural and associated rural investment decisions\. This integrated management approach was also to provide replicable models for comparable areas throughout the country\. The GEF objective was mainstreamed into the overall development objective and outcomes\. Revised Global Environment Objectives (as approved by original approving authority) The GEO was not revised\. vii (a) PDO Indicator(s) (at appraisal) Original Target Formally Actual Value Achieved Values (from Indicator Baseline Value Revised at Completion or approval Target Values Target Years documents) % of rural production investments are successful according to agreed economic, Indicator 1 : financial, social, and environmental standards and are being sustained\. Value 80% of investments (quantitative or Not applicable 85% successful Qualitative) Date achieved 06/15/2004 04/30/2011 04/30/2012 Comments 100% achieved\. Takes into account financial, social, and environmental parameters (incl\. % and weighted by value of investment\. achievement) Indicator 2 : # Households participating in some part of the rural production component\. Value (quantitative or 0 32,000 households 43,513 Qualitative) Date achieved 06/15/2004 04/30/2011 04/30/2012 Comments 100% achieved\. Double counting makes exact measurement difficult - this counts farm (incl\. % productivity and land resource management only and excludes rural infrastructure achievement) subprojects in order to avoid double counting\. Indicator 3 : % population is above poverty level in villages that are participating in Project\. Value About 3% of the About 30% of the (quantitative or population above households above 50% Qualitative) poverty level poverty level Date achieved 06/15/2004 04/30/2011 04/30/2012 Comments (incl\. % 100% achieved\. achievement) Negative trends of land and mountain ecosystem degradation halted in Project area Indicator 4 : Jamoats\. Value YR1: Past 10-year trends (quantitative or Restoration evident 78,000 ha 96,600 ha analyzed Qualitative) Date achieved 06/15/2004 04/30/2011 04/30/2011 04/30/2012 Comments Indicator revised to "Area in ha covered by land resource management subprojects and (incl\. % other project activities that directly and successfully address land and ecosystem achievement) degradation\." Also a GEO indicator\. See section 1\.4 for further explanation\. viii (b) GEO Indicator(s) (at appraisal) Original Target Formally Actual Value Achieved Values (from Indicator Baseline Value Revised at Completion or approval Target Values Target Years documents) Negative trends of land and mountain ecosystem degradation halted in project area Indicator 1 : Jamoats\. Value YR1: Past 10-year trends (quantitative or Restoration evident 78,000 ha 96,600 ha analyzed Qualitative) Date achieved 06/15/2004 04/30/2011 04/30/2011 04/30/2012 Comments Indicator revised to "Area in ha covered by land resource management subprojects and (incl\. % other project activities that directly and successfully address land and ecosystem achievement) degradation\." See section 1\.4 for further explanation\. Area in ha covered by land resource management subprojects and benefiting very poor Indicator 2 : at least in proportion to their numbers in a community\. Value US$5\.39 (quantitative or 0 78,000 ha US$6\.20 million million Qualitative) Date achieved 06/15/2004 04/30/2011 04/30/2011 04/30/2012 Comments 100% achieved\. Revised to “Total value in $US of land resource management (incl\. % subprojects designed and funded\.â€? To avoid overlap with revised outcome indicator #4 achievement) above\. See section 1\.4 for further explanation\. (c) Intermediate Outcome Indicator(s) (at appraisal) Original Target Formally Actual Value Achieved Values (from Indicator Baseline Value Revised at Completion or approval Target Values Target Years documents) Indicator 1 : Total value of farm production investments where Project is operational\. Value (quantitative or 0 US$ 3\.8 million US$ 3\.85 million Qualitative) Date achieved 06/15/2004 04/30/2011 04/30/2012 Comments 100% achieved\. Funds in JRC/JDC accounts, beneficiary contribution, revolving funds, (incl\. % and personal reinvestments\. achievement) Area in ha covered by land resource management subprojects and benefitting very poor Indicator 2 : at least in proportion to their numbers in a community\. Value US$5\.39 (quantitative or Not applicable 78,000 ha US$6\.2 million million Qualitative) ix Date achieved 06/15/2004 04/30/2011 04/30/2011 04/30/2012 Comments 100% achieved\. Indicator revised to "Total value in $US of land resource management (incl\. % subprojects designed and funded\." Also a GEO indicator\. See Section 1\.4 for further achievement) discussion\. Number of improved public facilities, disaggregated by type of investment (village Indicator 3 : drinking water, roads and electricity)\. Value Target not (quantitative or Not applicable established but will 577 Qualitative) be monitored\. Date achieved 06/15/2004 04/30/2011 04/30/2012 Comments 100% achieved - based on 577 total including facilities held by private beneficiary (incl\. % groups\. 170 drinking water, 131 small irrigation and drainage rehab, 227 access road achievement) rehab, 32 micro energy gen\. and transmission, and 17 other\. % of Project-financed farm production and land management investments applying Indicator 4 : improved technologies, and receiving good access to necessary inputs and knowledge\. Value (quantitative or Not applicable 40% 8,000 9,175 Qualitative) Date achieved 06/15/2004 04/30/2011 04/30/2011 04/30/2012 Comments Indicator revised to "Cumulative number of rural people who have received technical (incl\. % training from TAAS, FOs, or other Project partners\." See section 1\.4 for further achievement) explanation\. Indicator 5 : Number of indigenous crop varieties from Project area preserved as live specimens\. Value Target not (quantitative or Not applicable\. 300 established\. Qualitative) Date achieved 06/15/2004 04/30/2011 04/30/2012 Comments (incl\. % 100% achieved\. See Section 1\.4 for further explanation\. achievement) Indicator 6 : Number of JDCs that are overseeing implementation of rural production subprojects\. Value (quantitative or Not applicable 47 39 39 Qualitative) Date achieved 06/15/2004 04/30/2011 04/30/2011 04/30/2012 Comments 100% achieved\. Indicator revised to 39 Jamoats due to budget constraints - see Section (incl\. % 1\.4 for further discussion\. achievement) Bank supervision ratings and reputation for integrity as perceived in public opinion Indicator 7 : surveys\. Value (quantitative or Not applicable\. Satisfactory On schedule On schedule Qualitative) x Date achieved 06/15/2004 04/30/2011 04/30/2011 04/30/2012 Comments Indicator revised to "Project management ensures Project implementation timeliness"\. (incl\. % See Section 1\.4 for further discussion\. achievement) G\. Ratings of Project Performance in ISRs Actual Disbursements Date ISR (USD millions) No\. DO GEO IP Archived Project 1 Project 2 1 06/29/2004 S S S 0\.00 0\.00 2 12/21/2004 S S S 0\.00 0\.00 3 05/24/2005 S S S 0\.50 0\.20 4 10/14/2005 S S S 0\.85 0\.20 5 12/12/2005 S S S 0\.85 0\.20 6 04/25/2006 S S MS 1\.53 0\.34 7 05/08/2006 S S MS 1\.53 0\.34 8 08/23/2006 S S MS 1\.90 0\.36 9 11/21/2006 S S MS 2\.22 0\.42 10 04/06/2007 MS MS MS 3\.47 0\.54 11 06/20/2007 MS MS MS 3\.96 0\.68 12 10/10/2007 MS MS MS 4\.31 1\.01 13 06/13/2008 S S S 5\.62 1\.60 14 10/14/2008 S S S 6\.40 2\.15 15 06/03/2009 S S S 7\.70 3\.28 16 11/21/2009 S S S 9\.10 4\.50 17 05/22/2010 S S MS 9\.70 4\.50 18 11/07/2010 S S S 10\.29 4\.50 19 05/31/2011 S S S 10\.70 4\.50 20 11/12/2011 S S S 11\.05 4\.50 21 03/25/2012 S S S 11\.05 4\.50 xi H\. Restructuring (if any) ISR Ratings at Amount Board Restructuring Disbursed at Restructuring Approved Reason for Restructuring & Restructuring Date(s) PFO or GEO Key Changes Made PDO GEO IP in USD Change millions Amendments to the IDA Development Financing Agreement and GEF GA – changes made to percentages in 11/25/2004 N S S S 0\.00 expense categories; percentage of expenditures to finance Consultant services and Research and Demonstration grants changed\. Amendment to DFA- expenditure percentage change 05/25/2005 N S S S 1\.05 for incremental operating costs and new paragraph added for QBS of Consultants\. Amendments to the DFA and GEF GA - changes made to percentages in expense 10/09/2008 N S S S 10\.98 categories (DFA) and reallocation of funds across expense categories (DFA and GEF GA)\. a) Project extension from April 30, 2011 to April 30, 2012 for the IDA credit only; (b) consolidation of disbursement categories and percentages to simplify final project administration; (c) reference to mass media services provided by the government-owned enterprise as an incremental operating 04/27/2011 N S S S 14\.79 cost; (d) addition of sole source selection (SSS) as a procurement method for consultants; (e) minor revisions of the Results Framework; and (f) other revisions to ensure that past legal amendments and current updates of the cost estimates are accurately and consistently reflected in the official financing and cost data\. xii I\. Disbursement Profile P077454 P081159 xiii 1\. Project Context, Development and Global Environment Objectives and Design 1\.1 Context at Appraisal GDP growth, poverty, and agriculture\. Tajikistan has an area of some 141,000 km2 of which some two-thirds form the foothills and high mountains of the Pamirs\. Several regional ethnicities are represented among its population of 6\.3 million\. Independence, turmoil and civil war left it among the poorest countries in the world, but the economy was developing\. As of 2000 annual per capita income was only around US$l80, and some 83% of the population was poor, but during 2000-2003, real GDP growth ranged from 6\.0% to 10\.2% per year\. Tajikistan is an agrarian society and agriculture is critical to poverty reduction and economic growth\. Some two-thirds of the population was directly dependent for their living on Tajikistan's 4\.6 m ha of agriculture land, of which only about 850,000 ha were arable lands, and the remaining 3\.86 m ha were pasture, fallow lands and meadows\. Highland areas and land degradation\. About twenty percent of the population lived in hilly and mountain areas where access to most government services was limited\. Most of the 2\.5 m ha agricultural land they farm was pasture, only 206,000 ha were in perennial crops and orchards, and there were few significant irrigation systems\. Rural poverty, shifts in land management responsibilities, lack of integrated land management, inappropriate agriculture, and poor access to technical support were causing increasing land degradation\. Much of the population was using steep hillsides to grow cereal crops\. In turn, land degradation contributed to further impoverishment through mudslides (ruining villages, roads and farmland, and irrigation and water systems), soil-erosion (undermining agricultural productivity) and silting of waterways used for drinking water and irrigation\. However, highlands had good productive potential if appropriately farmed\. In addition to improving life for people in the highlands, utilizing this potential in sustainable ways would also prevent downstream damage and relieve pressure on the lowlands\. Mountain ecosystems\. Tajikistan had globally important mountain ecosystems with diverse flora and fauna, including many of economic importance, and under threat\. Pastures, for example, hosted over 3,000 plant species, but faced threats from localized over-grazing\. The wild-growing fruit plants of Tajikistan represented a unique genetic resource for agriculture\. The mountain territories of southern and south-eastern Tajikistan were the major regions for conservation of wild-growing fruits (apples, pears, apricots, mulberries, cherry plums and plums, among others), nuts (walnuts and almonds), grapes and berries (currants, sea-buckthorn berries)\. Country’s forest areas, which covered only 3% of the territory, decreased by about 15% between 1990 and 2000 due to the need for firewood\. Farm privatization\. Officially, some 55% of all arable land had been converted into lease farms, joint stock companies and family farms\. However, in lowland cotton growing areas, farmers were still not free to make their own management decisions, while in highlands they lacked the capital needed to exploit productive potential\. Furthermore, there were also large tracts of pasture, formerly under the control of state farms, which were under the control of Jamoats\. 1 These pastures faced problems of inadequate maintenance as well as arbitrary and inequitable access to grazing rights and land use\. For details, see Annex 1 of Project Appraisal Document (PAD)\. 1 The Jamoat (sub-district) is lowest official government unit, and usually comprises a number of villages\. 1 Government strategy\. The key elements of Tajikistan’s Poverty Reduction Strategy Program (PRSP) emphasized accelerated growth, provision of basic social services, and targeted support for the poor and improved governance\. The governance initiatives included more local planning and management, especially at the Jamoat level\. For the agriculture sector, the Government’s strategy supported the efficient use of, and access of the poor to land, water, financial and other resources, and eliminating government intervention in private farm decision making\. The PRSP also highlighted the regional dimension to poverty, with the highlands facing special difficulties, especially in the south-east\. For the environment, the PRSP emphasized addressing natural disasters, water pollution, soil degradation, deforestation and biodiversity conservation\. Specific measures related to afforestation, pasture improvements and protection, development of the institutional frameworks, and mainstreaming of sustainable land management and biodiversity conservation in agriculture and forestry were considered government priorities as documented in the National Strategy for Combating Desertification (2002), and the National Biodiversity Conservation Action Plan (2003)\. Tajikistan was an active party to the United Nations Conventions: (a) to Combat Desertification (1997); (b) on Biodiversity Conservation (1997); and (c) on Climate Change (1998)\. Government actions\. The Government was trying to delegate more authority to Jamoats within a broader government decentralization strategy and also attempting to implement its agriculture strategy through programs of farm privatization, irrigation and other rural infrastructure, improved technical support services, and improved access to rural finance\. However, there remained problems of past reliance on, and vested interests in, top-down control, and lack of accountability\. Furthermore, severe fiscal constraints and a lack of familiarity with incentive frameworks (which could address shortcomings of regulatory approaches where enforcement capacity was inadequate) limited the extent of overall program impacts\. For details, see Annex 1 of the PAD\. Bank projects were directly supporting the implementation of the Government’s programs focused on agriculture, with particular attention to developing new, replicable approaches that address the key implementation and sustainability constraints\. Based on this experience, the Government requested the Bank to extend its support to highland areas\. Rationale for Bank assistance Bank experience and potential for scaling up\. Bank support would build upon the experience, analysis and relationships already established under its project and sector work, and under programs of other donors\. The Bank had extensive operational experience in local demand-driven approaches to agricultural development\. Past Bank support had also demonstrated the use of field-level pilot experience to constructively influence crucial policy and legislation\. Bank-financed projects within Tajikistan had already established culturally-appropriate, community-managed models for: (a) allocation of land use rights in ways which ensure transparency, with participation of the community in the allocation of parcels, legitimacy (through involvement of traditional local institutions), conflict management, and land tenure security; (b) management of investments in irrigation infrastructure and their subsequent operation through Water User’s Associations; (c) establishment of efficient technology transfer mechanisms through Farmer Information and Advisory Services; and (d) establishment of a credit mechanism for seasonal agricultural needs through revolving funds via Non-Banking Financing Organizations\. In addition, the Bank was applying best practices and lessons developed by international NGOs, such as the Agha Khan Foundation (AKF), Mercy Corps International (MCI), German Agro Action (GAA), ACTED, and Care International\. The Bank was also building on United Nations Development Program’s (UNDP’s) Rural Reconstruction and Development Program (RRDP) initiatives to strengthen governance at the Jamoat level through Jamoat Development Committees (JDCs) comprising elected representatives from constituent villages\. The Project provided an opportunity to scale up these models in highland areas, and to strengthen linkages with local and national government\. 2 Value of World Bank support\. The Bank’s comparative advantage relative to other donors came from its ability to work at all levels of the Government, conducting policy dialogue at all levels of Government – top, line ministry and local officials, and implementation assistance at the line ministry, and local level\. The Bank’s ongoing support to farm privatization and the National Social Investment Fund of Tajikistan (NSIFT) also complemented the Community Agriculture and Watershed Management Project (CAWMP)\. The Bank’s value-added to CAWMP was: (a) providing capital for productive agriculture and land management investments at a scale beyond what other donors in the area could mobilize on their own; (b) encouraging community participation in the project design, implementation, operation, monitoring, and evaluation, building on the experience of projects financed by the Bank as well as other donors; (c) involving government and developing its capacity to play appropriate roles that foster the desired outcomes; and (d) experience in implementing similar projects in other countries (e\.g\., Turkey, Armenia)\. The Bank was able to share a wide range international experience, e\.g\., business and market development relevant to rural livelihoods, micro finance, feasibility and operation requirements for rural infrastructure, incentive structures for watershed management, knowledge generation and dissemination, and development of community institutions\. 1\.2 Original Project Development Objectives (PDO) and Key Indicators (as approved) The Project objective was to build the productive assets of rural communities in selected mountain watersheds, in ways that sustainably increase productivity and curtail degradation of fragile lands and ecosystems\. Outcome indicators\. The key outcome indicators comprised: 1\. Eighty percent of farm productivity, land management, and rural infrastructure investments are successful according to agreed economic, financial, social, and environmental standards, and are being sustained\. 2\. At least half the households where the Project is operating (i\.e\. 32,000) directly participate in some part of the rural production component\. 3\. Increase in proportion of Project participants who are living above the poverty line from 3% to 30%\. 4\. Land and mountain ecosystem degradation trends halted (also pertains to GEF)\. Output indicators\. Implementation was to be assessed mainly on the basis of output indicators including: 1\. Total cumulative investment in agriculture production among Project participants (from initial grant, local contributions, and reinvestment) exceeds US$3\.8 million, i\.e\., more than the projection of Project-financed grants and capital infusions (implying high participation, desirable social and environmental impacts, commercial success, use and repayment of revolving funds)\. 2\. Land management investments cover 78,000 ha and benefit very poor at least in proportionate to their numbers in a community (also pertains to GEF)\. 3\. Number of improved public facilities, disaggregated by type of investment (e\.g\., village drinking water, roads, and electricity)\. 4\. Forty-seven JDCs overseeing rural production investments\. 5\. Forty percent of farm production and land management investments apply improved technologies, and receive good access to necessary inputs and knowledge\. 3  6\. Number of indigenous crop varieties from Project area preserved as live specimens (also pertains to GEF)\. 7\. Satisfactory Project administration as indicated by Bank supervision ratings and Project’s public reputation for integrity\. 1\.3 Original Global Environment Objectives (GEO) and Key Indicators (as approved) The global environmental objective was to entail protection of globally significant mountain ecosystems by mainstreaming sustainable land use and biodiversity conservation considerations within agricultural and associated rural investment decisions\. This integrated management approach was also to provide replicable models for comparable areas throughout the country\. The GEF objective was mainstreamed into the overall development objective and outcomes\. 1\.4 Revised PDO (as approved by original approving authority) and Key Indicators, and reasons/justification The PDO was not revised\. Revisions to key indicators were: Original Indicator Revised Indicator Explanation Did not exist\. Cumulative number of villages Measures breadth of initial project which have participated in implementation at the field level, as credibility investments\.2 [PDO] an early indication of PDO achievement\. Negative trends of land Area in ha covered by land resource The original PDO indicator was not and mountain management subprojects and other able to measure impacts due to ecosystem degradation project activities that directly and practical problems of scale, halted in Project successfully addresses land and seasonal variation, etc\. The revised Jamoats\. mountain ecosystem degradation\.3 PDO indicator was a minor [PDO, GEO] modification of an indicator which was originally classified as 2 Credibility investments are the small initial grants for locally selected initiatives made to each participating village in order to build the trust and confidence of local people in the project, prior to the development of proposals for other rural production investment grants\. 3 Confirmation that land resource management subprojects and US$ value of other project expenditures (e\.g\., farm productivity subprojects, rural infrastructure subprojects, specific training programs, specific consultancies, etc\.), in concept and then in implementation, include at least one of the following results on fragile lands: • Prevent or reduce soil erosion by water or wind • Increase vegetative cover through perennial crops and pasture • Provide soil and moisture conservation • Improve soil quality • Improve water use efficiency • Increase sustainable fodder or wood supply • Increase sustainable renewable energy supply • Increase integrated pest management • Indigenous plant preservation 4  Original Indicator Revised Indicator Explanation “intermediateâ€?\. Farmer-based guidelines and methods developed for market Measures results of final year of the Did not exist development in uplands, Jamoat- Project after the extension of the level pasture management, and closing date\. gravity-fed irrigation\. [PDO] With transformation of indicator on area covered by Project areas that Area in ha covered by Total value in US$ of land resource address degradation from an land resource management subprojects designed intermediate to PDO result, a new management and funded\. [GEO, Intermediate intermediate indicator was required subprojects\. Indicator] for land resource management subprojects\. Cumulative number of rural people Project participants who have received technical have access to and training from Tajikistan Academy Original indicator was not feasible adopt improved of Agricultural Science (TAAS), to measure\. agricultural Facilitating Organizations (FOs), or technologies\. other Project partners\. [Intermediate Indicator] Number of Jamoat Development Committee (JDCs) that Number of JDCs that have been Change only in the coverage target, have been established established and are overseeing based on need to fit updated budget and are overseeing implementation of credibility and allocations within available implementation of rural production subprojects – final financing\. credibility and rural target\. [Intermediate Indicator] production subprojects – final target 47\. Bank supervision Original indicator not practical ratings and reputation Project management ensures Project because of inadequate capacity to for integrity as implementation timeliness\. conduct surveys, and emphasis on perceived in public [Intermediate Indicator] integrity addressed through other opinion surveys\. mechanisms\. Added by World Bank as core Did not exist\. Number of Project beneficiaries\. indicator\. Added by World Bank as core Did not exist\. Number of female beneficiaries\. indicator\. 1\.5 Revised GEO (as approved by original approving authority) and Key Indicators, and reasons/justification The GEO was not revised\. See table above for indicator changes\. 1\.6 Main Beneficiaries\. The primary beneficiaries were Common interest groups (CIGs), and individuals, since they were the recipients of subproject grants for projects they identified and proposed\. 5 Villages, and their constituencies, also received Project budgets for each of the three types of rural infrastructure investments\. Participants and members of the various institutional entities that facilitated decision-making, granting and implementation of subprojects including the: Jamoat Development Committees (JDCs), Facilitators and Specialists from the Aga Khan Foundation /Mountain Societies Development Support Programme (AKF/MSDSP), Food and Agricultural Organization (FAO), United Nations Development Programme (UNDP), Welt Hunger Hilfe (WHH), and other international NGOs, Watershed Development Committees (WDCs), and Project Coordination Units (PCUs) in each of the four watersheds\. 1\.7 Original Components (as approved) Component I: Rural Production Investments\. (US$11\.9 m) A\. Farm Productivity Improvement: Individuals, and groups of farming households, would invest in productivity enhancing activities of their choice, most of which would provide immediate income\. Investments could include inputs for annual crops, horticulture, livestock, processing, distribution, leasing, and credit facilities\. B\. Land Resource Management: This subcomponent enabled local people to adopt more sustainable use of fragile lands that are currently under the jurisdiction of the Jamoat, and provided land use certificates after three years of maintenance, subject to continued good land use\. The combination of appropriate income-generating investments with soil conservation would enhance the organic content of soil and create incentives for sustainable land use by better addressing interests of local people\. Groups of nine or more households working on contiguous areas would make long-term investments such as horticulture, woodlots, or fodder, combined with soil and moisture management structures\. Blended financing from GEF would almost quadruple the land area covered beyond the level that will be supported by the government on purely national grounds\. C\. Rural Infrastructure: Investments to rehabilitate rural infrastructure would be made to community groups\. Typical investments would compliment agriculture and land resource management subprojects, would be small scale (about $4800 on average), and could include drinking water, small irrigation, access track rehabilitation, and small power generation\. Contribution Requirements and Budget Constraints\. Beneficiaries had to contribute their own resources in the form of labor, material and cash, for at least 20% of the total value of any investment\. Investment proposals would be prioritized within formulaic fixed budgets for villages based on population\. The share of all one-time, start-up grants to any one household would not exceed $290\. Farm productivity financing in subsequent years would be provided either through reinvestment of retained earnings or through credit or revolving funds\.4 Rural infrastructure would be restricted to productive investments and include operations and maintenance financing arrangements\. They would only be made if no alternative funding was available from other donor programs such as the National Social Investment Fund of Tajikistan (NSFT)\. Component II\. Institutional Support and Capacity Building\. (US$4\.3 m) 4 From the newly created Micro-finance Bank of Tajikistan supported by, existing interest bearing revolving funds operated locally with donor support, or newly created member owned revolving funds building on the model developed under the World Bank-financed Farm Privatization Support Project (FPSP)\. 6 A\. Research and Demonstration: This subcomponent helped scientific institutions and line ministries to provide technical services including training to communities\. It would include support for seed and seedling production, livestock breeding and animal health and husbandry improvements, and market and enterprise analysis and development\. Participating agencies included the Tajikistan Agricultural Research System (for research and extension and including preservation of live plant specimens in collaboration with the Consultative Group For International Agricultural Research’s (CGIAR) Central Asia and Caucasus (CAC) unit in Tashkent)\. The Farmer’s Training Center, Ministry of Agriculture and other Ministries and the State Committees such as Statistical Service, and Land Committee would also benefit\. Blended GEF financing would support the preservation of indigenous crop and other specimens\. B\. Community Mobilization and Subproject Preparation: This subcomponent included training and facilitation for Jamoat Development Committees (JDCs) as well as households and common interest groups with support of local facilitators (contracted through international NGOs)\. It also included support for small confidence building mobilization grants for each village, plus information and experience sharing\. Blended GEF financing enabled the planning and sharing associated with the additional land resource management investments\. Component III\. Project Management: (US$3\.6 m) This component supported project coordination, procurement, disbursement, financial management, reporting, monitoring, and evaluation, at both the national level and for each of the four Project watershed areas\. It built on project administration capacity and arrangements that already existed for ongoing Bank-financed projects\. The component also supported the secretariat services provided to the State Level Steering Committee (SLSC) and the Watershed Development Committees (WDCs)\. The component supported: • National Project Management Unit, • Project Coordination Units for the four watersheds, and • Evaluation 1\.8 Revised Components Components were not revised; however various planned targets were modified during implementation upon realization of on-the-ground conditions\. For example, at the time of the Mid-term Review in 2008 (MTR), the Bank team concluded that, “The number of households directly benefiting from subproject investments is likely to at least meet the original target of 32,000, even though the total number of households living in the participating villages is likely to be 57,375 compared to the appraisal target of 62,000 because the percent of direct beneficiaries is higher than expected\. The number of participating villages is likely to be 409, compared to the appraisal target of 404, and the number of Jamoats is likely to be 39, compared to the appraisal target of 47\. The number of villages per Jamoat was higher than anticipated and, together with higher than anticipated costs of facilitation support and of JDC/JRC support, this has increased the unit cost of project support per Jamoat\.â€? 1\.9 Other significant changes A few minor restructurings occurred during the Project\. Changes in expenditure financing percentages and reallocations between expenditure categories were made in the Development Financing Agreement (DFA) and GEF Grant Agreements in 2004, 2005, 2008, and 2011\. A Project extension closing date of one year was approved from April 30, 2011 to April 30, 2012 for the IDA credit – to: (a) enable the 7 Project to address further requirements related to irrigation, pasture management, and market development; and (b) complete the impact evaluation and to disseminate findings\. In April 2011 several revisions were made to ensure that past legal amendments and current updates of the cost estimates were accurately and consistently reflected in the official financing and cost data\. For example, as of April 2011, costs were lower than expected at the MTR due in part to changes in the exchange rate and also because some of the specific activities expanded less than expected (e\.g\., micro-finance, discretionary budget for subprojects, expansion of Facilitating Organization support), or had lower unit costs (e\.g\., PMU staff expenses)\. Project Costs (US$ Million) Components/Activities Appraisal Effectiveness MTR Proposed Actual Feb, 2004 Nov, 2004 May, 2008 April, 2011 September, 2012 Rural Production Investments 11\.90 11\.34 9\.99 9\.61 10\.69 Institutional Support and 4\.30 3\.60 5\.14 4\.71 4\.90 Capacity Building Project Management 3\.59 3\.03 3\.64 3\.85 3\.72 Total 19\.79 17\.97 18\.77 18\.17 19\.31 Similarly, the financing plan was updated (April, 2011) to reflect previous revisions, taking into account updated estimates of the Government counterpart expenditures, as well as fluctuations in the US$ equivalent value of the IDA Credit and Grant\. The update also corrected earlier estimates of Government counterpart (and hence the total amount of financing) which did not correctly reflect the Government financing requirements associated with the agreed IDA and GEF financing disbursement percentages\. Project Financing (US$ Million Equivalent) Financing Source Appraisal Effectiveness MTR Proposed Actual Feb, 2004 Nov, 2004 May, 2008 April, 2011 September, 2012 Government of Tajikistan 2\.00 0\.74 0\.74 0\.36 0\.58 Beneficiaries 2\.49 1\.93 1\.93 1\.92 3\.40 IDA Credit 5\.00 5\.00 5\.40 5\.24 4\.93 IDA Grant 5\.80 5\.80 6\.20 6\.16 5\.91 GEF Grant 4\.50 4\.50 4\.50 4\.50 4\.49 Other Financiers 0\.00 0\.00 0\.00 0\.00 0\.00 Total 19\.79 17\.97 18\.77 18\.17 19\.31 2\. Key Factors Affecting Implementation and Outcomes 2\.1 Project Preparation, Design and Quality at Entry Project background analysis was satisfactory\. Background preparation took into account the World Bank’s previous engagements on land management, tenure security and poverty alleviation in Tajikistan (e\.g\., the Farm Privatization Support Project (FPSP), Rural Infrastructure Rehabilitation Project (RIRP), Pilot Poverty Alleviation Project (PPAP), Second Poverty Alleviation Project, and also from Turkey’s Eastern Anatolia Watershed Rehabilitation Program)\. 8 The Project also drew from the experience of other donor activities and developed a new model that took into account several important lessons: The participatory process cannot be target driven\. The design of the institutional structure and sub- granting mechanisms clearly demonstrated a participatory approach whereby the ideas came from individuals – and the CIGs were instrumental in bringing together people and ideas\. This was in contrast to the past where most activities focused on humanitarian aid rather than support for rural agricultural production – which was a foreign concept for local people\. Ultimately, changing this perception and attitude became one of the more important challenges at implementation\. Design and implementation should build on existing mechanisms with suitable external TA\. The Project drew on the existing institutions – such as the JDCs built under the UNDP Rural Reconstruction and Development Program – and reinvigorated them towards a new development goal\. JDCs continued their existing decision-making capacity, but were transformed to act as a clearinghouse for CIG and village investments, identify new sources of funding and facilitate clearances and registrations for subprojects (see Annex 6 in PAD for details on their role)\. Other NGOs were engaged as facilitators to assist villagers in preparing proposals and JDCs in monitoring and activities\. Training should be timely and appropriate\. Training as a prerequisite before investment was integral to sustainability – since local knowledge contained gaps in more modern and environmentally-sustainable techniques\. For example, individuals participated in training of pasture management and animal husbandry by the Institute of Husbandry Tajik Academy of Sciences and the Agrarian University of Tajikistan\. Long-term sustainability requires community involvement early on and full awareness of the level of operating expenses that will be required to maintain the investment\. Participation by and consultation of local communities and individuals at the outset better ensured the financial sustainability of investments\. The financial management aspect of farm and rural investments was part of the initial training package to precede investment\. All stakeholders need to be included\. Project preparation activities involved all key stakeholders: national, raion and Jamoat level authorities; NGOs; local communities including village elders, mahalla, farmers, livestock owners, and women\. Key stakeholders who would be involved directly in the Project include village leaders and village members, women, local government representatives, technical staff of the line ministries located primarily at the raion level, and staff of the PIUs and existing PMU at the central level\. NGOs would provide technical assistance during the facilitation and proposal development phase at the village level and JDCs would act as decision-makers and comprise of elected officials from the communities\. The rationale for Bank intervention was sound\. Inclusive to the rationale provided in section 1\.9, the Bank was well-positioned to undertake a bottom-up approach from its experience in local institution building, community-driven and participatory methods and the ability of providing sufficient resources to make an impact (scale)\. The World Bank sought high-level support such that Project outcomes and recommendations could be factored into higher-level decision-making and reform\. For example, this was particularly important for the continued effort of issuing land certificates to individuals – which, at the outset of the Project, was a slow, uncertain and cumbersome process\. Project design was generally sound\. Project components were designed appropriately around the overall objectives with an emphasis on improving rural production (retained earnings) and meeting rural infrastructure needs at a local level\. To effectively enable and sustain investments there was sufficient allocation given to the components on institutional support and capacity building – especially 9 on research and demonstration which had been shown to be one of the most effective ways in conveying best practice\. The geographical target areas were known to be very poor and vulnerable with relatively few income or diversification opportunities\. The social assessment surveyed individuals in the watershed areas of Zerafshan, Surkhob and Toirsu identifying opportunities and institutional structures that could be developed to support Project objectives – while respecting the traditional informal institutions for collective action like the hashars 5 – organized through traditional leadership structures of the mahalla\. 6 A considerable amount of thought and effort was then put into the development of the implementation arrangements through the system of institutions and stakeholders to ensure investments would remain locally-driven and screened by a transparent member body (JDCs) and process (see Annex 6 of the PAD on Implementation Arrangements)\. Project alternatives were rejected on sound reasoning\. By focusing on highland areas the focus was on the poorest experiencing the most severe land degradation – but complementing existing lowland area initiatives\. Rather than working solely with village-level institutions – the Project strengthened Jamoat- level institutions to better coordinate community initiatives\. This was also viewed as a more efficient and cost-effective method than supporting every village\. But in this regards, granting funds from the bottom-up was also considered a better model than the previous top-down approaches – where the record of such investments was uncertain\. Most risks were adequately identified and rated; mitigation measures were adequate\. Risks identified in the PAD were adequately supported by mitigation plans – however several came to fruition despite best efforts (more on this below)\. Some risks are inherent in Community-Driven Development (CDD) schemes and given the lack of experience with this form of support in Tajikistan at the time – a more robust set of mitigation alternatives could have been developed as backup plans\. 2\.2 Implementation All outcome and intermediate targets were exceeded before Project closing\. This includes the key outcome indicators of the percentage of successful and sustainable rural production investments (85%), number of participating households (>43,000), percentage of the population above the poverty line in Project villages (30%), and the number of participating villages (402)\. It also includes the area of land under sustainable management (GEO indicator: 96,000 ha)\. Many of these targets had sufficient momentum even by the MTR in 2008\. The main contributing factor in realizing these outcomes were the arrangements at the watershed level including partnerships between villages, common interest groups, JDCs/JRCs, Project Coordination Units (PCUs), WDCs and Facilitating Organizations (FOs)\. Effective coordination, although inexperienced at first, eventually took hold as demonstrations and first entrants were observed and lessons learned\. In terms of challenges there was an initial one-year lag in activity due to a combination of reasons\. First, there was inexperience within the PMU in contracting Facilitating Organizations and unfamiliarity with the Project’s concepts and innovative partnership arrangements\. The response was to increase capacity in financial management and procedures that were congruent with Tajikistan’s accounting methods and to seek clarity on the roles and responsibilities of FOs\. Second, there were differences of interpretation in Project design and procedures among the output-based partnerships with the FOs (AKF/MSDSP, 5 Hashars are Tajik community groups that get together to work on community projects that benefits everyone, such as improving the roads or cutting hay that everyone can use\. 6 Traditional mahalla/jamiyat institutions are the most important organizing force in project area hamlets\. The community selects their leaders somewhat democratically, although about half the leaders typically make decisions by themselves, while the remainders make decisions through councils or hamlet-wide discussions\. 10 FAO, UNDP and WHH)\. Subsequent meetings orienting the FOs to the objectives and procedures resulted in a more effective arrangement after the first year\. Thirdly, there was an initial lack of understanding at the local level of the procedures outlined in the Operational Manual for environmental analysis, business plans and the design of rural infrastructure\. This resulted in the FOs and PMUs playing more hands on role during the first trials in each area\. Ultimately, by the MTR, many of these issues had been resolved and disbursement increased significantly\. The Project was identified as a potential problem project in the first few years because of a lagging Component 1, but actions taken on both the World Bank and counterpart side guided the Project on track\. Minor restructurings took place – but mostly pertained to reallocations across expenditure categories and simplifying disbursement procedures (see section 1\.9)\. 2\.3 Monitoring and Evaluation (M&E) Design, Implementation and Utilization The key outcome and intermediate performance indicators listed in section 1\.2 were adequate in tracking progress towards achieving the PDO and GEO, although indicator #4, “Land and mountain ecosystem degradation trends haltedâ€? appeared ambitious through the rather expensive methods suggested in the PAD (Annex 3)\. Revisions to the indicators were undertaken at the time of the MTR reflecting implementation experience such as changing coverage to 39 Jamoats from 47 due to cost considerations as well as the base number of households\. These changes were reflected in amended supplemental letter to the DFA\. Design\. The M&E framework was designed to measure results at a very local scale – hence sufficient capacity would have to be built at the Jamoat-level\. Project progress and outcomes were measured through feedback mechanisms suited to limited capacity and challenging conditions\. Data collection methods included regular progress and financial reporting by Project partners, field supervision visits and partner workshops\. Project and watershed-level assessments were also conducted, and a final impact evaluation was planned\. The PAD suggested the contracting of an M&E and financial specialist at the JDC-level, however these functions were eventually separated with one financial and one M&E JDC specialist\. The initial design for some aspects of M&E was ambitious given the cost and local capacity to implement them\. For example the use of satellite imagery to measure land degradation trends was beyond local IT capacity, let alone costs\. Other measurable indicators through direct observation, or field visits, were more practical and resulted in more timely monthly reports that aided implementation\. Implementation\. Monthly reporting was undertaken by all major Project partners that allowed for Project management to aggregate data and findings\. This was especially important given the scale of interventions and scope of Project coverage\. For example, the challenges posed with monitoring land degradation (cost and capacity) resulted in the decision to change the indicator to measure the aggregate area covered by subprojects and other project activities which directly support sustainable land management (see section 1\.4)\. The Project made use of central and site-based project units, along with Project partners such as NGOs and research institutions to record, measure and verify results\. A central database of rural investments was maintained with qualitative and photographic data collected to improve data quality and analysis as well as overall Project assessments\. Overall monitoring was assessed as satisfactory throughout most of the Project, except in a couple of instances where environmental monitoring needed strengthening\. One unfortunate circumstance, by the time of the MTR, was the inability of the contracted socio-economic survey to generate data of sufficient quality and quantity for a comprehensive project baseline\. Poor communication with the consultants about required tasks and significant cultural/academic differences about what constitutes primary baseline data useful for Project monitoring and evaluation purposes contributed to the generally 11 inadequate data and associated analysis\. In response, an effort was made to collect sufficient secondary information at the raion-and watershed-levels in order to establish some baselines\. Utilization\. M&E data contributed to adaptive management in the Project, e\.g\., systematic use of the Results Framework and careful review of its underlying assumptions led to MTR corrections\. M&E data were also used to share project concepts, results and lessons learned with government, donors and civil society\. Data utilization, and its feedback into project implementation, was crucial in measuring progress towards the PDO and GEO\. For example, by the time of the MTR it was evident that covering 47 Jamoats was basically not affordable and would stretch resources far too thin – so the decision was made to focus on only 39\. M&E was integral in tracking the outcomes from thousands of subproject proposals, where information on successes (or failures) could be replicated (or avoided) in other areas\. It was important to identify and highlight positive demonstrations that could replicate best practice\. 2\.4 Safeguard and Fiduciary Compliance Financial Management\. The PMU was staffed by a Chief Accountant, an accounting assistant and supported by the FM specialist\. Financial management received unqualified (clean) audits throughout the Project’s life and delivered regular reports that informed project management, but began to struggle just before the MTR and was rated moderately satisfactory thereafter\. This was due to several reasons\. First, and as mentioned above, some delays were due to the PMU’s inexperience with contracting FOs and this led to delays in direct fund-flows to the JDCs in the earlier years\. Difficulties in finding technical assistance in this area also contributed to the delays\. Subsequent training and experience with these types of granting mechanisms eventually rectified the issue\. Second, regular Financial Management Reports (FMRs) identified deficiencies in IFR reporting, weak controls at some points or discrepancies that were not fully explained\. Thirdly, the recommended accounting software (1C) was never fully capable of providing timely and accurate reports in the manner which was acceptable to the Bank – which meant a lot of manual work in spreadsheets – leading to delays and some inaccuracies\. Frequent technical support was necessary and only came up to standard by the end of the Project\. While each of these issues was eventually dealt with – the chain of events kept financial management from achieving a satisfactory rating\. Counterpart financing was lower than originally agreed also at the MTR (US$0\.59 million versus US$0\.74 million) and replenishments were delayed a few times – although it did not severely jeopardize implementation\. Part of this was connected to the financial crisis (beginning in 2009) when austerity measures led to smaller allocations being transferred\. This required frequent monitoring to ensure it was not in violation of the counterpart financing parameters in the DFA\. Procurement\. According to the PAD, procurement had both centralized and decentralized roles\. The PMU had the overall responsibility for the Project, including the management and supervision of Project procurement activities\. Procurement of Component 1 activities was carried out by the common interest groups (CIGs) and households undertaking subprojects, with community participation in accordance with the Operational Manual (OM)\. The PMU, in collaboration with the PCUs and JDCs, was responsible for providing guidance and supervision necessary to ensure that CIGs and households procure in accordance with procedures outlined in the Operational Manual\. A memorandum of understanding (MOU) between the JDC and the subproject beneficiary was used to address procurement aspects\. The PMU was staffed with a full-time procurement specialist; however this person was initially divided among other projects until the MTR which contributed to the lagging procurement performance outlined below\. Due to the lack of clarity of contracting FOs in the initial stages and a lack of understanding at the CIG- level of OM procedures, procurement experienced delays for the first two years of the Project and was 12 subsequently downgraded from satisfactory to moderately satisfactory by 2006\. This affected fund flows to Component 1 subprojects and to the overall downgrading of the Project\. In response, internal capacity was quickly built up through extensive training and the FO contracting and OM issues were resolved by consultations with FOs and the CIGs\. By the MTR these major issues were no longer present and procurement performance remained satisfactory until the end of Project\. A multi-project fiduciary review conducted in 2009 commended the community procurement of rural investment projects under the Project\. Disbursement\. Overall disbursements were ahead of original expectation by 2007, however Component 1 flows to subprojects were delayed because of the implementation issues raised above\. By the time of the MTR, this was no longer an issue and all funds were fully disbursed by project closing\. Environmental Assessment\. For Environmental Assessment (EA) purposes the Project was rated “category FIâ€? under the World Bank Safeguard Policy OP 4\.01, since the Project involved funds for subprojects selected by the communities during implementation\. The environmental impact of the Project activities were expected to be largely positive and would not involve any major construction requiring resettlement, land acquisition, or invest in the construction of dams, new canals or head works that would allow for increased water abstraction\. The EA included an assessment of the benefits and risks of project activities and an environmental monitoring subcomponent and Pesticide Management Plan (PMP) for compliance with OP 4\.09; because activities would be supporting agricultural production\. The Environmental Assessment was discussed in consultation (2003) with stakeholders in each of the Project watersheds, as well as at the national level with participation of local people, representatives of local authorities, line agencies, other government officials, and NGOs\. The Project provided support for a full-time Environmental Specialist tasked with implementing the environmental monitoring of activities and compliance with safeguards, as well as training programs for line agency staff, subproject proponents, other stakeholders, and equipment for simple environmental analysis and monitoring\. Compliance with OP 4\.01 and OP 4\.09 was rated satisfactory throughout most of Project implementation with a few exceptions, the first in 2007 when the Environment Manual required updating and greater attention paid to the implementation of the environmental monitoring of subprojects\. In 2008 the PMP was urgently needed to be in place because there was anecdotal evidence of certain pesticides being recommended by advisors – which could have violated OP 4\.09\. In addition a full-time Environmental Specialist was not internalized until 2009; relying on part-time consultants before this\. By 2010 environmental monitoring activities were well underway delivering important information on the amount of land under sustainable management and compliance with safeguards\. In addition, training in Integrated Pest Management (IPM) has also been completed to instill knowledge on more environmentally-friendly techniques to pest management – than through the use of pesticides and excessive use of fertilizers\. Social Safeguards\. No social safeguards were triggered by the Project – but public participation was rated highly satisfactory throughout the Project due to the focus of Component 1 on local communities\. A Social Assessment was undertaken for the PAD (Annex 17) including a survey among individuals in Project watershed areas\. The Project was expected to result in increased equity, community empowerment and social inclusion – and central to this was greater gender equity in decision-making\. A core indicator on gender was added to the Results Agreement after the MTR – and although crudely measured - showed that approximately 40 percent of subproject beneficiaries were women\. 2\.5 Post-completion Operation/Next Phase 13 Sustainability\. The Project’s design of inclusive community-driven development contributes to the sustainability of rural investments\. Decisions were made at the local level on what investments to implement, who should benefit and the distribution of financial resources across Component 1 categories thus building ownership\. Capacity was internalized since villagers were responsible for financial management and procurement of investments and took into consideration economic, environmental and social/institutional considerations\. For example, they had to provide evidence of cash flow and cost recovery arrangements for 3-10 years depending on the type of investment, environmental conservation and mitigation measures, and the establishment of organizations such as water user associations to support long-term operations\. The beneficiary contribution requirement (which eventually totaled US$3\.4 million) also helped build ownership and contributed to the sustainability of these investments\. Replicability\. Demonstration is one of the most powerful mechanisms for learning and the Project generated numerous examples of this\. First, the CIG decision-making model itself with inclusive and representative coordination of subprojects demonstrated that CDD investments can indeed be undertaken, even in a social context more familiar with only humanitarian aid\. Second, pilots in specific areas resulted in knowledge of what worked and what did not\. This knowledge can now be used within the community to replicate successes that benefit the individual and the environment\. Third, by operating at a watershed and Jamoat level – cross-fertilization of ideas can spread even further than traditional boundaries\. The Government’s commitment in sustaining and replicating the success of CAWMP is also demonstrated through its recent consideration of the Environmental Land Management and Rural Livelihoods Project (ELMARL) to be jointly co-financed through the Pilot Program for Climate Resilience (PPCR) and the GEF\. Modeled after CAWMP – it will include components on building rural productive assets, including sub-components similar to those under Component 1 of CAWMP and local knowledge management that will support rural populations in planning, implementing and managing rural investments\. Other key actions that contributed to sustainability and replicability are given in the table below\. Table of Key Actions Contributing to Sustainability and Replicability of Outcomes Action Economic Environmental Social/Institutional Sustainability Beneficiary The requirement that beneficiaries contribute at least 20% of the total rural contribution investment costs (including 5% in cash for rural infrastructure) helps build ownership requirement of the investment and contribute to overall sustainability\. Project awareness Attended by more than 70% raising, e\.g\., meetings, of beneficiaries strengthening workshops, etc\. the knowledge base\. Replicable Jamoat Market development rangeland management Extension period support to help ensure plan guidelines; gravity- activities (April 2011- income from current fed irrigation support for 2012) and future production\. broader watershed management\. 821 certificates issued in Project sites providing greater security to groups carrying Land Use Rights out agricultural and environmental investments and contributing to sustainable Certificates management of fragile lands and sustained income\. Replicability Dissemination Materials were prepared, published and shared in the following formats: a book on 14  activities on Project achievements; Project leaflets; several technical brochures with different experience and topics; 3 radio programs were broadcasted; a 20-minute film about Project knowledge generated achievements in watersheds; published articles in the Republican newspaper and agriculture magazines\. Materials distributed among ministries, agencies, research institutes, international and national NGOs\. Replicable subproject On average 2-3 subprojects are being independently replicated in each village by models for small individuals; with an estimated 800 replications for entire Project\. The most common farmers were in horticulture, bee-keeping and woodlots\. Created awareness of good practices that can be replicated extensively by small Farmer competitions farmers for pasture management, efficient irrigation technologies and integrated pest management\. Demonstration of CDD CAWMP concept and approach was adapted for a large scale 6-year IFAD project in in Tajikistan Kathlon (18,000 households) focusing on 3 components: 1\. Rural productivity contributing to IFAD investments; 2\. Institutional capacity building of local structures; and 3\. Project Khatlon Livelihood management with similar grant approval committees\. Project and adoption Adoption of elements of CAWMP’s approach with organizations, e\.g\., NRM aspects by other organizations by AKF/MSDSP for village planning\. Request letter from Deputy Prime Minister, and Endorsement of GEF Application by Government initiative Committee on Environmental Protection\. This is in relation to the ELMARL project to request further described above\. Although, rural investments under CAWMP are designed to be support, and linked to sustainable, new financing would enrich the benefits from such investments to other programs\. beneficiaries (i\.e\. depth) as well as replicate activities in new locations (i\.e\. scope)\. 3\. Assessment of Outcomes 3\.1 Relevance of Objectives, Design and Implementation The Project’s objectives were aligned with country-level priorities in the PRSP and World Bank’s Country Assistance Strategy 2003-2007 at the time (see PAD, page 5-6) and remain so today\. Objectives are also consistent with the current Country Partnership Strategy’s 2010-2013(recently extended until 2014) goal of reducing constraints to a post-crisis recovery and sustained economic growth (page 16) which includes increasing the productivity of physical assets such as land, water and human capital\. It is also aligned with the objective of agricultural reform viewed as being critical to enhance productive capacity and reduce rural poverty (pages 17-18)\. Each of these falls under the overarching CPS pillar of paving the way for post-crisis recovery and sustained development (page 27)\. The Project’s objectives are also aligned with strategies and policies of the Government of Tajikistan\. The National Development Strategy (2015) and Poverty Reduction Strategy III (2012) both emphasize the need to promote economic growth, especially in rural areas, and recognize the importance of addressing environmental issues, including land management, for the country’s development and poverty reduction goals\. The government is also working to expand agricultural capacity through measures to improve land tenure security and independent farm management through its Freedom to Farm policy\. The National Environmental Action Plan also states that a primary challenge for the country is land degradation, including deterioration of pasturelands, arable and irrigated lands and forests\. 3\.2 Achievement of Project Development Objectives and Global Environment Objectives Project Development Objectives were achieved as indicated by the percentage of sustainable subprojects (85%) and by the area of Project land now under sustainable land management (96,600 ha) (outcome indicators #1 and #4)\. Indicative Component 1 investments included livestock production, poultry farming, bee-keeping and horticulture (see Annex 2 for details)\. The cumulative number of 15 households in Project areas that undertook rural investments was greater than 43,000 (outcome indicator #2) and of those 50 percent are now above the poverty line (outcome indicator #3)\. The Global Environmental Objective of integrating sustainable principles into agricultural and rural development decisions was achieved through 1) the number of hectares under sustainable land management (96,600), 2) integration of environmental monitoring and impact assessment into rural subprojects, and 3) through the replication of best practice to other areas of the country - over 9,000 trained (intermediate indicator #4)\. Another globally relevant outcome was the preservation and documentation of live indigenous plant specimens\. Several expeditions were made by the Institute of Botany resulting in the identification of over 300 endemic and rare plant species including fruit trees\. The Institute also updated the Tajikistan Red Book with their findings\. Other specific outputs supporting each outcome indicator are detailed in Annex 2\. 3\.3 Efficiency The economic and financial analysis conducted in the PAD analyzed how farm productivity improvements could translate into increased retained earnings and thus reducing the percentage of people below the poverty line\. With the Project, the proportion of Project participants above the poverty line would increase to 44% by 2011\. Detailed monitoring information at the farm-level of productivity gains was not available for comparison – however improvements in income were estimated as part of monitoring and evaluation activities\. Outcome indicator #3 shows that approximately 50 percent of Project beneficiaries are above the poverty line – suggesting that the Project was economically efficient and effective\. A GEF incremental cost analysis (ICA) was also undertaken at the time of appraisal in order to justify GEF funding (see PAD Annex 15)\. The baseline cost of the Project was US$14\.4 million with an incremental cost to be supported by the GEF of US$5\.4 million\. 7 The Project cost at closing was US$11\.42 million (IDA Credit, IDA Grant, and borrower) with beneficiaries contributing US$3\.4 million (in-kind, but even more than projected) along with contributions from FOs 8 and other grants\.9 Project targets were exceeded in all instances, thus the realized benefits were greater than initially estimated – and at a lower overall project cost\. Thus, the Project can be considered efficient\. For details see Annex 3\. 3\.4 Justification of Overall Outcome and Global Environment Outcome Rating Rating: Satisfactory The PDO and GEO remain highly relevant for local rural development and global environmental protection and in meeting the objectives of the Government of Tajikistan and the World Bank\. The PDO was achieved, and surpassed in all outcome and intermediate indicators, and the GEO was achieved through the integration of sustainable land management practices at the local level and in rural 7 It was assumed that the GEF contribution (US$4\.5 million) would also leverage US$0\.9 million in beneficiary support for a total of US$5\.4 million\. 8 Facilitating Organization (FO) contributions: AKF/MSDSP – US$100,000\.00; UNDP - US$84,000\.00; WHH – US$345,000\.00 9 Separate Bank-executed project on Capacity Building in Geospatial Analysis (US$160,000\.00) and DfiD-funded Rural Vulnerability and Resilience Study (US$200,000\.00)\. 16 development decision-making\. Overall Project costs were lower than anticipated, beneficiary contributions exceeded expectations, and thus results were achieved in a cost-effective manner\. 3\.5 Overarching Themes, Other Outcomes and Impacts (a) Poverty Impacts, Gender Aspects, and Social Development Poverty, gender and social development were all part of the objectives of the CAWMP\. Poverty, as indicated above was reduced among Project participants\. Female participation in subprojects was also a main goal of the Project and as outcome indicator #7 suggests over 40% of project beneficiaries were women\. Social development can be defined in this context as expanding participatory methods (a la CDD) in decision making through the CIG model\. Greater social cohesion can also be claimed through the sharing of experiences and interactions across Jamoats and watersheds\. (b) Institutional Change/Strengthening The model introduced under the Project was completely new for Tajikistan\. It was contrary to the humanitarian aid-type of development that rural communities and the donor community was use to\. In this regard, institutional strengthening occurred at many levels\. First, at the local- and watershed-levels through the participatory methods of the CIG model mentioned above, it built local knowledge of best practice not only in productive asset building, but also with business plans, fiduciary requirements and environmental impacts\. Second, the Project also supported increased knowledge at the PMU and Government levels of how bottom-up approaches can be successful\. Finally, among other donors – it demonstrated a new way of doing development in a country where a substantial proportion of the population live in rural areas and that local empowerment can improve livelihoods - if the will is there\. (c) Other Unintended Outcomes and Impacts (positive or negative) In 2010 the CAWMP won the World Bank award for “Improving the Lives of People in the Europe and Central Asia Regionâ€?\. The Project was recognized for its achievements in improving rural livelihoods, increasing agriculture production, improving land resource management including pasture improvement, rural infrastructure rehabilitation, and involving the rural population\. 3\.6 Summary of Findings of Beneficiary Survey and/or Stakeholder Workshops A comprehensive survey of beneficiaries was not undertaken however interviews were conducted with a representative sample of subprojects\. These are summarized in Annex 5\. An important, and related, study on Farmer and Farm Worker Perceptions of Land Reform and Sustainable Agriculture was undertaken in 2011 to examine farmer perceptions in Project areas 10 that supported farmland restructuring and sustainable agricultural land management practices among rural households\. Several CAWMP areas were surveyed and it was found that farmers do indeed perceive improvements in their livelihoods and “Freedom to Farmâ€?\. 11 The executive summary is also attached in Annex 5\. 10 Project areas of several projects including: World Bank - Land Registration and Cadastre System for Sustainable Agriculture Project (LRCSP); World Bank - CAWMP; USAID – Land Reform Project in Tajikistan (LRPT); DFID – The Rural Growth Program (RGP – 2010-2012)\. 11 That is, farmers feel as though they have control over the use of their land; and the farming decisions they make\. 17 Numerous workshops were held over the life of the Project – on demonstration, training, methods, Bank procedures, etc\. In terms of outreach the PMU was also very active and disseminated many types of information to the rest of the project constituency\. These are summarized in Annex 6\. 4\. Assessment of Risk to Development Outcome and Global Environment Outcome Rating: Moderate As outlined under sustainability and replicability the objectives of CAWMP remain a priority for the Government and it is likely that support in these areas will continue\. Many of the realized benefits at the local-level are cost effective and likely to be sustained through self-initiative in preserving retained earnings\. The new World Bank project (ELMARL) will build on the achievements and lessons learned under CAWMP to expand support for climate change resilience (under grant funding from the PPCR)\. The Government’s commitment under the National Development Strategy (2015) and Poverty Reduction Strategy III (2012) also targets rural areas and agriculture as a central focal point\. 5\. Assessment of Bank and Borrower Performance 5\.1 Bank Performance (a) Bank Performance in Ensuring Quality at Entry Rating: Satisfactory The Bank identified an area of support that was and remains relevant to Tajikistan, rural livelihoods, sustainable land management, as well as with the global commons (biodiversity conservation)\. Core Project activities focused on supporting a bottom-up, participatory approach that would instill local ownership of subproject investments and build capacity to ensure its sustainability from an economic, social and environmental perspective\. The balance of components was appropriate – giving greater weight to subproject investments but supported through sufficient capacity building efforts in Component 2\. The scope was ambitious, at a scale that could demonstrate results and drew on lessons elsewhere - but Tajikistan remained untested ground for CDD-type projects\. The Bank correctly identified institutional capacity issues as a significant risk at the outset of the Project and had mitigation plans in place however it may have underestimated the extent to which this was true (more on this under Section 6\. implementation)\. Given the rather complex institutional framework to implement subprojects - it might have been worthwhile to do an institutional analysis to identify possible facilitating and contracting constraints to the CDD model\. (b) Quality of Supervision (including of fiduciary and safeguards policies) Rating: Satisfactory The Bank closely supervised Project implementation through semi-annual (or more frequent) missions and, fiduciary reviews and also maintained a constructive dialogue between the PMU, the PCUs, JDCs, WDCs, FOs and other stakeholders\. Issues raised were addressed in a timely manner and were candidly reported in official documentation – along with critical path milestones\. 12 For example, when delays in subproject flows appeared, an emphasis was placed on strengthening weak areas such as procurement 12 The Aide Memoires were thoroughly detailed and noted for identifying issues and their resolution\. 18 and training was initiated to support this gap\. However, overemphasis on subproject fund flows led to a lack of focus on other components such as environmental monitoring and this became an issue by time of the MTR\. 13 The Bank maintained focus on the fulfillment of Project objectives, and these were met or surpassed in many cases, but the underestimation of local capacity was a cause for slow disbursement and procurement issues in the beginning\. Unfamiliarity with contracting FOs in this context proved to be problematic since there was no precedent in these types of contracts and when combined with the local unfamiliarity with the OM implementation lags were encountered\. This translated into greater attention being paid to the fund flow issues from 2005-2007\. Greater guidance to the PMU on how to resolve these issues was warranted\. (c) Justification of Rating for Overall Bank Performance Rating: Satisfactory World Bank support to the Government of Tajikistan in preparing and implementing the Project is rated as satisfactory largely due to its relative responsiveness to issues and adaptation to unpredictable circumstances\. Closer attention to local capacity issues – and their appropriate resolution such as an institutional analysis may have greater impact on mitigating this risk\. 5\.2 Borrower Performance (a) Government Performance Rating: Satisfactory Government was supportive of the Project and provided the necessary facilities for project management and coordination, including field facilities\. The Ministry of Agriculture, State Land Committee, Committee on Environmental Protection and State Committee on Investments provided regular assistance to support implementation of Project activities\. The State Land Committee also provided assistance to the Project for the issuance of Land Use Rights certificates for Project beneficiaries\. However, Government counterpart funding delays were encountered during the economic crisis (around 2009) and eventually led to a slight under-commitment according to the DFA\. (b) Implementing Agency or Agencies Performance Rating: Moderately Satisfactory The PMU, as the main implementing agency, remained committed to the Project and provided satisfactory support to the JDCs, WDCs, and CIGs on daily issues and in resolving problems\. This was evident from the many interactions with stakeholders to resolve issues such as the FO contracting issue and the lack of understanding by CIGs on the OM\. In some instances there were changes in staff or vacant positions that led to some delays\. For example the Environmental Specialist position for environmental monitoring purposes was occupied only on a part-time basis until 2010 and at times other specialists were divided among other projects\. While the PMU was experienced in certain areas, the country itself had little or no experience with CDD-type projects which hindered progress in the first few years\. The PMU was able to overcome most procurement and monitoring issues, but some financial management issues persisted throughout the entire Project\. Renewed efforts, momentum and 13 Of course, it should also be understood that a lack of subprojects meant little to monitor and evaluate\. 19 subproject flow after the MTR demonstrated the PMU’s significant contribution to the Project in meeting, and exceeding, its targets\. (c) Justification of Rating for Overall Borrower Performance Rating: Moderately Satisfactory Overall borrower performance is rated as moderately satisfactory taking into account the PMU’s commitment to achieving the PDO, GEO and the Government’s support of the Project\. Despite the initial two-year lag in subproject granting, actions taken by the PMU and local stakeholders led to the achievement of the PDO and GEO\. The rating is moderately satisfactory - the lower of the two individual ratings on Government and Implementing Agency Performance ratings as per ICR Guidelines\. 6\. Lessons Learned Project design Direct investment support to farmers through a systematic small grants program, coupled with facilitation and training built entrepreneurial capacity through a learning-by-doing approach\. Farmers assumed responsibility for sustaining their livelihoods in financially and environmentally sound ways\. This move toward self-reliance represents a dramatic shift from the culture of dependency associated initially with Soviet-era subsidies and then post-conflict emergency food aid\. Participatory planning along with village and household budget limits was an effective mechanism for villagers to prioritize and assess risks of various options, as well as allocate resources\. Furthermore, open disclosure of available funds and amounts allocated to investments improved accountability\. To further disseminate this aspect, the process and results need to be documented and then shared widely with government, donors and other implementing agencies and organizations so that similar measures can be included in future planning processes\. A multi-stakeholder approach to project implementation was worthwhile even in the Tajik context where limited prior experience and local conditions made management challenging\. In addition to generating expected project outcomes, this approach improved project transparency and accountability, increased respect for partners’ strengths and provided new learning opportunities for Project participants\. New forms of collaboration between government, international agencies, NGOs, scientists, and local community groups highlighted their respective strengths, e\.g\., there is greater respect for the capacities of villagers and traditional knowledge\. The learning process has been experiential with project partners sharing good practice, e\.g\., site and personnel exchanges\. Right of Use of Land Certificates (RULC) is key for sustainability, especially for land-related subprojects in CAWMP and for other similar initiatives\. According the CAWMP design the RULC should be issued after 3 years of successful using of subproject (land)\. However, during Project implementation and the RULC issuance process - it was evident that the RULC should be given after 1 year after subproject startup or less\. This increases the confidence of farmers to use the land as a real user and owner, and the certificates should be issued without delay\. Although it was not in the Project objectives to address broader policy and legal issues related to pastures and rangelands, sustainable rangeland management will require policy and legal support informed by practical, field-based examples and experiences such as those implemented in CAWMP\. The Project reduced overgrazing pressure locally within villages’ territories through several types of 20 subprojects and demonstrated activities contributed to sustainable rangeland management\. Grazing rights are a sensitive topic because it involves several types of farmers with potentially conflicting interests (family farmer, sheep farmer, Dehkan farms, and commercial private stock breeder) and might require new legislation and /or law enforcement\. Research and demonstration of appropriate technologies can be integrated differently at Project design\. The success of the Farmers Competition shows that agricultural innovation and good practice can be demonstrated and shared in an efficient and effective way\. While research institutes have shown limited practical skills for small-scale, upland farms in terms of approach, new technology introduction is still a high priority as it increases the value of subprojects even though this may be risky in terms of adoption\. New technologies / varieties can be tested first on farmer’s plots, demonstrating their value before sharing with local authorities and other interested parties\. A more practical approach is Farmer Field Schools at the raion (Jamoat) level – reproducing actual farm conditions\. The linkage is stronger between research (NGO, institute) – demonstrations (farmer’s plot with the assistance of FO & Hukumat) – and dissemination (demonstration by farmers and Fos)\. In addition, linking these activities with government programs or priorities may help to some extent encourage Hukumat authorities to keep engaged at the end of a project\. It should be noted that these types of activities will require international assistance of the type that was planned under CAWMP from IFAD and ICARDA\. The Project would have benefitted from greater marketing expertise (e\.g\., value chain development, association formation)\. Some CIG products reaching commercial scale such as fruit, vegetables, honey, etc\. require knowledge on effective marketing\. Female participation can be strengthened through additional processes during planning\. Women beneficiaries were positively represented in CIGs with 40% of beneficiaries listed as female but the approach from the beneficiaries’ point of view appeared at times to be filling ‘quotas’ than reflecting women’s concerns\. Taking into account local-cultural circumstances, it may be possible to focus on gender specific credibility grants, gender-oriented participatory planning resulting in a more integrated community action plan and subprojects focusing on women’s strengths\. Implementation The scope and scale of JDC mandates is effective for delivering services to upland, and often more remote, farmers\. In CAWMP sub-district level organizations proved to be an effective component of scaling-up strategies for SLM in a challenging physical landscape\. In the Project 39 JDC’s handled more than 3,800 CIGs and over US$7\.0 mln\. in fund transfers\. Additionally, participatory processes helped ensure that organizations such as JDCs worked effectively with government management units to deliver technical and financial resources to farmers\. Future efforts should maintain a focus on strengthening sub-district level support to farmers with scaling-up strategies requiring investment in institutional arrangements\. It will be important to ensure that participatory processes, including financial management mechanisms, are well integrated into SLM programs\. Contracting other organizations (e\.g\., FOs) requires clarity in procedures and Project objectives – up front\. The Project experienced wide variation amongst the FOs in terms of the conditions, level of funding and support\. Part of this was explained by the lack of a coherent and consistent mandate that could have been resolved through comprehensive introductory workshops or seminars\. At PIU level, it would be beneficial to have an M&E specialist so as to relieve PMU monitoring efforts\. Monitoring at the PCU level was primarily of financial aspects with little attention on analyzing the Project implementation pace, suggesting improvements or monitoring of impact\. M&E and financial 21 specialists tended to be reactive to PMU M&E requirements and not proactive\. At the same time, any future M&E efforts also need to take into account the limited capacities and skills available in field locations as well as salary scales for government jobs\. A simpler and clearer operational manual for rural investment preparation would have been more effective\. The manual was very comprehensive and relatively clear for professional staff but for villagers, especially the less well-educated, it posed difficulties\. The requirements for environmental analysis, the business plan and the design and calculations of rural infrastructure were not well understood at Project start-up\. This resulted in JDC and FOs often preparing the proposals for those beneficiaries, leading to delays in preparation and/or grant approval because the information provided by CIGs was incomplete\. Future guidelines must accommodate the skill levels of these beneficiaries with clearer and simpler guidelines for environmental analysis and feasibility assessment\. Similarly, the proposal format requirements need to be simplified for future operations so that they can be done in time and for the most part prepared by beneficiaries\. While the manual was comprehensive on certain aspects such as approval processes, FOs had considerable flexibility in the participatory rural appraisal (PRA) process leading to the preparation of the Community Action Plans and the choice of investments by villagers\. As a result, there was variation in the quality of some proposals and some questionable investment choices\. In future, establishing a set of minimum PRA requirements for CAP preparation should help ensure that key issues are analyzed consistently\. These would include participatory environmental analyses, training in which was provided to Project partners part-way through the Project\. Training in community driven development procurement procedures would have been beneficial for PMU and PCU staff as well as other Project partners\. Such training would have enabled staff to be aware of the flexibility possible in this approach and be more able to provide suitable advice to beneficiaries, e\.g\., the options available regarding how many local shopping quotes are required for local procurement\. 7\. Comments on Issues Raised by Borrower/Implementing Agencies/Partners (a) Borrower/implementing agencies Comments on the ICR were received from Government and summarized in the letter provided in Annex 7 – pages 68-69\. 22 Annex 1\. Project Costs and Financing (a) Project Cost by Component (in USD Million equivalent) Community Agriculture & Watershed Management Project - P077454 Actual/Latest Appraisal Estimate Percentage of Components Estimate (USD (USD millions) Appraisal millions) Rural Production Investments 10\.71 10\.69 99\.8 Institutional Support and Capacity Building 3\.97 4\.90 123\.4 Project Management and Coordination 3\.34 3\.72 111\.4 Total Baseline Cost 18\.01 19\.31 Physical Contingencies 0\.00 0\.00 Price Contingencies 1\.77 0\.00 Total Project Costs PPF 0\.00 0\.00 Front-end fee IBRD 0\.00 0\.00 Total Financing Required 19\.79 19\.31 Community Agriculture & Watershed Management GEF Project - P081159 Actual/Latest Appraisal Estimate Percentage of Components Estimate (USD (USD millions) Appraisal millions) Rural Production Investments 3\.80 3\.34 87\.9 Institutional Support and Capacity Building 0\.60 0\.98 163\.0 Project Management and Coordination 0\.10 0\.17 170\.0 Total Baseline Cost 4\.50 4\.49 99\.8 Physical Contingencies 0\.00 0\.00 Price Contingencies 0\.00 0\.00 Total Project Costs PPF 0\.00 0\.00 Front-end fee IBRD 0\.00 0\.00 Total Financing Required 4\.50 4\.49 99\.8 23  (b) Financing P077454 - Community Agriculture & Watershed Management Project Appraisal Actual/Latest Type of Percentage of Source of Funds Estimate Estimate 14 Financing Appraisal (USD millions) (USD millions) IDA Grant (H0970) 5\.80 5\.91 101\.8 IDA Credit (39280) 5\.00 4\.93 98\.6 Borrower 0\.74 15 0\.58 78\.4 Other grants 0\.00 0\.36 16 - Beneficiary contribution (in-kind) 2\.49 3\.40 17 136\.5 Facilitating Organizations (in-kind) 0\.00 0\.53 18 - Total: 14\.03 15\.71 112\.0 P081159 - Community Agriculture & Watershed Management GEF Project Appraisal Actual/Latest Type of Percentage of Source of Funds Estimate Estimate14 Financing Appraisal (USD millions) (USD millions) Global Environment Facility (GEF) 4\.50 4\.49 99\.8 14 As of April 30, 2012\. 15 As revised on November 25, 2005 in amendments to the IDA Development Financing Agreement and GEF Grant Agreement - in accordance with country financing parameters\. 16 Separate Bank-executed project on Capacity Building in Geospatial Analysis (US$160,000\.00) and DfiD- funded Rural Vulnerability and Resilience Study (US$200,000\.00)\. 17 This is the beneficiary contribution, which is mostly “in-kindâ€? but with an estimated value budgeted and monitored in project accounts\. 18 Facilitating Organization (FO) contributions: AKF/MSDSP – US$100,000\.00; UNDP - US$84,000\.00; WHH – US$345,000\.00\. 24 Annex 2\. Outputs by Component Table A2\.1 Subproject Implementation Number of villages A2 Land Resource A2 –Value (US$) A3 - value (US$) A1 Value (US$) Management - Infrastructure Total Number Productivity - subprojects subprojects subprojects Number of Number of Number of Total US$ A3 Rural A1 Farm Watershed Surkob 98 197,525 222 487,593 84 202,087 404 887,205 47 Zarafshan 915 1,200,257 1,489 2,796,524 336 794,239 2,740 4,791,020 222 Vanj 72 127,230 103 313,819 70 119,028 245 560,077 71 Toirsu 123 264,865 246 658,225 87 249,284 456 1,172,374 62 Total 1,208 1,789,877 2,060 4,256,162 577 1,364,638 3,845 7,410,677 402 19 Total HH 11,379 32,134 34,299 77,812 Table A2\.2 Component 1- Farm Productivity Investments contribution, amount, US$ amount, US$ Beneficiaries Units/ Units Households subprojects Number of Quantity of Beneficiary Number of Number of Grant Total USS Subproject Category Repair of Agricultural 33 344 1,523 33 units 66, 279 43,885 22,394 machinery Bee- keeping 159 1,600 9,158 2,584 beehives 414,061 288,584 125,476 Blacksmith shops 34 458 2,418 34 units 101,715 71,059 30,656 Livestock development 510 4,363 23,608 6,433 heads 1,049,681 679,197 370,484 (purchasing livestock) Yak breeding 4 49 352 40 heads 14,758 10,573 4,185 Poultry farming 99 813 4,760 11,324 heads 199,266 136,920 62,346 Greenhouse 54 484 2,545 1,9 ha 134,875 84,427 50,448 Horticulture 64 683 3,311 74 ha 115,258 68,239 47,019 Join use of agricultural 5 81 385 5 units 15,847 11,440 4,407 machinery and equipment Annual crops 12 135 753 15 ha 35,462 18,804 16,658 Melon 5 45 233 15 ha 10,270 6,412 3,858 Plan Nursery 12 105 563 5 ha 24,135 15,922 8,213 Potato production 25 187 1,233 23 ha 51,379 38,950 12,429 19 The number of benefiting households is reported by type of investment\. It should be noted that households may participate in more than one type of investment and therefore the total reflects some double-counting\. However, it is clear that more than 43,000 households participated in the subprojects, since there was very little, if any overlap between A1 and A2 recipients\. 25  contribution, amount, US$ amount, US$ Beneficiaries Units/ Units Households subprojects Number of Quantity of Beneficiary Number of Number of Grant Total USS Subproject Category Small enterprises for agri- 47,182 produced 140 1 413 7 460 304,191 209,166 95,025 processing units 20 Vet/Vaccination 36 389 2 388 100,722 72,004 28,718 Storage for agricultural 2 48 281 2 units 8,436 5,861 2,575 production Watering place for 5 54 322 43 ha 10,840 7,763 3,077 livestock Wool processing 5 54 313 5 workshop units 13,155 7,946 5,208 Fishery 4 74 373 6 ha 18,887 12,724 6,163 TOTAL: 1,208 11,379 61,979 2,689,217 1,789,877 899,341 Table A2\.3 Component 1 – Land Resource Management contribution, amount, US$ amount, US$ Beneficiaries Units/ Units Households subprojects Quantity of Beneficiary Number of Number of Number of Grant Total US$ Subproject Category River Bank protection 22 467 2,963 1,094 ha 90,109 63,303 26,806 Canal rehab and repairing for 86 4,059 21,294 6,227 ha 431,092 290,106 140,984 irrigation Cattle pen building and repairing 30 530 2,706 30 units 92,265 67,791 24,474 Stone remove for horticulture 2 31 236 4 ha 10,157 8,000 2,157 Conversion of slope land and 79 1,147 5,874 278 ha 221,799 142,699 79,100 planting trees Annual crop 145 1,910 10,100 480 ha 386,830 259,528 127,302 Horticulture/Terracing 1,379 18,118 98,743 2,570 ha 3,817,859 2,607,742 1,210,117 Plant Nursery 2 10 48 1 ha 1,647 1,320 327 Pasture improvement 152 3,119 18,555 23,061 ha 646,942 455,856 191,086 Rehab and opening the road to 10 231 1,659 10,410 ha 25,707 20,134 5,573 pasture Potato production 2 25 133 1 ha 5,494 3,805 1,689 Vineyards 62 1,146 6,613 431 ha 243,034 166,281 76,754 Building of small dams for small 8 127 733 7 048 24,020 18,518 5,502 water reservoirs cattle in pasture Woodlots 69 1,084 5,691 80 ha 177,964 136,057 41,907 Planting of Herbs 6 69 329 57 ha 13,622 9,949 3,673 Composting 5 37 175 5 units 3,512 2,260 1,252 Water storage 1 24 169 125 3,778 2,812 966 TOTAL: 2,060 32,134 176,021 6,195,832 4,256,161 1,939,669 20 These are items such as jars, etc\. 26 Table A2\.4 Component 1 – Rural Infrastructure contribution, amount, US$ amount, US$ Beneficiaries Units/ Units Households subprojects Quantity of Beneficiary Number of Number of Number of Grant Total US$ Subproject Category Drinking water supply 170 11,676 83,517 622,899 448,013 174,886 Biogas 2 62 337 1 unit 8,539 6,484 2,055 Building for biogas system 1 13 70 1 unit 2 572 2 052 520 Rehab and opening the road to 161 9,149 55,019 23,226 ha 468 510 339,543 128,966 pasture Repair of Pump station 7 505 2,496 36 494 22 084 14,410 River Bank protection 10 670 3,432 414 ha 28 554 21 771 6,783 Repair and built of small bridge 56 4,066 23,414 842 meters 194 443 140,305 54,138 Building for SHPS 1 12 59 1 unit 2,646 2,117 529 Rehabilitation of Small Hydro 24 522 2,852 189 KWt 65,015 39 602 25,413 Power Station (SHPS) Repair of transformation 2 35 181 32 units 6,384 5 107 1,277 Canal rehabilitation repair for 131 7,200 43,922 13 419 ha 461,768 317 135 144,633 irrigation Drainage rehabilitation 7 207 1,252 5 km 19,251 14 771 4,480 Use of Solar Energy 5 120 943 8 kWt 5,077 4,026 1,051 TOTAL: 577 34,237 217,494 1,922,151 1,363,010 559,140 Table A2\.5 Information on Fruit and Nut trees, Woodlots and Nursery Subprojects Number of Number of trees Of which Nut № District Area, Ha subprojects planted trees Horticulture 1 Tajikabad 40 63\.5 25,745 569 2 Jirgatal 60 115 43,110 1,110 3 Aini 403 335 100,780 1,400 4 Mastchohi Kuhi 53 481 137,860 1,300 5 Panjakent 640 1,192 455,040 13,600 6 Danghara 164 295 105,900 8,900 7 Vanj 83 162\.4 64,880 3,600 Total: 1,443 2,643\.9 933,315 30,479 Woodlots 1 Tojikobad 6 16 118400 27  Number of Number of trees Of which Nut № District Area, Ha subprojects planted trees 2 Jirgatal 37 26 247,000 3 Aini 8 8 7,300 4 Mastchohi Kuhi 0 0 0 5 Panjakent 4 3 4,300 6 Danghara 6 6 4,890 7 Vanj 8 21 20,970 Total: 69 80 402,860 Nursery 1 Tajikobod 0 0 0 2 Jirgatal 3 2 74,500 3 Aini 8 2\.1 75,000 4 Mastchohi Kuhi 0 0 0 5 Panjakent 3 1\.5 56,000 6 Danghara 0 0 0 7 Vanj 0 0 0 Total: 14 5\.6 205,500 NOTE: Walnut trees were planted in 4 ha in Jirgital district only, with planting scheme of 6 X 6\. Other nut trees are planted on contours, and within gardens\. Table A2\.6 Monitoring of sustainable land management and other environmental impacts Amount in Type of Quantity Area Subprojects categorized by main activities: Quantity US$ Units of Units covered Repair of agricultural machinery 33 43,885 Bee-keeping 159 288,584 Bee hives 2,584 Blacksmith shops 34 71,059 Livestock development (purchasing livestock) 510 679,197 heads 6,433 Yak breeding 4 10,573 heads 40 Poultry farming 99 136,920 heads 11,324 Greenhouse 54 84,427 ha 2 2 Horticulture 1443 2,675,981 ha 2,644 2,644 Joint use of agricultural machinery and equipment 5 11,440 Annual crops 157 278,332 ha 495 495 Melon 5 6,412 ha 15 15 Plant nursery 14 17,242 ha 6 6 Potato production 27 42,755 ha 24 24 Small enterprises for agricultural processing 140 209,166 Veterinary/Vaccination 36 72,004 28  Amount in Type of Quantity Area Subprojects categorized by main activities: Quantity US$ Units of Units covered Storage for agricultural production 2 5,861 m2 78 Watering places for livestock 13 26,281 ha 7,048 7,048 Wool processing 5 7,946 Fishery 4 12,724 ha 7 7 Drinking water supply 170 450,364 M 67,791 Biogas 3 8,536 Rehab and opening the road to pasture 171 359,677 ha 33,636 33,636 Repair of pump stations 7 22,084 ha 444 444 River banks protection 32 85,074 ha 1,508 1,508 Repair and built of small bridge 56 140,305 M 842 4,050 Rehabilitation of small hydropower stations 24 41,719 kBt 189 Repair of electric transformer 2 5,107 Canal rehabilitation and repairing for irrigation 217 607,241 M 19,646 1,250 Drainage rehabilitation 7 14,771 Km 5 340 Use of solar energy 5 4,026 kBt 8 Cattle pen building and repairing 30 67,791 m2 17,885 21,250 Stones removing for horticulture 2 8,000 ha 4 4 Terracing of slopes and planting trees 79 142,699 ha 278 278 Pasture improvement 152 455,135 ha 23,061 23,061 Vineyards 62 166,281 ha 431 431 Woodlots 69 136,057 ha 80 80 Planting of herbs 6 9,949 ha 57 57 Composting 5 2,260 Building of small dams for small water reservoirs 1 2,812 m3 125 TOTAL: 3845 7,410,677 0 196,691 96,630 Table A2\.7 Number of issued Land User Right Certificates № Watershed Number of Certificates Area, ha 1 Zarafshan 447 534 2 Surkhob 164 118 3 Toirsu 85 280 4 Vanjob 125 15 Total : 821 947 29 Project Outcomes At least 80% of rural production investments are successful according to agreed standards and are being maintained\. Field assessments indicate that about eighty-five of ten subprojects can be considered as successful\. Reasons for unsuccessful investments include loss of assets to disease, pests and natural events, e\.g\., loss of animals to floods\. All villages participate in credibility investments\. - All villages participated in credibility investments\. However, the timing of implementing these investments could have been better so that they were carried out before subproject implementation\. This overlap sometimes led to confusion among beneficiaries about what type of investment they were participating in\. Overall the purpose of these investments was achieved; beneficiaries gained confidence in some of the project approaches and also gained experience in the pilots of possible subprojects\. Number of participating households in at least one of the types of rural production investment is at least 50% of total Project area population and being replicated elsewhere\. - Overall more than 50% of the total Project households (>43,500) participated in subprojects\. In the case of rural infrastructure, depending on the type of investment entire villages benefited, e\.g\., drinking water supply\. This leads to some overlap in participation by households in land resource management and farm productivity investments as well\. Therefore, only the participants in these two types of investment arecounted, but numbers for each investment are provided in the tables above\. In communities that are participating in the Project, the proportion of people above poverty level increases from 3% to 30% - The proportion of people above the poverty level rose to 50% in Project communities\. Estimated income (after subtracting costs) for farm productivity and land resource management investment varies from US$100 to US$300/HH/year\. In addition, the food security effect is significant\. CIGs have a practice of sharing surplus produce with vulnerable and less-well off individuals\. They also consider such practices contribute to maintaining social cohesion and harmony in villages\. Improved livestock management is estimated at adding 5-10% value to the animals due to fattening, improved health\. In the case of land resource management investments, the effect on poverty reduction is higher as the CIGs already benefit from intercrops even before the trees bear fruit\. At least 78,000ha covered by land resource management subprojects and other Project activities that directly and successfully address land and ecosystem degradation (see Table A2\.6 above)\. - To date the total area of lands directly improved by Project beneficiaries through straight application of new and technologically effective approaches is 15,244 hectares\. A considerable portion of lands have also been improved due to secondary direct actions which decrease of the risks of degradation processes\. These actions and results include: Minor roads (access tracks) and trails reconstruction which enables people to use and improve remote lands and also to route herds which in turn promotes the natural restoration of lands along main trails of moving livestock\. 30 Reconstruction and repairing of small bridges has provided similar opportunities for local people\. By a preliminary expert estimation, these investments have allowed access to and opportunities to better manage approximately 9,900 ha of agricultural lands (the same assumption as above has been applied to assess the impact of this category of subprojects)\. Construction and reconstruction of animal housing has provided opportunities to decrease the impact on winter pastures and lands close to villages and also improved sanitary conditions in villages\. Creation of drinking ponds provided similar and even more widespread secondary benefits as these drinking points reduce the necessity of long droves, especially along lands adjacent to settlements and villages\. Other activities also add to decreasing the risk of land degradation through soil erosion, and improving soil conditions for sustainable land use: - bank protection with gabions and tree planting to combat gully erosion, - tree planting along canals and roads to prevent land degradation\. The total length of tree belts and gabions is more than 213 km\. Expert assessment indicates that at least 10,700 ha of fixed slopes and rehabilitated lands have positive impacts\. The rate used for this calculation is 50 meters width of the strip along the tree belts and\or gabions, leads to protection of 15 to 200 meters with a tendency for this area to become wider with tree growing\. The environmental impact of the Project is even larger due to additional beneficial effects of housing livestock\. The construction/reconstruction of 29 animal housing structures serves approximately 45,000 heads of small livestock\. On average in Tajikistan one sheep needs from 0\.8 to 1\.0 ha for sustainable grazing\. It means that the construction of these sheepfolds indirectly raises the health of sheep and they need relatively less forage while grazing on an area of more than 40,000 ha\. Positive impacts are achieved through the majority of herds being managed (veterinary service, shearing, lambing, etc\.) in more remote grazing areas away from settlements\. This results in decreased pressure on large areas between villages and remote pastures, which remain free of the high pressure of small cattle and livestock for the summer period\. The use of yaks in a few subprojects in Ayni and Jirgital raions instead of sheep and goats also adds to more sustainable management of summer pastures as yaks are less harmful to soils and vegetative cover\. Thus, beneficial secondary impacts of subproject actions cover not less than 79,800 ha, which when combined with the area under primary impacts results in not less than 96,000ha covered by land resource management and other project activities\. In addition to area under Project activities, it is necessary to note other beneficial environmental results: • Farmers are using biological methods for plant protection as alternatives to chemical control in at least 210 ha; • Farmers have established more than 5,300 beehives helping to revitalize an important economic activity as well as a critical ecological process for agricultural productivity and biodiversity conservation; • Water saving technologies in irrigation in subprojects are estimated to save at least 250 cubic meters a year; 31 • Power-saving technologies, such as solar heaters and driers and water mills, are estimated to save at least 260 thousand KW/hours per year\. Additionally, 25 micro-hydro units have been rehabilitated or established Intermediate indicator results Total investments in farm productivity and land resource management have exceeded targets\. Beneficiary contributions as noted elsewhere in this report have exceeded the minimum requirement with villagers contributing about 31% of total Project costs\. The Project also assisted in the establishment of 2 micro-loan organizations in Zarafshan\. Plans for additional MLOs had to be stopped when the national legislation on such organizations changed with an increase in the minimum amount required for establishment\. An initial capitalization of $200,000 was not possible under the Project framework\. More than 570 small-scale rural infrastructure investments have been completed (see Table A2\.4)\. These have helped reduce conflict in villages over resource use, reduced the burden on women and other households members in activities such as water collection\. Improved facilities also contributed to reduced local erosion, e\.g\., drinking water taps\. Villagers also formed associations to manage water resources to help ensure long-term operations\. The Project provided small grants to farmer groups to plant over 1\.3 million trees on their lands, covering about 3,000 ha\. Relevant subprojects include woodlots, horticulture (fruit and nut orchards), terracing and planting of trees, beekeeping, and plant nurseries (see Table A2\.5)\. The Project has also provided support to arrange for secure land use rights to the grant recipients for the land resource management subprojects, in order to ensure an incentive framework for sustainable land management (see Table A2\.6)\. At least 9,000 rural people received technical training from TAAS, FOs, or other Project partners\. Although this target was achieved it should be noted that the research and demonstration activities implemented by the scientific institutions were not as successful as anticipated\. The Project worked with the Tajik Academy of Agricultural Sciences, Soil Institute and Crop Husbandry Institute to strengthen their capacities to provide technical services and training to communities\. However, most scientists were more familiar with implementing Soviet-style, large-scale demonstration strategies and technical inputs that no longer match the needs of small mountain farmers and current production systems\. Anticipated support from IFAD to build JDC/JRC technical capacities did not materialize due to bureaucratic delays, and partnerships with CGIAR institutions, such as ICARDA, which would have provided technical assistance in collaborative and farmer-focused approaches\. Ultimately, 30 small demonstration plots were established to assist local farmers in improving their agricultural practices\. The overall impact of these demonstration plots and outreach to upland farmers was limited\. A more effective mechanism to share innovations was the farmer competition to highlight and reward good practices\. Preservation of live, indigenous plant specimens - several expeditions were made by the Institute of Botany resulting in the identification of over 300 endemic and rare plant species including fruit trees\. The Institute also updated the Tajikistan Red Book with their findings\. 32 Annex 3\. Economic and Financial Analysis An incremental cost analysis (ICA) was conducted at appraisal as per GEF requirements\. This Annex reviews the ICA against Project implementation results\. For details on the benefits, assumptions, baseline and GEF Alternative – refer to Annex 15 in the PAD\. Incremental Cost Analysis a) ICA at Appraisal The ICA compared the baseline scenario with the GEF-Alternative scenario\. The baseline included: (a) on-going and planned activities undertaken by the Government, in order to improve livelihoods of rural communities while reversing degradation of fragile lands and ecosystems (US$2\.0 million); (b) the associated contribution by beneficiaries in proportion to their level of external support (US$1\.6 million); and (c) activities and resources being financed by IFIs and other donors (US$10\.8 million)\. The full baseline scenario was estimated to be US$14\.4 million\. Baseline Benefits: The baseline scenario included the following benefits: • Provide rural infrastructure investments; • Provide support for farm productivity improvements; • Provide support for land resource management covering 21,000 ha\. The scale of gully and landslide prevention would be smaller; • Support for scientific research, including support for nurseries, field trials, and line agency capacity building\. However there would not be sufficient funding to restore Tajikistan’s capacity to preserve specimens of indigenous crop varieties; • Facilitation and planning support necessary to mobilize communities and ensure the feasibility of rural production investments\. Feasibility and eligibility guidelines include communications, group process, organizational and administrative arrangements, contribution requirements, budget limits, and institutional capacity, social, financial, commercial, technical, and environmental considerations\. However training and dissemination efforts would be limited\. Table A3\.1 Incremental cost matrix as of Project Appraisal and Completion (US$ million)* At Appraisal At Completion Incremental Cost Incremental Cost Component Baseline Baseline GEF Total GEF Total Cost Other Cost Other grant grant Rural Production 7\.20 3\.80 0\.90 11\.90 6\.45 3\.34 0\.9 10\.69 Investments Institutional Support and 3\.70 0\.60 0\.00 4\.30 3\.92 0\.98 0\.00 4\.9 Capacity Building Project Management and 3\.50 0\.10 0\.00 3\.60 3\.55 0\.17 0\.00 3\.72 Coordination Total 14\.40 4\.50 0\.90 19\.80 13\.92 4\.49 0\.90 19\.31 Source: PAD, Annex 15\. * Including physical and price contingencies\. 33 The GEF-Alternative scenario, at an incremental cost of US$19\.8 million of which the GEF would finance US$4\.5 million, would support in initiatives in each of the three components: 1\. Rural Production Investments (US$11\.9 million; GEF financing - US$3\.8 million)\. This component comprised support for subprojects in farm productivity improvement, land resource management, and rural infrastructure\. Financing from GEF, blended with the IDA financing, would accelerate and expand the land resource management subcomponent\. It would address biodiversity conservation and soil protection through vegetative cover restoration to 78,000 ha, which was 57,000 ha above the level that would have been supported by the government on purely national grounds\. It would promote biological conservation and moisture retention techniques which made the best use of in-situ water and recharge profiles, increase vegetative cover and generally improved soil structure and water holding capacity\. In addition, because of the requirement that beneficiaries contribute at least 20% of the subproject investment costs, GEF financing would leverage an additional US$0\.9 million in beneficiary contributions for land resource management subprojects, which would not have been forthcoming in the absence of the additional GEF financing\. 2\. Institutional Support and Capacity Building (US$4\.3 million; GEF financing - US$0\.6 million): This component would strengthen scientific institutions, and included the restoration of Tajikistan’s capacity to preserve specimens of indigenous crop varieties, in collaboration with the Consultative Group for International Agricultural Research’s Central Asia and Caucasus unit in Tashkent\. It would strengthen the capacity for seed and seedling production\. It would include training for communities, community-based organizations, and interest groups and the Jamoat and Watershed Development Committees\. It included initial confidence building mobilization grants for each participating village\. It would also include information and experience sharing on a wide variety of institutional, technical, environmental, financial, and management topics, including monitoring and evaluation\. Blended GEF financing would enable additional funding for extra support required to increase the extent of land resource management investments, information sharing and awareness-raising on land degradation and biodiversity conservation topics, as well as specimen preservation of indigenous crop varieties\. 3\. Project Management: (US$3\.6 million; GEF financing - US$0\.1 million)\. The Project management component would support Project coordination and administration staff, procurement, disbursement, financial management, reporting, monitoring, and evaluation activities, at the national level and for each of the four Project watershed areas\. The component would also support the secretariat services to be provided to the national Steering Committee, and support the Watershed Development Committees to enable them to appraise Jamoat proposals for financing from rural communities in a manner consistent with good practice\. Blended GEF financing would support increased management of land resource management investments, enabled more extensive evaluation of mountain ecosystem degradation trends, as well as exchange of experience both within the country and with other countries, thus further strengthening replication impact\. b) ICA at Completion Project results were exceeded in all cases with an incremental cost of US$5\.39 million including the GEF Grant of US$4\.5 million\. Thus from a cost-efficiency standpoint the Project can be rated as highly satisfactory\. 34 Annex 4\. Bank Lending and Implementation Support/Supervision Processes (a) Task Team members Names Title Unit Lending Allen Wazny Sr Financial Management Specialist ECSOQ Bekzod Shamsiev Senior Agriculture Economist SASDA Daniel P\. Gerber Rural Development Specialist ECSS1 Naushad A\. Khan Lead Procurement Specialist SARPS Thirumangalam V\. Sampath Consultant ECSS3 Supervision/ICR Alexander Balakov Procurement Specialist ECSO2 Aliya Kim Finance Assistant ECCKA Bekzod Shamsiev Senior Agriculture Economist SASDA Bobojon Yatimov Senior Rural Development Specialist ECSS1 Craig Meisner Environmental Economist ECSS3 Daniel P\. Gerber Rural Development Specialist ECSS1 Dilshod Karimova Procurement Analyst ECSO2 Eustacius N\. Betubiza Country Program Coordinator AFCCD Evelin Lehis Consultant ECSSD Fasliddin Rakhimov Procurement Specialist ECSO2 German Stanislavovich Kust Consultant ECSS3 Jessica Mott Sr Natural Resources Econ\. ECSS3 John Otieno Ogallo Sr Financial Management Specialist ECSO3 Marc Peter Sadler Senior Agriculture Economist ARD Nandita Jain Consultant ECSS3 Nigora Safarova Consultant ECSSD Norpulat Daniyarov Financial Management Specialist ECSO3 Peter Zara Junior Professional Associate ECSSD Sanjay Sinha Operations Officer ECSS2 Shodi Nazarov Financial Management Analyst ECSO3 Thirumangalam V\. Sampath Consultant ECSS3 35  (b) Staff Time and Cost Staff Time and Cost (Bank Budget Only) Stage of Project Cycle USD Thousands (including No\. of staff weeks travel and consultant costs) Lending FY03 25\.79 147\.4 FY04 50\.89 207\.9 Total: 76\.68 355\.3 Supervision/ICR FY05 29\.97 92\.3 FY06 27\.88 102\.2 FY07 16\.85 108\.1 FY08 6\.11 39\.1 FY09 10\.97 81\.8 FY10 9\.95 99\.3 FY11 21\.73 148\.1 FY12 13\.93 84\.0 FY13 4\.83 5\.0 Total: 142\.22 760\.0 36 Annex 5\. Beneficiary Survey Results Experiences in subproject implementation The Project did not have a beneficiary survey however the information below summarizes feedback received during interviews with a representative sample of subprojects\. 1\. Gafforov Kurbonboy, member of the CIG “Zotiâ€?, Rudaki Jamoat Development Committee of Penjikent rayon, comment on their experience in animal husbandry: At the initial stage of the Project implementation we actively participated in the training courses on animal husbandry by using modern methods\. These training sessions were done by the Institute of Husbandry of Tajik Academy of Sciences, professors of the Agrarian University of Tajikistan employed by the Project\. During these sessions we gained theoretical knowledge of animal growth and care\. They also taught us how to identify animal illness\. Before the Project we did not have such knowledge, we did not even think of the modern methods - we just drove our cattle out for grazing\. Under the Project, we all have received instruction and information materials, we studied them and improved our knowledge on animal husbandry and gained experience\. After the subproject introduction, and after recommendation and support of the Jamoat Development Committee and PCU, we procured in Jillikul rayon of Khatlon oblast 6 cows of the Swiss breed\. This breed appeared in Switzerland based on the selection of best breeds adaptable for good fodder and keeping conditions\. This breed has 2 sub-breeds – mountain and low plain types\. The live weight of this cow averages to 600-650 kg, while oxen may reach up to 1000 kg\. Each of such cows in Switzerland produces 4200-4500 kg of milk; the milk fat is up to 3\.7%, proteins – 3\.4%\. This breed of cow is currently developing in the countries of Central Asia\. In Vakhsh rayon, as a result of interbreeding local cows of Zebumonad type with the Swiss oxen produced in the new breed – Swissuzebu-monand, which is well adaptable to hot and dry climate of this locality\. This breed retained the productivity of the Swiss breed and adaptability to local conditions\. For this new type of cattle, we constructed new big sty for the animals to keep and feed in winter time\. As was recommended by representative of local Jamoat, we stocked the vitamin-rich fodder for the entire year\. Owing to the Project, we now have a vet office\. Its specialist frequently visiting us to inspect the cows, and we have an opportunity to timely receive any assistance required\. Before that, only to find animal medicine we spent a lot of time\. Now we feed animals on schedule, we observe the keeping conditions\. In addition, we timely apply vaccination\. As a result of the use of modern technologies and sustainability methods the number of cattle heads increased several times\. The daily milk yield is 60-70 liters, part of it is consumed by families, and part is sold to neighbors and other people\. We collect manure to prepare compost, after this we use it as organic fertilizer to introduce to soil to increase its productivity\. We feed animals, according to recommendations, in the amount of 14- 15 fodder units\. The gained revenues distributed in equal shares among the CIG members\. Because of this, our welfare level is increased, and we will try to work to be even more effective in the future\. We receive visitors from the nearby villages, people learn our experience and build there the same small farms and grow cattle by using our technologies\. 37 2\. Experience and recommendations in the sphere of horticulture (pears and apples in the mountains) The orchard subproject in Tajikabad rayon; the group leader Khudoidodov Yusuf\. Considering regional climatic conditions and with Project support, we established a pilot regional garden for tree\. Using skills obtained from the training course and new technologies we learned new ways of introducing horticulture\. On 10 ha we planted a garden of which 560 quality seedlings were brought from Ministry of Agriculture’s nursery in Dushanbe\. The garden yielded rich fruits, melons and gourds from better row-spacing and through the prevention of soil erosion; the development of new methods of farming; and pest control as recommended by scholars and specialists\. In the course of subproject implementation we gained rich experience in growing fruit trees in mountain areas\. This experience was shared with other fruit tree planters in mountain areas\. For example, for apple trees we recommend the following: to ensure fast seedling growth - plant them in areas of 5-65m x 2-3m, for moderate growth 4-5m х 2- 3m, and for low-growth trees plant them in 3-4m х 2-3m\. Recommended types of trees: Summer: Selected Samarkand, Borovika Tashkentia, Plodorodny; Autumn: Golden Delicious, Goldspur, Jonored, Johnathan, Golden Winter Parmen; Winter: Ranet Semerenko, White Rosemarine, Delicious, Starcrimson, Wellspur and Delicious Red\. Growing pear trees also taught us a lot\. We learned that wild-growing varieties are a very important base for grafting and crossing-breeding\. The more popular local types of pears and noshpoti, keep well and during transport\. The Harm type of pears in regular storehouses under the normal temperature can be kept up to 7-8 months\. The tree is heat-loving, requires little water, but cannot stand dry weather\. In wet soil, with no ground water, it develops well and grows long\. The adaptable early-fruit bearing trees are: Trevi, Swallow, Klapai Aziz, Bee Zhiraf, Autumn Forest, Williams, Bere Ligellia, Bere Bosk, Winter Kure, Harmskaya Pear, Dilafruz, Zhosefina Makhelinsky, Der Seer\. A pear tree can be crossed with the quince tree or another pear tree\. The crossed hybrids bear good fruit and can sprout well in soil lacking moisture, and still develop\. To get bushy pear trees it is necessary to cross them with the small-fruit quince seedling\. The pear trees of type Harmsky, Red Nashpoti, Red Williams and Starcrimson crossed with quince is not recommended; since the operated place on the trunk develops weakly, breaks or dries out\. Only the Kurero type is advisable for quince crossing\. For this, a cut is made on the quince trunk, a groove is made to insert fresh twig of pear tree and one must wrap it tight with fabric\. In a short period of time the new twig will inoculate and start growing\. By crossing pears this way, it is then necessary to plant them in an interval of 6m х 6m for good results of crossing, or in the interval of 4m х 5m or 4m х 3 for satisfactory crossing results\. Pears are pollinable types of trees and many can turn out barren, so tree planting requires trees nearby with an abundance of pollen\. In mountain areas pear seedlings can, among others, get a “pear honeyâ€? disease\. This is a persistent disease and requires protection measures\. Our pilot garden was visited by people from other villages; they also learned these modern methods 38 of horticulture and introduced them in their own work\. 1\. Farmer Best Practices – examples of competition winners Pasture management With Project funds our CIG members improved pasture conditions in 2 ha\. We sowed summer cypress on land that was farmed intensively and was highly eroded\. Today the shrubs grow very well, and we hope to collect some 200 seeds and increase its sowing area\. All year round (any season) the summer cypress is used for fodder\. In cases of adequate care - this shrub produces good fodder for 25 years\. Activity benefits: Sowing summer cypress Cattle fodder availability, especially for small cattle Pastures restoration Good crops of cypress and perspective increase of sowing areas Vanj rayon, Muminshoev, B\., Chairman of the farm “Mukhamadâ€? To improve pastures a 3km long waterway was built and sowed alfalfa on 14 ha\. Climatic conditions allowed for 3 crops per season; with a yield of 14 centers per hectare\. The activity of Muminshoev was pasture improvement – but they were also able to stock fodder for winter from high-quality alfalfa\. Under local conditions domestic cattle only graze 6 months a year on pastures, and another 6 months should be kept in winter enclosures\. The farm members intended to increase alfalfa sowing on pastures in future\. Activity benefits: Water available for animals Cost effectiveness on water supply Pastures restoration which for years were not irrigated, and animals in search for water had to travel big distances and they were losing weight Modern plant protection methods Nabotova Makhvash, leader of the farm “Mekhnatâ€?, Jamoat Vanj Nabotova’s experience in plant protection and cultivation methods is rather interesting and extensive, and neighbors use this experience\. On an area of 1\.2 ha they planted an orchard of 0\.3 ha and the remaining 0\.9 ha was used for other cultivation\. The Nabotova’s orchard is well managed, and for pest control is using traditional methods (traps) with visible results\. In other areas she is growing potatoes, vegetables and other cultures for fodder\. Using such a sowing method is good for crop rotation; the harvest yield from trees and other cultures is high\. She is using modern technologies to grow cultures\. Activity benefits: Rational and effective use of plants protection 39 Land and crop rotation Receiving 2-3 harvests per season Marketing studies Nabotova’s area of 0\.5 ha have sown various vegetables, used advanced technologies and popular methods of plant protection\. During the work - the sowing calendar was observed\. Activity benefits: Effective use of plants protection methods Experimenting with growing different agricultures Organized sowing Manpower attraction, including women to work in fields Modern plant protection methods in the Ivan-Tojik Jamoat\. Kuhistoni Maschoh district Koziev Mullonemat, CIG leader form the Ivan-Tojik Jamoat, Niezov Niezbobo, leader of “Dobbukovâ€? farm, Jamoat Ivan-Tochik, and Junusov Junus, leader of “Revomtukâ€? farm, Jamoat Ivan-Tochik, were introducing popular plants protection methods and received good results\. Activity benefits: Staged use of known methods in own business Observing sowing terms and methods and tree protection Awareness raising and improved economy through training Use of modern methods in the mountains Executive summary from the World Bank Farmer and Farm Worker Perceptions of Land Reform and Sustainable Agriculture Study Farmer’s decisions are largely shaped by their perception of how exposed they are to different social, economic and environmental impacts\. Chief among these are limited management control over farmland, land degradation and low levels or sources of other assets\. Previous farmer assistance in this area has focused on building capacity to cope with these factors and create incentives for better land management\. The experience from former state-directed economies undergoing transition has shown that what works best is to create ‘incentive frameworks’ that link land tenure (or security) and asset accumulation along with building farmer’s capacity to respond to shocks and stresses\. This increases farmer confidence or ‘resilience’ and can lead to greater entrepreneurial behavior or even the adoption of more environmentally-friendly and sustainable land management practices\. Discovering these linkages and the underlying conditions of success still requires further field-evidence – especially in countries under transition\. This is a summary of a report that presents the findings of a recent study in Tajikistan that examined farmer perceptions in Project areas that supported farmland restructuring and sustainable agricultural land management practices among rural households\. The findings are expected to be of value to government decision-makers at all levels, civil society organizations, donors and other practitioners interested in practical recommendations for improving current and proposed projects in land reform, agricultural production, sustainable land resource management and related fields\. 40 The study was a collaborative effort of the British Department of International Development (DFID), World Bank and United States Agency for International Development (USAID), and focused primarily on sites where these agencies were supporting projects\. This report also draws on an earlier 2007 assessment by the World Bank and USAID that examined knowledge, attitudes and practices toward land restructuring among farmers and farm workers (World Bank and USAID, 2008)\. Two thirds of Tajikistan’s population is engaged in agriculture that falls into two broad farming systems: upland areas characterized by wheat, potatoes and certain types of horticulture along with large tracts of rain-fed pasture; and lowland areas where irrigated cotton in rotation dominates\. Unlike other countries in the Europe and Central Asia region, Tajikistan has not completed the reform process of allocating and registering land use rights for independent farmers so that they are better able to manage their farmland in response to market forces\. “Freedom to Farmâ€? without government interference is unevenly practiced in the country\. At the same time environmental degradation and unsustainable use of natural resources are important constraints to rural growth, and as a consequence, the country’s overall agricultural productivity remains low\. Fieldwork for the study was conducted between March and July 2011, and included a quantitative survey of 1,800 farmers in 18 raions (districts), supplemented by focus groups, in-depth interviews and case studies in eight raions\. Due to the modest sample size the study cannot claim to be representative of all farms and farmers in the country, however for the areas covered it does describe the results of interventions from the farmer’s viewpoint (or perception)\. While the knowledge, attitudes, and real and perceived assessments are critical in shaping behavior, it should be noted these may not accurately reflect the actual legal situation or official government data\. Changes and Results in the Process of Farmland Restructuring Under the World Bank financed Land Registration and Cadastre System Project (LRCSP), there has been significant acceleration in the issuance of land use rights certificates for family farms (25 or fewer shareholders), with 36,911 issued since 2009\. This acceleration is an important outcome of the 2009 Government decree\. Qualitative results show that farmers acknowledge speedier, more transparent, and no-fee processing of applications compared to the regular Land Committee channels in which farmers might encounter delays, mistakes, and resistance to restructuring by local officials\. The study indicates that rural people have basic knowledge about their rights, but do not fully understand the details of the farmland restructuring process\. Both the 2007 and 2011 surveys documented that respondents are aware of having heritable rights and freedom to choose what to plant\. However, despite educational efforts by projects, few farmers know about specific differences between farm types, and the steps needed to fully restructure farms\. Key perceived barriers to undertaking restructuring include a lack of machinery, lack of experience managing a farm, lack of access to irrigation water, process costs, and the associated tax and debt burden, all of which contribute to an overall lack of confidence in farming independently\. Those who work on farms yet to be restructured into units of less than 25 members are the most concerned about these barriers\. However, perceived benefits, such as the ability to farm independently and make money are also rated as being very important incentives to restructure\. 41 Freedom to Farm The confidence of farmers that they control use of their land has increased significantly since 2007\. In 2011, close to half of all respondents strongly agree that farmers can make farming decisions, compared to slightly more than 25% in 2007\. Exceptions can be found, however, in cotton production, where only 29% of women strongly agree compared to almost half of men\. In collective farms with more than 25 members/workers, farm heads continue to be the decision- makers\. Upland farmers are more likely to say they are able to make independent farming decisions than farmers in lowland areas where cotton predominates\. Yet areas still remain, such as Tojikobod and Konibodom, where local authorities pressure family farms to grow a fixed percentage of key crops such as potato and cotton\. Gender Issues and Social Tax Conservative attitudes and practices which are still maintained in some regions of the country limit women’s access to information about restructuring and agricultural operations, even though it is widely acknowledged that women comprise the bulk of agricultural labor\. In 2011, 25% of women still report having no sources of information on restructuring\. Women also are much less likely than men to have either advanced general education or specialized agricultural training\. The long-term rights of women are affected by their omission from certificates\. Survey respondents confirmed that women were omitted from certificates in one of every ten cases\. Cultural norms and practices attach more importance to including men’s names; however, in about 40% of the excluded cases, the social tax was cited as a somewhat important or very important reason\. The social tax of 15 somoni (about $3) per month also results in other family members being omitted from certificates, e\.g\., young adults\. Other difficulties with the social tax include payments that are due when members are not working, and having to pay twice if someone works on two farms\. The burden of the social tax and associated transaction costs can be substantial for small, labor-intensive farms\. Failure to pay the social tax can result in the farmer losing rights to the land\. Rural Organizations Mechanisms are needed to resolve problems and take advantage of opportunities that extend beyond the farm and family\. Examples of problems include access to irrigation and canal maintenance, machinery, and credit\. Coordinated efforts necessary for watershed management and other activities to sustain and protect the environment and resources should also be included\. A mix of approaches are being used and tested, including Mahalla Councils, hashars and other traditional practices, commercial services by private vendors, and non-governmental and donor organization activities\. The Community Agriculture and Watershed Management Project (CAWMP), which used farmer common interest groups, is an example of donor-sponsored activities\. With the exception of Vanj, where the Aga Khan Foundation/Mountain Societies Development Support Programme has set up village organization activities as a regular practice, 42 mechanisms to resolve these problems are often either lacking or unable to successfully address issues\. Agricultural Operations, Livelihood Outcomes and Aspects of Vulnerability Compared to 10-15 years ago, more than half of men and 44% of women say they are better off\. When asked about conditions 10-15 years ago, only about 10% of men and women say they are worse off, with the rest saying they are the same\. Qualitative results indicate that migrant remittances played a key role in the improved status of many households\. Comparing the results between the 2007 and 2011 surveys, farmers indicated a 10% decline in the number of households where farming was the only source of income, and a 10% increase in the number of households where agriculture was no longer a significant source of income\. For farmers in both lowland and upland areas, financial concerns such as access to credit, access to markets, and farm debt are key sources of risk and problems in agriculture and rank in the top five out of 20 problems\. Pasture access and rotation also rank in the top five for both regions\. In the uplands, the major problem was bad roads, bridges and infrastructure, whereas for lowlands, landslides/mudslides were one of the top five natural resource-related problems\. Generally, lowland respondents and those on family farms expressed more concern about environmental issues\. Water conservation, integrated pest management and erosion control practices had the lowest adoption rates and levels of knowledge among farmers, with intercropping and windbreaks the highest\. To examine the sensitivity of households as a factor in rural vulnerability, four variables were assessed to indicate the susceptibility of livelihoods to risks\. Upland farming could be considered more sensitive overall than lowland farming, due to higher numbers of respondents growing only one crop, and reporting lower income and education levels\. However, more lowland farmers reported agriculture as their sole source of income\. Farmers on restructured family farms with 25 or fewer members are more likely to have only one crop and limited educational levels, but slightly more income sources\. Women tend to have less income and education, but show more crop diversity and income sources\. To examine the potential to adapt to risks and problems, a number of variables were assessed across types of farmers\. Results indicate that lowland farm households are more likely to receive migrant remittances and some cash savings\. Upland households are more likely to invest in livestock and slightly more likely to adopt sustainable environmental practices\. Family farms with 25 or fewer members are more likely to invest in livestock, make investments in farm improvements, and have two or more income sources\. Family farms, while being more sensitive in some aspects than collective farms to economic and environmental stresses, do show more potential to adapt\. These farms made more investments, adopted more environmental management practices and between 2007 and 2011 grew a greater diversity of crops\. Women are less likely to report investments in livestock, but slightly more likely to report income from migrant remittances\. The findings indicate that a combination of farmland restructuring and freedom to farm, although necessary for the incentive framework for agriculture and economic transition, is not sufficient\. The experience of other transition economies highlights a package of key reforms: (a) creating macroeconomic stability; (b) reforming property rights; (c) hardening budget constraints on 43 collective and similar farms; and (d) creating institutions that facilitate exchange and develop an environment within which contracts can be enforced and new firms can enter\. Family farms need support through this transition in building livelihood assets that help reduce vulnerability\. Recommendations Strengthen and expand farmland restructuring in order to increase beneficial livelihood outcomes and potential to adapt\. In addition to providing donor support, efforts should incorporate as much as possible the Land Registration and Cadastre System for Sustainable Agriculture Project (LRCSP) “good practiceâ€? on certificate issuance into other government programs\. Although it may not be feasible for the regular government program to adopt the no-fee arrangement or the spatial technology in the short term, ways to address these factors should be considered in the development of the longer-term government strategy\. Continued commitment to the issuance of family land use rights certificates is imperative\. Future legislation, including proposed amendments to the Land Code, would create conditions for marketable land rights, and those without legal rights are likely to be particularly vulnerable to land grabs, etc\. Although there has been progress in Freedom to Farm, government interference in agriculture needs to be further reduced\. Freedom to farm independently and without interference does, however, need to take into account the constraints of the country’s resource base and environmental fragility\. Family farms will need continued support and guidance to manage land resources responsibly through efforts similar to those, such as CAWMP, LRCSP and others that supported the environmental management of agriculture and other measures that can reduce sensitivity and increase adaptive capacity\. Improve awareness raising and training activities on farmland restructuring, and give more attention to gender inclusion\. Local mass media, seminars, etc\. should be used to increase awareness of possibilities and the benefits of acting independently\. Efforts should focus on new project areas and test to ensure that people are learning and making informed decisions\. The curriculum should include realistic case studies illustrating the consequences of land restructuring in each local area and be gender-inclusive\. Education efforts should raise key issues such as land debt and taxes, the social tax and the consequences of not being listed on certificates, and alternative planting strategies\. Activities should also focus on building skills to solve common problems rather than just trying to increase knowledge about laws\. The burden and implications of the social tax on farm members, especially on family farms, is a serious issue, and warrant immediate attention and further investigation\. Study findings indicate that the current social tax policies appear to discourage the inclusion of women and other adult family members other than the household head from being listed as shareholders on family farm certificates\. Qualitative findings indicate that the social tax can even discourage poor households from seeking family farm rights altogether\. However, a full analysis of the social tax was beyond the scope of this study\. Analysis is now required to explore alternative approaches to social protection\. For example, good practice from elsewhere uses policies of income-based taxation rather than a flat rate per head\. Any analysis should consider not only issues of social tax policy but also of implementation\. In Tajikistan, for example, are there differences between various groups (including family farms versus larger farms versus various forms of non- agricultural enterprises) in social tax collection rates (e\.g\., enforcement, compliance) and actual access to and flows of social protection benefits\. 44 Strengthen farmer-to-farmer learning about agriculture and access to resources and markets\. Informal farmer networks are effective in promoting innovation and replication and help build farmer confidence in operating independently\. Conventional methods of communication and learning (e\.g\., advice through fee-for-service, Jamoat Development Committees) should be complemented with farmer field schools, competitions that highlight good practice, innovation and early initiators, and farmer exchanges\. Support local empowerment through associations and groups\. Promoting informal and formal groups, examples of which are already active (e\.g\., Water User Associations, machinery or pasture user groups) can help farmers access and maintain machinery, infrastructure, pasture, credit and other inputs\. Producer associations and groups provide similar opportunities for farmers to access markets and obtain fairer prices for their products\. 45 Annex 6\. Stakeholder Workshop Report and Results Communication and information sharing activities Several types of publications and directories, magazines, leaflets, informational posters were published and distributed to PCUs, CIGs, JDCs, and WDCs\. These materials contained information about environmental protection, rational use of natural resources, better crop production technologies, effective usage of water resources and other information which promote advanced knowledge to improve the capacity of local residents to enhance their income\. № ITEM Issued 1 Agriculture Magazine “Zamindorâ€? with different contents and topics 23,300 2 Agriculture Magazine “Kishovarzâ€? with different contents and topics 28,300 3 Information leaflets 6,000 4 Color Informational Posters (different types) 30,000 5 Pamphlet (Information about Project districts and watersheds) 14,000 6 Pamphlet (Information on agricultural pest management) 3,000 Books (biogas system, composting, pasture management and livestock 7 13,100 breeding, Project achievements, methodological guidelines, etc\.) 8 Leaflets of Project concept and subproject preparation 12,000 9 Methodological recommendation for horticulture in Vanj region 3,000 Other publications (Video materials, VCD, CD, calendars, banners, 10 17,160 posters, maps, etc\.) Total: 149,860 46 Annex 7\. Summary of Borrower's ICR and/or Comments on Draft ICR Project Context, Development Objectives and Design 1\.1\.Context at appraisal Tajikistan has an area over 143,000 km² of which more than 93% are located in mountainous regions\. In the period 2000-2003, barely a decade after independence and during a period of stabilisation after the civil war, Tajikistan moved its development efforts from humanitarian aid and reconstruction to more long term development activities\. During that period poverty decreased substantially from over 85% to 60% in 2004 with still over 20% of the population considered as very poor (1\.18$/day/person)\. Government of Tajikistan action was guided by the PRSP and the national development strategy which emphasize growth, provision of basic services, supporting the poor and improving governance\. Within this context and as a follow-up to the successful farm privatisation project, GOT, World Bank and GEF designed in 2004/2005 a project focussing on both poverty and environment in mountainous regions where 20% of the population lives and where poverty and land degradation are highest\. The Community Agriculture Watershed Management Project (CAWMP) is addressing 2 major challenges in Tajikistan: poverty reduction through agricultural development and income generation, and environmental degradation through integrating sustainable land management practices\. Both issues are closely linked, in particular in mountainous areas where inadequate land management practices due to lack of investment and/or knowledge lead to serious environmental degradation such as mudslides, soil erosion, silting of rivers\. Still, highlands in Tajikistan have good agricultural and livestock potential if only managed appropriately\. In addition, mountainous ecosystems, some of which are under threat like pastures and forests, constitute a unique pool of genetic diversity of wild-growing plants which is worth conserving\. In Tajikistan the breakdown of the Soviet agricultural system after 1990 and the production decline pointed to the need for land reform\. The first legal acts on land reform and farm restructuring in Tajikistan were issued in 1992, but land reform began actively only in 1995, with a presidential decree allocating additional land to household plots – always a highly productive sector in all of the former Soviet Union\. In the uplands, farmers lacked capital to exploit the productive potential of their lands\. At the time of Project design, in rural areas a lot of development aid was focussed on humanitarian responses rather than activities to support rural agricultural production\. This Project was a departure with its focus on agricultural production and sustainable natural resource management plus its community driven decision-making on the types of investments to be made by villagers\. Table 1: Administrative Units, Population, Number of Households and Types of Farm in the Four Watersheds Rural population Jamoats covered Number of rural Villages covered kolkhozes and cooperatives dehkan and households Number of Number of Number of Number of Number of Number of by Project by Project sovkhozes Jamoats villages (‘000) farms Watershed Districts 47  Darband 2 26 16\.0 2,133 11 5 0 0 (30%) Jirgatol 9 49 51\.6 10,072 143 12 5 24 Surkhob Rasht 12 117 80\.6 12,515 263 4 0 0 Tajikobod 4 43 32\.0 5,107 197 11 3 23 Vanj Vanj 6 57 28\.3 2,855 19 2 6 71 Ayni 8 62 77\.4 15,411 31 3 7 62 Zarafshan Matcho 2 30 12\.0 2,628 14 12 2 51 Panjakent 14 134 170\.3 34,048 59 13 10 109 Toirsu Dangara 8 75 81\.7 11,059 120 10 6 62 Total : 9 64 593 549\.9 93,002 857 72 39 402 Figure 1\. Project Sites (1\. Surkhob; 2\. Zarafshan, 3\. Dangara, 4\. Vanj) 1\.2\.Project Development Objectives (PDO) and Outcomes The Project objectives are twofold, reflecting WB and GEF contributions: 48  - Build the productive assets of rural communities in selected mountain watersheds, in ways that sustainably increase productivity and curtail degradation of fragile lands and ecosystems\. - GEF Objective: Protect globally important ecosystems by mainstreaming sustainable land use and biodiversity conservation considerations within agriculture and associated rural development decisions, providing replicable models for comparable areas throughout the country\. At the time of Project Appraisal, the performance indicators for the Project outcomes were: At outcome level: - At least eighty percent of rural production investments are successful according to agreed economic, financial, social, and environmental standards, and are being sustained; - Number of participating households in at least one of the types of rural production investment is at least 50% of total Project area population and being replicated elsewhere; - In communities that are participating in the Project, proportion of people above poverty level increased from 3% to 30%; - Negative trends of land and mountain ecosystem degradation trends halted in Project area Jamoats\. At intermediate results level: - The total cumulative investment in agriculture production among Project participants (from initial grant, local contributions, and reinvestment) exceeds US$3\.8 million, i\.e\. more than the projection of Project-financed grants and capital infusions (implying high participation, desirable social and environmental impacts, commercial success, use and repayment of revolving funds); - Land management investments cover 78,000 ha and benefit very poor at least in proportion to their numbers in a community; - Number of improved public facilities, disaggregated by type of investment (e\.g\., village drinking water, roads and electricity); - 47 JDCs overseeing rural production investments; - 40% of farm production and land management investments apply improved technologies, and receive good access to necessary inputs and knowledge; - Number of indigenous crop varieties from Project area preserved as live specimens; - Satisfactory Project administration as indicated by Bank supervision ratings and Project’s public reputation for integrity\. At the time of Project appraisal, these objectives and targets were considered relevant to conditions in Tajikistan as mentioned in the previous section\. However, achieving these targets would be dependent on capacities among project management and partners since the Project design was significantly different to previous projects implemented in Tajikistan\. 1\.3\.Adjustments in Project Outcomes and Intermediate Results By the time of and during the Mid-Term Review in May 2008, the following adjustments were made\. 49 Outcomes a) Proportion of people above poverty level participating in the Project: The means of verification for this outcome indicator was changed given that the baseline assessment of poverty levels in the Project sites was unable to provide primary data of adequate quality\. This outcome was measured through analyzing qualitative data gathered from sample subproject reviews during project assessments; b) Halting of negative trends of land and mountain ecosystem degradation in Project Jamoats: This outcome indicator related to land degradation was revised, since the original indicator, an aggregate spatial assessment of land degradation trends, could not easily capture the impacts of the small-scale Project-financed subprojects\. A replacement indicator instead measured the number of hectares positively affected by practices, which contributed to sustainable land management\. In 2009 monitoring formats were developed for subprojects that have served as the basis for assessing sustainable land management benefits\. Intermediate Results c) Credibility investments: An outcome indicator was added to measure participation in credibility investments since these served important functions of building interest in the Project and awareness of new concepts such as natural resource management\. This indicator also provided useful information for the initial period of Project implementation, when other results could not yet be measured; d) Percentage of Project-financed investments having access to and applying improved technologies: This result indicator for the component on technical dissemination was replaced with the number of persons trained, which was more practical and easier to measure than adoption rates; e) Number of Jamoats: At inception, the Project planned to cover 47 Jamoats, but by Year 2 it was clear that this target needed to be reduced\. Beginning with the first FO contract in 2005, it was evident that the unit costs per Jamoat and village for facilitation assistance, even with co-financing from the FOs, had been significantly underestimated during Project design\. Experience also showed that it was necessary to provide additional resources to support JDC/JRC establishment and operations and ensure that they could play the critical facilitation and financial roles envisaged in the Project\. Corrections also needed to be made to the base number of households in the Project Jamoats since these had also changed since appraisal\. At the MTR, the following adjustments were therefore made based on more accurate data and available resources: • The Project will cover 9 raions containing 39 Jamoats and 402 villages; and • The base number of households would be 57,375 of which at least 50% would be Project beneficiaries\. f) Bank supervision ratings: A small modification was made in the indicator for Project management to a more logical measure based on implementation timeliness rather than Bank supervision ratings\. g) Project reputation for integrity: This indicator was dropped since there was inadequate in- country capacity to conduct and analyze the necessary surveys\. The Project’s implementation and 50 fiduciary arrangement shad the intended effects of lessening the opportunity for inappropriate capture of project resources and increasing transparency\. Such measures included public disclosure of subproject costs, community consensus on investment choices and direct transfers of funds to Jamoats\. h) New gender indicator added at the time of Project restructuring in April 2011\. Table 2\. Summary of modifications to the Results Framework Indicators at the time of the MTR, May 2008 Original Indicator Revised Indicator Explanation Cumulative number of villages which Useful, especially during initial Did not exist have participated in credibility implementation when other investments results not yet achieved\. Negative trends of Areas in ha covered by land resource land and mountain management subprojects and other Original indicator will not be able ecosystem degradation project activities that directly and to measure impacts due to halted in Project successfully address land and problems of scale\. Jamoats\. mountain ecosystem degradation\.21 Area in ha covered by land resource management Total value in US$ of land resource subprojects and Avoid duplication with revised management subprojects designed benefiting very poor at outcome indicator above\. and funded\. least in proportion to their numbers in a community\. Project participants Cumulative number of rural people have access to and who have received technical training Original indicator not feasible to adopt improved from TAAS, FOs, or other project measure\. agricultural partners\. technologies\. Bank supervision Project management ensures project Original indicator not practical ratings and reputation implementation timeliness\. because of inadequate capacity to 21 Confirmation that land resource management subprojects and US$ value of other project expenditures (e\.g\., farm productivity subprojects, rural infrastructure subprojects, specific training programs, specific consultancies, etc\.), in concept and then in implementation, include at least one of the following results on fragile lands: • Prevent or reduce soil erosion by water or wind • Increase vegetative cover through perennial crops and pasture • Provide soil and moisture conservation • Improve soil quality • Improve water use efficiency • Increase sustainable fodder or wood supply • Increase sustainable renewable energy supply • Increase integrated pest management • Indigenous plant preservation 51  Original Indicator Revised Indicator Explanation for integrity as conduct surveys, and emphasis on perceived in public integrity addressed through other opinion surveys\. mechanisms\. Added by World Bank as core Did not exist\. Number of Project beneficiaries\. indicator at the time Project Restructuring Added by World Bank as core Did not exist\. Number of female beneficiaries\. indicator at the time of Project restructuring At the time of Project completion the objectives and outcome indicators are still considered to be relevant\. The GOT continues to recognize the importance of addressing land degradation (see reference to UN Assembly September 2011) in the country\. Project objectives are relevant to current GOT programmes in food security, poverty reduction, horticulture development, sustainable pasture management and adaptation to climate change\. Emerging challenges to the objectives including employment generation include market development, the need to continue building the rural knowledge base and advisory services to support production, processing and land management\. 1\.4\.Project Components The Project was funded through a GEF grant, IDA credit and grant, GOT counterpart financing and beneficiary contributions investments estimated costing 19\.8M$ at PAD stage\. At the time of the MTR, this figure was revised to 18\.77M$ that took into account exchange rate changes, as well as changes in GOT counterpart financing levels and estimates of co-financing by facilitation organisations\. 1\.4\.1\. Funding sources and disbursement/expenditure (‘000 USD) % of expenditure contribution etc\.) Funding sources Government co No and Date of Credit (Grant) disbursement Agreements expenditure beneficiary (Credit (s), Total Sum financing, Grant(s), Balance Actual Actual № IDA Credit 3928-TJ 1 5,000,00 5 171,45 4 947,14 224,31 99% №3928-TJ 25\.11\.04 Government of 3928-TJ 2 2,000,00 591,25 590,45 0,80 30% Tajikistan contribution 25\.11\.04 H097-TJ 3 IDA Grant; №H097-TJ 5,800,00 5 942,18 5 896,36 45,82 102% 25\.11\.04 053572-TJ 4 GEF Grant №053572-TJ 4,500,00 4 499,90 4 498,73 1,17 100% 25\.11\.04 5 Beneficiary contribution 2,400,00 - 3 400,00 - Total: 19,700,000 16 204,780 19 332,680 272,10 98% 52 Component 1: Rural production investments These investments were to benefit the population through access to small grants A\. Farm productivity improvement: individuals or groups of households invested in specific activities providing income on a short term basis (within 1-3 years)\. These included provision of inputs for cropping systems, horticulture, livestock, processing, leasing, etc\. B\. Land Resource Management (environment): this subcomponent enabled local people to adopt more sustainable use of fragile lands and provided Right of Use of Land Certificates after three years of maintenance, subject to continued good land use (this provision was changed during Project implementation to issuance of certificates according to the schedule of issuances in the Land Registration and Cadastral Survey Project for the CAWMP locations)\. Most activities combined long term income-generating investments (3-4 years and on) in order to enhance sustainable land use\. Activities included horticulture, woodlots, pasture management, soil and water conservation measures, etc\. C\. Rural Infrastructure: these investments rehabilitated small-scale rural infrastructure intended to benefit community groups and complement the above subcomponents\. Activities included drinking water, small irrigation, minor transportation rehabilitation, small power generation, etc\. Beneficiaries organized as Common Interest Groups (CIGs) accessed grant money by providing a 20% minimum contribution for the total subproject costs\. Their proposals had to follow fixed budgets based on village population as long as any household does not exceed US$290 grant money while group members applying for a rural infrastructure grant cannot excess US$50/HH\. Component 2: Institutional Support and Capacity Building A\. Research and Demonstration: scientific institutions and line ministries provided technical services including training to communities in the following areas: seed and seedling production, livestock breeding and animal health and husbandry improvements, and market and enterprise analysis and development\. Activities were financed to support the preservation of indigenous crop and other specimens\. B\. Community Mobilization and Subproject Preparation: including training and facilitation for Jamoat Development Committees (JDCs) as well as households and common interest groups with support of facilitating organizations\. It also included support for small confidence building mobilization grants ($1,000) for each village\. Component 3: Project Management This component supported all functions related to project management (project coordination, procurement, disbursement, financial management, reporting, monitoring, and evaluation) and supports the secretariat services provided to the State Level Steering Committee (SLSC) and the Watershed Development Committees (WDCs) which are to approve the grants\. There were no significant changes made to the Project components\. Some changes were made to strengthen Project activities in sustainable rangeland management through additional technical assistance including a dedicated PMU specialist, and a decreased emphasis on rural infrastructure\. Indicators and the Project cost estimates were adjusted during the Mid-term Review in 2008\. 53 1\.5\.Project Implementation The Project followed the concept of community-linked development, a participatory process which involves communities in identifying their needs, and provides for their direct involvement in resource allocation, decision making, implementation, and monitoring at the local level, with Jamoat Development Committees (JDCs) playing a key role\. Villages allocated resources within fixed budget constraints among the subprojects sponsored by common interest groups or households, through a process a participatory analysis facilitated by Project-contracted NGOs (such as Aga Khan Foundation, WeltHungerHilfe, FAO and UNDP which were NGOs and agencies already active in Tajikistan) and JDC representatives\. The subproject investments in any one village would take place over a three year period\. Specialists from Government line agencies and NGOs assisted common interest groups in developing feasible and eligible proposals\. Guidelines include communications, group process, organizational and administrative arrangements, contribution requirements, budget limits, and institutional capacity, social, financial, commercial, technical, and environmental considerations\. After the review and approval process, JDCs provide resources directly to the common interest groups undertaking subprojects\. The common interest groups had ownership of completed installations, and responsibility for their subsequent operation and maintenance\. To avoid misuse of grants or misunderstandings of Project’s objectives, each FO had to present at the start of their contract, a limited number of subprojects directly to PMU (and the donor) whatever the amount for approval, after which the Project’s procedure could be followed: this was an efficient procedure and enabled PMU to rectify FO and JDC support to CIG whenever necessary in terms of subprojects funding criteria\. Table 3 below summarizes the various partners and key stakeholders in the Project, their function and plus assessments of their roles in Project implementation\. Table 3\. Project Partners and Stakeholders –Roles and Assessment Project Key Roles Positive Negative Stakeholders Provide conditions for See Borrower GOT project operation, performance counterpart financing Project administration, PMU coordination, M&E, technical support Limited initial skills Field presence, local and understanding for Field coordination and PCUs knowledge, gained skills project\. Weak on support through the project M&E, esp\. project outcomes 54  Project Key Roles Positive Negative Stakeholders Early FOs did not Experienced and staff fully understand Facilitation in community relevant to project sites\. project design and mobilization, capacity Took initiative to FOs role of GOT and WB\. building, and technical exchange experiences Projected themselves support to JDCs and CIGs across project sites, e\.g\., as implementers and FAO financing bodies\. Some effective results Limited experience in Research, demonstration of shown in live specimen demand-driven, Scientific technologies, dissemination conservation, soil small-scale upland Institutes to farmers rehabilitation and IPM agriculture strategies requirements Worked effectively to Fund transfer to CIG, CIG transfer funds to CIGs, Weak monitoring of support, rural investment Local presence and subprojects – lacked JDCs review and approval, M&E, knowledge was effective facilities, e\.g\., WDC members and valuable\. Skill vehicles and skills levels increased\. Exceeded minimum Variable skill levels beneficiary contribution and knowledge led Design and implementation CIGs requirements, capable of difficulties in design of investments implementing and M&E of subprojects subprojects Institutional support, Line Ministries technical advice, review of (inc\. regions) investments Review of investments, Raion technical support, WDC Authorities members Review and approval of Did not perform WDCs investments uniformly Functions conducted Review and approval of by other bodies, few SLSC investments over $5000 proposals over USD 5,000 Local NGOs Technical support The overall process and relationships between key players is outlined in the figure below\. Figure 2\. Preparation and Implementation of Rural Production Investments 55 On the Group of Common Interests level: Sub-projects preparation Implementation of sub-projects Distribution of revenues from sub-projects On the village level: Problems assessment Formation of Groups of Common Interest Subproject implementation plan preparation and submission Participation in subprojects monitoring and work of Jamoats Development Committee On the level of Jamoats Development Committees: Review and approval of plans of subprojects for village development Approval of grant subprojects up to $500 МOU Resume, subprojects financing and monitoring Submission of subprojects to Water-Collection Basins Development Committees for consideration On the level of Watershed Development Committees: Review and approval of work plans of Jamoat Development Committees Review and approval of grant subprojects up to $5000 Submission of grant subprojects over $5000 to the State Coordination Committee for consideration and approval Given little prior experience of working together and the project’s innovative and complex processes and mechanisms, e\.g\., household and village budget limits and the community-driven approach, these partnerships have been effective in community mobilization, in designing, supporting, appraising and monitoring subprojects and in providing related training and technical assistance\. The partnerships with international organizations (AKF/MSDSP, FAO, UNDP and WHH) generated both benefits and challenges for the project; while different approaches and competencies have resulted in some opportunities to learn from a range of good practices, somewhat independent watershed approaches did initially result in inconsistent (and sometimes incorrect) interpretations of project design and procedures\. 1\.6\. Monitoring and Evaluation (M&E) Design and Implementation M&E design: A monitoring and evaluation manual was prepared for the project in 2004 and revised in 2008\. M&E implementation: Most monitoring activities were focused on results: it culminated in the design of a comprehensive project database for all project grants after swaps of various databases designs produced by both PMU and each FO\. 56 The PAD suggested the contracting of an M&E and financial specialist at JDC level\. These functions were separated: financial monitoring of results was effectively carried out by the financial and M&E JDC specialist\. In the context of the overall monitoring and evaluation approach, assessing and reporting on outputs has, as expected, been easier and more effective than similar activities regarding outcomes\. A number of the activities planned to assist in evaluating outcomes have not been possible or practical, e\.g\., analysis of satellite imagery due to lack of in-country capacity while for others such as baseline socio-economic surveys in-country capacities were not fully developed for project purposes\. The Results Framework has been revised to reflect implementation experience\. On the other hand, the planned monitoring of outputs using reports, simple databases and field visits has been effective and more suited to Tajik conditions where communications can be difficult, IT facilities were limited and project sites are scattered and remote\. Monthly reporting by all major project partners allowed project management to aggregate data and findings\. M&E was carried out by all stakeholders with site-specific approaches\. By project’s end some efforts had been made in order provide continued monitoring; in particular, the relationship between the project partners and hukumat authorities could have been strengthened both for on- going support and monitoring\. FO follow-up has resulted in additional support through new interventions– replication of similar types of subprojects or entire approach with grants (e\.g\., Aga Khan in Vanj) and/or additional support for increased impact (e\.g\., WHH in Zarafshon)\. Two phases of assessing environmental impacts of rural investments have been undertaken that provided possibilities to assess primary and secondary environmental benefits (refer to table with details of environmental impacts in Annex 2)\. 2\. Project Outcomes and Results Table 4\. Project Results Framework Development Objective: to build the productive assets of rural communities in selected mountain watersheds, in ways that sustainably increase productivity and curtail degradation of fragile lands and ecosystems\. Global Environment Objective: Protect globally important ecosystems by mainstreaming sustainable land use and biodiversity conservation considerations within agriculture and associated rural investment decisions, providing replicable models for comparable areas throughout the country\. Pre Actual Apr Outcome Indicator Project Final Target 2012 Baseline % of rural production investments are successful according to agreed standards 22 and are being NA 85% 80% sustained\. Cumulative number of villages which have 0 402 402 participated in credibility investments 22 Taking into account economic, financial, social, and environment parameters, and weighted by value of investment\. 57  Cumulative number of households which have participated in some part of the rural production 0 43,513 23 32,000 component Proportion of population above poverty level in 3% 50% 30% villages that are participating in project Area in ha covered by land resource management subprojects and other project activities that directly 0 96,600 25 78,000 and successfully address land and ecosystem degradation 24\. Number of project beneficiaries 238,000 192,300 Number of female beneficiaries 91,304 88,000 Pre Actual Apr Intermediate Indicator for Each Component Project Final Target 2012 Baseline IA : Total value in US$ m of farm production investments (regardless of financing source) to date 0 $3\.85 million 26 $3\.8 million in villages where project is operational IB : Total value in US$ m of land resource $5\.39 0 $6\.20 million management subprojects designed and funded\. 27 million 28 IC: Number of improved public facilities, disaggregated by type of investment (village 0 422 29 * 30 drinking water, roads, bridges, and electricity)\. 23 This indicator now reported by number of households participating in each type of rural investment\. Since households participate in more than one type of investment, a breakdown by investment provides more useful assessment of project impacts 24 Confirmation that land resource management subprojects and US$ value of other project expenditures (e\.g\., farm productivity subprojects, rural infrastructure subprojects, specific training programs, specific consultancies, etc\.), in concept and then in implementation, include at least one of the following results on fragile lands: • Prevent or reduce soil erosion • Increase vegetative cover through perennial crops and pasture • Provide soil and moisture conservation • Improve soil quality • Improve water use efficiency • Increase sustainable fodder or wood supply • Increase sustainable renewable energy supply • Increase integrated pest management 25 Updated estimate based on August 2010 review of rural production investments 26 Funds in JRC/JDC accounts, beneficiary contribution, revolving funds, and reinvestments 27 Funds in JRC/JDC accounts and beneficiary contribution 28 Based on estimated project costs as revised at MTR 29 Completed and under implementation 30 *Indicates target not appropriate but numbers were monitored 58  Pre Actual Apr Intermediate Indicator for Each Component Project Final Target 2012 Baseline IIA: Cumulative number of rural people who have 0 received technical training from TAAS, FOs, or 9175 8,000 other project partners Number of varieties preserved as live specimens 0 300 * 31 IIB: Number of JDCs that have been established and are overseeing implementation of credibility NA 39 39 and rural production subprojects On schedule or prior delays being III: Project management ensures project Completion on NA overcome and implementation timeliness schedule completion on schedule possible Project outcomes and outputs by component are detailed in Annex 2\. Communication and Information Sharing activities See Annex 6\. 3\. Financial Management and Procurement 3\.1\. Overview: There was a one-year delay in project start-up\. Facilitation support proved to be difficult to procure\. UNDP was the first FO contracted but there was a misunderstanding about the project concept with the result that implementation was delayed as operational guidelines were clarified and agreed\. UNDP was also the only FO to transfer funds to JDCs rather than the PMU\. This was not an ideal arrangement and subsequent transfers in other project sites were made by the PMU\. Thereafter the phased introduction of watersheds proceeded as mostly as planned and disbursement rates to subprojects were at the time of the completion of this component were at target values\. The primary reasons for the initial delays included inexperience within the PMU and in the WB in contracting facilitating organizations and within the PMU unfamiliarity with the project’s concepts and implementation arrangements\. The PMU was not familiar with managing output-based contracts with FOs and faced challenges in reconciling these arrangements with Tajikistan’s accounting methods, as well as with direct fund-flow mechanisms to Jamoats\. But the growth in PMU capacity to manage these aspects of the project has been a significant achievement\. Arrangements were worked out with FOs on financial reporting that would meet GOT requirements\. The project’s fund flow arrangements required building capacity especially for the 31 Indicates target not appropriate but numbers were monitored 59 PMU and JDCs who played critical roles in financial management\. Initially, it was difficult to find technical assistance in this area and this delayed implementation, but once this was found, financial management staff and systems were put in place to disburse and report on subproject funds in a timely and transparent manner\. A fiduciary field visit conducted in May 2008 which checked financial management and procurement on a random sample at the local level in Vanj, Toirsu and Surkhob found no problems in fund flow to beneficiaries and JDCs, nor in local procurement\. Regular annual national and international audits raised no significant concerns\. Similarly a review of the project by a Commission of the Presidential Administration of Tajikistan conducted in early 2008 raised no major issues regarding project management\. A detailed review of financial management arrangements of the project was carried out by the World Bank team under Tajikistan Portfolio Fiduciary Review during April 28- May 10, 2008\. No major concerns were raised and all issues were addressed\. 3\.2\. Some Key Challenges: Requiring the use of financial management software (1C) meant that frequent technical support was needed in order to meet Bank reporting requirements\. The project only finally met Bank requirements at the end of the project\. Difficulties were experienced in fund transfer from the PMU for JDC operations\. Payment of the JDCs through the PCUs was not efficient and it would have been better to have deposited funds directly into JDC bank accounts\. 3\.3\. Beneficiary contributions: At the time of completion of Component 1 implementation, it was estimated that beneficiary co- financing had on an average exceeded the minimum requirement of 20% of the total value of the rural production investment to 31% (i\.e\., 45% match for project financing)\. In numerous cases, beneficiaries absorbed increases in costs that have occurred since subproject preparation due in some part to delays in transferring funds to JDCs/JRCs as well inflation\. Although almost all of this contribution is usually as labor, materials, etc\., the level of contribution demonstrates strong ownership and commitment, and thus a critical contribution to subproject sustainability\. As of September 2011, the value of beneficiary contributions was approximately US$3\.4 m\. 4\. Assessment of Bank and Borrower Performance 4\.1\. Bank Performance Bank performance in Ensuring Quality at Entry: At the time of project start-up, the roles of the various project partners was not fully explained and understood, especially by those at the local level\. The Operational Manual for Community Mobilization and Rural Production Investments was complicated and not very clear including the guidelines for subproject proposal preparation\. This lack of clearness created difficulties, particularly at the local level\. Initially there was a lack of experience in the Bank and the PMU on how to contract the FOs and the type of contract proposed – output based – was one that the PMU had not previously managed\. Project partners did not also fully understand the concept of the GEF alternative\. 60 Quality of Supervision: In comparison with other donors, the supervision of the WB has been effective\. For example, efforts were made to explain and clarify GEF alternative and FO roles and contracts\. Generally, within the overall framework of the project, and in comparison with other donors the WB was flexible in assisting project partners to implement activities given the constraints and possible opportunities, e\.g\., reducing the number of subprojects for prior approval from 10 to 3 per investment category thus saving time, adjusting staffing in PMU to accommodate important issues such as rangeland management, market development\. While the number of missions per year was adequate, the timing could have been better coordinated with peak periods of rural activities in project sites\. Overall the working relationship with the Bank team was collegial\. 4\.2\. Borrower Performance Government performance: The GOT provided the necessary facilities for project management and coordination, including field facilities\. The estimated counterpart funding at completion is US$591,000\. Government bodies continue to pay attention to the project and its outcomes\. The Ministry of Agriculture, State Land Committee, State Committee on Environmental Protection and State Committee on Investments provided regular assistance to support the implementation of project activities\. The State Land Committee provided assistance to the project for the issuance of Land Use Rights certificates for project beneficiaries\. The project also collaborated closely with the Land Registration and Cadastral Survey Project on this issue as well\. 5\. CAWMP Actions to Help Ensure Sustainability and Replicability of Project Outcomes 5\.1\. Sustainability of rural production investments The overall concept and process of community-driven development contributes to the sustainability of rural investments\. Villagers made decisions on what investments to implement, who should benefit and the distribution of financial resources across the three categories thus building ownership and contributing to the sustainability of these activities\. Villagers were also responsible for financial management and procurement for investments\. Proposals for these investments required villages to consider economic, environmental and social/institutional sustainability, e\.g\., cash flows and cost recovery arrangements for 3-10 years depending on the type of investment, environmental conservation and mitigation measures, and establishing organizations such as water user associations to support long-term operations\. Furthermore, the requirement of beneficiary contributions (including cash contributions for rural infrastructure) helped build ownership and also contribute to the sustainability of these investments\. Other key actions that contributed to sustainability are given in section 2\.5 of the PAD’s main text\. 6\. Additional Activities When the project was extended in spring of 2011 until April 2012 it allowed for additional activities in project pilot districts\. Project activities included the following areas: “Creation of 61 gravity irrigation in small watershedsâ€?, “Sustainable pasture management at the Jamoat levelâ€? and “Assistance in market development and fruit processingâ€?: 6\.1\. “Creation of gravity irrigation in small watershedsâ€?\. The overall objective of this component was to assist in the implementation of initiatives related to water resources management in areas where gravity irrigation is used; as well as farmers’ awareness raising living in the upper and lower reaches of rivers; rational use of water resources and operation of water systems\. Project activities were carried out in the Mogien watershed in the Zarafshan valley in four Jamoats of Panjakent district\. Seven Water User Associations (WUAs) were covered by project activities as well as other water and land users living upstream of the river\. To achieve these objectives the following was carried out: (a) identification of effective applications of perspective water saving technologies on the ground; conducting training and workshops; study tours based on the examples of the best local achievement with the involvement of trainers among farmers; and (b) organizing and conducting tenders for small works of advanced water-saving technologies between water users\. As a result of these activities recommendations were developed on the establishment of a multilateral cooperation between the WUAs and other water users in small watersheds, including the evaluation of existing and potential opportunities, risks and conflicts, standard diagnostic methods, dissemination of positive practices of water and soil conservation technologies with a description of typical efficient water saving technologies\. A model project implemented in small watershed of Mogien river of Panjakent district achieved the following results: - Recommendations and offers were described on improving the relationship between water users of the upper and lower reaches of Mogien River with regard to use and water resources management; - - Activity water users associations gained the necessary additional knowledge in the field of water saving technologies and rational use of land resources; - - Through tendering support was rendered to the best farmers and attention was paid to the following key aspects of water saving techniques: effective use of innovative and traditional water saving technologies, economic efficiency through water saving, the increase of the crop yield and efficient use of water resources; - - Environmental aspects of effective regulation of water supply were identified in small watersheds along with their associated economic efficiency\. - 6\.2\. “Sustainable pasture management at the level of Jamoatâ€?\. The overall objective of this activity was to assist in the development of a pasture management plan for pilot Jamoats\. For this purpose, Dar-Dar Jamoat was selected, which is located in Aini district in the Zarafshan Valley\. Despite the fact that the project always focused on the importance of grazing issues in Tajikistan, active work on pasture issues only started in the second half of the project period\. The project held a series of interventions to stimulate offers for organizing pasture subprojects; the study of mountain pastures and their management system; training of rural residents in rational methods of pasture use; and breeding and maintaining livestock\. To achieve these goals, circumstances and the experience gained by the project were taken into account during 62 model project organization on integrated pasture management in Dar-Dar Jamoat (Ayni district)\. The model project stipulated the following economic, environmental and institutional aspects: - key acting persons and partners were identified; - social, economic and natural resources (sufficiency-deficiency) were defined both at the level of individual villages and at the Jamoat as a whole; - prospects and potential of grazing development were assessed at the village and Jamoat level and the sustainability of current methods of pasture management; - main environmental, social and environmental risks of grazing were assessed currently and in the future at the village and Jamoat level; - potential and existing conflicts were identified as well as social, environmental and landscape issues and the extent of the impact on grazing development; - modules of the pasture system were described (watering, pasture rotation, access to roads, shelter for livestock, veterinary services, preparation of fodder for the winter and etc); - preparation of action plans with indication of executors, sources of funding and timing; - cartographic materials were prepared (pasture rotation schemes, the location of the main modules, etc\.) for management purposes; - guidance on pasture management at the Jamoat level were prepared comprising: identification of the need and possible preparation plans, risk assessment, issues and resources, ways of conflict resolution, and the organization of planning and monitoring to ensure sustainability; - training modules were developed to improve knowledge and skills of beneficiaries at the village and Jamoat level; - Execution of works to allow for successful use of approaches developed by the model area in other similar conditions in Tajikistan\. Project implementation identified key aspects related to pasture degradation (the causes, extent and rate of degradation); outline main directions for pasture improvement and the reduction of pasture use by specific organizational, economic, and agricultural, animal husbandry, veterinary measures and methods as well as educational technology and public awareness raising\. An action plan was developed on pasture improvement and conditions created for pasture user associations at the Jamoat level\. 6\.3\. “Assistance in local market development and fruit (drying) processingâ€?\. Within the framework of this component marketing plans were developed that stipulated the demonstration of technologies for processing of agricultural products, such as a tunnel dryer and improved trays for drying of agricultural products, establishing business contacts with potential buyers, as well as creating conditions for possible assistance from other projects in the future and initiatives upon complention of CAWMP implementation\. Dissemination activities, organization of training and provision of technical materials facilitated a large number of Community Interest Groups in understanding the key aspects of marketing\. 63 A work plan was also developed which included: (a) assessment of existing and future levels of agricultural production in project villages where the emphasis is on production of certain agricultural products, including mainly apricots and apples, and (b) the organization of training on the wide range of issues (including the value chain, quality of products and quality standards, processing technology (including the use of trays for drying and tunnel dryers) and preparation of business plans) as well as development of appropriate work plans by farm production groups, and (c) the establishment of business relations between farmers groups of the project, local experts, local enterprises on products processing and the projects funded by donor organizations\. The main work was carried out in two Jamoats, namely Shirinchashma (Tojikobad district) and Urmetan (Aini district), including additional project activities at district level - in seven districts of project area with the view to cover a wider target audience\. In addition the Project concluded a contract with NGO, which would provide the necessary assistance and close cooperation with other projects in agricultural marketing, such as USAID / PRO-APT, GIZ - Rural Development Programme and the Helvetas - Local Market Development Project\. 7\. Lessons Learned and Recommendations The project has successfully achieved considerable results responding to the needs of beneficiaries\. CAWMP is a success because it has changed the way farmers grasp their potential for income generation and their relationship with environment\. An important impact of the project is that the numerous small grants to groups of farmers at the village level has resulted in these beneficiaries being exposed to a large number of potential agriculture and environment related activities; as interviews for the final evaluation showed, the beneficiaries are far more open minded now thanks to this project: they exchange views and ideas on new income generating activities, discuss the advantages and disadvantages of subprojects, their technicalities or consider replicating similar small-scale initiatives\. Project design: - Participatory planning along with village and household budget limits was an effective mechanism for villagers to prioritize and assess risks of various options, as well as allocate resources\. Furthermore, open disclosure of available funds and amounts allocated to investments improved accountability\. To further disseminate this aspect, the process and results need to be documented (some documentation already underway) and then share widely with government, donors and other implementing agencies and organizations so that similar measures can be included in future planning processes\. - Right of Use of Land Certificates (RULC) are key for sustainability, especially for land related subprojects in CAWMP and for other similar initiatives\. According to the CAWMP design the RULC should be issued after 3 years of successful using of subproject (land)\. However, during the project implementation and RULC issuance process it was learnt that it would be better if the RULC is given after 1 year of starting of subproject, even a half year is acceptable\. It increases the confidence of farmers to use the land as a real user and owner, and the certificates should be issued without delays\. 64  - Although it was not in the project objectives to address broader policy and legal issues related to pastures and rangelands, sustainable rangeland management will require policy and legal support informed by practical, field-based examples and experiences such as those implemented in CAWMP\. The project has reduced overgrazing pressure locally within villages’ territories through several types of subprojects and demonstrated activities that contribute to sustainable rangeland management\. Grazing rights are a sensitive topic because it involves several types of farmers with potentially conflicting interests (family farmer, sheep farmer, Dekhan farms, and commercial private stock breeder) and might require new legislation and /or law enforcement\. - Research and demonstration of appropriate technologies can be integrated differently at project design\. The success of the Farmers Competition shows that agricultural innovation and good practice can be demonstrated and shared in an efficient and effective way\. While research institutes have shown limited practical skills for small-scale applications, new technologies in upland farms remains a high priority as it increases the value of subprojects even though this may be risky in terms of adoption\. New technologies / varieties can be tested first on farmer’s plots, their added value demonstrated before sharing with local authorities and other interested parties\. A more practical approach and different from the focus on research institutes can be considered at raion (Jamoat) level through Farmer Field Schools - reproducing farming real conditions\. In that case, a strong linkage should be established between the Research (NGO, institute) – Demonstration (farmer’s plot with the assistance of FO & Hukumat) – Dissemination (FFS 32) (demonstration by farmers and FO)\.Linking these activities with government programs or priorities may help to some extent to encourage Hukumat authorities to keep engaged at the end of a project\. It should be noted that these types of activities will require international assistance of the type that was planned under CAWMP from IFAD and ICARDA but which unfortunately did not materialize\. A similar approach can be adopted when considering preservation of rare endemic species (inventory –demonstration (preservation / conservation garden) – dissemination (of species of interest): a new role for demonstration farmers might also be devised in preserving rare / endemic species (which would on-site strengthen farmer’s awareness on environment degradation through FFS)\. - An additional project component (e\.g\., value chain development, association formation) to serve successful beneficiaries would have been beneficial to support market development for subproject products\. This would be of benefit when production levels for certain items such as fruit, vegetables, honey, etc\., are enough to sell more commercially\. Not all CIGs have the capacity to understand marketing opportunities and how these might be exploited\. - Female participation can be strengthened through additional processes during planning\. Women beneficiaries were positively represented in CIGs with 40% of beneficiaries listed as female but the approach from the beneficiaries’ point of view seemed at times to be more like filling ‘quotas’ than reflecting women’s concerns\. Taking into account local cultural circumstances, it may be possible to focus on gender specific credibility grants, gender oriented participatory planning resulting in a more integrated community action plan and subprojects focusing on women’s strengths\. 32 Farmer Field Schools 65 Implementation: - Scale and scope of JDC mandates is effective for delivering services to upland, and often remote, farmers\. In CAWMP sub-district level organizations proved to be an effective component of scaling-up strategies for SLM in a challenging physical landscape\. In the project 39 JDC’s handled more than 3,800 CIGs and over US$7\.0m in fund transfers\. Additionally, participatory processes helped ensure that organizations such as JDCs worked effectively with government management units to deliver technical and financial resources to farmers\. Future efforts should maintain a focus on strengthening sub-district level support to farmers with scaling- up strategies requiring investment in institutional arrangements\. It will be important to ensure that participatory processes, including financial management mechanisms, are well integrated into SLM programs\. - The TOR for FOs should be clearer so as to help ensure financial proposals with a consistent amount of CIG follow-up\. The quantity and quality of the FO’s support has been wide ranging; some FOs were to support CIGs with less funds but 5 or 6 times more subprojects than other FOs\. In this context, trainings, follow-up of CIGs, monitoring cannot be of the same intensity between FOs\. Contracting also needs to take into account the existing presence and resources that FOs have in the geographical area of operation\. - Upon contracting FOs, a comprehensive introduction, e\.g\., workshops, seminars, would have been beneficial to explain the objectives and rationale behind the project so that expectations and roles of all parties were better understood\. A lack of orientation from PMU at the start of the project, itself due in part to lack of steering by the project design team resulted in PMU, PCU and FO’s using different approaches and independently\. This resulted in some cases in confusing messages for project beneficiaries and difficult relationships between the implementing agency (at PCU level – to a lesser extend at PMU level) and the FOs\. - At PCU level, it would be beneficial to have an M&E specialist so as to relieve PMU monitoring efforts\. Monitoring at the PCU level was primarily of financial aspects with little attention on analyzing the project implementation pace, suggesting improvements or monitoring of impact\. M&E and financial specialists tended to be reactive to PMU M&E requirements and not proactive\. At the same time, any future M&E efforts also need to take into account the limited capacities and skills available in field locations as well as salary scales for government jobs\. - A simpler and clearer operational manual for rural investment preparation would have been more effective\. The manual is very comprehensive and relatively clear for professional staff but for villagers, especially the less well educated, it posed difficulties\. The requirements for environmental analysis, the business plan and the design and calculations of rural infrastructure were not well understood at project start-up\. This resulted in JDC and FOs often preparing the proposals for those beneficiaries, leading to delays in preparation and/or grants approval because the information provided by CIGs was incomplete\. Future guidelines must accommodate the skill levels of these beneficiaries with clearer and simpler guidelines for environmental analysis and feasibility assessment\. Similarly, the proposal format requirements need to be simplified for future operations so that they can be done in time and for the most part prepared by beneficiaries\. 66 While the manual was comprehensive on certain aspects such as approval processes, FOs had considerable flexibility in the participatory rural appraisal (PRA) process leading to the preparation of the Community Action Plans and the choice of investments by villagers\. As a result, there was variation in the quality of some proposals and some questionable investment choices\. In future, establishing a set of minimum PRA requirements for CAP preparation should help ensure that key issues are analyzed consistently\. These would include participatory environmental analyses, training in which was provided to project partners part-way through the project\. - Training in community driven development procurement procedures would have been beneficial for PMU and PCU staff as well as other project partners\. Such training would have enabled staff to be aware of the flexibility possible in this approach and be more able to provide suitable advice to beneficiaries, e\.g\., the options available regarding how many local shopping quotes are needed for local procurement\. 67 Comments on Draft ICR Unofficial translation of the Letter received from Mr\. Jalil Piriev, Head of the Department of Agriculture and Land Use under the Executive Office of the President, Republic of Tajikistan Department of Agriculture and Land Use Executive Office of the President Date: December 7, 2012 Ref#: 201 To: Mrs\. Marsha Olive World Bank Country Manager for Tajikistan Dear Mrs\. Olive, First of all, let me thank you for the opportunity to comment on the draft Implementation Completion Report prepared by the World Bank for Community Agriculture and Watershed Management Project (CAWMP)\. The Government of the Republic of Tajikistan is interested in obtaining an objective independent assessment on the results of projects implementation, in order to learn lessons from the experience of implemented projects\. The Community Agriculture and Watershed Management Project (CAWMP) was one of the first projects in Tajikistan aimed at the implementation of measures to encourage further development of agricultural production, rather than merely provision of humanitarian aid\. This project was a starting point and had a great impact, because in addition to being designed to ensure growth of agricultural production and sustainable management of natural resources, it also provided opportunities for collective decision-making by the community residents with regards to various investments to be made\. The project was aimed at addressing two major problems in Tajikistan: reducing poverty through agricultural development and accumulation of income and prevention of environmental degradation through application of sustainable land management methods and practices\. The project implementation objectives corresponded to the content of government programs and priorities which include food security, poverty reduction, horticulture development, sustainable pasture management and improving climate change resilience\. Difficulties associated with the achievement of goals, as well as creation of new jobs, include the need for market expansion, further improvement of the knowledge base in agriculture and establishment of advisory services to assist in the development of agricultural production, product processing, and land management\. In addition, the priority for the Government is also to protect mountain ecosystems that are at risk, such as grasslands and forests that make up the unique collection of the genetic diversity of wild plants\. The project achieved significant results, given the adjustments that were made in the course of its implementation in the design and its development concept by working closely with the communities that were to determine their needs, and also provided for direct participation of rural people in the allocation of funds, decision-making, implementation and monitoring of activities at 68 the local level, where Jamoat Development Committees played a key role\. This initiative is fairly new for the country, and its successful implementation required additional effort on the part of the implementation agency and other organizations involved in the implementation\. 40% of investments aimed at improving agricultural production and land management, have been used for the application of advanced technology and gaining wide access to necessary materials and knowledge\. The fact that some activities also contributed to the reduction of risks associated with land degradation due to soil erosion, as well as the improvement of soil resources needed for sustainable land use, was very important\. At least 10,700 hectares of reinforced slopes and reclaimed land demonstrated positive outcomes\. In addition, in line with beekeeping development program, farmers created more than 5,300 hives that contribute to the revival of a very important economic activity, as well as an ecological process, which is vital for agricultural production and conservation of biological diversity\. Also, small grants were provided to farmers groups to plant more than 1\.3 million trees on their land covering a total area of approximately 3,000 hectares\. Unfortunately, the project failed to establish a mechanism for the post-project sustainability and saving the results\. This is primarily due to the fact that the project was not integrated into the system of the Ministry of Agriculture and not aligned with the policy in the agricultural sector\. It would be desirable to establish the project implementation mechanism that would ensure clear division and understanding of the roles among the different project partners, especially those who have worked in the field\. In addition, cooperation was not established in the course of project implementation with the Tajik Academy of Agricultural Sciences, Institute of Soil Science and the Institute of Farming Agriculture in order to develop and strengthen the capacity of professionals to provide advisory services and training for communities\. Only a certain support was provided to the Institute of Botanics in the arrangement of several scientific expeditions to identify more than 300 endemic and rare species of plants, including fruit trees\. We agree with the assessment made by the World Bank with regards to the project and in general and are grateful for the assistance in the development of the agriculture sector\. Sincerely J\.Piriev 69 Annex 8\. Comments of Cofinanciers and other Partners/Stakeholders Not applicable\. 70 Annex 9\. List of Supporting Documents GEF (2004), Global Environment Facility Trust Fund Grant Agreement, Grant No\. 053572-TJ, World Bank, Washington, DC\. Government of Tajikistan (2012), Community Agriculture and Watershed Management Project: Project Completion Report, PMU report, April 25, Dushanbe, Tajikistan\. World Bank (2003), Environmental Assessment, Volume 1: Environmental Management Framework, World Bank, Washington, DC\. World Bank (2003), Environmental Assessment, Volume 2: Pest Management Plan, World Bank, Washington, DC\. World Bank (2004), Development Financing Agreement, Credit No\. 3928-TJ/ Grant No\. H097- TJ, World Bank, Washington, DC\. World Bank (2004), Community Agriculture and Watershed Management Project, Project Appraisal Document, Report No: 28913 - TJ, World Bank, Washington, DC\. World Bank (2012), Farmer and Farm Worker Perceptions of Land Reform and Sustainable Agriculture Study, Report No: AAA81 – TJ, World Bank, Washington, DC\. 71

REVIEW

P007846

 ICRR 11796 Report Number : ICRR11796 ICR Review Operations Evaluation Department 1\. Project Data: Date Posted : 07/29/2004 PROJ ID : P007846 Appraisal Actual Project Name : Pa Rural Health Project Costs 41\.7 42\.5 US$M ) (US$M) Country : Panama Loan /Credit (US$M) Loan/ US$M ) 25\.0 24\.2 Sector (s): Board: HE - Health (36%), Cofinancing 0 0 Water supply (30%), US$M ) (US$M) Sanitation (28%), Central government administration (6%) L/C Number : L3841 Board Approval 94 FY ) (FY) Partners involved : 0 Closing Date 06/30/2000 06/30/2003 Prepared by : Reviewed by : Group Manager : Group : E\. Hazel Denton John R\. Heath Alain A\. Barbu OEDST 2\. Project Objectives and Components a\. Objectives To support the government's poverty alleviation strategy by : (i) Reducing the incidence of malnutrition among young children, breast-feeding and pregnant women in the poorest 28 districts of Panama; (ii) Increasing the coverage of water supply and basic sanitation in all of Panama's rural areas; (iii) Training new and existing community water boards to improve their capacity to operate and maintain systems under their responsibility; and (iv) Strengthening the institutional capacity of the Ministry of Health (MOH) in the areas of nutrition, water supply and sanitation infrastructure\. b\. Components The three main components, with planned costs, were : (i) Nutrition Component ($13\.1 million, 31 percent of total costs) targeted to the 28 poorest districts\. Working with Community Health Workers (CHW) and Health Assistants (HA) to provide basic nutrition and health services, introduce a complementary feeding program in those communities with a trained CHW and in about 250 MOH outpatient facilities, and provide training to about 950 MOH staff\. (ii) Rural Water Supply and Sanitation Component ($21\.3 million, 51 percent) Support MOH in constructing new water supply systems in underserved communities, expand existing systems, construct shallow wells equipped with handpumps, and provide latrines; organize new and existing community water boards; and establish a national system of water quality control with a central water quality laboratory with regional offices and a computerized information center on water sources for rural areas; (iii) Institutional Strengthening Component ($7\.3 million, 18 percent) to strengthen operations of the MOH and Ministry of Planning \. c\. Comments on Project Cost, Financing and Dates The project was restructured twice but the objectives remained unchanged \. In July 1997, support to 300 Community Farm Subprojects to complement the feeding program was included (costing US$0\.5 million, but the financing was cancelled at the Mid -Term Review (MTR) after completion of 92 subprojects), and the project Districts expanded from 28 to 30\. The MTR was held in December 1998, over a year later than projected \. Changes to the project focus and scope were not agreed until late -1999\. In August 2000, the Loan Agreement was amended to reflect agreed changes, plus a two year extension \. Key changes were to test third party arrangements for the provision of water, sanitation, basic nutrition, and health services to the rural poor; and increase implementation speed by contracting UNDP as a procurement agent \. There was one further extension (to June 30,2003)\. Total costs of the restructured project were $ 42\.5 (up from $41\.7) reflecting an increase in counterpart funding for the feeding program\. US$0\.8 million was cancelled\. 3\. Achievement of Relevant Objectives: The main project objectives were eventually achieved \. The project achieved a primary goal of reducing malnutrition, particularly by reduced prevalence of malnourished women and children under five; of low birth weight babies; and of growth retardation in children under six years old\. However, given the lack of baseline data, and of data related to the targeted 30 poor Districts, it is impossible to state to what extent the regional goals were met \. (In Panama, the prevalence of  malnourished pregnant women fell from 10\.5% to 9\.5% (1997-2002); malnourished children fell from 3\.7% to 2\.0% (1997-2001) and the number of low birthweight babies was reduced from 9\.8% to 5\.8% (1997-2001))\. Access to basic water supply and sanitation systems increased and met the targets set \. Community Water Boards were successfully trained, and the target was met \. The institutional capacity of the MoH was strengthened, although the MIS system was not yet functioning at project close and eventual delivery of the health, water, and nutrition package was by NGOs instead of the MoH as planned\. A laboratory with five regional offices was established but its operating standards require upgrading \. 4\. Significant Outcomes/Impacts: The restructured project developed a comprehensive package of basic health and nutrition services, which was delivered by NGOs\. The use of preventive services was higher among the beneficiaries of the project package \. The impact on reduction of malnutrition in pregnant women and children under 3 years was greater in the communities with the project interventions than in the control group \. The use of prenatal care was higher for the population targeted by the package than in the control group \.Access to basic water supply increased to cover 92 percent of rural areas and 42 percent of indigenous areas (2002)\. Access to sanitation has increased in the total population from 86\.9 percent to 93\.2 percent (in 2000)\. Construction mostly met the targets : 447 new rural water supply systems (target of 425); 245 renovated water supply systems (target of 300); 204 shallow wells (target of 300), 150 dug wells (target of 150), and latrines 22,450 (target of 30,000)\. 5\. Significant Shortcomings (including non-compliance with safeguard policies): The pivotal role envisaged for CHW did not develop as intended, which undermined the planned nutrition and health activities\. Two contributing factors: (i) The training of CHW and HA was delayed until after the MTR, three years after the project became effective, which considerably weakened the impact of the CHW program \. (ii) The expectation that local incentives would be developed to retain CHW in their Districts was unfounded, and few CHW remained in their posts\. The Nutrition Component was designed as an extension of a Pilot Nutrition Project \. A condition of disbursement was adoption and implementation of a satisfactory action plan for the pilot project, designed to address the implementation problems identified\. As this component had great difficulties in implementation, it appears that the lessons learned from the Pilot Project were not adequately incorporated \. It was agreed that MoH would carry out a baseline survey of health and nutrition conditions in the 28 districts covered by the Nutrition Component, by September 1995; a participatory research program on household behaviors by March 1996; and midterm nutrition, water supply, and sanitation evaluation studies by March 1997\. These arrangements were not implemented and no baseline data was collected \. The SAR emphasized that project financed activities would be fully integrated into MOH's regular health programs\. However, in the restructuring of the project, third party arrangements were introduced for the provision of water, sanitation, basic nutrition, and health services to the rural poor, which may dilute some of the institution building aspects of the investment \. The capacity of the implementing agencies was far weaker than originally perceived, with burdensome administrative procedures, which constrained the project activities \. The difficulty of working in remote rural areas was underestimated \. 6\. Ratings : ICR OED Review Reason for Disagreement /Comments Outcome : Satisfactory Satisfactory Institutional Dev \.: Substantial Substantial Sustainability : Likely Likely With follow-on projects in both health (IDB) and water (WB), sustainability is likely\. Bank Performance : Satisfactory Satisfactory Quality at entry is assessed as satisfactory overall (unsat\. in the iCR): the project appeared well-designed for the objectives; however, the implementation capacity of the implementing agencies ultimately proved to have been grossly overestimated\. Early supervision was weak in that actions taken to adddress problems were not taken in a timely manner, and baseline data and data on the project districts are absent \. Eventually, however, the project was restructured and achieved most of its  objectives, albeit with a three-year extension\. Borrower Perf \.: Satisfactory Satisfactory Quality of ICR : Satisfactory NOTE ICR rating values flagged with ' * ' don't comply with OP/BP 13\.55, but are listed for completeness\. NOTE: 7\. Lessons of Broad Applicability: Where a new style of service delivery is being introduced which is pivotal to the project i \.e\. the Community Health Workers, then priority should be given to the training and development of this cadre \. Actions which will simplify government procedures should be undertaken prior to loan approval \. A thorough assessment of the Borrower's implementation capacity should be undertaken during project preparation\. Geographical constraints to project implementation need to be factored into the project planning \. 8\. Assessment Recommended? Yes No Why? The Appraisal Report highlighted possible implementation difficulties and incorporated various measures to address these including incorporation of lessons from a pilot project, capacity -building support from complementary donor activities, and measures to strengthen the MoH's capacity to manage and implement the project\. However, the design of the project eventually proved unrealistic \. While restructuring of the project did enable the objectives to be met, using an NGO to deliver services in place of MoH, the role of the Borrower in facilitating or hindering implementation of the original project design is unclear and should be further investigated \. 9\. Comments on Quality of ICR: Generally satisfactory but it is not possible to judge the project impact on nutrition status in the targeted districts as the ICR provides only national data \. Also, the coverage of the national data provided does not coincide with the project implementation period\.

REVIEW

P096840

 ICRR 13401 Report Number : ICRR13401 IEG ICR Review Independent Evaluation Group 1\. Project Data: Date Posted : 01/05/2011 PROJ ID : P096840 Appraisal Actual Project Name : Second US$M ): Project Costs (US$M): 500\.0 500\.0 Competitiveness & Employment Development Policy Loan Country : Turkey Loan/ Loan /Credit (US$M ): US$M): 500\.0 438\.4 Sector Board : FPD US$M ): Cofinancing (US$M): Sector (s): General industry and trade sector (66%) Capital markets (15%) Non-compulsory pensions insurance and contractual savings (15%) Banking (4%) Theme (s): Improving labor markets (29%) Regulation and competition policy (29%) State enterprise/bank restructuring and privatization (14% - P) Macroeconomic management (14%) Other financial and private sector development (14% - S) L/C Number : L7623 Board Approval Date : 12/16/2008 Partners involved : Closing Date : 06/30/2009 06/30/2009 Evaluator : Panel Reviewer : Group Manager : Group : Robert J\. Anderson Kris Hallberg Ali Khadr IEGCR 2\. Project Objectives and Components: a\. Objectives: Originally conceived as the first of two programmatic DPLs following on the agenda initiated by the predecessor stand-alone CEDPL (Competitiveness and Employment Development Policy Loan ), CEDPL 2 has three specific objectives as stated in the PD (Program Document), page 34, paragraph 94: Objective 1: Raise export competitiveness and FDI by improving the investment climate; Objective 2: Enhance the efficiency and depth of the financial sector, thereby contributing to a more efficient  allocation of domestic savings; and Objective 3: Expand employment opportunities through labor market reforms and skill building \. The statements of objectives in the PD and Loan Agreement differ slightly from each other and from that in the ICR, which states a fourth objective – maintaining macroeconomic stability - based on the policy matrix for the operation presented in the PAD\. This review adopts the statement in PD which encompasses both the specific intended outcomes of CEDPL 2 (i\.e\., improve investment climate, enhance the efficiency and depth of the financial sector, labor market reforms and skill building ) as well as the broader development objectives these outcomes are intended to serve (i\.e\., enhanced export competitiveness, more efficient allocation of domestic savings, and expanded employment opportunities )\. The inclusion or not of a macroeconomic stability objective would not affect IEG's overall ratings of this operation \. b\.Were the project objectives/key associated outcome targets revised during implementation? No c\. Components (or Key Conditions in the case of DPLs, as appropriate): CEDPL 2 supported the following core measures, completed prior to Board presentation, related to achievement of CEDPL program objectives\. With regard to the program's investment climate objective (Objective 1) CEPL2 supported: (i) Enactment of the new research and development Law which establishes a new incentive regime for research and development; (ii) Amendment of the Land Registry Law to provide a legal basis for land ownership by foreign entities and individuals; (iii) Substantive simplification of customs procedures, especially for imports; and (iv) The continued transparent, competitive, and socially and environmentally responsible implementation of Turkey’s Privatization Program during the June 2007 and June 2008 period, with a total value of completed privatization transaction around US$ 6\.5 billion\. With regard to CEDPL 2's financial sector development objective (Objective 2), CEDPL 2 supported: (i) BRSA (Bank Regulations And Supervision Agency ) made Turkish Accounting Standards mandatory for NBFIs (Non-Bank Financial Institutions); (ii) BRSA issued regulations to strengthen banking supervision and enhanced off -site supervision to help manage systemic risk in the banking sector, tightening foreign exchange exposure rules and strengthening other areas of banking regulation including loan -loss provisioning and collateral valuation rules; (iii) Financial Sector Commission created to enhance the coordination of supervision; (iv) Enactment of Insurance Law and secondary regulations, establishing guidelines for minimum capital, fit and proper requirements, direct licensing, and changes in control \. (v) Regulations issued by CMB (Capital Markets Board) on related party transactions, raising information disclosure and investor protection \. These regulations will help improve corporate governance in the capital markets; and (vi) CMB makes Turkish Accounting Standards mandatory for joint stock companies traded on the Istanbul Stock Exchange, improving the quality of information for investors in Turkish capital markets \. With regard to CEDPL2's labor market reform objective (Objective 3), CEDPL 2 supported: (i) Reduction of the social security contribution of employers to create additional jobs for the young and women in a time-bound and declining manner;  (ii) Reduction of the non-wage labor costs by lifting specific hiring quotas, allowing flexibility in the provision of specific services, and financing the social security contribution for employees with disabilities from general Treasury funds; (iii) Creation of sector qualification committees for three sectors with signed protocols for the development of competency-based occupational standards, in line with the EU (European Union) qualification framework; and (iv) Broadening the eligibility of beneficiaries entitled to participate in active labor market programs financed by the Unemployment Insurance Fund, raising the pool of eligible beneficiaries to all unemployed registered with ISKUR (Turkish Employment Agency) from only those receiving unemployment benefits \. The PD also stressed, in the context of managing risks that could derail implementation of the CEDPL series, the importance of decisive, pro -active macroeconomic adjustment to possible disturbances in international capital flows - where emerging as an increasingly real threat at the time CEDPL 2 was presented to the Board\. d\. Comments on Project Cost, Financing, Borrower Contribution, and Dates: As a result of the financial crisis that erupted during implementation of CEDPL 2, the Government’s policy focus shifted from longer-term structural reforms like those supported under CEDPL 2 toward shorter term stabilization and crisis response measures \. Due to this shift and the consequent difficulty in implementing some of the reforms envisaged under CEDPL 3 immediately following CEDPL 2, the CEDPL program was terminated and replaced by a planned REGE DPL (Restoring Equitable Growth and Employment DPL ) series\. This new series provides support for the existing public sector reform agenda and incorporates the remaining substantive policy agenda from the CEDPL series as triggers for an expected follow -up operation (REGE DPL2)\. US Dollars (US$As reported in the ICR, the amount disbursed under this operation in US Dollars (US$ 438\.4 million) was less than the loan amount approved by the Board (US$ 500) since the loan was denominated in Euros and the dollar cost of Euros turned out the be lower than assumed at appraisal \. 3\. Relevance of Objectives & Design: The objectives of the operation are aligned with Turkey's Ninth Development Plan (2007-2013), which includes as a main pillar improved competitiveness and employment opportunities, and with the Bank Group's 2008 CPS, which is designed to support that Ninth Plan \. With the onset of the crisis, Turkey's focus remained on growth and employment, but the policy focus of the Government's agenda shifted to measures that would restore growth and employment in the near-term and bridge to the medium term agenda supported by the planned CEDPL series\. The Government plans, with future Bank support, to resume the CEDPL series policy agenda over roughly the next year \. Relevance of the objectives targeted by the Bank via the CEDPL series thus was and remains High\. The specific policy reform measures supported by CEDPL 2 (see above section 2 c\. of this review) addressed constraints identified in the Bank ’s analytical work in a sensible, phased manner and are well -linked via a plausible logical framework - grounded in economic theory and in the Bank ’s operational experience in other countries - to the objectives they are intended to serve \. The specifics of the Bank’s analysis and the logical framework linking specific policy reforms supported by CEDPL 2 to expected outcomes are laid out in detail in Annex 4 (export competitiveness and FDI ), Annex 5 (financial sector development), and Annex 6 (labor market reforms)\. The phased, multi-year nature of the Government’s broader and program and supporting Bank strategy lend themselves well to the programmatic lending instrument utilized here \. However, the rapidly changing circumstances of the last two years underscore that the "program" underlying a programmatic series may need to be redesigned in media res to accommodate changing circumstances, with consequent need to redesign the supporting operations - as appears to have been done very successfully with the transition from the CEDPL series to the REGE DPL series in the present case \. Risks were fully identified and properly appraised and mitigated\. The relevance of these dimensions (i\.e\., specific measures supported, operational instrument selection, and risk management ) of the design of the operation is rated as High\. The outcome indicators for CEDPL 2 were derived from a broader set developed jointly by the Bank and the Government to monitor the three operation program envisaged at the outset \. These were chosen to facilitate tracking the effects of a longer -horizon program of reforms, suitable for regular monitoring over sufficient periods of time for the effects of reforms on outcomes to be observed \. However, some of the indicators chosen do not map well into some of the actions supported by the CEDPL 2 operation\. This is clearest in the presentation in Table 2 Objectives, Results, Indicators, and Contributing Measures of the ICR, which shows the  correspondence between policy measures, indicators, and objectives \. For example, the CEDPL 2 indicator of taxes as a share of profits is linked in Table 2 to amendments to the Land Registry Law and reform of customs procedures, which measures seem to have no direct bearing on the average effective tax rate \. The design of CEDPL 2 could have been strengthened had development objectives indicators more directly related to the broader development objectives of the operation (e\.g\., in the case of export competitiveness, the export /GDP ratio; in the case of saving allocation efficiency, intermediation spreads ) and some shorter-term indicators measuring the more immediate effects of CEDPL 2 reforms been added (e\.g\., in the case of Land Registry Law reform-number of foreign entities owning land area under foreign ownership; in the case of customs simplification - indicators shown in Table 8 of PAD; in the case of privatization - employment in privatized firms/total formal industrial employment; in the case of application of Turkish Accounting Standards to NBFIs - NBFI liabilities to the private sector /GDP; in the case of reduction of social security contributions - the tax wedge)\. Many of the variables considered in the supporting analyses presented in Annexes 4-6 of the PAD would have been suitable choices for indicators in this regard \. Relevance of the M&E aspects of the operation's design is rated as Modest\. On the basis of these considerations, overall design relevance is rated as Substantial\. 4\. Achievement of Objectives (Efficacy): Outcomes at project closing were strongly influenced by the global financial crisis (e\.g\., employment outcomes reflected the negative effects of the crisis on Turkey's growth )\. Notwithstanding some deterioration in a number of indicators (e\.g\., some increase in public sector deficits and debt ), the Government responded appropriately to sustain aggregate demand while maintaining satisfactory fiscal policy and overall macroeconomic stability and appears to have weathered the crisis well and resuming the longer -term program of structural reforms supported by the CEDPL series\. Objective 1: Enhancing export competitiveness and FDI through investment climate reforms \. The measures supported by CEDPL 2 may be expected (per Annex 4 of the PAD) to have a major positive impact on the incentive frameworks for R&D, direct foreign investment where land is involved, foreign trade, and on productivity via privatization of a substantial volume of assets \. In the case of R&D for example the new law passed with CEDPL2 support provides for a 100 percent tax credit for R&D expenditures for all companies employing more than 50 full-time equivalent researchers, regardless of their location, a subsidy of 50 percent of the total social security payments for personnel working on R&D activities, helping to mitigate the scarcity of R&D personnel, and a program of one -time grants of up to TRY 100,000 in support of techno-entrepreneurship without collateral requirements, encouraging technological start -ups\. Taken together, these steps should provide a powerful inducement to private R&D spending \. Similarly, amendments of the Land Registry Law can be expected to remove a serious impediment to FDI, and customs simplification to an improvement in export competitiveness\. CEDPL 2 tracks progress toward an improved business climate in terms of three indicators (the share of private expenditures in total R&D spending, the total tax rate as a percentage of profits, and the share of employment in SOEs as a percentage of formal industrial employment )\. The evolution of these indicators was consistent with targets established for the operation \. In the R&D expenditure shares area, private sector spending accounted for 46\.2 percent of the total in 2007, versus 47\.3 percent in 2008\. The ICR notes that during this period, there was a major expansion of public R&D spending (increasing from 0\.58 percent of GDP in 2006 to 0\.83 percent of GDP in 2008, during which period GDP increased by roughly 5\.7 percent cumulatively), which suggests that the small percentage increase in the private share represents a substantial increase in the estimated level of total private R&D spending\. It must also be remembered, however, that the law was passed only in March of 2008\. Hence, the effect of the CEDPL 2 measure (R&D Law) on the evolution of the R&D share indicator is probably still very modest at best, and may also in part reflect reclassification of expenditures to take advantage of favorable tax treatment rather than changes in underlying R&D expenditure levels \. The tracking indicator 'total tax rate as a percentage of profits' is estimated at 44\.5 percent in 2008\. No baseline estimate is provided, but the estimated tax rate remained below the 45 percent figure established as a program ceiling \. The measures supported by CEDPL 2 (amendment of the land law, and substantive simplification of customs procedures ) are not directly linked to the evolution of this indicator, however, so its relevance in the CEDPL 2 context is questionable\. The tracking indicator "share of employment in SOEs as a percentage of formal industrial employment" is estimated at 4\.8 percent as of the end of 2008, under the program target of 8 percent\. No baseline is provided, but the privatization carried out during 2007-08 with CEDPL 2 support almost certainly contributed to some reduction in the SOE share of formal industrial employment \. The ICR also reports a number of other indicators not included in the results framework for the operation but pertinent to forming a judgment about the trends in the business environment and possible Bank contributions to those developments\. The ICR reports that FDI reached almost $ 36 billion in the period 2007-08, as compared to US$ 20\.2 in 2006 million in US$ 22\.0 million in 2007 (see ICR Data Sheet for 2006 and 2007 values), although it does not discuss the factors that may have contributed to this evolution \. It also reports that simplified customs procedures have lead to a reduction in documents needed from 13 to 8 in two years\. This latter indicator, together with related indicators presented in Table 8 of the CEDPL 2 PAD would have been excellent indicator choices for tracking progress on improving customs services, as is noted in Section 3 of this review\. As noted in the ICR, the effects of the changes supported by CEDPL 2 on the policy environment for business – all relatively recent – will take some time to play out\. The changes are of such a substantial nature, however, that they may be expected to contribute to achievement of enhanced export competitiveness and FDI (as outlined in Annex 4 of the PAD)\. Absent supporting intermediate indicator evidence however, an efficacy rating of Substantial is warranted at this time \. Objective 2: Enhance the efficiency and depth of the financial sector, thereby contributing to a more efficient allocation of domestic savings \. CEDPL 2 focused on measures (legislation, regulation, and supervision ) to improve the transparency of financial markets and strengthen the legal, regulation, and supervisory frameworks for the development of efficient bank and non-bank financial markets\. These measures, if fully effectuated in the day -to-day regulation of the sector, can be expected to have profound positive effects on the development of the sector per the analysis presented in Annex 5 of the PAD\. For example, increased transparency and increased confidence in the soundness of the regulation of the financial sector would be expected to have strong positive effects on the efficiency and depth of the sector\. Outcome indicators track financial system performance in four dimensions, the capital adequacy ratio of banks, an index of investor protection, the value of insurance premia as a share of GDP, and the value of leasing assets as a share of GDP\. These indicators are more directly related to CEDPL 2-supported measures than are those used to track progress again the export competitiveness and FDI objective, but could still have been improved (See Section 3 of this review)\. All outcome indicator targets were met \. Based on the expected effects of measures undertaken under CEDPL 2 as analyzed in PAD Annex 5 and satisfactory evolution of all outcome indicators, but lack of intermediate indicator evidence, efficacy of the measures supported by the Bank in this area is rated as Substantial \. Objective 3: Expand employment opportunities through labor market reforms and skill building \. CEDPL 2 supported amendment of the Labor Law and some other relevant laws to initiate a time -bound reduction of employer social security contributions for hiring young and female employees, to reduce employer obligations to provide in-house services for their employees by outsourcing such services, to relieve employers of specific hiring quota obligations or provide budgetary financing of such quotas, Annex 6 of the PAD provides analyses linking these measures to probable increases in youth and female participation rates and employment, increases in participation and employment rates other segments of the population as well \. Outcome indicators track progress toward this objective in terms of four dimensions, the national employment rate, labor force participation rate of the 18-29 years age group, the labor participation rate of females, and the job placement rate of ISKUR (Turkish Employment Service) services, to broaden the eligibility for UIF financed vocational training and employment services, and steps by the Vocational Qualification Agency to development competency-based occupational standards \. Achievement with respect to CEDPL 2's employment objectives, as reflected in the evolution of these indicators, was mixed and strongly colored by the growth slow -down that began in 2007 and eruption of the global crisis in 2008\. The national employment rate declined, as did the female labor participation rate and job placement rate of ISKUR \. Youth labor force participation rates increased substantially(31 % in 2006 to 38\.1 % in 2008\. These outcomes are almost certainly driven more by macroeconomic trends than the measures supported by CEDPL 2, most of which were undertaken in 2008\. For example, the timebound reduction in social contributions was legislated in 2008, but did not affect contribution rates in that year\. Considering the effects of the global crisis on Turkey and notwithstanding the lack of supporting indicator evidence, on the basis of the analyses presented in Annex 6 in the PAD, expected efficacy of the Bank's support in this area is rated Substantial \. 5\. Efficiency (not applicable to DPLs): Not applicable ERR )/Financial Rate of Return (FRR) a\. If available, enter the Economic Rate of Return (ERR) FRR ) at appraisal and the re -estimated value at evaluation : re- Rate Available? Point Value Coverage/Scope* Appraisal % % ICR estimate % % * Refers to percent of total project cost for which ERR/FRR was calculated\. 6\. Outcome: The objectives of CEDPL 2 were highly relevant in the context of the Government's Ninth Development Plan and the Bank's supporting CPS\. Although the Government's near term policy focus has shifted to recovery from crisis and re-establishing growth, it has retained the growth and employment objectives supported by the CEDPL 2 series and is expected to resume the reform program it envisaged \. Hence, relevance of objectives remains high\. Design relevance, despite many strong aspects, is rated as Substantial due to deficiencies in the M&E framework\. Efficacy of the CEDPL 2 program is rated as high also, although the basis for this rating lies not in indicator evidence, but in the analysis in the PAD, which makes persuasive case for believing that the measures supported by CEDPL 2 will contribute significantly to an improved business climate, strengthened financial intermediation, and employment generation \. The absence of development objectives indicators related to the longer term development objectives of the operation (e\.g\., increase export competitiveness ) and intermediate indicators proximately related to the measures supported, however, leaves some substantial uncertainty about the extent to which expected impacts are being realized On this basis, i\.e\., a high likelihood based on analysis but relatively little substantiation on the basis of indicators linked proximately to CEDPL 2 measures, the expected outcome of the assistance the Bank rendered under this operation is rated Satisfactory\. a\. Outcome Rating : Satisfactory 7\. Rationale for Risk to Development Outcome Rating: IEG concurs with the assessment of risks presented in the ICR \. Turkey still faces a highly uncertain global economic environment which will receive highest priority in policy making for the foreseeable future \. Elections are also on the horizon, and the remaining CEDPL agenda that has been carried forward includes some politically difficult reforms - particularly the envisaged second phase of labor market reform \. a\. Risk to Development Outcome Rating : Significant 8\. Assessment of Bank Performance: Bank performance with regard to assuring quality at entry was mixed, but overall strong \. The policy content of CEDPL2, in the context of the planned CEDPL series was highly appropriate \. It was based on a substantial body of analytical work \. Evaluated on this dimension alone, Bank performance with regard to QAE would merit a rating of highly satisfactory \. However, the M&E design - as noted in the ICR - lacked appropriate indicators for some prominent development objectives (e\.g\., increasing efficiency of allocation of domestic savings) and intermediate benchmarks related to the policy content of the operation that could be used to monitor implementation and as additional evidence that the measures implemented were contributing to outcomes in the manner expected on the basis of the analysis presented in the PAD \. For this reason, Bank performance on quality at entry is rated Satisfactory\. The substantive quality and intensity of supervision and flexibility and ingenuity the Bank demonstrated in  working with the Government to recast the program to address the crisis environment were exemplary \. However observance of Bank supervision policies and procedures was deficient, as reflected in failure to complete and archive the requisite ISR \. No ISR was completed and archived for the predecessor CEDPL operation either\. No waiver or guidance was sought with respect to the decision, apparently made unilaterally by the country team, not to prepare and archive an ISR \. For this reason, Bank performance in supervision is rated as Moderately Satisfactory \. at -Entry :Satisfactory a\. Ensuring Quality -at- b\. Quality of Supervision :Moderately Satisfactory c\. Overall Bank Performance :Satisfactory 9\. Assessment of Borrower Performance: CEDPL 2 was, by all evidence, a cooperative undertaking of the Government and the Bank \. Government performance as judged by ownership and commitment to the objectives of CEDPL 2 and maintenance of an appropriate environment for achievement of program objectives was exemplary \. The ICR notes that, in addition to the core measures supported by CEDPL 2, the Government went well beyond implementing a number of complementary policy changes that are likely to reinforce the expected positive effects of the measures undertaken with CEDPL 2 support\. While the Government's near-term policy focus shifted understandably with the onset of the crisis, it appears that ownership of the longer term agenda - albeit with some implementation delay while the Government deals with the crisis - remains solid\. The ICR also notes that the results framework design and selection of indicators were also joint undertakings\. Accordingly, the Government also bears the responsibility for the deficiencies in that framework\. Nonetheless, overall borrower performance merits a rating of Satisfactory\. Inasmuch as the is a DPL and the its implementation - given its broad scope - the responsibility of the Government, no separate rating is assigned for implementing agency performance \. a\. Government Performance :Satisfactory b\. Implementing Agency Performance :Not Applicable c\. Overall Borrower Performance :Satisfactory 10\. M&E Design, Implementation, & Utilization: The M&E framework design of the operation was seriously deficient \. No PDO indicators were proffered\. The indicators tracked do not map back well into the measures supported by CEDPL 2 and relate primarily to higher level development outcomes as distinguished from outcomes more proximately related to the specific policy reforms supported by the Bank ’s operations\. IEG concurs with the point made in the ICR that it is essential to track high level outcomes - the outcomes that policy-makers care most about - to manage and evaluate reforms that exert their effects only over a longer horizon \. The specific choices in this regard made in CEDPL 2 do not map particularly well into these broader objectives \. These indicators of broader objectives need to be complemented, however, by intermediate indicators and benchmarks to guide reform implementation and facilitate near -term evaluation\. In view of the substantial AAA and lending preparation that preceded the CEDPL series (well reflected in Annexes 4-6 of the PAD), it should have been possible to formulate a results framework and indicators related more closely to the specific measures supported by the Bank \. The intermediate (i\.e\., explanatory) variables used in these analysis could have provided a suitable set of possibilities and guidance for selection of such indicators \. M&E design rates a quality rating of Modest\. Several specific suggestions that illustrate what might have been done are given, as examples, in Section 3 of this review\. A reasonable job was done in tracking and reporting the indicators selected, although because of their limited conceptual value in the relevant time frame and tenuous connection to CEDPL 2 measures in many instances, this merits relatively little weight in rating the operation's M&E \. a\. M&E Quality Rating : Modest 11\. Other Issues (Safeguards, Fiduciary, Unintended Positive and Negative Impacts): None 12\. Ratings : 12\. ICR IEG Review Reason for Disagreement /Comments Outcome : Satisfactory Satisfactory Risk to Development Significant Significant Outcome : Bank Performance : Satisfactory Satisfactory Borrower Performance : Satisfactory Satisfactory Quality of ICR : Satisfactory NOTES NOTES: - When insufficient information is provided by the Bank for IEG to arrive at a clear rating, IEG will downgrade the relevant ratings as warranted beginning July 1, 2006\. - The "Reason for Disagreement/Comments" column could cross-reference other sections of the ICR Review, as appropriate \. 13\. Lessons: IEG concurs with the lessons drawn, i \.e\., that it is important for the Bank to be flexible and creative in order to provide continuing support to reform in a shifting environment, that while being flexible it is important to maintain sight of longer term structural reform goals, that a mix of knowledge and lending is required to maintain this combination of flexibility and focus, and that it is vital to have and M&E design that captures short-to-medium term effects as well as longer term ones \. insightful\. 14\. Assessment Recommended? Yes No Why? The Turkey Country Program's "programmatic approach to programmatic development policy lending ", i\.e\., adjusting and recasting the program to deal with near term issues while maintaining a focus on medium to long term structural reform issues seems to be a very innovative and pragmatic approach to dealing with uncertainty \. A "learning" evaluation of this approach for its efficacy in achieving medium to long term structural reform and for insights into its application is warranted \. 15\. Comments on Quality of ICR: Given the limitations of the underlying M&E framework of the project, the ICR is strong \. It is comprehensive, clear, concise, and does an excellent job of laying out the rationale for the adjustment /shift in program design in context of Bank's strategy and changes in country conditions \. Table 2 is a welcome innovation, spelling out broad project results logic and achievement of project results in one convenient, clear presentation \. The ICR is prepared in the format of an ICR for a DPL series including CEDPL and CEDPL 2\. That is not strictly necessary in this case since CEDPL was a stand -alone operation (and hence not part of the series ), and CEDPL 2 - the first in a planned series of two operations - turned out after the fact to be the first and last of the series \. a\.Quality of ICR Rating : Satisfactory

REVIEW

P006029

Document of The World Bank FOR OFFICIAL USE ONLY Report No: 18054 IMPLEMENTATION COMPLETION REPORT ARGENTINA PUBLIC SECTOR REFORM TECHNICAL ASSISTANCE LOAN (LOAN 3362-AR) June 30, 1998 Poverty Reduction and Economic Management Latin America and the Caribbean Region This document has a restricted distribution and may be used by recipients only in the performance of their official duties\. Its contents may not otherwise be disclosed without World Bank authorization\. CURRENCY EQUIVALENTS Currency Unit - Peso (Arg$) EXCHANGE RATE Arg$1 = US$1 WEIGHTS AND MEASURES Metric System FISCAL YEAR January 1 - December 31 ABBREVIATIONS AND ACRONYMS ANA - Nacional Customs Administration (Administraci6n Nacional de Aduanas) CBRA - Central Bank of the Republic of Argentina DGI - General Tax Directorate (Direcci6n General Impositiva) ICR - Implementation Completion Report IDB - Inter-American Development Bank PERAL - Public Enterprise Adjustment Loan PEREL - Public Enterprise Reform Execution Loan PSRL - Public Sector Reform Loan PSRTAL - Public Sector Reform Technical Assistance Loan SEF - Superintendency of Financial Entities SIDIF - Integrated Financial Management System (Sistema Integrado de Infiormaci6n Financiera) TATAL - Tax Administration Technical Assistance Loan Vice President: Shahid Javed Burki Director, SMU: Guillenno Perry Director, CMU: Myrna Alexander Task Manager: Luis-Jose Meia FOR OFFICIAL USE ONLY IMPLEMENTATION COMPLETION REPORT ARGENTINA PUBLIC SECTOR REFORM TECHNICAL ASSISTANCE LOAN (Ln\. 3362-AR) Contents Preface \.i\. \.i Evaluation Summary \. ii Part I\. Project Implementation Assessment A\. Statement of Objectives \. 1 B\. Achievement of Objectives\. 3 C\. Customs Modernization Program\. \. 5 D\. Administrative Reform of the Central Government\. 7 E\. Financial Management Reform\.8\.8 F\. Modernization of the Central Bank and SEF \. 11 G\. Major Factors Affecting the Project \. 13 H\. Project Sustainability\. 14 I\. Bank Performance \. \. 14 J \. Borrower Performance\. \. 15 K\. Assessment of Outcome\. \. 15 L\. Future Operations \. \. 16 M\. Key Lessons Learned \. \. 16 Part H\. Tables and Appendices Table 1: Summary of Assessment \. \. 18 Table 2: Related Bank Loans/Credits \. 19 Table 3: Project Timetable\. \. 20 Table 4: Cumulative Loan Disbursements: Estimated and Actual \. \. 20 Table 5A: Project Costs \. \. 21 Table 5B: Project Financing \. \. 21 Table 6: Status of Legal Covenants\. \. 22 Table 7: Bank Resources: Staff Inputs \. 25 Table 8: Bank Resources: Missions\. \. 25 Table 9: Matrix of Project Activities \. 26 Appendix A: Borrower's Contribution to ICR 31 This document has a restricted distribution and may be used by recipients only in the performance of their official duties\. Its contents may not otherwise be disclosed without World Bank authorization\. IMPLEMENTATION COMPLETION REPORT AIRGENTINA PUBLIC SECTOR REFORM TECHNICAL ASSISTANCE LOAN (Ln\. 3362-AR) Preface This is the Implementation Completion Report (ICR) for the Public Sector Reform Technical Assistance Loan in Argentina, for which Loan 3362-AR in the amount of US$23 million equivalent was approved June 25, 1991, and became effective December 10, 1991\. Final disbursement took place on May 17, 1996\. The ICR was prepared by Cecilia Zanetta (consultant), under the supervision of Luis-Jose Mejia, Task Manager (LCSPR), and reviewed by Antonio Martin del Campo (LCSPR) and Carmen Machicado (LCSPR)\. The ICR is based on information in the project files, discussions with staff in the project's implementation unit, the Ministry of Economy, Customs Department and the Central Bank, UNDP and OPS\. The Borrower contributed its own evaluation of the project's experience and provided background material and support\. IMPLEMENTATION COMPLETION REPORT ARGENTINA PUBLIC SECTOR REFORM TECHNICAL ASSISTANCE LOAN (Ln\. 3362-AR) Evaluation Summary 1\. The Public Sector Reform Techmical Assistance Loan (PSRTAL) was primarily designed to provide technical assistance and support to the Argentine Government to carry out activities identified as critical under the Public Sector Reform Loan (PSRL) for drastic change in the public sector during the Menem administration\. 2\. Supporting public sector reform was a fundamental objective in Argentina, because of the public administration's inefficiencies, excessive size, and pervasive effects on the economy\. The PSRL provided support for measures that improved the efficiency of current and investment expenditures, increased revenues while reducing the distortions in resource mobilization, and transformed the Central Bank into a monetary authority\. The PSRTAL was designed to complement the PSRL by providing technical support to strengthen the agencies responsible for these reforms\. 3\. Project objectives were to support: a) modernization and computerization of the Customs Department (Administracid6n Nacional de Aduanas --ANA); b) the administrative reform and modernization of Central Government administration and the Central Bank; c) a new framework and systems for comprehensive financial management, integrated budgetary processes and effective control of allocation of public resources; and d) restructuring of the Superintendency of Pinancial Entities (SEF)\. Implementation Experience and Results 4\. The project advanced the reform and modernization of the public sector at the federal level, and set the basis for their extension to the provinces\. It helped in consolidating in particular the reorgaization and downsizing of the federal government, the decentralization of secondary education and other public services, and the reorganization of the Central Bank and the SEF\. 5\. After a successful start, the implementation of the project experienced considerable delays in 1992-93, due to tardy passage of legislation, the complexity of the operational and technological frameworks, and procurement difficulties\. However, these difficulties were overcome and smooth implementation ensued\. 6\. Federal employment decreased by 15 percent (and an additional 41 percent were transferred to the provinces); the latter now manage education and health services, and imt legislation deregulating economic activities has been passed\. The budget is again effective to plan, manage and control public expenditures\. A state-of-the art financial management system has been implemented and continues to be expanded and perfected\. The Central Bank and SEF changes helped to improve monetary policy management\. The elements required for reform and modernization of customs are in place: a new automation system has been implemented, a new code has been developed, and the ANA school and lab are operational\. But the consolidation of the reforms is still pending, as the result of ANA's merger with the Tax Directorate\. 7\. The Bank's performance with respect to project identification, preparation and implementation was highly satisfactory; somewhat less so for project appraisal\. It correctly identified the need for focused assistance for implementation of the reforms supported under PSRL but failed to foresee the length of time needed to do this\. During supervision, the Bank project helped balance the maintenance of planned course of action with the flexibility to respond to macroeconomics and political changes\. The Borrower's performance was highly satisfactory regarding project preparation, implementation and compliance with loan covenants\. Its combination of political support, strong determination of individual actors and excellent technical resources were key to the project's success\. 8\. The outcome of the project was highly satisfactory in promoting public sector reform and effectively consolidated the changes advanced by the PSRL\. Moreover the reorganization of the Central Bank was helpful in sustaining monetary stability which with the passage of the Convertibility Law, became the cornerstone of the government's reform strategy\. 9\. The lessons of this Loan were; a\. Technical assistance loans can be effective complements of structural adjustment loans in lending for reform\. b\. Bank interventions can be most effective when they capitalize on windows of opportunities that provide unique momentum to the implementation of reforms\. c\. Individual reforms are more likely to be implemented when they are critical to the success of an overall reform strategy\. d\. The success of technical assistance loans depends on a combination of factors, among the most important of which is strong political support\. e\. Overcoming resistance of the status quo is critical to the long-term sustainability of the improvements and reforms\. f\. Strong leadership within the target government agencies is required to successfuly carry out the reforms\. iv g\. The lack of ownership and responsibility tend to result in excessive reliance on information technology specialists for business solutions\. h\. It is important to identify key in-house personnel receptive to change to bring them on board in the reform process\. i\. Non-technical aspects are crucial in terms of the impact they can have on the successful incorporation of reforms\. j\. Training components are key to project sustainability\. k\. Technical assistance loans should not be expected to be short-term, one-time interventions\. Part I Project Implementation Assessment A\. Statement of Objectives 1\. When the Menem administration took office in July 1989, Argentina was experiencing a four-digit hyperinflation, widespread economic stagnation and massive public sector deficits, as the result of over four decades of heavy state interventionism, inward-looking trade orientation, and a chronically inefficient public sector\. The Government decisively undertook the implementation of structural measures that drastically reduced the role of the state in the economy and tackled fiscal imbalances\. The reform of the public sector was central to the Government's reform program, as the public sector's structural inefficiencies, disproportionate size, and the pervasive distortions it introduced into the economy were at the core of the staggering fiscal deficits and economic instability\. Moreover, the sustainability of the Government's stabilization program depended on the successful reform of the public sector, as increasing public savings was the most effective and direct way to generate the aggregate domestic savings necessary to fuel economic growth\. 2\. The Bank provided strong financial and technical support to the Government's efforts to reform and modernize the public sector through several lending operations, including the Public Sector Reform Loan (PSRL), and the Public Enterprise Reform Adjustment and Execution Loans (PERAL and PEREL)\. The PSRL was highly instrumental in supporting the design and financing of measures that improved the efficiency of current and investment expenditures, increased revenues while reducing the distortions in resource mobilization, and limited monetary emission by disengaging the Central Bank from public finances and trnsforming it into a monetary authority with circumscribed powers\. The Public Sector Technical Assistance Loan (PSRTAL) was conceived to complement the PSRL by providing additional technical support to strengthen the capacity of key government agencies responsible for the implementation of the reforms aimed mainly at expenditure reduction and rationalization, while the Tax Administration Technical Assistance Loan (TATAL) was conceived to play the same role in relation to revenue mobilization\. 3\. The PSRTAL's specific objectives, as stated in the Memorandum to the President were to support: a) the modernization and computerization of the Customs Department (Administraci6n Nacional de Aduanas -- ANA); b) the administrative reform and modernization of the internal administration of the Central Government; 2 c) the establishment of a new framework and the development of systems for comprehensive public sector financial management, integrated budgetary processes and effective control of improved allocation of public resources; d) the reorganization and modernization of the Central Bank and e) the implementation of a program for a complete restructuring of the Superintendency of Financial Entities (SEF)\. 4\. To accomplish these objectives, the project was designed to strengthen the capacity of the following institutions: a) the Ministry ofEconomy by providing consultant services, computer equipment and software to: i) manage the economic reforms; ii) allocate and control public resources through an integrated national budget and accounting information system for financial management, budget programming, execution and control -- including institutional strengthening of the entities that constitute the internal and external control network; and iii) administer customs by establishing new administrative procedures and related computerized systems; b) the Central Government Ministries and the Presidency by providing consultant services, computer equipment and software to modernize its internal administration by developing new uniform procedures and information systems for personnel, financial resources, and facilities management; c) the Central Bank through the provision of consultant services, computer equipment and software to improve its organizational structure and administrative procedures, develop key information systems and enhance staff capabilities, with special emphasis on the SEF\. 5\. The total cost of the project was US$31\.5 million equivalent, with US$23 of IBRD financing\. A matrix of key project activities specifying objectives, outputs, impact and timing targets was agreed during the project design\. This matrix provided a sound, well- thought-out road map for the project, effectively identifying barriers to the implementation of the reforms being promoted under the PSRL and providing a sequence of activities designed to overcome these barriers\. In general, the activities that were actually implemented under the project do not show major deviations from those in the original matrix, except as required by changes in macroeconomic conditions, political strategy, and lessons from earlier project implementation\. Although evaluation criteria and performance 3 indicators were identified for each project component during project design, no baselines were estimated at the time and no emphasis was placed on their systematic follow-up\. Thus, their contribution was limited to expanding the conceptual understanding of each component, rather than as serving as an effective monitoring and evaluation tool\. B\. Achievement of Overall Project Objectives 6\. Overall, the project, in conjunction with other Bank operations -- i\.e\., PSRL, PERAL, PEREL, and TATAL -- has been highly successful in supporting the government's program to reform and modernize the public sector\. This program has been widely recognized for its effectiveness in reforming and modernizing the public sector at the federal level and setting up the basis for extending the reforms to the subnational governments\. The PSRTAL has been highly instrumental in the implementation of key reforms, in particular the reorganization and downsizing of the federal government, the structural reform of the central administration (which included decentralizing secondary education and other public services to the provinces), the implementation of a financial management system that has revolutionized the government's budgetary and accounting systems, and the reorganization of the Central Bank as an independent monetary authority\. 7\. The success of the PSRTAL is closely linked to that of the PSRL, complementary in terms of objectives, government counterparts, and time frames\. Through the PSRL, the Bank worked closely with top government officials in the design of the necessary reforms and provided strong financial incentives fbr the adoption of an enabling policy framework within a short time frame --i\.e\., two-and-a-half years\. Concomitantly, the PSRTAL supported the government administration in crafting and adopting the normative and operational tools required to carry out these reforms, a sustained effort which lasted over a seven-year time span\. Thus, the PSRTAL played a key role in doing the field work that enhanced the operationalization of the drastic reforms introduced under the PSRL\. 8\. Macroeconomic Policies: Substantial Achievement\. Despite its relative small size, the project has effectively contributed towards the stabilization and eventual rebounding of Argentina's economy by supporting the implementation of measures to reform and modernize the public sector\. The savings in public expenditures resulting from the downsizing and reorganization of the central administration have had a direct and significant impact in reducing fiscal deficits\. The increased efficiency in the management of public financial resources resulting from the implementation of a modem financial management system has permitted the rationalization and control of public expenditures, the preparation of a rigorous budget for the first time in decades, all of which ultimately contributed to tight control of monetary emission and, consequently, inflation\. Finally, the successful reorganization of the Central Bank as an independent monetary authority has been critical to the success of the 1991 Convertibility Law\. 9\. Financial Objectives: Substantial Achievement\. Although financial objectives per se were not pursued in this project, significant savings have resulted from increased 4 efficiency in the functioning of the public sector, the reduced role of the government in the economy, and the rationalization of public expenditures\. They included increased customs collections of approximately US$150 million per month after 1991; savings of US$63 million from the optimized use of physical space; fiscal net gains from deregulation estimated at approximately US$322\.4 million per year; and gains from foregone interest resulting from the implementation of the Consolidated Treasury Account, estimated at approximately US$21 million per year\. Finally, the closer more effective monitoring of the banking system by a strengthened SEF should help prevent future sector crises, as it already demonstrated during Argentina's successful containment of the spillover effects of the 1995 Mexican financial turmoil\. This helped the Government to react swiftly to strengthen the banking system, and with comparable fortification of the fiscal accounts, sustain Argentina's reform program\. This contrasted markedly with the banking collapse in 1980-82, whose cost has been estimated at approximately US$60 billion, equivalent to 55 percent of GDP at the time' 10\. Public Sector Reform: Substantial Achievement\. This is the area in which the project has made its central contribution\. It has successfully accomplished its original objectives by effectively supporting the administrative reform and modernization of the internal administration of the Central Government; the establishment of a public sector financial administration system for the comprehensive public sector financial management, integrated budgetary processes and effective control of improved allocation of public resources; and the reorganization and modernization of the Central Bank and the SEF\. The successful implementation of these three components has consolidated the reforms introduced during the first part of the Menem administration with the support of the PSRL and other related Bank operations, thus drastically transforming Argentina's public sector by redefining the role of the Central Government, modernizing it, and increasing its efficiency while simultaneously decreasing public expenditures\. All the government entities that participated in the program are now significantly stronger, both in terms of their organizational structure as well as technological environments\. Although the Ministry of Economy, the Central Bank and the SEF were the focus of specific reform and modernization components, all other ministries and some decentralized agencies in the Central Government have also been strengthened and modernized through the administrative reform component and their incorporation into the new financial management system\. 11\. The project has helped set up the basis for modernization of the Customs Department (ANA) and supported the development of specific elements of its computerization system\. However, the final outcome of this component is less certain, as the final implementation of the reforms has recently been put on hold after the demotion of ANA's top administrator and the decision to merge ANA with the General Tax Directorate -- Direcci6n General Impositiva, DGI\. 'World Bank and IMF reports, Sept\. 1997\. 5 12\. A detailed analysis of the factors that affected the implementation of each component and the achievement of their specific objectives follows below\. C\. Custom Modernization Program (US$6\.8 milion) 13\. Traditionally, ANA imposed an excessive administrative burden on business activities and introduced significant distortions in the economy by distributing unevenly among importers its direct discretionary costs, imposing unduly complex, lengthy procedures for the entries of goods, and tolerating smuggling\. Similarly, the inefficient management of customs activities contributed to the country's fiscal imbalances, both directly by under-collecting revenues as the result of the deficient coverage of taxable transactions and/or inaccurate valuations, and indirectly by failing to provide accurate controls to enforce the compliance with domestic taxes\. 14\. Moreover, the legal framework of ANA was highly complex and provided its top administrators with much decision-making discretion but no accountability\. External monitoring was virtually impossible and the fragmented nature of the operations provided fertile grounds for corruption\. Attempts to remedy the situation failed\. 15\. Component's Objectives and Implementation: Full restructuring of ANA was conceived as part of the program supported under PSRL This aimed at streamlining operations as much as possible, bringing neutrality to the determination of value, and increasing coverage to encompass the maximum number of transactions\. The PSRTAL was set up to provide support for: a) preparing, monitoring and implementing an Automated Plan to develop and implement a computerized customs information system to simplify and improve administrative, operational and control systems; b) preparing new guidelines and procedures including legal framework and administrative reorganization; and c) training staff on related new regulations, plus introductory courses on the proposed information systems\. 16\. In view of past failures, the government's strategy was to reform, modernize and bring transparency to the entity from the outside\. A close collaborator of the Minister of Economy become ANA's top administrator\. ANA's new administration decided to develop the MARIA system, an adaptation of SOFIE, the French customs system\. As this was to be financed with ANA's own funds, the Bank agreed to utilize some Ln\. 3362 resources to support the development of components of the MARIA, such as the establishment of the secondary communication networks linking some of the ports and Customs headquarters, the acquisition and installation of computer equipment to set up internal electronic mail, and the installation of a chemical analysis laboratory to improve valuation assessments of exported goods\. 17\. Despite resistance within ANA, the implementation of the MARIA system and the overall restructuring of ANA's operations continued until 1996, when reports of an organized smuggling network ("Aduana Paraleld') resulted in the firing of ANA's top 6 administrator\. ANA has since been merged with DGI --Direcci6n General Impositiva - thus creating considerable uncertainty regarding the future of the both agencies\. 18\. Achievement of Component's Objectives: Partial Achievement\.2 By 1994, several performance measures indicated that the reforms being implemented to modernize ANA were successful\. Collections had been increased from US$100 million to US$250 million per month since 1991, irregularities in the valuation of merchandise was decreased from 50 percent in 1992 to 18 percent in 1993 and the dispatch costs and times of imports and exports had been reduced by 30 percent\. Finally, through automation, discretionality in Customs operations had been reportedly reduced and the number of intervening agents was reduced by 15 percent\. against the backdrop of the controversy over " Paralela" -- and because of inconsistency in reports, it is difficult to assess the value of the MARIA system and the benefits of activities financed under the project\. For instance, the future implementation of the simplified procedures and norms that resulted from the revision of the Customs Code financed under the project is not guaranteed\. The same is true for the electronic mail system\. Although the equipment has been purchased, the system is not in place and its implementation is on hold because it is not fully compatible with that of DGI\. In the meantime, it has been proposed that the equipment be used to continue to support the transition to the MARIA system\. On the other hand, the remaining activities financed under the project are rendering the expected results\. The chemical analysis lab is now in place and effectively contributing to the improved valuation of exported goods\. Also, the Customs School has been newly equipped and more than 1500 ANA staff members trained in management and customs procedures\. Computer equipment to support the transition to the MARIA system has been financed instead of the originally proposed secondary network system, as such need has now been satisfied with DGI's own communication system\. Moreover, the new administration has confirmed the continued implementation of the MARIA system, which was expected to account for approximately 85 percent of all customs operations by the end of 1997\. 2Ref\. Table 9 7 D\. Administrative Reform and Modernization of the Central Government (USS4\.9 million) 19\. In one of its first steps towards structural adjustment, the Menem administration embarked on an Administrative Reform Program aimed at reducing public expenditures and rehabilitating the oversized and deteriorating public administrative apparatus through streamlining employment levels and rationalization of administrative structures and functions in the federal government\. Another important objective was to deregulate some of the functions of the central government, to free a significant number of economic activities, such as insurance, ports, regional markets, and pharmaceutical products from the highly complex, outdated, vague, and often redundant government regulations\. Finally, the reform program also included the decentralization of some public services -- mainly health and education -- to the provinces in exchange for an increase in the revenue-sharing transfers\. 20\. Component's Objectives and Implementation: The focus of the activities financed under this component was to support the implementation of reforms in: a) the continued modernization of the National Public Administration; b) deregulation; and c) decentralization of public services\. Most of these activities were implemented early on in the project and provided the basis for the rationalization of public expenditures that characterized the first part of the government's reform program\. 21\. Those activities related to the modernization of the national administration included the redefinition of organizational structures, the rationalization of physical space, the development and implementation of monitoring systems of administrative reforms (SIPRA), the simplification of administrative procedures and the internal administration system, inventory and asset management, a new procurement system, and the development of a human resource database linked to the payroll\. In relation to deregulation, the project provided support to rationalize and simplify the body of norms and regulations governing various economic activities\. Finally, with regard to the transfer of public services to the provinces, the project provided support to formulate the conceptual and operational frameworks for the decentralization of health and education services including analyzing the impact of the transfer, preparing the legal basis for decentralization, and formulating guidelines for the actual transfer\. 22\. Achievement of Component's Objectives: Substantial Achievement\. The overall objectives of this component were largely attained, with the activities financed playing a key role in the implementation and monitoring of the government's Administrative Reform Program\. This has led to a major reorganization of the federal government\. By early 1993, the Federal Government shrank from 671,000 in 1990 to 284,000 as a consequence\. Actual employment fell by 15 percent while an additional 41 percent (teachers and health workers) were transferred to the provinces\. The immediate fiscal savings were relatively modest because of the Government's obligation to pay severance claims associated with these reductions, which totaled some US$312 million in 1991-92\. Moreover, there was a 50 percent reduction of organizational structures and 8 average processing time of administrative documents, as well as savings of US$63 million from the optimized use of physical space\. 23\. Activities under the deregulation component have also been very successful, supporting the preparation of norms deregulating a number of economic activities, including the insurance market, elimination of restrictions on air transportation, opening of fishing and mining markets to foreign participation, simplification of procedures for pharmaceutical operations, demonopolization of the postal system, elimination of major import and export quotas, merchant marine, interest rates, corporate law, transfers of funds, and mergers and acquisitions\. The fiscal net gain from deregulation was estimated at US$322\.4 million from 1992 to 1994\. Moreover, the impact resulted in increased production, competitiveness and exports, reduced costs, as well as demonopolization and increased transparency of markets\. 24\. The decentralization of public services to the provinces was implemented between 1992 and 1993\. The transfer of health and education services and related public employees to the provinces resulted in US$1\.2 billion in savings in the federal 1992 budget, which cut has been maintained thereafter\. Of course, the related expenses had to be absorbed by the provinces, for which increased resources were transferred through national revenue-sharing\. E\. Public Sector Comprehensive Financial Management and Performance Control Reform (US$5\.1 million) 25\. Another basic problem was the government's inability to program and control public spending efficiently\. The bulk of the public expenditures occurred in decentralized agencies, special accounts, public enterprises, provinces and social security funds, with the Treasury having discretionary control over only 20 percent of non-interest expenditures in 1988\. As the former entities reached the limits of their budgets, they customarily arranged for ad hoc, bail-outs by the central government or the Central Bank, ultimately financed by the inflation tax\. 26\. The budgetary process had been destroyed by the early 1980's, and successive attempts to reestablish it since 1983 had all failed\. Unstable macroeconomic conditions aggravated the weakness in the budget process, as the Treasury was forced to manage short-term flows on the basis of the immediate priorities of continually changing quarterly targets rather than an agreed budget\. The budget became just a formality, as inflation usually rendered it irrelevant within weeks of its preparation --(and the 1990 budget was never approved)\. Other problems included: a) omission from coverage of important sources of expenditures, such as public enterprises' revenues and other funds; b) absence of budget programming and subsequent review oriented towards improving the allocation of public resources; c) ex-ante and ineffectual control of budget execution; d) weak 3 The fiscal net gain is calculated as the difference between reduced expenditures and increased revenues, minus revenue losses and severance payments\. 9 senior-level monitoring and unenforceable reporting requirements; e) no public investment planning; and f) the lack of modern information systems to support financial management\. 27\. To regain control, the Government, with assistance from the Bank, prepared a Public Sector Financial Management Reform that established a comprehensive definition of the public sector, defined financia responsibilities and set up a modern control and auditing framework\. The Public Sector Financial Management Law -- Reforma de la Administracidn Financiera del Sector Pfiblico Nacional, Ley 2415 -- enacted on Sept\. 30, 1992, focused on: a) implementing a comprehensive budgeting process; b) clearly delineating responsibilities; c) developing mechanisms for control and auditing; and d) defining levels of indebtedness\. 28\. Component's Objectives and Implementation: The activities financed under this component directly supported the implementation of the Public Sector Financial Management Reform\. Specifically, they supported: a) the design of new criteria, methods, and normative frameworks for budget programming and public sector financial management consistent with the new law; b) the development and implementation of an Integrated Financial Management System (SIDIF4); and c) the training and professional enhancement of officers of key agencies\. 29\. This component became highly important after the Convertibility Law, as programming and controlling of public expenditures was central to maintaining price stability\. The Public Sector Financial Management Reform invested full financial and budgetary authority in the Secretariat of Finance, within the Ministry of Economy\. Its Minister then designated one of his close collaborators to serve as both Secretary of Finance and executive coordinator of the PSRTAL implementation unit\. This was key to the successful implementation of the Public Sector Financial Management Reform and the SIDIF, as it combined ample political support with strong leadership\. The strategy adopted was to reform from within the Secretariat of Finance, with the overall concept for the SIDIF being developed in-house by permanent staff with consultant support\. 30\. Although generally underestimated, non-technical strategies for introducing the reform within the key agencies in the national public administration were as important as developing a sound technical solution for the SIDIF\. Key officers from the budget, treasury, accounting, and public credit units were involved early on in the process, which proved to be critical in developing a sense of ownership of the reforms among the main users\. Structured group interactions led by a sociologist were organized over week-ends to promote cohesiveness between staff of different units, which helped to integrate previously encapsulated centers of power\. An aggressively implemented training component effectively disseminated the reform in financial administration by orienting 2,800 professionals in the national and provincial administrations and universities in the SIDIF and new budget, treasury, and accounting procedures\. Finally, regular meetings and retreats between the Minister of Economy, the Secretary of Finance and top officials 4 This system was originally named SIPRECO\. 10 in the national public administration where the final objectives of the reform were continuously emphasized (informally dubbed "spiritual retreats" by the administrators) were critical to build up and sustain the momentum for change that characterized the early years of the Menem administration\. 31\. Achievement of Component's Objectives: Substantial Achievement\.5 The implementation of the Comprehensive Financial Management and Performance Control component has been highly successful in drastically revamping the national fiscal accounting and budget processes, thus contributing to the improved allocation of public resources and control of spending\. In 1991, for the first time in nearly half a century, the National Administration budget for the following year was submitted on time, and approved before the start of the fiscal year\. Savings in non-interest expenditures have been estimated at approximately US$450 million\. Also, the consolidation of approximately 5,000 public bank accounts into the Consolidated Treasury Account -- Cuenta Unica del Tesoro - has resulted in the almost complete elimination of check and cash transactions, and savings in maintenance and commission costs as well as foregone interest from idle funds estimated at approximately US$21 million per year\.6 Finally, the adaptation and implementation of the SIGADE (Debt Management and Analysis System), a system developed by UNCTAD, has contributed to the optimization of the debt portfolio\. 32\. The SIDIF has revolutionized the allocation and control of public expenditures in the national government, incorporating into a single operational framework the previously dissociated functions related to the budget, treasury, accounting, and public credit\. It was developed around two basic concepts: a) total interrelation between the different systems and b) normative centralization and operational decentralization\. In this way, the SIDIF was conceived as a system that interrelates a central database managed by the Ministry of Economy (central SIDIF) with local databases (local SIDIFs) corresponding to the administrative/financial units (SFAs) of the different organisms within the central administration, and decentralized entities\. The central SIDIF is now totally operational, with local SIDIFs operating in three organisms of the central administration and three decentralized entities\. The remaining SFAs, which are currently operated and connected to the central SIDIF with a transitory software package, will continue with the implementation of their local SIDIFs under a loan by the IDB\. 33\. Overall, the implementation of the SIDIF has contributed to increase transparency in the management of public resources by having on-line, real-time information on all financial transactions within the national public administration integrated into a single database with access open to multiple users\. It has also contributed towards increased efficiency and effectiveness in the allocation of financial resources by relating budget allocations to physical output measures, thus allowing the better estimation of costs and s Ref Table 9 6 Estimated based on US$40 million of public current expenditures, 50% of which has been assumed to be transferred through public bank accounts, with an average of ten days of idle funds, and an annual interest rate of 5 percent\. 11 productivity measures\. Finally, it has strengthened policy decision making by providing timely and dependable information on public finances\. F\. Reorganization and Modernization of the Central Bank (CBRA) and Superintendency of Financial Entities (US$3\.28 and US$1\.62 million respectively) 34\. The need to reorganize and redefine the role of the Central Bank was recognized early on during the Menem administration\. For decades the Government had abused the power to create money, using the Central Bank as the ultimate source of revenue for the public sector\. With the support of the PSRL, several reforms were adopted to separate the Central Bank from the non-financial public sector and establish it as a monetary authority\. A new CBRA charter adopted in 1992 provided it with sufficient autonomy to function as a monetary authority, restricted CBRA financing for the public sector, and removed functions not directly related to the preservation of currency stability, including the removal of trade credit and bank liquidation functions and the transfer of legal authority over failed institutions to the courts\. 35\. The reorganization of the Superintendency of Financial Entities (SEF) was also an important element in the government's reform strategy and a condition of the PSRL\. The CBRA's Directors approved a reorganization of the SEF in July 1990 and carried it out in September 1990\. An action plan was developed aimed at strengthening the functions of the SEF, which are a vital complement to those of the CBRA\. Among the functions to be strengthened were the evaluation of banks' portfolios, banks' inspection, and the overall prudential regulation of the banking system\. 36\. The CBRA and the SEF had severe deficiencies in their computing and communication equipment\. These seriously limited the CBRA's capacity to maintain and process information for policy-making modeling, as well as routine daily activities such as monetary programming, balance of payments programming and analysis of financial institutions\. The lack of up-to-date communication systems also posed an additional obstacle to the modernization of the CBRA's operational capacity\. Transmission of information on transactions to the CBRA's accounting system as well as between the CBRA and SEF was generally poor and slow, thus hampering the decision making ability of CBRA's management\. Moreover, the CBRA's mainframe computer was both obsolete and operating dangerously close to its capacity limit\. 37\. Component's Objectives and Implementation: Although originally conceived as two separate components, the reorganization and modernization of the CBRA and SEF were later merged into a single component to reflect the integration of the two entities that resulted from their reorganizations\. The PSRTAL supported the design and implementation of a computerization and communications strategy to support the CBRA/SEF organizational reform, including the development of main applications, such as accounting and current accounts, and the training of technical personnel and end users\. 12 38\. The implementation of the CBRA component illustrates some of the key elements that contribute to the fate of technical assistance projects\. During the first two years, the leadership of the CBRA relied almost exclusively on external consultants to design the main computing and communications strategy that was to support the modernization of the CBRA/SEF\. Given the high degree of specific know-how involved in the functions performed by the CBRA, the lack of involvement of CBRA staff resulted in the inadequate definition and specification of the systems designs\. This affected the bidding documents for the corresponding computer and communication systems\. As a result, bids were several times higher than anticipated and the procurement process was voided in October 1992\. 39\. Thereafter, the institution decided to have another go at the procurement, mainly for the transparency of working under the Bank and UNDP/OPS' procedures\. This time, however, it was decided to redesign the computer and communication strategy mainly in- house, with the ownership of the systems in the hands of permanent CBRA staff working with potential providers in the definition of the final product\. Several providers were willing to participate in giving informal advice to the CBRA\. 40\. Both the Bank and UNDP/OPS worked very closely with the CBRA in designing the second round and permitted some flexibility in procedures\. Under a two-step process, technical proposals were analyzed first\. An evaluation commission reviewed all proposed technical solutions and those found acceptable were asked to supplement them with complementary elements to level the proposals\. Prices were considered in the second step\. The winner finally was awarded the contract with a bid price less than a fourth of the lowest bid under the previous process\. The CBRA is a success regarding the ownership and acceptance of the new systems within the institution, and the transparency and competition of the procurement\. The record contrasts sharply with the comparable case for the Banco Naci6n, which took place at the same time and ended up with a scandal involving the supplier and government officials\. 41\. Achievement of Component's Objectives: Substantial Achievement\. The successful reform and reorganization of the Central Bank played a principal role in controlling inflation and stabilizing prices\. The average monthly CPI inflation fell from 24\.9 percent in 1990 to zero in February 1994 and an annual inflation rate of 3\.92 by the end of 1994\. The restructuring in the CBRA operational structure has been complemented with a communications and computer system that provides adequate information storage, transmittal, and processing capacity\. The new systems are now being fully operated by CBRA staff\. In-depth training was provided for final users and almost 900 applications were developed at no cost to the CBRA\. The information required for routine daily operations and policy making is readily available and reports are produced on demand\. 42\. The SEF has also been restructured to strengthen its monitoring and regulation of the banking system\. With the support of the new CBRA communications and computer systems, the time between the moment in which a financial institution presents its information and the moment in which it is available to be used in SEF's analysis has been 13 reduced from six months to five days\. Information from "alarm indicators" as well as current accounts are available in real time, including disqualified current accounts (it used to be more than four months)\. The time required to prepare information of the consolidated financial system and the principal debtors has been reduced to five days\. Banks' inspections have been greatly improved, CBRA teams are on-site in banks identified as problematic, and other banks are inspected at least once a year\. G\. Major Factors Affecting the Project 43\. After a successful start, the implementation of the project experienced considerable delays during 1992-93\. These resulted from such factors as delays in the passage of enabling legislation, the high complexity of the operational and technological frameworks to embody the different reform components, and difficulties in some bidding processes\. Many of the products to be developed were highly innovative for which it developed that there was no available "know-how" \. Where government agencies failed to clearly determine the conceptual definition of the final products, bidding documents were vague and unclear\. As in the case of the communications system for the Central Bank and two other sub-components, poorly defined bidding documents resulted in highly inflated prices and unenforceable contractual arrangements which ultimately retarded implementation\. 44\. The UNDP/OPS was responsible for the purchase of all the equipment and hiring consultant services\. It caused some delays in the implementation of the project, partly due to the fact that UNDP/OPS' operational procedures atop those of the Bank extended processing times and added to the complexity of administrative procedures\. This however, was considerably improved after 1994 when UNDP/Buenos Aires took responsibility for managing local consultants and small purchases of equipment and training\. On the other hand, the project benefited from its increased administrative transparency and additional technical support, particularly in relation to complex bidding processes, as in the case of the Central Bank, (reportedly key to the success of the second bidding process)\. 45\. Although the different components financed under the PRSTAL generally resulted in the expected outputs, the Government continues to develop further some sub- components, now under a loan from the Inter-American Development Bank (IDB)\. This suggests that even after the seven years of support through the PSRTAL, there is still a need for both technical and financial assistance to continue with the implementation of the second and third generations of reforms\. 46\. Project Costs\. The Loan financed some 70 per cent of the sum originally allocated for the Customs Modernization component, as ANA decided to self finance the MARIA system\. The cost of the Administrative Reform component was approximately 10 percent below the planned US$5\.6 million\. The cost of the Central Bank and SEF Modernization component was 97 percent of the initial allocation; and the Financial Management Reform component exceeded the original budget by approximately 15 percent\. Finally, the administration costs of the project were four times higher than 14 anticipated, including the costs of both the implementation unit (US$1\.4 million) and UNDP/OPS (approximately US$1 million)\. The extended duration of the project, as well as the complexity of coordinating so many diverse components appear to have contributed towards the higher administration costs\. H\. Project Sustainability 47\. Sustainability: Likely\. The intended reforms have been successfully implemented and are now operational\. On administrative reforms, education and health services have been effectively transferred to the provinces, and legislation has been passed deregulating economic activities\. The budget has regained the status of an effective tool to plan, manage and control public expenditure, and the new financial administrative system continues to be expanded and perfected\. It is now under the leadership of the former Treasurer of State, which reflects its genuine acceptance by the government bureaucracy\. And the Central Bank and SEF have been restructured and modernized\. All these reforms have been fully consolidated and the corresponding technological support systems are currently being operated by permanent staff \. 48\. In the case of the Customs Administration, the MARIA system has been implemented, the new Customs Code has been developed, and the ANA school and lab are operational\. However, the final consolidation of the reforms is still pending, as the result of the recent ANA merger with DGI\. 49\. Moreover, those activities whose results fell somewhat short of the expectations, such as SIRHU and SABEN7, are continued under the project financed by the IDB\. I\. Bank Performance 50\. Project Identification: Highly Satisfactory\. The Bank correctly identified and diagnosed the need for financial and technical support to consolidate the public sector reforms under the PSRL\. The PSRTAL was just one of several operations implemented within the framework of a broad, comprehensive Bank strategy designed to support the Government's efforts to reform at all levels of government\. 51\. Project Preparation: Highly Satisfactory\. The Bank's performance was highly satisfactory with respect to the sectoral and technical aspects of project, identifying a detailed matrix of activities to be performed under each component, as well as the corresponding inputs\. Greater effort should have been made though in defining baselines for project evaluation criteria and following them up systematically\. 52\. Project Appraisal: Satisfactory\. During appraisal, the Bank set up useful mechanisms to mitigate the various risks\. It also took advantage of a historic opportunity with timely support of Government efforts to implement reforms and actions that were 7 See Table 9, components BI\. 5\.1 (Human Resources Management System; SIRHU) and 1\.5\.3 (Pilot Inventory of National Real Estate Assets; SABEN)\. 15 critical to the country's adjustment\. However, the appraisal failed to assess the project execution period properly\. 53\. Project Supervision: Highly Satisfactory\. The Bank worked closely with the Borrower to adopt corrective measures when necessary\. Strong close technical assistance was provided by the Bank's task managers\. J\. Borrower Performance 54\. Preparation of the Project: Highly Satisfactory\. The project had a unique combination of political support, strong determination of key actors and excellent technical resources that were pivotal in the success of the program\. The Government also successfully made it an integral element in the reform of the public sctor\. 55\. Project Implementation: Highly Satisfactory\. The project executing unit had excellent performance in providing technical support to the different participating agencies coordinating the different components, and furthering compliance of the covenants\. Its systematic progress tracking contributed to the effective implementation of the program\. The record also illustrates the utility of using top professionals in project management with experience with ]Bank procedures in accounting, disbursement and procurement\. 56\. Compliance with Covenants: Highly Satisfactory\. Over the life of the project, compliance with the legal covenants and agreements was complete\. K\. Assessment of Outcome 57\. Overall Rating: Satisfactory\. On the whole, the project objectives have been satisfactorily met\. The project widely promoted public sector reform and effectively consolidated the reforms supported by the PSRL, It also set the grounds for the reform of the Customs Administration, whose final consolidation is still pending\. 58\. Moreover, the reforms supported under the PSRTAL, particularly the establishment of a financial administration system to manage and control public expenditures and the reorganization of the Central Bank as an effective monetary authority, helped sustain monetary stability which, after the passage of the Convertibility Law, became the cornerstone of the government's reform strategy\. 59\. In summary, through the PR\.STAL and related operations, the Bank helped Argentina capitalize on a rare historic opportunity in which a group of decisive politicians, charismatic leaders and sound professionals transformed a structural crisis into a successful redefinition of Argentina's public sector\. 16 L\. Future Operations The Project provided support for a first phase of the government's program to reform and modernize the public sector\. It effected improvements which remain inforce, whose operational arrangements are in place and continue to be satisfactory\. Also, the Government's pursuit of still further performance betterment and efficiency continues\. It is thus anticipated that, assisted by inputs from the IDB, federal level operations will continue to be upgraded\. Also, the Project set a basis for extending these reforms to provincial and municipal levels, on which Bank dialogue and assistance have been continuous and are ongoing\. M\. Key Lessons Learned 60\. The lessons from this experience are; a\. Technical assistance loans can be effective complements of structural adjustment loans in lending for reform\. b\. Bank interventions can be most effective when they capitalize on windows of opportunities that provide unique momentum to the implementation of reforms\. c\. Individual reforms are more likely to be successful when they are critical to the success of an overall reform strategy\. The PSRTAL benefited from its interdependency, e\.g\., passage of the Convertibility Law put additional pressure to implement the financial management system and to modernize the Central Bank, thus providing additional impetus to the implementation of these components\. d\. The success of technical assistance depends on a combination of factors, among the most important of which is strong political support\. The reforms supported under the PSRL and consolida!cd under the PSRTAL benefited from a unique combination of strong political support and a solid leadership with a high level of determination, and access to a pool of sound professionals e\. Overcoming resistance of the status quo is critical to the long-term sustainability of improvements and reforms\. A strong conviction on the part of the highest political authorities is required to sustain momentum during the implementation of reforms\. However, the ultimate test is their final acceptance by in-house government personnel and the incorporation of technological solutions in day-to-day operations\. f\. Strong leadership within government agencies is required too\. A Government agency has to provide a well-defined vision of its future and clear specification of how to realize this vision\. Consultants can add technical or managerial expertise, but they cannot instill the vision\. 17 g\. There is often a weak culture of consultant supervision in government\. This causes undue reliance on consultants for problem identification and project definition, with the consequent weakening of ownership and lack of adequate accountability for consultant performance\. h\. Target agencies' lack of ownership and responsibility result in excessive reliance on information technology for solutions\. i\. It is important to identify key in-house personnel receptive to change and to bring them on board in the reform process\. j\. Non-technical aspects are crucial in terms of the impact they can have on the successful incorporation of reforms\. k\. Training components are key to project sustainability\. 1\. Technical assistance loans should not be expected to be short-term, one-time interventions\. TALs should be conceived as programs with medium and long time frames, possibly followed by subsequent loans to support reforms as a continuum\. m\. A detailed activity matrix and annual work plans are effective tools in ensuring the continued focus of TALs\. 18 Summary of Assessments A\. Achievement of Objectives Achievement of Objectives Substantial Partial Negligible Not Applicable Macro Policies 1 Sector Policies _ Financial Objectives _ Institutional Development Physical Objectives Poverty Reduction Gender Issues Other Social Objectives Environmental Objectives Public Sector Management I _ Private Sector Development Other B\. Project Sustainability Project Sustainability Likely Unlikely Uncertain C\. Bank Performance Bank Performance Highly Satisfactory Deficient Satisfactory Identification I Preparation Assistance Appraisal Supervision Except for the Customs Administration component, in which sustainability is uncertain\. 19 D\. Borrower Performance Borrower Performance Highly Satisfactory Satisfactory Deficient Preparation _ Implementation _ Covenant Compliance 1 Operation (if applicable) _j _ E\. Assessment of Outcome Assessment of Outcome Highly Satisfactory Unsatisfactory Highly Satisfactory Unsatisfactory Table 2 Related Bank Loans/Credits Loan Purpose Aont Year of (US$ NP Approval Status Preceding Operations Loan 2712-AR Public Sector Management 18\.5 1986 Disbursed Loan 3015-AR Tax Administration Technical 6\.5 1989 Disbursed Assistance Loan 3292-AR Public Enterprise Reform Execution 23\.0 1991 Disbursed (PEREL) t32\. Loan 3394-AR Public Sector Reform 325\.0 1991 Disbursed Subsequent Operations Loan 3460-AR Second Tax Administration TA 20\.0 1992 US$2\.1 million undisbursed (as of 7/27/97) 20 Table 3 Project Timetable Steps in Project Cycle Date Planned Actual Date/or Duration Identification (Initial Executive October 1990 Project Summary Preparation Six months Appraisal March 1991 Negotiations May 1991 Board Presentation June 1991 Signing August 1991 Effectiveness December 1991 Loan closing June 30, 1995 March 31, 1998 Table 4 Cumulative Loan Disbursements: Estimated and Actual (USS million) Cumulative FY92 FY93 FY94 FY95 FY96 Disbursements Appraisal Estimate 3\.0 13\.0 21\.0 23\.0 0 Actual 3\.0 3\.7 7\.5 18\.2 23\.0 Actual as % of 100% 28% 36% 79% Estimate I I I_I_____ Date of final Disbursement: May 17, 1996\. 21 Table 5 A Project Costs Appraisal Estimate Actual Bank GOA Total Bank GOA Total Consultant Services and Training I\. Customs Modernization Program 3,800 800 4,600 1,200 0 1,200 II\. Administrative Reform & Modernization 3,600 580 4,180 4,550 400 4,950 of the Central Government III\. Public Sector Financial 3,700 1,200 4,900 6,230 95 6,325 Management & Performance Control IV\. Central Bank and Financial Entities (*) 2,500 1,690 4,190 4,700 5,100 9,800 V\. Project Implementation Unit 600 400 1,000 1,375 100 1,475 VI\. Administrative Costs 1,010 205 1,215 VII\. Auditing 160 0 160 Subtotal 14,200 4,670 18,870 19,225 5,900 25,125 Equipment I\. Customs Modernization Program 3,000 2,000 5,000 2,680 1,500 4,160 II\. Administrative Reform & Modernization 2,000 80 2,080 100 300 400 of the Central Government III\. Public Sector Comprehensive Financial 1,400 1,500 2,900 990 300 1,290 Management & Performance Control IV\. Central Bank and Financial Entities (*) 2,400 0 2,400 0 0 0 V\. Project Implementation Unit 0 250 250 25 500 525 VI\. Administrative 0 0 0 VII\. Auditing 0 0 0 Subtotal 8,800 3,830 12,630 3,775 2,600 6,375 Total Project Costs 23,000 8,500 31,500 23,000 8,500 31,500 (*) Originally conceived as two separate components, the Reorganization and Modernization of the Central Bank and Financial Entities were merged into a single component\. Table 5B Project Financing Appraisal estimate (US$N) Actual estimate (US$M) Source Local Foreign Total Local Foreign Total costs costs costs costs IBRD 6\.5 16\.5 23\.0 19\.3 3\.7 23\.0 Government 8\.5 0\.0 B\.5 8\.5 0 8\.5 Total 15\.0 16\.5 31\.5 27\.8 3\.7 31\.5 22 Table 6 Status of Legal Covenants Agreement Section Type of Present Description of Covenant Comments Covenant Status Loan Agreement 3\.01(a) 10 C The Borrower shall carry out the objectives of the Complied\. project as set forth in Schedule 2, and provide funds, facilities, services and other resources required for the project\. 3\.01(b) 10 C The Borrower shall maintain in MEC, a Project Complied\. Coordinating Unit with functions and responsibilities satisfactory to the Bank, including, inter alia, the following (1) coordinate the execution of all parts of the project; (ii) approve the procurement of goods and the selection of, and the terms of reference for, the consultants proposed by the Executing Entities; (iii) review of all consultants' reports\. 3\.01(c) 10 C The Borrower shall ensure that the Project Complied\. The Coordinating Unit is at all times headed by MEC's responsibility for Subsecretary of Technical and Administrative the National Coordination as National Project Director, assisted Directorate of the by a full-time Deputy Director with qualifications, Project is held by experience and terms of reference satisfactory to the the Secretary of Bank, and by qualified staff in adequate numbers\. Finance at MEOSP (previously MEC)\. 3\.01(d) 10 CP The Borrower shall carry out the Project Substantially substantially in accordance with the Implementation complied\. Program set forth in Schedule 5\. 3\.02(a) 10 C The Borrower shall enter into contractual Complied\. agreements, satisfactory to the Bank, with an agent or agents acceptable to the Bank, for handling contracting of consultants, the procurement of goods and for arranging training activities under the project\. 3\.02(b) 10 C The Borrower shall exercise its rights under the Complied\. contractual arrangements referred to in paragraph (a) of this Section in such manner as to protect the interests of the Borrower and the Bank and to accomplish the purposes of the Loan and, except as the Bank shall otherwise agree, the Borrower shall not assign, amend, abrogate or waive such arrangements or any provisions thereof\. 3\.03(a) 10 C The Borrower shall carry out all studies and Complied\. (i) activities included in the Project under terms of reference satisfactory to the Bank, which, when applicable and unless the Borrower and the Bank shall otherwise agree, shall include specific programs or plans of actions to meet the objectives I _of the Project\. 3\.03(a) 9 C The Borrower shall promptly after the completion of Complied\. Cii) each study, furnish to the Bank copy of its findings and recommendations including such programs or plans of action\. 3\.03(a) 9 C The Borrower shall afford the Bank a reasonable Complied\. (iii) opportunity to comment on such findings, recommendations, and programs or plans of action\. 3\.03(a) 9 The Borrower shall, where appropriate, and taking (iv) into account the Bank's comments thereon, prepare programs or plans of action to carry out the recommendations of such studies\. 23 Table 6 (cont\.) Status of Legal Covenants Agreement Section Type of Present Description of Covenant Comments Covenant Status 3\.03(b) 10 C The Borrower undertakes to carry out such programs Complied\. and plans of action as required to meet the objectives of the Project as set forth in Schedule 2 to this Agreement and the Program\. 3\.04(b) 9 C Not later than 15 days prior to each such exchange of Complied\. viewii, the Borrower shall, through the Project Coordinating Unit, furnish to the Bank for its review and comment a report on the progress achieved by each Executing Entity in carrying out their respective parts of the project, in such details as the Bank shall reasonably request\. 3\.05(a) 10 C Procutrement of the goods and consultant's services Complied\. required for the Project and to be financed out of the proceeds of the Loan shall be governed by the provisions of Schedule 4 to Loan Agreement\. 3\.05(b) 10 C Public servants employed by the Borrower under any Complied\. kind of administrative arrangements (including leave without pay) shall not be eligible for providing consulting services to be financed out of the proceeds of the loan\. 3\.05(c) 10 C The Borrower shall maintain in the Executing Entities Complied\. qualified staff in adequate numbers as counterparts of the consultants employed under the Project\. 3\.06 9 C The Borrower shall prepare and furnish to the Bank Complied\. through the Project Coordination Unit not later than September 1 of each year\. for its review and approval, an Anaual Work program containing a detailed description of the Activities included in, and the objectives, institutional arrangements, counterpart resourms for, and anticipated results, of the execution I_ of each part of the Project\. 3\.07(a) 9 C Furnish to the Bank for approval the content of such Complied\. programs as well as the schedule for its implementation\. 3\.07(b) 10 C Select the beneficiaries of such training programs in Complied\. accordance with criteria satisfactory to the Bank\. 3\.07(c) 9 C Not later than September 30 of each year exchange \. Complied\. views with the bank on the training programs to be carried out in the following calendar year\. 3\.07(d) 9 CP Furnish to the Bank a re port of such scope and detail as Substantially the Bank shall reasonably request, on the results of each complied\. of such training programs and the benefits to be derived therefrom\. 4\.01(a) 1 C Maintenance of records and separate accounts to reflect Complied\. operations, resources and expenditures in respect of the proiect\. 4\.01(b) 1 C Have the records and accounts for each fiscal year Complied\. audited and furnish to the Bank the audit reports not later than six months after the end of the fiscal year\. 24 Table 6 (cont\.) Status of Legal Covenants Agreement Section Type of Present Description of Covenant Comments Covenant Status 4\.01(c) 1 C For all expenditures made on the basis of SOEs, Complied\. maintain records and accounts, retain all records evidencing such expenditures, enable the Bank's representatives to examine such records and ensure that such records and accounts are included in annual audits\. Covenant Types: 1 = Accounts/Audits 8 = Indigenous people 2 = Financial performance/generate revenue from 9 = Monitoring, review and reporting beneficiaries 10 = Project implementation not 3 = Flow and utilization of Project funds covered by categories 1-9 4 = Counterpart funding 11 = Sectoral or cross sectoral 5 = Management aspects of the project budgetary or other resource or executing agency allocation 6 = Environmental covenants 12 = Sectoral or cross-sectoral policy/ 7 = Involuntary resettlement regulatory/institutional action 13 = Other Present Status: C = covenant complied CD = complied with after delay CP = complied with partially NC = Not complied with 25 Table 7 Bank Resources: Staff Inputs v Stage of Actual project cycle Weeks US$ Through appraisal 20\.8 47\.0 Appraisal-Board 13\.4 30\.3 Board-effectiveness 5\.7 16\.3 Supervision 97\.8 255\.2 Completion 10\.9 23\.0 TOTAL 148\.6 372\.0 /1 Includes Bank-financed and trust fund consultants\. Dollars are direct costs only\. Table 8 Bank Resources: Missions Stage of Project cycle Month/ Number Specialized Types of year of Days in staff skills problems persons field /1 represented 2/ problems Implementation Development Status objectives November 1990 4 14 A,C,E,G February 1991 1 7 Appraisal through March 1991 8 14 A,B,C,D,E,F Board approval Board approval July 1991 1 5 A through effectiveness Supervision March 1992 4 7 A,E 1 October 1992 5 7 A,D,E,G 2 April 1994 3 10 A,E,G 2 November 1994 1 7 H S HS June 1995 2 14 E,H HS HS Completion June 1997 1 15 E 1/ Mission leader\. 2/ Key to specialization: A\. Sr\. Public Enterprise Specialist B\. Legal Counsel C\. Sr\. Country Economist D\. Principal Financial Management Specialist E\. Consultant E Sr\. Country Officer Q Tax Administration Specialist H\. Task Manager 26 Table 9 Matrix of Project Activities Activity O ut Impact Sustainability A\. Custom Modernization Program 1\.1\.1-2 Design of Own sources N\.A In operation\. Network 1\.1\.3 Primary Network Own sources N\.A In operation\. 1\.1\.4 Secondary Network N\.A Activity has been canceled after merge with General Tax Directorate (DGI)\. 1\.2 Electronic Mail * Purchase of equipment\. N\.A Has not been made operational\. * Training still pending\. 1\.3 Laboratory * Purchase of equipment\. + In operation as planned\. II\. Training * Almost 100 courses for N\.A In operation, now with own 1500 people\. sources\. * Purchase of equipment for Customs School\. m\. Internal Procedures * Four applications had N\.A Activity has been canceled as been developed, part of PSRTAL\. It was including accounting, continued with Customs' own payroll, human resources\. resources management, and registry\. IV\. Revised Customs * Revised Customs N\.A It is difficult to assess given the Regulations Operation Manual recent merger with DGI\. * Proposed changes to current Customs regulations\. B\. Administrative Reform and Modernization of the Central Government 1\.1 Strengthening of * National System for Administrative Professionals in + It has been adopted and is in Functions Government operation, with approximately Administration 90% of the personnel in the (SINAPA)\. central administration having * Development of been re-assigned to categories systematic employment within the new system\. categories, with critical posts filled through concursos pbicos\. 1\.2\. Reform Information * Database was utilized + It is operational under CECRA System (SIPRA) for monitoring the (Executive Committee for the reform in general and Monitoring of the PSRL's conditions in Administrative Reform)\. particular\. * For the first time, actual government posts were matched with approved public posts\. 27 Table 9 Matrix of Project Activities (cont\.) Activity - Output Impact Sustainability B\. Administrative Reform and Modernization of the Central Government (cont\.) 1\.3\. Reorganization of * Studies to support the + Approximately 220,000 sq\. Physical Spaces development of a meters released, with savings of rationalization program\. US$63 millions\. 1\. 4 Administrative * Normative framework + - In operation in the Ministry of Procedures for the systematic Economy (MEyOSP), but there follow-up of are problems replicating the government documents\. system in other ministries\. I\. 5\.1 Management of * Design of the central It is being continued under the Human Resources database\. NA BID loan\. Lack of definition in (SIRHU) Although it has been bidding documents was closely installed in pilot related to the partial success of entities, only Health is this activity\. using it for its payroll as planned\. 1\.5\.2 Integrated * Although with some + - The replication of the local Financial Management problems, it is already SIDIFs was more complex than System for the Central operational in the anticipated\. Based on the three Administration (local MEyOSP\. local SIDIFs developed under SIDIF in all ministries) e Basic module has been the PRSTAL, the BID loan is also developed for the financing local SIDIFs in the Ministries of Interior remaining ministries\. and Health\. 1\.5\.3 Pilot Inventory of * Only the inventory was NA Being continued under the BID Public Real Estate finalized\. loan\. Lack of definition in (SABEN) bidding documents was also closely related to the partial success of this activity\. 1\.5\.4 Normative Legislation was drafted but NA It is being continued under the Framework for Public was not approved by BID loan, which finances the Procurement (Purchases Congress\. establishment of a Procurement and Contracts) Bureau that operates within the normative framework proposed under the PSRL\. 1\.6 Installation of This activity was canceled\. software and hardware 1\.7 Center of Image * Met as planned, with NA It is operational, and its Processing (Electronic 15,000 forms having demonstration effect is Registry) been processed, and staff considered to be very strong\. trained\. I 28 Table 9 Matrix of Project Activities (cont\.) Activity Ouut impact Sustainability B\. Administrative Reform and Modernization of the Central Government (cont\.) 1\.8 Training; * Postgraduate courses for NA In operation, with 38 graduates, Postgraduate Institute government economists, 90 students currently enrolled, for Government implemented through and with approximately 600 Economists (ISEG) agreements with four applications for only 45 universities\. vacancies\. II\. Deregulation I\.1 Deregulation of * Development of the + Unlikely to be reversed\. High Economic Activities normative framework to impact as the result of deregulate numerous macroeconomic effects, economic activities and estimated at approximately the corresponding laws\. US$322 million between 1992 and 1994\. III\. Transfer of Public Services to the Provinces 111\.1\. Transfer of Public * Development of the NA Between 1992 and 1993, the Services to the Provinces conceptual and responsibility for the provision operational scheme for of health and secondary the transfer of public education was transferred to the services --mainly health provinces, with savings of in the and secondary 1992 federal budget\. Increased education\. provincial expenditures were compensated by increased transfers\. This strengthens the linkage with final beneficiaries, thus potentially fostering efficiency and accountability\. C\. Public Sector Compr hensive Financial Management and Performance Control I\. Financial * Manuals and procedures NA The new Public Financial Management System corresponding to the Management Law was financial administrative implemented under this reform\. component, including the development of the supporting communication and computing systems\. 1\.1 Budget * Methods and procedures + In 1992, the national budget was for budget rogramming, presented to Congress in time executing, evaluation for the first time since 1965\. and control were The budget has been effectively implemented for all recovered as a management tool Administrative Units to improve the allocation and (SAFs) within the control of public funds\. central government and decentralized entities\. 29 Table 9 Matrix of Project Activities (cont\.) Activity Output Impact Sustainability C\. Public Sector Comprehensive Financial Management and Performance Control (cont\.) 1\.2 Treasury * Electronic connection + More than 5,000 public bank between the Treasury accounts were consolidated and banks' networks for under the Consolidated Treasury the transfer of data and Account (CUT)\. All payments electronic payments\. to SAFs are now being done through this CUT, with the total number of checks decreasing from 2000 to 200 checks/month\. 1\.3 Public Credit * Inventory of bilateral, + UNCTAD 's debt management (SIGADE) multilateral, private and system was adapted to register public commercial debt\. and manage Argentina's public * Development of the and private sector debt\. It has Debt Management and allowed for the optimization of Analysis System Argentina's debt portfolio (SIGADE) I\.4 Accounting * Integration of main + SAFs' main accounting output information outputs are connected to the central from the SAFs to the SIDIF and the CUT\. general accounting system\. 1\.5 Internal Control This activity was canceled (SIGEN) 1\.6 External Control * Diagnostic study by + - Not other actions taken under consulting firm\. PRSTAL\. However, a set of structural reforms are being financed out under the BID loan\. 1\.7 SIDIF (Integrated Financial Management System; originally d SIPRECO) 1\.7\.1-3 Communications * Development and + On-line, real-time information System implementation of a on all financial transactions communication and within the central computer system to administration with access open support the Financial to multiple users\. Management Reform, Increased transparency and including both hardware efficiency in the management of and systems public resources\. development\. 1\.7\.4 Optimization of * Improvements on the + It is important to think of the the SIDIF system described above\. SIDEF as an evolving tool; thus, its permanent, on-going optimization is not only to be expected but also to be considered necessary\. The BID loan continues to finance it\. 30 Table 9 Matrix of Project Activities (cont\.) Activity Output Impact Sustainability C\. Public Sector Compr hensive Financial Management and Performance Control (cont\.) 1\.7\.5 SIDIF for * Development and + - The replication of the local Decentralized implementation of local SIDIFs was more complex than Organisms Financial Management anticipated\. Based on the three Systems in three local SIDIFs developed under decentralized organisms the PRSTAL, the BID loan is (CONEA, AGN, and financing local SIDIFs in ENREN)\. another 14 decentralized entities, to be eventually reproduced in the remaining ones\. II\. Training * On-going training + More than 2,800 professionals supporting the in the national and provincial implementation of the administrations have been SIDIF\. trained\. D\. Reorganization and Modernization of the Central Bank (CBRA) and the Superintendency of Financial Entities (SEF) I\. Development of the * Development and + The restructuring of the CBRA CBRA's and SEF's implementation of as delineated under the PSRL Information Systems communications and was complemented with a Network computing systems for communications and computer CBRA and SEF, serving system that provides adequate over 4,000 workstations\. information storage, transmittal, * Set-up of an electronic and processing capacity\. mail\. The new system also supports * Development and the SEF's role as regulator and implementation of a controller of the banking system decentralized by providing timely information accounting system\. on alarm indicators, current * Training of CBRA and accounts, principal debtors, etc\. SEF on the operation of new systems\. 31 Appendix A Borrower's Contribution to ICR Tal como se desprende de la documentación basica que sustenta la formulación de este Programa de Asistencia Técnica, existió previamente un excelente diagnóstico sobre las áreas criticas que hacen al funcionamiento de la administración de Gobierno por parte de los analistas del Banco Mundial\. Dicho diagnóstico coma las orientaciones sugeridas por el Banco, permitieron delinear un proyecto complejo y ambicioso pero factible de ejecutar\. Cabe destacar, por otra parte, que el gobierno nacional estaba totalmente comprometido en llevar adelante este ambicioso Programa de Reforma, decisión que obliga a los distintos grados de decisión del aparato público a apoyar y compartir cada uno de las objetivos originalmente planteados\. Un punto clave de este Programa, donde se verificó la decisión inquebrantable de las autoridades de alcanzar rápidamente los resultados previstos fue el hecho de convocar a entidades y personalidades nacionales para colaborar en estas tareas\. Debido a esta acción se iniciaron una variedad de actividades consideradas críticas antes de concretarse el financiamiento del programa\. De esta manera se encaró todo el proceso de reestructuración organizativa del Estado que permitió eliminar más del 50% de las Subsecretarias de Estado y reordenarse las estructuras eliminándose alrededor de 120\.000 cargos\. Al mismo tiempo se llevaron adelante las negociaciones para transferir los servicios educacionales y de salud a las provincias y el diseño de las normas y procedimientos para garantizar el financiamiento de estos servicios\. Otra tarea en la que el Gobierno puso su mayor participación fue la reubicación de los espacios fisicos en concordancia con la nueva estructura organizativa del Estado\. Debido a que todo el trabajo previo para encarar estos resultados surge del documento básica del Programa, estos objetivos aparecen con una ejecución financiera insignificante en la ejecución global del mismo\. La baja ejecución del Programa durante los primeras años obedece en primer lugar a que el personal de la unidad ejecutora participó activamente en las tareas descriptas, postergando la iniciación de las otras actividades sustantivas\. 32 Posteriormente y en razón del cambio de autoridades, el Programa que dependía de la Secretaria de Coordinación Administrativa, pasa a depender de la Secretaria de Hacienda, oportunidad en que se decide dar un fuerte impulso a las actividades cuyos objetivos sustentan las reformas macroeconómicas realizadas en una segunda etapa -\. La Reforma de la Administración Financiera y la Reestructuración del Banco Central\. En el caso particular de la Reforma de Administración Financiera - Componente C, coincidieron los aspectos quo permiten garantizar el éxito de un proyecto (politico y ejecutivo), en razón que el nuevo Director Nacional del Proyecto, el Secretario de Hacienda, Dr\. Ricardo Gutiérrez era al mismo tiempo el líder sustantivo de esta reforma y autor del proyecto de ley que puso en funcionamiento las normativas para la Administración Financiera\. En tal sentido puede decirse que esta componente fue bien formulado, tenia un fuerte liderazgo y el poder político necesario para su implantación, conjugado con la capacidad de una buena selección de profesionales que garantizaron su ejecución\. Dado este ejemplo -que permitió desde el inicio comprobar los avances y resultados-la Unidad de Coordinación se fija como meta reunir estas mismas condiciones en el resto de los componentes que eran parte del Programa de Reforma\. Visto el fracaso de la licitación para la reestructuración del Banco Central - Componente D- y con el total apoyo del oficial de proyectos del Banco Mundial, se iniciaron conversaciones con las autoridades de esa entidad para redefinir objetivos, actividades y resultadas, así como reemplazar la coordinación de ese componente\. Debido al cumplimiento de las condicionalidades fijadas por las entidades financieras mediante el PSRL, PERAL y PEREL, el Gobierno había avanzado en la reestructuración y leyes que daban autonomía al Banco Central y se creaba la Superintendencia de Entidades Financieras\. Por tal motiva se decidió apoyar a esto componente con un ambicioso proyecto de reinformatización\. En este sentido la Unidad de Coordinación colaboró en esta reprogramacion de actividades\. Se nombró un nuevo coordinador del componente que se transformó en un líder indiscutible de este proyecto, permitiendo generar un procedimiento de licitación novedoso para el para como fue el de empresa integradora\. el que debido a su complejidad necesitó atención de los especialistas en compras del Banco Mundial y de la OSP-UNOPS\. No caben dudas que el éxito de este proyecto se debe al hecho de reunir las condiciones básicas comentadas anteriormente\. En el caso del Componente Reforma Aduanera -Componente A- se intentó realizar la misma experiencia con resultados fallidos, en razón que este proyecto era tan salo de 33 apoyo y no sustantivo y las actividades fueron marginales\. Si bien la Reforma Aduanera tenia un fuerte liderazgo por parte del Administrador de la Aduana, Lic\. Gustavo Parino, los objetivos principales estaban fuera del proyecto financiado por el Banco Mundial a saber la implantación del Sistema Maria y una Red de Comunicaciones, Esta situación impidió delinear actividades concretas y el esfuerzo se resumió a atender compras de equipamiento y asistir al Centro de Capacitación\. En el caso del proyecto de Modernización el Gobiemo Central -Componente B- cabe aclarar que el mismo estaba compuesto por una variedad de objetivos entre los cuales uno de los de mayor impacto eran el SIRHU (Sistema Integrado de Recursos Humanos), cuyo objetivo fue el desarrollo de una base de datos con toda la planta de personal del estado, la que comunicaría con un sistema de administración de recursos humanos\. El único resultado alcanzado fue crear un sistema de interfases para transferir a dicha base de datos la información de liquidación de haberes mensual de todo el área dependiente del Poder Ejecutivo, Esta actividad tuvo que ser suspendida por el bajo resultado de la firma adjudicataria y en la actualidad ese objetivo está siendo terminado par la Secretaria de Hacienda\. El otro objetivo importante fue el SABEN quo consistia en obtener un sistema de administración de bienes, una metodología de valuación y un inventario de bienes inmuebles\. Esta actividad también tuvo que ser suspendida por el bajo nivel de respuesta obtenido por la firma adjudicataria\. El fracaso de ambas actividades podrían adjudicarse al hecho que los términos de referencia no especificaban con claridad el alcance de los resultados y si incorporaban muchas exigencias para la selección de firmas\. Producto de ello las firmas adjudicatarias aran importantes pero no especialistas en estos ternas, razón por la cual subcontrataron firmas menores para el desarrollo del producto\. Esta combinación evidentemente no resultó, con la consiguiente pérdida de tiempo y esfuerzo\. Esta experiencia debería orientar a buscar más el perfil de la firma que el tamafño de la misma\. Otra actividad que concluyó exitosamente pero cuya ejecución se llevó fuera de este programa, fue la instalación del SIGADE (Sistem? Integrado de Gestión de la Deuda Externa) provisto por la UNCTAD\. Cabe resaltar que esta actividad fue iniciada por la Unidad de Coordinación por recomendación del Banco Mundial\. 34 Una vez iniciada las conversaciones con la UNCTAD no hubo acuerdo con el especialista del Banco Mundial en el tema Deuda Externa, ló que derivó en la decisión del Gobierno de encarado via PNUD\. Además dentro de este componente se licitaron y desarrollaron los sistemas locales de administración financiera para la Administración Central y para Organismos Descentralizados, los cuales han sido instalados en diferentes Servicios Administrativos Financieros en carácter de unidades piloto\. Si bien puede considerarse en ambos un resultado exitoso, en el caso del Sistema de Administración Central se generaron demoras excesivas que obligaron a cerrar el proyecto adeudándose el pago final a la firma adjudicataria, pago quo asume el Gobierno una vez que apruebe la totalidad y calidad del producto\. Por último cabe resaltar que la demora de más de un año en el Componente de Reforma Aduanera con la licitación de una Red Satelital, fue producto de la indecisión de las autoridades de adjudicar a la firma que hizo la mejor oferta\. Asimismo, las demoras en aprobar los avances del Sistema Local de Administración Financiera para Administración Central fue producto de la subestimación de alcances y tiempos por parte de la firma adjudicataria\. Este proyecto prolongó un año su plazo de ejecución\. Si bien la unidad decidió no incrementar sus costos transfiriendo su personal a otros proyectos, esta experiencia nos indicaría que todo desarrollo u obra que prevé un plazo de ejecución de un año debería ser licitado a mediados de la vida útil del proyecto, dejando para lo último tareas menores\. CONCLUSIONES El proyecto debe considerarse exitoso debido a que los principales objetivos fueron alcanzados de acuerdo a lo previsto\. Por otra parte debe resaltarse la permanente comunicación a involucramiento entre el proyecto y la contraparte\. La gestión, ejecución y seguimiento de este proyecto permitió experimentar la importancia que tiene el gerenciamiento y salidas de una Unidad de Coordinación, que no solo administre sino quo apoyoe, negocie y gestione cada acción comprometida\. Asimismo, este programa permitió apreciar las fortalezas de una buena formulación y buen seguimiento de los resultados por parte del Banco Mundial, donde es importante resaltar no solo la experiencia y capacidad sino además la exigencia quo tuvo el oficial del proyecto, Sr\. Martin del Campo durante el periodo más critico de la ejecución\. 35 Otro aspecto que si bien es permanentemente discutido es la colaboración de la UNPS para aquellos procesos de cierto volumen y complejidad que necesitan garantizar transparencia en la adjudicación\. Un aspecto clave para futuros proyectos es garantizar el liderazgo e involucramiento de las autoridades Nacionales\. Esta característica no solo garantiza el éxito sino que elimina incertidumbre y la prolongación de plazos de ejecución, los cuales en la mayoría de los casos derivan del cambio de autoridades que plantean objetivos o caminos diferentes a los previstos originalmente\. Por último, se cree que deberá hacerse más hincapié en el alcance de cada actividad, situación que permitirá mejorar los terminos de referencia\. La experiencia de esta Coordinación indica que\. si bien las autoridades son muy conscientes de sus necesidades, no son tan precisos en establecer la demanda\. De esta manera, para un solo tema existen una variedad de alternativas y/o propuestas que imposibilitan elegir la mejor\. IBRD 29348 BOLIVIA \. FARAGUAY -' B R A Z l L gI Fo~y~ lt Tu:,rman Lu E \.r nc\.F d _Ca5\.g do l Ej r\.no j n\.lu,n Fe SD\.Parana URUGUAY\. Buenos A\.res ARGENTINA SkRoson c PROVINCE CAPITALS \. NATIONAL CAPITAL -v PROVINCE BOUNDAPIES ""-- INTERNATIONAL BOUNDARIES R 9 G 05eos 0 '00 2,'j 3W C 5017 S C- 00 ILr\. ETEF\.S rh, map ja Cred\.:ed b, the Ap Dc\.an l\.,, oi The ba- Id ean 1 rhe bovnJc,,,:\. larj ond - hr n Oa\.on :c- å\.r\. rh\.ý mig le\. noo \.~ply eno rhe p-\.a\.r åt Ng hc\.l bank Gr \.p on, \.cdgmen, C- hå ealro ep an, fr-ta" , j- a,, :\. \.n \. oaccpio\., al :uch b2\.,ndare\. APRIL 1998

REVIEW

P067828

 Document of The World Bank Report No: ICR00002077 IMPLEMENTATION COMPLETION AND RESULTS REPORT (IBRD-47920, IBRD-48160, TF-54833) ON TWO LOANS IN THE AMOUNT OF US$87 MILLION AND US$86\.33 MILLION AND A GRANT FROM THE GLOBAL ENVIRONMENT FACILITY TRUST FUND IN THE AMOUNT OF US$40\.22 MILLION TO THE PEOPLE’S REPUBLIC OF CHINA FOR THE FIRST PHASE OF THE RENEWABLE ENERGY SCALE-UP PROGRAM and THE FOLLOW UP PROJECT TO THE FIRST PHASE OF THE CHINA RENEWABLE ENERGY SCALE-UP PROGRAM June 24, 2012 China and Mongolia Sustainable Development Unit East Asia and Pacific Region  CURRENCY EQUIVALENTS (Exchange Rate Effective June 24, 2012) Currency Unit = RMB Yuan US$1\.00 = 6\.32 RMB Yuan FISCAL YEAR [January 1 – December 31] ACRONYMS AND ABBREVIATIONS APL Adaptable Program Loan GW Gigawatt (1,000 megawatts) ASTAE Asia Sustainable and GWh Gigawatt-hour Alternative Energy Program IBRD International Bank for CCS China Classification Society Reconstruction and CEPRI China Electric Power Research Development Institute ICR Implementation Completion CGC China General Certification and Result Report Center IEC International Electrotechnical CGF Competitive Grant Facility Commission CGF-PDP Competitive Grant Facility – IFFS Investors Scale-up Support Pilot Demonstration Project Facility CNAS China National Accreditation ISO International Organization for Service for Conformity Standardization Assessment kW Kilowatt CRED Center for Renewable Energy kWh Kilowatt-hour Development kWp Kilowatts-peak CREIA Chinese Renewable Energy MOF Ministry of Finance Industries Association MOST Ministry of Science and CRESP China Renewable Energy Technology Scale-up Program MW Megawatt (1,000 kilowatts) DANIDA Danish International MWh Megawatt-hour Development Agency NDRC National Development and DRC Development and Reform Reform Commission Commission NEA National Energy EIA Environmental impact Administration assessment NGO Nongovernmental organization EIRR Economic internal rate of NOx Nitrogen oxide return NPC National People’s Congress EMP Environmental management NPU Northwestern Polytechnical plan University ERI Energy Research Institute PDO Project Development FIRR Financial internal rate of return Objective FY Fiscal year PIP Project Implementation Plan FYP Five-Year Plan PMO Project Management Office GDP Gross domestic product PV Photovoltaic(s) GEF Global Environment Facility QAG Quality Assurance Group GEO Global Environmental QSA Quality of Supervision Objective Assessment GTZ Deutsche Gesellschaft für R&D Research and development Technische Zusammenarbeit RAP Resettlement Action Plan RE Renewable energy TTL Task Team Leader REL Renewable Energy Law TW Terawatt (1,000 GW) REDP Renewable Energy TWh Terawatt-hour Development Project (Loan UNDP United Nations Development 4488-CHA) Programme SAC Standardization Administration UNFCC United Nations Framework of China Convention on Climate SERC State Electricity Regulatory Change Commission VAT Value added tax SHP Small hydropower W Watt SIL Specific investment loan WTC Wind Testing Centre SOx Sulfur dioxide WTTT Wind Turbine Technology tce Ton of coal equivalent Transfer TF Trust Fund ZHMC Zhejiang Hydropower TI Technology improvement Management Center Vice President: Pamela Cox Country Director: Klaus Rohland Sector Managers: Mark Lundell and Vijay Jagannathan Project Team Leaders: Xiaodong Wang and Yanqin Song ICR Team Leader: Xiaodong Wang    CHINA Renewable Energy Scale-up Program CONTENTS Data Sheet A\. Basic Information B\. Key Dates C\. Ratings Summary D\. Sector and Theme Codes E\. Bank Staff F\. Results Framework Analysis G\. Ratings of Project Performance in ISRs H\. Restructuring I\. Disbursement Graph 1\. PROJECT CONTEXT, DEVELOPMENT AND GLOBAL ENVIRONMENTAL OBJECTIVES, AND DESIGN \. 1 2\. KEY FACTORS AFFECTING IMPLEMENTATION AND OUTCOMES \. 5 3\. ASSESSMENT OF OUTCOMES\.15 4\. ASSESSMENT OF RISK TO DEVELOPMENT OUTCOME AND GLOBAL ENVIRONMENT OUTCOME \.21 5\. ASSESSMENT OF BANK AND BORROWER PERFORMANCE \.22 6\. LESSONS LEARNED \.25 7\. COMMENTS ON ISSUES RAISED BY BORROWER/IMPLEMENTING AGENCIES/PARTNERS \.27 ANNEX 1\. PROJECT COSTS AND FINANCING \.28 ANNEX 2\. OUTPUTS BY COMPONENT \.30 ANNEX 3\. ECONOMIC AND FINANCIAL ANALYSIS \.49 ANNEX 4\. BANK LENDING AND IMPLEMENTATION SUPPORT/ SUPERVISION PROCESSES \.53 ANNEX 5\. BENEFICIARY SURVEY RESULTS \.56 ANNEX 6\. STAKEHOLDER WORKSHOP REPORT AND RESULTS \.63 ANNEX 7\. SUMMARY OF BORROWER’S ICR AND/OR COMMENTS ON DRAFT ICR \.65 ANNEX 8\. COMMENTS OF COFINANCIERS AND OTHER PARTNERS/STAKEHOLDERS \.70 ANNEX 9\. LIST OF SUPPORTING DOCUMENTS \.71 MAP \.73    ICR DATA SHEET A\. Basic Information China Renewable Country: China Project Name: Energy Scale-up Program (CRESP) P067828, IBRD-47920, Project ID: L/C/TF Number(s): P067625 TF-54833 ICR Date: 06/24/2012 ICR Type: Core ICR SIL GOVERNMENT OF Lending Instrument: Borrower: CHINA Original Total US$87\.00M, US$77\.00M, Disbursed Amount: Commitment: US$40\.57M US$40\.57M Revised Loan Amount: US$77\.00M Environmental Category: B Focal Area: C Implementing Agencies: Long Yuan Pingtan Wind Power Company Ltd\. Jiangsu Guo Xin New Energy Development Company Ltd\. National Development and Reform Commission (NDRC) Follow-up to CRESP Country: China Project Name: Phase I Project ID: P096158 L/C/TF Number(s): IBRD-48160 ICR Date: 06/24/2012 ICR Type: Core ICR PEOPLE’S REPUBLIC Lending Instrument: SIL Borrower: OF CHINA Original Total US$86\.33M Disbursed Amount: US$84\.68M Commitment: Revised Amount: US$84\.68M Environmental Category: B Implementing Agencies: Inner Mongolia North Long Yuan Wind Power Company Zhejiang Small Hydropower Development and Management Center B\. Key Dates Renewable Energy Scale-up Program (CRESP)—P067828 Revised / Actual Process Date Process Original Date Date(s) Concept Review: 08/07/2000 Effectiveness: 11/30/2005 11/30/2005 i Appraisal: 12/01/2004 Restructuring(s): Approval: 06/16/2005 Midterm Review: 03/09/2009 05/15/2009 Closing: 09/30/2010 09/30/2010 China—Renewable Energy Scale-up Program (CRESP)—P067625 Revised / Actual Process Date Process Original Date Date(s) Concept Review: 08/07/2000 Effectiveness: 11/30/2005 11/30/2005 08/28/2007 Appraisal: 12/01/2004 Restructuring(s): 09/24/2010 09/27/2011 Approval: 06/16/2005 Midterm Review: 03/09/2009 05/15/2009 Closing: 09/30/2010 12/31/2011 Follow-up to CRESP Phase I—P096158 Revised / Actual Process Date Process Original Date Date(s) Concept Review: 09/07/2005 Effectiveness: 06/16/2006 06/16/2006 Appraisal: 09/07/2005 Restructuring(s): Approval: 02/07/2006 Midterm Review: 05/04/2009 Closing: 09/30/2010 09/30/2011 C\. Ratings Summary C\.1 Performance Rating by ICR Outcomes Highly satisfactory GEO Outcomes Highly satisfactory Risk to Development Outcome Low Risk to GEO Outcome Low Bank Performance Satisfactory Borrower Performance Satisfactory C\.2 Detailed Ratings of Bank and Borrower Performance (by ICR) Bank Ratings Borrower Ratings Quality at Entry Highly Satisfactory Government: Highly Satisfactory Implementing Quality of Supervision: Satisfactory Satisfactory Agency/Agencies: Overall Bank Overall Borrower Satisfactory Satisfactory Performance Performance ii C\.3 Quality at Entry and Implementation Performance Indicators Renewable Energy Scale-up Program (CRESP)—P067828 and P067625 Implementation QAG Assessments Indicators Rating: Performance (if any) Potential Problem Project Quality at Entry No Satisfactory at any time (Yes/No): (QEA) Quality of Problem Project at any No Supervision Satisfactory time (Yes/No): Assessment (QSA) GEO rating before Highly satisfactory Closing/Inactive status DO rating before Satisfactory Closing/Inactive status China—Follow-up to China Renewable Energy Scale-up Program (CRESP) Phase I— P096158 Implementation QAG Assessments Indicators Rating: Performance (if any) Potential Problem Project Quality at Entry No None at any time (Yes/No): (QEA) Quality of Problem Project at any No Supervision None time (Yes/No): Assessment (QSA) DO rating before Moderately Closing/Inactive Status Satisfactory D\. Sector and Theme Codes Renewable Energy Scale-up Program (CRESP)—P067828 Original Actual Sector Code (as % of total Bank financing) Renewable energy 100 100 Theme Code (as % of total Bank financing) Climate change 29 29 Environmental policies and institutions 29 29 Infrastructure services for private sector development 28 28 Rural services and infrastructure 14 14 China—Renewable Energy Scale-up Program (CRESP)—P067625 Original Actual Sector Code (as % of total Bank financing) Central government administration 24 24 Renewable energy 50 50 iii Subnational government administration 26 26 Theme Code (as % of total Bank financing) Climate change 22 22 Environmental policies and institutions 22 22 Infrastructure services for private sector development 23 23 Law reform 11 11 Rural services and infrastructure 22 22 Follow-up to China Renewable Energy Scale-up Program (CRESP) Phase I—P096158 Original Actual Sector Code (as % of total Bank financing) Renewable energy 100 100 Theme Code (as % of total Bank financing) Climate change 29 29 Environmental policies and institutions 29 29 Infrastructure services for private sector development 28 28 Rural services and infrastructure 14 14 E\. Bank Staff Renewable Energy Scale-up Program (CRESP)—P067828 Positions At ICR At Approval Vice President: Pamela Cox Jemal-ud-din Kassum Country Director: Klaus Rohland David Dollar Sector Managers: Mark Lundell/Vijay Jagannathan Junhui Wu Project Team Leader: Yanqin Song Noureddine Berrah ICR Team Leader: Xiaodong Wang ICR Primary Authors: Xiadong Wang Noureddine Berrah Enno Heijndermans iv China—Renewable Energy Scale-up Program (CRESP)—P067625 Positions At ICR At Approval Vice President: Pamela Cox Jemal-ud-din Kassum Country Director: Klaus Rohland David Dollar Sector Managers: Mark Lundell/Vijay Jagannathan Junhui Wu Project Team Leader: Xiaodong Wang Noureddine Berrah ICR Team Leader: Xiaodong Wang ICR Primary Authors: Xiaodong Wang Noureddine Berrah Enno Heijndermans Follow-up to China—Renewable Energy Scale-up Program (CRESP) Phase I—P096158 Positions At ICR At Approval Vice President: Pamela Cox Jemal-ud-din Kassum Country Director: Klaus Rohland David Dollar Sector Managers: Mark Lundell/Vijay Jagannathan Junhui Wu Project Team Leader: Yanqin Song Noureddine Berrah ICR Team Leader: Xiaodong Wang ICR Primary Authors: Xiaodong Wang Noureddine Berrah Enno Heijndermans F\. Results Framework Analysis Project Development Objectives (from Project Appraisal Document) The development objective of the three-phase program is to enable commercial renewable electricity suppliers to provide energy to the electricity market efficiently, cost-effectively, and on a large scale in three phases\. CRESP Phase I was designed to contribute to the program’s global objective through development and implementation of the legal and regulatory framework to create and gradually increase the share of renewable energy-based electricity generation, and to support its effective implementation in four pilot provinces\. Specifically, the Phase I Project Development Objective (PDO) was to (a) create a legal, regulatory, and institutional environment conducive to large-scale, renewable-based electricity generation; and (b) demonstrate early success in large-scale, renewable energy development with participating local developers in four provinces\. For the purpose of this ICR, the PDO description from the PAD was used\. Revised Project Development Objectives (as approved by original approving authority) No revision\. Global Environment Objectives (from Project Appraisal Document) Same as PDO\. v Revised Global Environment Objectives (as approved by original approving authority) No revision\. (a) PDO Indicator(s) Original Target Formally Actual Value Values (from Revised Achieved at Indicator Baseline Value approval Target Completion or documents) Values Target Years Indicator 1: Market framework in pilot provinces established through laws and regulations Value None Substantial Not revised • RE Law enacted (quantitative or Evidence • Implementing Qualitative) regulations issued Date achieved 12-31-2000 12-31-2011 Comments During the early stage of preparation, the Chinese counterparts stressed that (incl\. % developing an RE Law would take three to five years in China\. Therefore, the achievement) Bank proposed and the Chinese counterparts agreed to select 4 pilot provinces, which voluntarily agreed to develop RE aggressively even in the absence of a national RE Law\. However, increased environmental awareness and China’s commitment in RE Conferences in Bonn and Beijing to speed up RE development led to the preparation of the RE Law in less than a year, with support from the Bank and other bilateral and multilateral agencies\. The RE Law was enacted before project effectiveness, and CRESP supported the preparation, implementation, and monitoring of the supporting regulations\. Indicator 2: Environment for development of renewables improved in pilot provinces Value None Substantial Not revised • China committed (quantitative or Evidence to momentous RE qualitative) development targets • Targets allocated to all provinces • National and provincial incentives for RE development established Date achieved 12-31-2000 12-31-2011 Comments Environment for development of renewables substantially improved nationwide, (incl\. % evidenced by (a) increased RE targets by the Chinese government (15% non– achievement) fossil fuel in primary energy mix by 2020); and (b) huge increase of renewable electricity generation capacity and annual renewable electricity generation (wind power capacity has doubled every year since 2005 and ranked No\. 2 in the world in 2010); and (c) approved RE Law and supporting regulations that are being implemented\. Indicator 3: Improved quality and reduced cost among manufacturers and service providers in wind and biomass Value None Substantial Not revised • Increased (quantitative or Evidence nationally and vi qualitative) internationally certified wind turbines • Diminishing operational problems of malfunctioning of biomass units • China wind manufacturers are among the world’s leading manufacturers Date achieved 12-31-2000 12-31-2011 Comments Chinese RE equipment, especially wind turbines, improved greatly, and the (incl\. % number of nationally and internationally certified turbines and exports, even to achievement) developed countries, increased significantly\. Furthermore, due to the booming wind market, all internationally recognized international manufacturers established manufacturing capacity in China, increasing competition and pressure on prices and quality\. Four out of the top 10 global wind manufacturers are now Chinese wind manufacturers, and two of them participated in the CRESP’s quality improvement program\. Indicator 4: Increased renewable electricity over baseline (TWh/year), and increased renewable capacity over baseline (GW)\. Value 7 GW 11\.9 GW Not revised 50 GW (quantitative or 35 TWh/year 60 TWh/year 146 TWh/year qualitative) Date achieved 12-31-2000 12-31-2010 Comments Target of additional renewable electricity capacity and production has been (incl\. % significantly surpassed\. The increased capacity is 320% higher than the target, achievement) while the increased electricity production is 143% higher than the target\. Power generation increases are less than installed capacity increases because the major increase in capacity is due to wind, which has a lower capacity factor than biomass and small hydropower (SHP)\. Indicator 5: Reduced annual emissions (million tons): Carbon NOx SOx Particulates Value 0 tons carbon 23 million tons 32 million tons (quantitative or carbon carbon qualitative) 0 tons NOx 171,000 tons NOx 336,000 tons NOx Not revised 0 tons SOx 852,000 tons SOx 307,000 tons SOx 0 tons particulates 23,000 tons 146,000 tons particulates particulates Date achieved 12-31-2000 12-31-2010 vii Comments Except for SOx, all avoided emissions targets were substantially exceeded: (a) (incl\. % avoided carbon is 39% higher than the target; (b) avoided NOx is 96% higher achievement) than the target; and (c) avoided particulates emissions are 525% higher than the target\. Avoided SOx emissions are 64% lower than the target because of the unexpected and dramatic reduction of the power system SOx emission factor from 9,600 tons/TWh in 2000 to 2,100 tons/TWh in 2010\. The emission factor was reduced so dramatically because during project implementation, the government made flue gas desulfurization equipment mandatory for all power plants and imposed closing of all small and highly polluting power plants as electricity shortages eased\. (b) GEO Indicator(s) Same as PDO indicators\. (c) Intermediate Outcome Indicator(s) Original Target Actual Value Formally Values (from Achieved at Indicator Baseline Value Revised approval Completion or Target Values documents) Target Years Indicator 1: Enactment of RE Law and issuing of regulations to implement the law at national level by 2009 Value None 100% Not revised 100% (quantitative or qualitative) Date achieved 12-31-2000 12-31-2010 th Comments The RE Law was adopted by the 11 meeting of the Standing Committee of the (incl\. % 10th National People’s Congress (NPC) on February 28, 2005 and became achievement) effective on January 1, 2006, 9 months before appraisal\. An amendment of the RE Law was adopted by the 12th meeting of the Standing Committee of the 11th NPC on December 26, 2009 and became effective April 1, 2010\. By end 2009, 22 regulations were issued by the NDRC, Ministry of Finance (MOF) and other ministerial level agencies\. Indicator 2: Issuing of regulations for implementation of RE Law and their effective implementation in pilot provinces (Fujian, Inner Mongolia, Jiangsu, and Zhejiang) by 2009 Value None Full Not revised Full (quantitative or qualitative) Date achieved 12-31-2000 12-31-2010 Comments By 2009, the RE Law and all implementation regulations (22 in total and mostly (incl\. % supported by CRESP) were in place and applied to all provinces, including the achievement) pilot ones\. Indicator 3: Issuing of national standards for wind turbines, availability of testing facilities, and certification by 2009 Value Partial Full No revised Full (quantitative or qualitative) viii Date achieved 12-31-2000 12-31-2010 Comments The target was fully achieved as (a) all the 8 Chinese wind standards developed (incl\. % under the project were approved by the Standardization Administration of China achievement) (SAC); (b) 2 wind turbine testing centers accredited and carried out 15 and 21 wind turbine tests respectively; (c) 2 certification bodies were accredited for wind turbine certification\. The Standards Committee, testing centers, and certification bodies are expected to continue their work in the future\. The Standards Committee will operate with support from the government (Ministry of Science and Technology, MOST) and the private sector (wind turbine manufacturers), and the testing centers and certification bodies will operate on a commercial basis\. Indicator 4: Companies participating in cost-shared technology and services development activities (with emphasis on biomass and wind) by 2009\. Value 0 15 Not revised 23 (quantitative or qualitative) Date achieved 12-31-2000 12-31-2010 Comments The target was surpassed by 53%\. By the end of 2008, 23 different companies (incl\. % carried out cost-shared technology and services development projects\. The achievement) projects not only achieved the intended outputs (products or services developed), but also the intended outcomes (products or services successfully commercialized) as 19 projects led to substantial sales of the products or services developed before the closing date\. Indicator 5: Pipeline of renewable energy projects under development in the provinces by 2009\. Value 0 400 MW Not revised 1,329 MW (quantitative or qualitative) Date achieved 12-31-2000 12-31-2010 Comments By the end of 2008, 1,329 MW of RE projects were planned and developed in (incl\. % pilot provinces, with CRESP support\. This is 232% higher than the target\. achievement) It must be noted that this number includes only the projects that received CRESP support\. The total pipeline in all provinces is a lot higher\. 100 MW wind farm at Changjiangao, Pingtan Island, Fujian, selling 260 Indicator 6: GWh/year into local grid by 2008\. Value 0 100 MW Not revised 100 MW (quantitative or 260 GWh/year 300 GWh/year qualitative) Date achieved 12-31-2000 12-31-2010 Comments 100 MW (50 Vestas 2 MW wind turbines) operational December 31, 2007 (incl\. % (100% on target), selling 280 GWh to the grid in 2008, 301 GWh in 2009 and achievement) 2010\. The capacity factor increased from 33\.0 to 35\.5% (one of the highest in China)\. The annual electricity generation at 294\.1 GWh (average over the last 3 years) is 13% higher than the target\. Indicator 7: 25 MW straw-fired biomass power plant at Yinxing Village, Rudong County, Jiangsu selling 162 GWh/year into local grid by 2009\. Value 0 25 MW Not revised 25 MW (quantitative or 162 GWh/year 141\.2 GWh/year qualitative) ix Date achieved 12-31-2000 12-31-2010 Comments The 25 MW straw-fueled power plant realized in Yinxing Village, Rudong (incl\. % County, Jiangsu, generated 141\.2 GWh in 2010\. Capacity target met (100% on achievement) target)\. The plant location was changed from the originally planned Mabei Village in the same county\. However, the unit encountered some teething problems mainly inadequate fuel feeding system and moisture content of fuel, and the latter has been solved with CRESP support\. And the solutions benefitted projects encountering similar programs in the country\. Electricity generated was about 13% lower than the target in 2010, but only 2% lower than the target in 2011\. It is expected that the target will be reached in 2012\. Indicator 8: 100 MW wind farm at Huitengxile, Desheng County, Inner Mongolia selling 245 GWh/year into local grid by 2008\. Value 0 100 MW Not revised 100 MW (quantitative or 245 GWh/year 79 GWh/year qualitative) Date achieved 12-31-2000 12-31-2011 Comments 100 MW (80 Suzlon x 1\.25MW wind turbines) were operational in September (incl\. % 2011 (100% on target) and generated 79\.71 GWh in 2011\. The commissioning achievement) was delayed because of ownership issues (authorities prefer autonomous region ownership rather than state ownership), procurement difficulties, and a delay in turbine supply\. Electricity generation is expected to reach the target in 2013\. Indicator 9: 28 MW of capacity of SHP in Zhejiang built or rehabilitated, selling an incremental 95 GWh/year to local grids\. Value 0 28 MW additional Not revised 23\.5 MW additional (quantitative or capacity capacity qualitative) 95 GWh/year 103\.78 GWh/year additional (in 2010) additional electricity electricity production production Date achieved 12-31-2000 12-31-2010 Comments The installed capacity supported by the loan was 16% lower than the target, since (incl\. % one rehabilitation project and one new project were dropped\. The electricity achievement) generated and sold to the grid is 9% higher than the target\. However, because of the early success of SHP projects, several developers requested and secured CRESP support through the CRESP Investor Scale-up Support Facility (ISSF) to develop or rehabilitate an additional 16\.4 MW (4 new projects with a total capacity of 14\.3 MW and 4 rehabilitation projects with an additional capacity of 2\.13 MW)\. With these additional projects, the target is substantially surpassed\. x G\. Ratings of Project Performance in ISRs P067828/P067625 Actual Disbursements Date ISR No\. GEO DO IP (US$ millions) Archived Project 1 Project 2 1 10/25/2005 S S S 0\.00 0\.35 2 12/14/2006 S S S 0\.44 2\.35 3 12/26/2007 S MS S 73\.10 2\.90 4 01/24/2009 S S S 77\.00 5\.75 5 02/06/2010 S S S 77\.00 14\.22 6 06/28/2011 HS S S 77\.00 27\.83 P096158 Actual Date ISR Disbursements No\. DO IP Archived (US$ millions) 1 04/20/2006 S S 0\.00 2 12/07/2006 S S 2\.22 3 01/07/2008 MS MS 13\.66 4 01/24/2009 MS MS 16\.89 5 02/09/2011 MS MS 46\.70 6 06/27/2011 MS MS 84\.68 xi H\. Restructuring Amount Disbursed ISR Ratings at Board Approved at Restructuring in Restructuring Restructuring Reason for Restructuring & US$ millions Date(s) Key Changes Made PDO GEO DO GEO IP Project1 Project 2 Change Change P067828 P067625 • To make changes of a few subcomponents to adapt to the changing conditions of RE development and meet 08/28/2007 N N MS S S 73\.1 2\.9 government’s request; and • To reallocate the grant proceeds to allow the shifting of resources to high- priority activities\. • To reallocate the grant proceeds to allow the shifting of resources to high- priority activities; and 09/24/2010 N N S S S 77 20\.4 • To extend the closing date of the grant from September 20, 2010, to September 30, 2011, to enable the completion of these high-priority activities To extend the closing date from September 30, 2011, to December 31, 2011, to enable the Project Management Office (PMO) to disseminate 09/27/2011 N N S HS S 77 29\.92 achievements and lessons learned of CRESP through promotion, reporting and workshops, including the project closing workshop\. I\. Disbursement Profile xii P067625 P067828 xiii P096158 xiv 1\. Project Context, Development and Global Environmental Objectives, and Design Project Context The China Renewable Energy Scale-up Program (CRESP) is a Bank/Global Environment Facility (GEF)/Government of China partnership to scale up renewable energy-based electricity\. Such a partnership allows long-term policy dialogues and engagements with the government to support renewable energy scale-up at the national level and the goals of the government’s Five-Year Plans (FYP)\. The CRESP outcome indicators targeted the scale-up of renewable electricity capacity and production at the national level and were closely linked with the 11th FYP targets\. The backbone of the undertaking is a three-phase GEF grant to develop a legal and policy framework and support technology improvements, standards and certification, and preparation for innovative renewable energy projects\. The development objective of this three-phase program is to enable commercial renewable electricity suppliers to provide energy to the electricity market efficiently, cost-effectively, and on a large scale\. Figure 1 below demonstrates the vision of such a three-phase program (see below for the objective of the first phase, and Section 2\.5 for the objective of the second phase and the envisioned third phase)\. Figure 1\. Vision of the Three-Phase China Renewable Energy Scale-Up Program RE small percentage RE large share Sector reform 15% Incentives manageable cost matters Sustainable Scale-Up Scale-Up: More GW in Open market 8% a short time Needs to consider • Cost reduction RE specific • Efficiency characteristics improvement • Develop and implement policies •Smooth grid • Build up domestic RE integration industry 2005 2010 2015 2020 The first phase of the CRESP was designed as a programmatic and sector-wide approach to fully blend: (a) a GEF grant that aimed at developing a legal, regulatory, and policy framework to create demand for RE and improving quality and reducing costs to build a strong local manufacturing industry to increase supply; and (b) four investments in wind, biomass, and small hydro power (SHP) that were among the largest RE investments in China at the time\. These investments were designed to demonstrate quality, efficiency, and sustainability of RE investments, which were below par in China at the time, for dissemination and replication in other similar projects in China\. The GEF grant also helped troubleshoot and resolve implementation issues for the RE investments for replication, and supported feasibility studies and pilot demonstrations for scale-up investments\. 1 At the project negotiation, it was decided that the four investments would be provided in two specific investment loans (SILs) because of portfolio constraints, per request from the Chinese government\. As a result, the GEF grant and the first IBRD loan (consisting of two investments) were approved by the Board in June 2005, while the Follow-Up Project (second loan for CRESP, consisting of two additional investments) was approved by the Board in February 2006\. This ICR covers the GEF grant (P067625), and the two Bank SILs associated with it (P067828 and P096158), as these three projects aimed at achieving the same DO and GEO of CRESP Phase I\. 1\.1 Context at Appraisal At appraisal, China was preparing the 11th Five Year Plan (2006-11) and was assessing solutions and policies to address the following major challenges: • Rapidly growing energy needs as primary energy consumption soared from 1\.3 billion tons coal equivalent (tce) in 2000 to more than 2 billion tce in 2005 with coal consumption accounting for 69 percent of the total and oil imports reaching 144 million tons, about 40 percent of the oil consumption\. • Increasing local environmental degradation, which led to unacceptable damages to health and agriculture and serious curtailments of gross domestic product (GDP) (6–13 percent according to different studies)\. • Increasing engagement with the international community on climate change as China signed the United Nations Framework Convention on Climate Change (UNFCC), and the country played a major role in the June 2004 International Renewable Energy Conference in Bonn and the following year in Beijing\. • Rising vested interests and resistance to the reform of the energy (particularly power) sector as little progress has been achieved during the 10th FYP despite bold policy decrees and regulations during the first two years of the plan\. • Failure to achieve renewable energy targets in the previous (8th and 9th) FYP periods\. Against this background, the Bank and GEF worked closely with the Chinese government to develop a long-term partnership to support the goals of the 11th FYP and increase, over the longer term, renewable energy contribution to power generation in a sustainable way\. The first phase of the program, the object of this ICR, focused on mandating an RE market share by law and regulations and providing incentives to internalize environmental benefits stemming from the generation of green and nonpolluting electricity\. 1\.2 Original Project Development Objectives (PDO) and Key Indicators (as approved) The development objective of the three-phase CRESP is to enable commercial renewable electricity suppliers to provide energy to the electricity market efficiently, cost-effectively, and on a large scale\. Specifically, the PDO for the first phase was to (a) create a legal, regulatory, and institutional environment conducive to large-scale, renewable-based electricity generation; and (b) demonstrate early success in large-scale, renewable energy development with participating local developers in four provinces\. For the purpose of this ICR, the PDO description from the PAD, was used\. Key performance indicators were as follows: • Increased renewable electricity capacity (GW) and production (TWh/year); • Reduced emissions of carbon, NOx, SOx and particulates; 2  • Market framework established; • Environment for development of renewables improved; and • Improved quality and reduced cost among manufacturers and service providers in wind and biomass\. 1\.3 Original Global Environmental Objectives (GEO) and Key Indicators (as approved) GEO is the same as PDO\. 1\.4 Revised PDO (as approved by original approving authority), Key Indicators, and Reasons and Justification PDO was not revised\. 1\.5 Revised GEO (as approved by original approving authority) Key Indicators, and Reasons/Justification\. GEO was not revised\. 1\.6 Main Beneficiaries The GEF-funded Institutional Development and Capacity Building Component supported a range of beneficiaries: • Policy support activities benefitted all economic agents engaged in the RE supply and delivery chain as they clarified and eased market access and ensured sustainability; • Technology improvement activities benefitted selected quality- and innovation-oriented Chinese wind and biomass equipment manufacturers and related service suppliers; • Standards, testing and accreditation benefitted the RE industry; • Knowledge activities benefitted selected universities, as well as the students and professionals who attended the programs\. Ultimately, the industry will also benefit from the availability of skilled workers and professionals\. Beneficiaries of the IBRD-financed investment component are the sponsors of the investment projects, namely, in (a) Fujian: Longyuan Pingtan Wind Power Co\., Ltd\.; (b) Jiangsu: Jiangsu Guoxin New Energy Development Company Ltd\.; (c) Inner Mongolia: Inner Mongolia North Long Yuan Power Company Ltd\.; and (d) Zhejiang: the 16 investors in SHP projects, including 6 newly constructed plants and 10 rehabilitation projects\. The Chinese population would ultimately benefit from less polluting generation of electricity\. Avoiding increasing reliance on coal will also bring about global benefits and contribute to climate change mitigation\. 1\.7 Original Components (as approved) The project comprises two components: (a) an institutional development and capacity building component (first phase of the GEF program); and (b) an investment component\. The core of CRESP is the institutional development and capacity building component (developed in three phases)\. The first phase of the program aims to (a) create a legal, regulatory, and institutional framework for renewable energy development; and (b) support improved quality and 3 localization of renewable energy equipment and services\. Both aspects are considered necessary to create an environment for significantly scaling up renewable energy development in China\. The investment component in this first phase includes investment in two 100 MW wind farms— one in Fujian and one in Inner Mongolia—a 25 MW straw-fueled biomass power plant in Jiangsu, and a 28 MW incremental SHP capacity from new and rehabilitated SHP plants in Zhejiang\. In addition, the institutional development and capacity building component includes support for building a strong pipeline of renewable energy projects to facilitate scale up\. This is done through (a) support to investors of the investment projects; and (b) support for demonstration projects, including offshore wind\. 1\.8 Revised Components Project components were not revised\. 1\.9 Other Significant Changes A number of changes were made during the course of implementation to adapt the support to the rapidly changing conditions of the RE environment and the needs of clients and stakeholders\. These changes were made to focus on new priorities, reflect lessons learned, and shift resources to emerging priorities\. The GEF resources were allocated to other subcomponents and elements with a high potential for contribution to the program and achievement of the first phase PDO\. All dropped activities were carried out through government or other bilateral RE programs\. The changes were at subcomponent levels, and did not affect the overall structure of the project\. The main changes made were as follows: • The envisaged support for wind resources assessment at the national and pilot provinces level was cancelled, since the government initiated a much larger wind resource assessment program for the whole of China\. The Government of China program with a budget of US$44 million, validated the project concept’s focus on resource assessment, and dwarfed the contribution from CRESP (US$2 million at the national level and US$4\.2 million for the pilot provinces)\. • The Wind Turbine Technology Transfer element was designed to provide support to wind turbine manufacturers to improve quality and develop Chinese brand name megawatt-size wind turbines\. The subcomponent gained trust and support from industry partners and government agencies\. During implementation and based on studies carried out by other international agencies, the government requested an extension of support to wind turbine component manufacturers\. Additional budget allocations were made to this activity from other subcomponents and elements\. • At the request of the pilot provinces, part of the provincial budget was transferred to the Provincial Pilot Demonstration Projects to support additional pilot demonstration projects and/or to support preparation for offshore wind projects\. • To support investors better in implementing Bank-funded projects and in developing a more ambitious RE pipeline, a cost-shared grant scheme was developed for the preparation of additional renewable energy investments\. The support included 4 A change was made to the Zhejiang SHP subcomponent early on, dropping 2 of the 18 subprojects identified at appraisal\. One developer financed his project through local banks, while the other rehabilitation subproject was dropped by the Bank because of dam safety issues (which were reported to the regulator)\. The corresponding portion of the loan was cancelled\. Of the remaining 16 subprojects, 10 were for rehabilitation and 6 were for new construction\. All changes were thoroughly discussed with clients and other stakeholders, and were documented and approved by Bank management\. 2\. Key Factors Affecting Implementation and Outcomes 2\.1 Project Preparation, Design, and Quality at Entry Background Taking into account the context prevailing during project preparation in China (see Section 1\.1), CRESP was designed by taking into account three concurrent facts: (a) China struggled for more than 10 years (during the 8th and 9th FYPs) to achieve the target for development of 1,000 MW of wind capacity; (b) GEF indicated its intention to pilot a programmatic approach to support selected countries in developing and implementing initiatives aiming at reducing greenhouse gas emissions; and (c) the Bank/GEF Renewable Energy Development Project (REDP) approved in 1999 had to be restructured in 2001 to reduce its wind investment capacity from 190 MW to 20 MW because of debates between government institutions, and ownership disagreements among different administrative level enterprises, and a lack of clarity on who (consumers at provincial, regional, or national levels) was responsible for covering the incremental costs between RE and fossil fuels\. The idea for a large-scale renewable energy program in China, under the WB/GEF Strategic Partnership for Renewable Energy was first discussed between the World Bank and the National Reform and Development Commission (NDRC) 1 in April 1999\. Despite the problems encountered in relation to the REDP wind component, the Bank recognized the strong need for international support for RE development in China and expressed its interest to the government to continue to support RE scale-up through diversifying its energy portfolio\. However, despite the full support by all agencies of the concept presented in April 1999, building consensus among different agencies and power operators took time\. The Bank and GEF decided to accompany Chinese agencies as they gradually progressed and gained ownership of the program concept\. The first step consisted of, upon request from NDRC, preparing a Policy Advisory Note on renewable energy development as an input to the preparation of the 10th FYP\. This “Concept Note on Renewable Energy in China’s 10th Five Year Planâ€? was dated July 24, 1999\. From 1999 to 2004, NDRC, the World Bank and GEF developed CRESP\. Preparation resolved extended debate on the novel concept of the programmatic approach, following a strengthened RE policy framework of mandated market policies\. The long time it took for Chinese government agencies to build consensus around the project concept and clarification of the responsibilities 1 At that time still called the State Development and Planning Commission (SDPC), which at the early stage of development of CRESP inherited all the responsibilities of the abolished State Economic and Trade Commission\. 5 among concerned agencies primarily resulted from the prevailing macro-level context during the early 2000s\. With the changes in the highest-level leadership, government agencies were going through a transformational process to shift from the command and control economy to the “socialist market economyâ€? and to redefine their role and strengthen their administrative power\. For example, the State Development and Planning Commission (SDPC) merged with the State Economic and Trade Commission in 2003, and the National Development and Reform Commission (NDRC) was created\. As a result, the government implementing agency for the GEF grant has changed from SDPC to NDRC and later to the National Energy Administration (NEA)\. During preparation, a large technical assistance and policy effort was mounted and supported mainly by GEF PDF B and C and the Asia Sustainable and Alternative Energy Program (ASTAE) to assist the government in clarifying concepts related to RE scale-up and designing and developing the RE Law\. During the project preparation phase, studies were carried out, and knowledge and consensus building workshops organized on all RE development aspects: (a) international experience of many advanced countries on mandated market policies—renewable energy portfolio standards, feed-in tariff, or concessions; (b) applicability and selection of these RE mandated market policies in China; (c) development of an original concept for determining economically optimal RE targets; (d) trading of green certificates; (e) developing the RE Law; and (f) supporting investors in preparing projects to be financed by the Bank during the first phase\. All these activities were instrumental in transferring knowledge and best practices to Chinese agencies, assisting them in making informed decisions, and building consensus to develop the RE Law\. During project preparation, the Chinese government expected that it would take three to five years to develop and pass a RE Law\. Therefore, it was decided to pilot mandated market policies in four provinces and develop an RE Law for scale-up based on the experience gained\. However, an increased environmental awareness and China’s commitment at the International Conference for Renewable Energy in Bonn and later in Beijing led to the development of a national RE Law in less than one year\. The law was passed before the approval of the first phase of CRESP and became effective January 1, 2006\. As a result, CRESP focused on making the implementation of the RE Law a success\. Soundness of Background Analysis In hindsight, background analysis of the project design (Section 1\.1 and the above section) was sound and adequately identified the issues and barriers to be addressed\. Lessons Taken into Consideration during Preparation The design of the project incorporated a combination of lessons emerging from international experience related to renewable energy development and lessons from earlier Bank operations in China and elsewhere\. Important lessons from international experience indicated that successful RE development programs required the following: • Well-coordinated programs supported by law, policies, and implementing regulations; • Adequate tariff levels “at a premium priceâ€? for RE, reflecting environmental externality, with long-term power purchase agreements; • Mandatory off-take of electricity generated by grid operators; • Passing incremental costs between RE and fossil fuels through to consumers; 6  • Setting up national RE targets; • Education, R&D, and information dissemination programs; • Establishment of appropriate standards, certification, and testing of RE equipment to ensure quality; and • Reliable assessment of the available resources\. Lessons learned from REDP and other Bank RE projects (limited at that time) and taken into account in designing CRESP include the following: • RE projects were usually resisted by utilities and required more time and resources to build consensus among stakeholders and concerned government agencies, since their responsibilities over RE development and oversight were not clearly delineated; • Cost-shared sub-grant approach to support local RE manufacturers works well; • Standards, testing, and certification and technology improvement programs are essential to improve quality and sustainability of RE development (the impact of REDP on China’s photovoltaic (PV) industry has been well documented); • Single responsibility on wind farm performance is important, and innovative procurement approaches are needed to meet Bank and country requirements (Shanghai wind farms developed under REDP)\. All these lessons have been fully evaluated and incorporated into the project design\. Rationale for Bank Involvement CRESP was a logical follow-up to REDP\. The Bank/GEF established a solid basis and trust with NDRC and other concerned government agencies that was essential for effective policy dialogue and scale-up of RE investments\. NDRC’s request for preparing a Policy Advisory Note on renewable energy development during the preparation of the 10th FYP was a clear indication for the country’s strong interest in building a long-term partnership with the Bank/GEF focusing on achieving their RE target\. The opportunity presented by GEF’s interest in engaging countries on program rather than project basis was unique and essential to limiting the dominance of coal in the power sector\. The Bank had a clear comparative advantage in establishing the partnership\. With continued Bank involvement, China would also benefit from international experience in developing the appropriate policies and regulations, and gain knowledge related to technology improvement, as demonstrated during implementation of REDP\. Bank involvement would also increase the prospect of sound development of RE investment projects leading to optimal use of resources and increased performance during operation\. Assessment of Project Design Due to the lengthy preparation, several management changes occurred in the Bank and counterpart agencies between the original project concept note and presentation to the board, but the design of the project proved to be robust, and it stood several rounds of scrutiny at the Bank and at various levels of the Chinese government\. The design of CRESP was confirmed each time as relevant and best fitted to achieving scale-up of RE-based electricity by high management levels at the Bank and NDRC\. The RE Law that adopted mandated market policies, with support from CRESP and other donors, proved to be the deciding factor for the successful RE scale-up in China\. 7 The long-term engagement with the Chinese government, through the partnership and programmatic approach, also proved to be robust\. The Bank and the government established a mutual trust relationship, since the government agencies relied mostly on CRESP when they needed advice and assistance for policy and regulation development\. The CRESP introduced international best practices and mobilized domestic expertise to meet government’s requests\. The recommendations made in many policy studies supported by CRESP have been adopted by policy makers into laws and regulations\. Adequacy of Government’s Commitment The government’s commitment to renewable energy gained momentum over 2000-2003, and became unwavering after the Bonn RE Conference in 2004, and culminated with the enactment of the RE Law\. The Bank and GEF played a catalytic role in cementing the commitment through all the analytical work, knowledge activities, and consensus building during the first years of preparation\. Scale-up of RE in China during the last five years has been unprecedented\. The country has become the world’s leader in renewable energy capacity, ranking number 1 in SHP and wind capacity, number 3 in biomass, and is on its way to achieving leadership in solar PV capacity\. This is a direct result of government’s commitment to RE\. The Chinese government quickly realized that RE is a real “green growthâ€? opportunity\. Not only can RE help diversify, secure, and green the energy portfolio in China, the government also turns this into a new market niche to build a strong local manufacturing industry for future economic growth\. Participatory Process The basic ideas of CRESP—programmatic approach, scale-up and the focus of legal and regulatory framework—were presented and discussed in a “genesis workshopâ€? attended by all concerned government agencies in late 1999, after GEF’s announced willingness to pilot programs to scale up renewable energy development\. The brainstorming session concluded that a project based on the proposed ideas is feasible, but would be highly challenging, since it requires fundamental changes in policy development and project approval processes\. Project preparation built consensus among stakeholders in China on the need for a mandated market policy for renewable energy development and to provide training to government officials, institutions, and renewable energy experts to make informed decisions\. Consultations with a wide range of stakeholders, study tours, and studies on international experience were organized to discuss all aspects of the design of RE policy frameworks\. The participatory approach culminated in a participatory structured brainstorming workshop held in Beijing on January 21, 2003, to discuss with concerned government agencies and independent experts different mandated market policies and their applicability to China\. Further extensive consultations were held with relevant stakeholders on different components of the project\. Several of these consultations were organized jointly with bilateral and multilateral agencies and nongovernmental organizations (NGOs) involved in China\. Finally, pilot provinces were consulted and involved in the selection of the RE projects to be financed by the Bank during the first phase of CRESP\. 8 Assessment of Risk The project was rated as high risk/high reward at the concept stage and proved to be challenging, since it took time to build consensus on the approach and to overcome interagency debates, which were even more intense than the ones experienced during REDP\. Availability of PDF B and C and ASTAE funding helped in carrying out all analyses, studies, and knowledge activities to address the issues and questions raised by Chinese counterparts during the preparation of the project\. These activities reduced the risks identified at the concept stage as counterparts gained ownership of the program design and made progress in the preparation of the first phase\. This resulted in an overall rating of risk to achieving the PDO as substantial at appraisal\. Some of the risks at appraisal, such as weak government commitment in legal basis for mandated market, insufficient number of developers, and banks not willing to lend to RE projects, were effectively addressed by the RE Law\. Other risks, such as the commitment to market-based approach, materialized but did not hamper the PDO of the first phase\. Some were addressed in the amendment of the RE Law and some, such as trade, will be, as envisaged during the original design, the focus of the second phase of CRESP under preparation\. Quality at Entry Rating by Quality Assurance Group (QAG) (if any) Satisfactory\. QAG assessed that the DO is of high relevance to China\. The project builds on experience in China of piloting projects that are then scaled up\. The combination of a GEF project with a Bank-financed project to combine the investment component with policy and institutional development is an important strength\. 2\.2 Implementation The GEF project progressed slowly at the beginning because of a painstaking and lengthy consensus building effort among concerned Chinese government agencies and between the PMO and the Bank/GEF team\. Disbursement of the grant was very slow because of diverging opinions between the PMO and the Bank/GEF team on procurement procedures and fragmentation of contracts, cost-sharing bidding procedures and their alignment with Chinese decision making, a piecemeal approach and pace of policy reforms, and the provincial pilot projects and their replication potential, to single out the four most important ones\. These issues were therefore the major themes discussed during the midterm review of the project\. The discussion led to a better understanding and consensus on the priority issues, agreement on cost-sharing procedures, and a better focus on grantee needs, alignment of the Bank/GEF team and National Energy Administration/Energy Research Institute (ERI) team on the scale-up strategy, and better focus on and replication of successful activities that contributed most to the global development objective of the project (see detailed recommendations at midterm review section below)\. This led to speedier implementation of all activities and allowed total disbursement during the last 18 months of the project\. The four investment subprojects evolved differently (see Annex 2 for details): • The implementation of the Pingtan 100 MW wind farm was highly efficient\. The entire preparation, detailed design, procurement, implementation, and contract management for the wind farm went very smoothly\. The project was fully operational by the end of 2007, marking an impressive accomplishment\. In particular, the project introduced an innovative concept of single responsibility on wind farm performance for procurement to 9  meet Bank and country requirements\. This was possible through a very dynamic and hard-working project management team, and the commitment and support of the company’s management and leadership, complemented by an effective procurement agent\. • The Rudong 25 MW biomass-fired power plant changed its location from Mabei Village to Yinxing Village, Rudong County, Jiangsu Province\. The power plant experienced two operational problems during implementation—higher-than-expected moisture content of the fuel and the malfunctioning of the biomass straw feeder system (not funded by the loan)\. The first issue was successfully addressed, with GEF support\. To mitigate the second problem, the project sponsor developed an effective manual feeding system\. In 2011, the plant generated 157 GWh, corresponding to 98 percent of the target set at appraisal\. In 2012, the output of the plant is expected to meet the generation target\. • The SHP projects in Zhejiang province went smoothly\. The challenge for SHP projects lies in project financing, project management, and addressing safeguard issues\. With the strong commitment and engagement of the local government and support from the Zhejiang Small Hydropower Development and Management Center, the Bank’s financing was properly used and the Bank’s safeguards policies were properly followed\. During implementation, one rehabilitation project and one new construction project were dropped\. However, the total electricity generation from the 16 sub-projects (rather than 18 sub-projects as planned) is higher than the original target\. In addition, GEF resources supported these investors in preparing eight additional new and rehabilitation projects\. These two factors more than compensated for the cancellation of the two sub-projects\. • The completion of the 100 MW Huitengxile wind farm in Inner Mongolia was delayed by a year, because of slow procurement and subsequent turbine supply problem\. The project sponsor—Inner Mongolia North Long Yuan Wind Power Company—changed its ownership structure, as Long Yuan Company transferred its share to the Inner Mongolia Meng Dian Hua Neng Thermal Power Company Co\. Ltd\. in December 2008\. Part of the delay at the beginning of the project was mitigated by accelerated implementation during the later years\. Nonetheless, the closing date of the project was extended by one year\. The wind farm became operational in September 2011, selling 79\.71 GWh to the grid by the end of the year\. Electricity generation is expected to reach the target by 2013\. Midterm Review The midterm review concluded that the project was well on its way to achieving its development and global objectives, and to meeting, and even exceeding, the performance indicators agreed at appraisal\. In particular, the cost-shared sub-grants and quality assurance activities to support technology improvements were progressing well\. However, the midterm review also found a few issues of project implementation that were capable of undermining its achievements and potential—especially at the provincial level\. The main identified problems/risks were as follows: • Reduced relevance and weakened policy impact of the studies and activities funded by the Grant because of the piecemeal approach and long contract implementation periods; • The original approach that had been agreed with the government and adopted during the concept stage, that is, piloting different policy options at the provincial level, became irrelevant after the enactment of the RE Law in 2005 and its effectiveness in 2006—as it established a national framework; • Some technical studies, both at the national and provincial levels, were stalled or faced major implementation hurdles for two reasons: (a) consultants were not being given 10  adequate access to data for claimed national security reasons; and (b) there was a reluctance to hire and utilize high-level expertise either nationally or internationally; and • Lack of management funds and disruption of PMO functioning that would have led to further delays of new activities and weaker supervision of ongoing activities\. The agreed remedies aimed to increase focus on fewer activities, especially at the provincial level, and greater reliance on the cost-sharing approach with developers and institutions with strong implementation capabilities\. The important recommended actions included the following: • Speeding up implementation of the committed contracts to avoid a reduction in the relevance of the outputs because of late delivery\. • Using the uncommitted provincial resources for pipeline building, since provincial level policy and resource assessment work is less relevant because of related work at the national level\. • Shifting funding from activities funded by the government or other donors to emerging high-priority activities (such as short-term wind forecast)\. • Reducing the number of PMO staff to a core team with adequate knowledge of the program and an established track record in implementation—complemented by qualified experts to assist with work scope formulation, reviews and evaluation of outputs, particularly for complex technical and policy issues\. • Extending the closing date of CRESP to allow implementation of all committed and planned activities\. The recommendations from the midterm review were successfully implemented\. Actions Taken in Response to Problems Unwarranted delays were experienced during the first year after effectiveness, for the following reasons: (a) institutional divergence among government agencies; (b) inexperienced PMO staff and inadequate alignment of PMO staff skills with the project focus areas; and (c) coordination difficulties between PMO (national level) and provincial Development and Reform Commissions (DRCs)\. After the first year, further delays were encountered because of (a) the long time required to put contracts in place; (b) large number of small contracts; (c) consultants not meeting agreed deadlines and insufficient follow-up from the PMO; (d) implementation of the sub-grant projects much more difficult than anticipated and requiring more time; and (e) insufficient initiatives at the provincial level\. The recommendations in the midterm review section above outlined the actions taken to address these issues\. In addition, the first phase of CRESP encountered an important issue that complicated and delayed the implementation arrangement\. The NEA heavily relied on the Center for Renewable Energy Development (CRED) under the ERI in charge of major RE policy studies in China\. Contracting other institutions was expected not to be able to achieve the desired impacts, because other contractors would not have had access to data and recommendations would not have been considered by the decision makers, weakening the project’s impact on China’s RE policy development\. During the first phase of CRESP, the NEA made it clear that all work related to decision making had to be carried out by CRED, and it took 6 months to one year for the team to secure a waiver from Operational Procurement Review Committee (OPRC) to entrust major work related to the policy decision making to CRED on a single source basis to meet this need\. Furthermore, the PMO needed to be restructured and staffed to ensure independence from ERI/CRED, directly under the leadership of the NEA\. Performance Ratings 11 Satisfactory\. QAG rated the quality of Bank supervision as satisfactory\. When QAG conducted a quality assessment of the lending portfolio in 2008, the project was suffering from the initial delay because of institutional issues and slow progress of PMO and government agencies along the learning curve\. Nevertheless, QAG noted that the Bank has played a constructive role in helping the Borrower implement the project with good advice, and was impressed by the quality of the staff on the Bank team\. After the midterm review and the second project restructuring, the project focused on a lower number of high-priority activities, and implementation accelerated\. The project was successfully completed after an extension of one year and three months beyond the original closing date\. 2\.3 Monitoring and Evaluation (M&E) Design, Implementation, and Utilization M&E Design As described in Section F of the Results Framework, all the project indicators have been exceeded, except the SOx emission reduction, because the emission factor was reduced so dramatically as a result of a mandate by the government to include flue gas desulfurization equipment for all power plants and to close all small and highly polluting power plants\. The CRESP program has been designed as a Bank, GEF, and Chinese government long-term partnership to scale up RE before China embraced RE and committed to a momentous development program\. Therefore, the quantitative outcome indicators of the program were designed as economically justified renewable energy installed capacity and power generation nationwide (see the detailed methodology in Section 3\.3 on economic and financial analysis of the program)\. At the time of project preparation, these targets were considered very ambitious\. The fact that the actual results have well exceeded the original targets proved that the design of the indicators was robust\. However, the lessons learned from the indicator design are the following: • Cost reduction of key renewable energy technologies proved to be difficult to estimate\. Establishing a cost benchmark is problematic, because of (a) a lack of Chinese indices and lack of benchmarks for renewable energy cost; (b) the difficulty of gathering data on the cost of equipment, given the concerns over the commercial sensitivity of such information; and (c) the influencing of RE costs by factors outside the control of the project\. Cost of RE is affected by demand and supply, such as surges of raw material costs and reduced demand from developed countries because of the financial crisis and RE policy changes in these countries\. • Emission reductions need to factor in declining emission factors because of the increasing use of pollution control measures and improved efficiency of coal-fired power plants\. • The impact of policy work is difficult to measure with quantitative indicators\. M&E Implementation To assess progress towards the targets of the original indicators, the required data were collected at midterm and at the end of the first phase of CRESP\. The data were collected from public sources (reports and papers) and from project information\. The assessment was documented in detailed indicators reports at midterm and at the end of CRESP\. Reliable data to benchmark the cost of renewable energy equipment could not be collected\. All other required data and information have been collected\. The collected data are considered reliable\. 12 M&E Utilization Almost all the project indicators have been surpassed\. CRESP pioneered the RE cost supply curve methodology (see Section 3\.3 for details) to estimate the economically justifiable RE targets at the national level as the program outcome indicators\. This methodology provided analytical inputs to the 11th and 12th FYP RE targets\. In addition, the M&E framework was sufficiently well developed to provide clear guidance of what CRESP set out to achieve\. The indicators were useful for gauging project progress and helping the PMO and the Bank to focus on areas of implementation that were lagging\. PDO indicators were used at the mid-term review to evaluate likelihood of achievement of the project and global objectives\. 2\.4 Safeguard and Fiduciary Compliance Safeguards There were no major safeguard issues encountered\. The minor issues encountered and resolved during project implementation are discussed below\. Environment\. Overall environmental performance of all four investment projects is satisfactory\. In Fujian, Jiangsu, and Zhejiang, there were no significant issues with implementation of the environmental aspects of the project or environmental management activities\. Inner Mongolia wind farm\. One significant environmental issue was experienced\. Early on during construction, poor access to roads had led to trucks driving through grassland, which caused unacceptable impacts\. Corrective efforts were made at the request of the Bank’s supervision teams\. In addition, the external environmental supervisor was engaged by the company only in 2010 to strengthen the Environmental Management Plan (EMP) implementation\. Resettlement\. Land acquisition and resettlement for all investment projects have been satisfactorily implemented\. All compensation have been paid to the affected people based on the Resettlement Action Plan (RAP), all relocated households have completed the construction of replacement houses, and all proposed rehabilitation measures indicated in the RAP have been implemented for the affected villages\. Income and livelihood of the affected people have been restored and even increased compared with that before resettlement\. Issues encountered during implementation, and their resolution, are discussed below\. • In Jiangsu, the change of the site for the Rudong Biomass Power Plant necessitated the preparation of new EMP and RAP\. After changing the site location, the developer was unable to purchase the land required for fuel storage\. The issue was resolved in a satisfactory manner, as the owners proposed and the developer agreed to lease rather than purchase the land required for fuel storage\. • In Inner Mongolia, the original estimate of land acquisition for access roads had to be updated, as the extent of land acquisition was different compared to the original, and the extent of temporary and permanent land occupation had to be clarified\. The site plan was revised, and the updated RAP was submitted and approved by the Bank\. Fiduciary Procurement\. Procurement performance is rated as satisfactory\. 13 Under the GEF project, procurement was carried out in accordance with Bank procurement policies and procedures\. No major issues were encountered\. The prior and post review identified minor procurement issues\. In May 2009, a complaint was submitted to the Bank with regard to a Consultants’ Qualifications (CQ) selection performed under a provincial activity in Jiangsu Province\. The case was reviewed by the Bank’s EAP Regional Procurement Secretariat team, and the assignment was canceled during the project’s Midterm Review\. There were no major issues for the investment projects, other than the delays experienced in the completion of the bidding process in Inner Mongolia\. Financial management\. Financial management performance under all three projects was satisfactory\. The financial management system developed for the lending and GEF projects was adequate and provided, with reasonable assurance, accurate and timely information that the loan and grant were being used for the intended purposes\. The project accounting and financial reporting were in line with the regulations issued by the MOF and the requirements specified in legal agreements\. In addition, the withdrawal procedure and fund flow arrangements were appropriate throughout the project implementation\. The loan and grant proceeds have been disbursed to the project in a timely manner\. 2\.5 Post-Completion Operation/Next Phase (including transition arrangement to post-completion operation of investments financed by present operation, operation & maintenance arrangements, sustaining reforms and institutional capacity, and next phase/follow-up operation, if applicable) The investments financed under CRESP are diverse, and transition arrangements differed: • The Fujian Pingtan 100 MW wind farm is operational since the end of 2007 by the Long Yuan Pingtan Wind Power Company Ltd\., which is the largest and most successful wind developer in China and beneficiary of a Bank loan under REDP to develop two small wind farms in Shanghai\. The arrangements they made for the operation of their wind farm are up to international industry standards and the wind farm has one of, if not the, highest capacity factors in the region\. The success of this project has led to a potential request from Long Yuan Company for the Bank loan to invest in offshore wind farms\. • The Rudong 25 MW biomass unit was included in the investment program as a pilot unit because the assessment carried out by the bank during preparation indicated that technical and fuel supply issues were not addressed properly\. The unit was first commissioned in 2009, and encountered serious problems with fuel-feeding equipment (not financed by the Bank) and quality of fuel (moisture and storage), common problems facing many other biomass power plants in China\. As CRESP earmarked GEF funds to support the investors, these were used to assess the problems encountered and propose solutions to address them\. The remedies, including a Biomass Fuel Supply Handbook, financed by ESMAP, were disseminated by the CRESP PMO and benefitted other units facing the same problems\. The unit has been operated and maintained according to industry standards since 2010\. • The Zhejiang SHP component included rehabilitation and construction of several units\. Most of them were completed early during project implementation and are operating satisfactorily and supervised by the Zhejiang Small Hydropower Development and Management Center, the most prestigious SHP center in China, under a contract financed by CRESP GEF grant\. The Center provided technical assistance during construction and 14  supervised the operation after commissioning\. It also provided guidance and training to investors to ensure sound operation and maintenance of the plants\. In March 2011, experts and officials from the Ministry of Finance and Ministry of Water Resources visited one SHP subproject in Zhejiang, and heard the report on the practice of the first phase of CRESP\. Inspired by this successful project and others, in July 2011, the government allocated dedicated budget from a special fund earmarked for renewable energy to support six provinces, including Zhejiang, to pilot capacity expansion and efficiency improvement in the rehabilitation of SHP in rural areas\. Looking forward, CRESP aims to move RE development in China from the successful quantitative scale-up under the first phase to qualitative and sustainable scale-up under the second phase\. The objective of the second phase of CRESP is to support Chinese government’s 12th FYP to enable efficient and sustainable scale-up of commercial renewable energy development through reduction of incremental costs, efficiency improvement, and smooth integration to power systems, thereby contributing to the government’s target of reduction in carbon intensity, as shown in Figure 1\. Preparation of the second phase of CRESP began during the last year of implementation of the first phase\. The concept of the second phase has already been approved by the Bank management and the GEF Council\. Afterwards, the envisioned third phase of CRESP, coinciding with the 13th FYP (2016–20), the last FYP to achieve the 15 percent non–fossil fuel target, is envisioned to fully integrate RE in competitive and open power markets\. 3\. Assessment of Outcomes 3\.1 Relevance of Objectives, Design, and Implementation The scale-up of renewable electricity efficiently, cost-effectively, and on a large scale is not only still highly relevant, but has become more urgent and essential as China’s energy consumption continues to grow rapidly and coal remains predominant in electricity generation\. China became the largest CO2 emitter in the world despite its recognized successes in reducing energy intensity and as scale-up of renewable energy during the 11th FYP\. RE development to combat climate change became a priority: • In China as the country committed to increase the share of non–fossil fuel in its primary energy consumption to 15 percent in 2020, in which RE accounts for more than 12 percent, and reduce carbon intensity by 40–45 percent from 2005 to 2020; • Globally as the international community increasingly allocates funds to promote low- carbon technologies for electricity generation; • In the Bank Country Partnership Strategy to China as it focuses on energy efficiency and development and use of clean and renewable energy technologies\. At the CRESP closing workshop, high-level government officials praised the significant contributions that CRESP made to China’s renewable energy scale-up, and reconfirmed that CRESP remains highly relevant to the government’s priorities and commitment to renewable energy scale-up\. The design and implementation of the program were also reviewed during the early stages of the second phase and confirmed as still relevant by the following: • Chinese authorities and the GEF focal point that allocate significant funds to undertake the second phase; • GEF Secretariat and Council as they approved the concept of the second phase; and 15  • Bank management by the approval of the concept note of the second phase\. 3\.2 Achievement of Project Development Objectives and Global Environment Objectives For the first phase of CRESP, the PDO and GEO are the same: • Create a legal, regulatory, and institutional environment conducive to large-scale, renewable-based electricity generation; and • Demonstrate early success in large-scale renewable energy development with participating local developers in four provinces\. CRESP has made significant contributions to the legal, regulatory, and policy framework for scaling up renewable energy in China, and catalyzed government investment in and support to RE development on a large scale during the 11th FYP\. The outputs, outcomes, and achievements of CRESP are categorized in the following three key pillars\. (1) Renewable Energy Policy Support: CRESP has strongly influenced the development of RE legal, policy, and regulatory framework in China, through supporting policy studies and technical assistance to help develop and implement the RE Law\. The RE Law and ensuing regulations triggered an “RE rushâ€? that led to an unprecedented development of wind capacity, followed by PV, biomass, and other technologies\. During project preparation, CRESP provided critical inputs to the government in developing the mandated market policies and the RE Law, in particular, selecting the mandated market policies for China and designing the mechanism of cost sharing for incremental costs\. The RE Law was passed quickly, leaving many details for implementation in the follow-up regulations\. During project implementation, the recommendations made in many policy studies supported by CRESP have been adopted by policy makers into laws and regulations\. CRESP-supported policy studies have led to the issuance of nine supporting RE policies and regulations\. For example, CRESP-supported studies on RE targets, RE quota, cost-sharing mechanisms, and financial incentives have provided essential inputs to the amendment of the RE Law\. In particular, the feed-in tariff regulations are the cornerstone of RE policies in China, and CRESP played an instrumental role in developing these regulations\. For example, based on the results from the wind concession schemes, CRESP supported a wind pricing study laid a solid analytical foundation for and led to the issuance of Notice of Improved Feed-in Tariff for Wind (2009)\. Similarly, CRESP-supported biomass studies have provided critical inputs and led to the issuance of Notice of Improved Feed-in Tariff for Biomass (2010) and Regulation on Subsidy for Biomass (2008)\. In addition, CRESP-funded technology strategies and roadmaps for key RE technologies have provided inputs to the 12th FYP RE programs\. In particular, the SHP policy studies and Zhejiang SHP investments put SHP back on the national agenda\. Furthermore, CRESP also supported RE planning and technology strategies in the four pilot provinces, and proposed a “green countyâ€? concept, which led to the issuance of the Notice on Recommendation of Green County (2009)\. (2) Technology improvements for wind and biomass: 16 Building a strong local RE manufacturing industry is a top priority and a key driver for RE development in China\. CRESP played an essential role in the rapid growth and quality improvement of the domestic wind, and to a less extent, biomass manufacturing industry, through cost-shared subgrants and establishment of standards, testing, and certification facilities\. In particular, the cost-shared subgrant approach to support domestic wind and solar manufacturers worked well and proved to be cost effective under both the first phase of CRESP and REDP projects\. Before CRESP started, Chinese wind manufacturers were struggling to produce megawatt-scale wind turbines and secure international quality certification\. CRESP supported five local wind manufacturers to overcome these problems\. At the end of the first phase of CRESP, four domestic wind manufacturers have won Level A certification for their megawatt- scale wind turbine design, and in particular, Sewind secured type certification for its 2 MW wind turbine design from internationally recognized wind turbine certification center\. CRESP also supported the development of 8 wind turbine standards based on best international practice\. All of them were adopted as national standards by SAC\. CRESP also supported the establishment of 2 wind turbine testing centers and 2 wind turbine certification centers accredited by ISO/IEC Guidelines\. As a result, wind turbine testing and certification services up to international standards are now available locally and widely used by local manufacturing industry for marketing and quality assurance\. Furthermore, CRESP also supported (a) short-term wind forecasting in Inner Mongolia, a critical technique and method to smooth grid integration of wind power; and (b) the development of the first university curriculum on wind power engineering in China and academic and post-academic training\. Finally, CRESP also supported 10 biomass equipment manufacturers through cost-shared sub- grants to improve biomass gasification technologies and address biomass fuel management issues\. (3) RE investment support: CRESP has contributed to large-scale RE investments by supporting 2 x 100 MW wind farms in Fujian and Inner Mongolia, a 25 MW biomass power plant in Jiangsu, and 16 SHP plants with a total installed capacity of 24 MW\. These investments are among the largest RE investments in their categories at the time\. The investments focused on quality, efficiency, and sustainability of the built infrastructure when many of RE projects were below par in China and exhibited low capacity factors and/or technical problems that hampered their connection to the grid\. Equipment improvements, adequate designs, and technical standards developed under CRESP and financed by GEF grants were disseminated and profited numerous similar projects in China\. • The Fujian Pingtan 100 MW wind farm was among the largest wind farm investment at the time, demonstrating successful design, implementation and completion of a large- scale wind farm\. The annual electricity generation exceeded the target, with the capacity factor as one of the highest in the country\. The project set high standards for large-scale wind farms in China and is considered best practice in the country\. The project introduced and facilitated transfer of international best available technologies, improved quality and reduced cost, and set up cost benchmarks through international competitive bidding; • The Rudong 25 MW biomass-fired power plant is one of the first of its kind in China\. The project proved to be a very useful pilot for addressing the kinds of issues that can be encountered in fuel supply, collection, and storage, as well as power plant operation\. The experience has benefitted other similar biomass plants\. See Annex 2 for details; 17  • The SHP projects in Zhejiang province enhanced technical and management capacity of local small and medium-size enterprises, increased their access to financing, and improved SHP technical design, environmental and social safeguard, and installed capacity at project sites\. The implementation of the project proved that there is a huge potential for SHP capacity expansion and efficiency improvements through rehabilitation to increase electricity production and reduce emissions at low cost\. Finally, CRESP also assisted RE developers in identifying and preparing more than 1,000 MW of new RE investments through cost-shared sub-grant support to the investors and pilot demonstration of new RE technologies in various parts of the country under the GEF grant\. 3\.3 Efficiency Economic and financial analysis of the CRESP Program: The rigorous and innovative economic and financial analysis done for CRESP provided a solid analytical basis to set up economically justified RE targets\. This analysis set the standard for economic and financial analysis of renewable energy development programs and projects in other countries\. The economic and financial analysis had two main objectives: (a) to assess what quantity of renewable energy development could be justified by the avoidance of the environmental externalities of coal-based generation; and (b) to estimate the economic and financial impacts of increasing renewable energy generation by a mandated market policy\. One of the main thrusts of the study related to quantifying environmental externalities of coal- fired power generation and preparing renewable energy generation cost curves to establish the quantity of renewable energy development that was justified\. The study established a methodology for this analysis that has since been used in the evaluation of renewable energy programs in countries, such as Croatia, Indonesia, Mexico, Serbia, and South Africa\. The analysis went beyond determining the effects of renewable energy development policies and targets on different elements of Chinese society—electricity consumers, actors in the energy sector, and the overall impact on the GDP\. It also looked at the regional development impacts of renewable energy policies and targets, since many of the wind and hydro resources are in the less developed western provinces, while the main consumption of electricity is in the eastern part of the country\. The economic and financial analysis quantified and compared the impacts of different mandated renewable energy policies and targets\. Finally, the risks associated with renewable energy were assessed\. This comprehensive analysis was carried out over an extended period during project preparation, from 2000–03\. There was constant interaction between the Chinese leadership, the Chinese expert team, and the Bank technical team on the implications of the analysis\. Economic and financial analysis of the investment projects: The economic internal rates of return (EIRRs) and financial internal rates of return (FIRRs) were recalculated based on the same methodology used at appraisal and using costs and benefits prevailing at the completion of the project\. The results of the calculation at ICR and appraisal are summarized in Table 1 and detailed in Annex 3\. The EIRRs and FIRRs of the Jiangsu biomass and the Inner Mongolia wind projects are lower than appraisal because of the unforeseen surge in commodity prices, which increased the 18 investment cost\. In addition, biomass fuel prices from agriculture residues also increased during project implementation of the Jiangsu biomass project, a common problem for biomass power plants in China\. The Fujian wind farm was less affected by the surge in commodity prices, since it was completed very early during project implementation\. It achieved higher EIRR and FIRR than appraisal because the actual capacity factor and wind feed-in tariff are higher than at appraisal\. The actual EIRRs and FIRRs for SHP rehabilitation and new construction are, except for one project, higher than at appraisal because rehabilitation projects and most projects constructed at early stage of implementation were not affected by the surge in commodity prices\. Overall, even the reduced EIRRs remain higher than NDRC’s 8 percent discount rate\. Some FIRRs are lower than the usually 8 percent expected by Chinese developers, but most of these projects were developed on a pilot basis\. Table 1: EIRRs and FIRRs at ICR and Appraisal Project EIRR (%) FIRR (%) Brief Explanation: ICR Appraisal ICR Appraisal Fujian Wind 16\.1 13\.6 10\.9 6\.5 - Higher annual generation Power - Higher power purchase tariff Jiangsu Biomass 11\.6 20\.8 5\.0 10\.6 - Operational problems 2008–10 Power - Higher fuel price Inner Mongolia 9\.3% 12\.5 5\.1 7\.0 - Overrun of investment cost Wind Power - Delayed project commissioning - Less power generation Zhejiang Small 10-195 10-33 6-102 7-16 - Increase of investment costs Hydropower - Rehabilitation not affected 3\.4 Justification of Overall Outcome and Global Environment Outcome Rating Rating: Achievement of PDO/GEO is rated Highly Satisfactory With substantial support for legal, policy, and institutional frameworks under the CRESP starting in 2005, RE has experienced an unprecedented growth during the 11th FYP\. China has become the world’s leader in renewable energy capacity—now at 8 percent of total primary energy and targeted to reach 15 percent by 2020\. In particular, China’s wind capacity has doubled every year since 2005, from 1 GW in 2005 jumping to 62 GW in 2011, the largest in the world\. The government’s commitment to 30 GW of wind by 2020 at the International RE Conference has already been achieved 10 years ahead of time, and an extremely ambitious target of 150 GW by 2020 is under consideration\. China also has the world’s largest SHP capacity, and substantially increased its installed biomass power capacity to 5 GW in 2010\. CRESP catalyzed these achievements primarily through its support and strong influence to the RE Law and policies, which is the deciding factor for the scale-up of RE in China\. Many of the policy studies supported by CRESP have led to issuance of RE Law, supporting regulations, and RE Law amendment\. In addition, the Chinese wind manufacturing industry has leapfrogged from a marginal status in megawatt-scale wind turbines manufacturing at the beginning of the project to a global leader\. Today, 4 out of the top 10 global wind manufacturers are Chinese\. The growing status and size of the Chinese wind turbine manufacturing has influenced the global market by increasing competition and lowering wind turbine prices\. The quality improvement and cost reduction of the Chinese wind manufacturing industry has benefitted China and the world\. To this end, CRESP 19 made significant contributions to the rapid growth and quality improvements of the Chinese wind manufacturing industry through cost-shared sub-grants for technology improvements, and establishment of standards, testing, and certification centers for quality assurance\. Furthermore, the piloting of large-scale RE investments improved quality, efficiency, and technical standards and reduced costs of RE investments, which were disseminated and replicated in similar projects in China\. CRESP also supported identification and preparation for more than 1,000 MW of new RE investments and pilot demonstration of innovative new RE technologies, which catalyzed large-scale RE investments in China\. In summary, the first phase of CRESP played an essential role in the scale-up of renewable energy in China\. At the project closing, China’s renewable energy scale-up has been accomplished in a short period, and the PDO and GEO have been achieved and surpassed\. All the PDO/GEO indicators have been well exceeded, except the SO2 emissions reduction because of the dramatic reduction of the emission factor of the power system\. Therefore, a “Highly Satisfactoryâ€? rating is justified\. 3\.5 Overarching Themes, Other Outcomes and Impacts (a) Poverty Impacts, Gender Aspects, and Social Development The establishment of an enabling environment for large-scale development of renewable energy contributed to the huge scaling-up of renewable energy in general and wind in particular, creating employment in the renewable energy industry\. According to the 2010 China Wind Power Outlook, the employment in the wind industry alone was 202,000 people in 2009 and this could reach more than 400,000 in 2020\. According to the Chinese Renewable Energy Industries Association (CREIA) the renewable energy industry as a whole employed 1\.12 million people in 2008 and is adding 100,000 jobs each year\. (b) Institutional Change/Strengthening The CRESP program has substantially strengthened the institutional capacity of the following key stakeholders: • Government agencies and think tanks: CRESP has improved their capacity in developing and implementing RE policies through introduction of international experience and provision of expertise and technical assistance\. • RE manufacturing industry: Under the cost-shared subgrant technology improvement component, CRESP improved the technology development capacity of the local manufacturing industry, which learned technology transfer mechanisms and international certification process for quality improvements under the project\. As a result, some of the participating manufacturers now follow the same approach and process to develop more advanced and larger-capacity wind turbines on their own\. • Wind turbine testing and certification centers: Under CRESP, two wind turbine testing and two certification centers were established and operational\. GEF grants supported, on a cost sharing basis, the centers, and the project required these centers to obtain China National Accreditation Service for Conformity Assessment (CNAS) accreditation according to ISO/IEC Guide 25\. In addition, CRESP also created a market for their services, since five wind turbine manufacturers supported by the project need testing and certification services to obtain type certification\. 20  • RE developers: The investment projects, support to investors, and pilot demonstrations all increased the capacity of RE developers through the introduction of international best practices to improve quality and efficiency\. • Future generations: CRESP has already made important impacts on long-term capacity of the major industry operators through support to university programs and post- academic training in wind power technologies\. (c) Other Unintended Outcomes and Impacts (positive or negative) No unintended outcomes and impacts\. 3\.6 Summary of Findings of Beneficiary Survey and/or Stakeholder Workshops A stakeholder workshop was held at project closing\. High-level government officials attended the project closing stakeholder workshop, and commended the significant contributions that CRESP made to China’s renewable energy scale-up\. In particular, they highlighted that CRESP has strongly influenced RE policy development, RE Law and regulations in China; and played an essential role in the rapid growth and quality improvement of the domestic wind manufacturing industry\. CRESP is the largest international cooperation partnership and GEF project in the renewable energy field\. There is a strong government commitment in RE and ownership for the CRESP concept\. The PMO conducted a survey among sub-grant recipients, and also organized a separate workshop with project beneficiaries after the project closing workshop\. Many of the respondents acknowledged that CRESP support has accelerated and improved wind development in China\. All the beneficiaries expressed their gratitude to the support received through CRESP\. They benefitted not only from the GEF funding, but also from learning international best practice and gaining credibility and reputation because of their involvement with the World Bank/GEF\. All the beneficiaries confirmed that the cost-shared sub-grant approach is quite effective\. The sub-grant recipients appreciated the support for prefeasibility and feasibility studies, because it reduces the financial risk of project preparation\. The small amount of cost-shared grant to support prefeasibility and feasibility studies had a high leverage impact of actual investments materialized\. 4\. Assessment of Risk to Development Outcome and Global Environment Outcome Rating: Low The risks to sustaining the development outcomes are minimal, and longer-term sustainability of the achievements of the first phase of CRESP are highly likely\. CRESP supported the development of an enabling environment for scaling up renewable energy development\. The developed conducive RE policy framework and the government’s strong commitment to the ambitious RE targets will ensure that renewable electricity development will continue on an increasing scale\. The legal and regulatory framework is in place and will continue to be developed, and the second phase of CRESP will continue to assist the government in adapting RE policies to the new barriers and challenges to achieve government’s RE targets in a more efficient and market-oriented way\. The RE industry will continue to grow\. The wind turbine testing and certification centers are expected to flourish, since their services would be more and more sought by wind manufacturers\. Quality improvement and certification are essential to gain market share domestically and 21 internationally\. With the growing market, the training institutions will also see an increasing demand\. Based on the above, it is concluded that the risk to sustaining the development outcome is negligible to low\. 5\. Assessment of Bank and Borrower Performance 5\.1 Bank Performance (a) Bank Performance in Ensuring Quality at Entry Rating: Highly Satisfactory The concept and its relevance to China’s situation in the early 2000s have been confirmed by Bank management and Chinese authorities after numerous reviews and assessments during the preparation phase\. Engagement of the Chinese institutes about the CRESP concept could not have been delayed, otherwise China would have missed an opportunity to build the long-term partnership with GEF and the Bank for scaling up renewable energy\. Faced with major challenges, the Bank was resilient and took advantage of the preparation period to build institutional knowledge, to support the prerequisite RE Law and policies for the success and sustainability of the scale up, and to pave the way to more market-oriented means to achieving economy and efficiency\. All the policies explored and evaluated during the preparation period are now under consideration by the Chinese government and will be supported during the second phase\. The studies and analytical and knowledge transfer activities carried out during the preparation period led to building consensus and ownership of the concept by Chinese government agencies, resulting in the enactment of the RE Law before effectiveness, and to defining diversified lending investments that proved essential to RE scale-up\. The continued engagement of government agencies during preparation and Bank management support at the highest level ensured the quality at entry of the program and investments related to the first phase\. The development of the RE Law is the cornerstone of RE policy and scale-up in China\. During project preparation, the Bank team mobilized GEF PDF B, PDF C, and substantial amount of ASTAE funds to help the Chinese government prepare the RE Law\. These large-scale TA activities stood on their own, and are beyond the support normally provided by the Bank during project preparation\. The impact of these technical assistance activities proved to be a transformative catalyst for RE scale-up in China and changed the mindset of Chinese institutions\. Because of this specific factor and others noted above, Bank performance in ensuring quality at entry is rated as highly satisfactory\. (b) Quality of Supervision Rating: Satisfactory The implementation of CRESP required intensive supervision, especially at the early stages of implementation as the PMO struggled with both the substance and process issues\. It was critical to providing assistance to the PMO to continue the consultation process and engagement of all stakeholders and to avoid interference in implementation issues that were the responsibility of the grantees and investment implementing agencies\. In between the formal biannual supervision missions, the Bank organized technical assistance missions by Bank staff and consultants to 22 provide implementation guidance, advise the PMO, and provide training where and when required\. Gradually, the PMO came to a more balanced sharing of responsibilities as they focused more on analytical, technical assistance and knowledge transfer at the national level\. The commitment and pooling of GEF/Bank/ASTAE resources were instrumental in keeping the project on track\. The first phase implementation suffered from frequent changes in project leadership from both sides—change in PMO leadership and transfer of the project from the NDRC to the NEA on the client side, and six task managers in five years on the Bank side due to staff retirement and move to other regions\. The impact of this large turnover slowed the implementation somewhat, but did not seriously disrupt the Bank/client dialogue because the project progress and issues that were faced have been candidly and faithfully documented\. The Aide Memoires and mission reports allowed new task managers to take stock of the progress achieved and issues that required their attention\. In addition, the team has ensured continuity by retaining the first TTL as a consultant and a core project team\. Finally, the Bank showed a great deal of flexibility and willingness to make the necessary adjustments as experience was gained to adapt the implementation of the project to the evolving conditions of the country\. Three examples are worth mentioning: (a) the reallocation of the resources assessment to other priority tasks when the government allocated substantial funds to the activities originally included in the project; (b) the increased focus on biomass technologies and fuel supply issues after the problems encountered by the biomass investment project and other pilot biomass projects in the country; and (c) the extension of subgrant schemes as they proved to be more results-oriented than studies and analytical work at the provincial level\. All changes have been thoroughly discussed with Chinese counterparts, documented, and implemented after amending the legal documents\. The supervision of the project was reviewed by QAG and rated as Satisfactory\. It is also rated as satisfactory at the ICR stage\. (c) Justification of Rating for Overall Bank Performance Rating: Satisfactory The Bank team focused on development effectiveness and sustainability of RE scale-up, and demonstrated flexibility to meet client’s demand during project preparation and implementation\. The Bank team also provided intensive assistance to the PMO and made best efforts to provide timely solutions to major issues encountered\. Overall, the Bank performance is rated as satisfactory\. 5\.2 Borrower Performance (a) Government Performance Rating: Highly Satisfactory The achievements catalyzed by CRESP could not have been achieved without an unwavering commitment of the government to RE scale-up once the consensus was achieved around the outcomes of the program\. This is clearly indicated by the enactment, enforcement, and implementation of the RE Law with unprecedented speed and transparency\. This commitment propelled the country to the forefront of global RE development\. 23 In addition, the Government of China places a high priority on the CRESP program\. At the outset of the program, the Letter of Sector Development Policy was provided to the Bank by the Vice Minister of NDRC in charge of infrastructure\. It demonstrated the government’s strong commitment to RE and its support for the long-term partnership of the CRESP program\. During project implementation, senior government officials often requested CRESP support for analytical and advisory studies as inputs to key RE policies and regulations\. The Vice Minister of the NEA and many senior government officials attended the project closing workshop and acknowledged the significant contributions that CRESP made to China’s RE scale-up, which demonstrated strong ownership of the program from the government\. It is the government’s unwavering commitment to RE and the early passage of the RE Law that led to the unprecedented achievement of RE scale-up in China\. Therefore, the government performance is rated overall as Highly Satisfactory\. (b) Implementing Agency or Agencies Performance Rating: Satisfactory The CRESP PMO struggled in the first two years to digest the concept and define its role in implementing the GEF policy component and the investments linked to the first phase of the program\. They also struggled with Bank procurement procedures and focused more on details than the broader objectives of the program\. In particular, the PMO implemented a large number of small contracts\. This led to a noticeable lag in disbursement of the grant\. However, after reducing the number of staff and streamlining their procedures, they managed not only to effectively coordinate the sometimes challenging policy tasks, but they also took actions to complete all tasks in a satisfactory manner and achieve the effective disbursement after the extension of the closing date by one year\. Two achievements are worth noting: first, the efforts provided by some of the PMO staff during a supervision mission that allowed developing and securing Bank approval of the Wind Turbine Technology Transfer (WTTT) in two weeks; second, the PMO carried out all activities related to financial reporting and fiduciary supervision in a highly satisfactory manner\. The PMO’s performance is therefore rated as satisfactory\. As for the investors, the overall performance is rated as satisfactory: (a) the performance of the Longyuan Pingtan Wind Power Co\., Ltd\. is rated Highly Satisfactory because of their innovative efforts in procuring, designing, and implementing the project in a short time without compromising the quality and performance of the infrastructure; (b) the Jiangsu Guoxin New Energy Development Company Ltd\. is rated Satisfactory as the company managed to take the needed action to correct teething problems; (c) the Zhejiang Provincial Hydropower Development and Management Center’s performance is rated as Highly Satisfactory, as the Center played a major role in guiding small public and private investors to design and implement the investment projects with strict adherence to Bank procurement and safeguards rules; and (d) the Inner Mongolia North Long Yuan Power Company Ltd\.’s performance is rated Moderately Satisfactory because of lengthy time it took to finalize the ownership and licensing of the project company, the weak commitment to environmental and social issues, which led to a serious delay in project implementation\. 24 Overall, the performance of implementing agencies is rated as satisfactory\. (c) Justification of Rating for Overall Borrower Performance Rating: Satisfactory Despite the difficulties encountered during the implementation of the innovative project concept and the long delays at the beginning of project implementation, the government showed strong commitment to RE and took full ownership of this program\. All government agencies and grant/loan beneficiaries deployed the needed efforts to deliver the project outputs and achieve its goals, and most of the time, surpass its outcomes and indicators\. The Borrower’s performance is therefore rated satisfactory\. 6\. Lessons Learned The factors contributed to the success of CRESP are the following: • Long-term engagement with the government through the partnership program has paid off: The CRESP program is the only window in the Bank’s China energy portfolio that engages long-term RE policy dialogues and partnership with the NEA\. The long- term engagement has built trust between the Bank team and the government, which often turns to the Bank team and the CRESP program for support and inputs to key policy decisions\. This created a high demand from the government and a wide range of stakeholders for technical assistance and capacity building provided by the GEF grant\. • A programmatic approach, which blends policy dialogue, technical assistance, and investments through IBRD/GEF funding, is the best conduit for scaling up RE in client countries\. Combining policy support and technical assistance through a GEF grant with large-scale long-term financing for RE investments through IBRD loans in one package is the most effective and powerful tool to enable transformational changes to scale up renewable energy\. Such a programmatic approach not only provides just-in-time assistance to the government on policy decision making for RE scale-up, but also helps troubleshoot and resolve implementation issues for the RE investments for replication and scale-up\. This is particularly true at the beginning stage of RE development in a client country, but such a programmatic approach is not always possible, and sometimes can be substituted by projects blended with grants (bilateral) or concessional loans (e\.g\. Clean Technology Fund)\. • Flexible approach to adapt to government’s priorities and changing environment is required: This is because RE policies require frequent adjustments as RE technologies evolve and make progress towards competitiveness\. The flexible design of CRESP contributed to its successful implementation\. CRESP provided timely assistance to the Chinese government and adapted the GEF-funded activities to the decision-making process\. Since the policy environment changed quite fast in China, flexibility and adaptation were essential to meet the government’s requests and achieve the project’s objective\. This approach can be very useful in most countries engaging in RE scale-up with Bank assistance\. • Cost-shared sub-grant approach is well suited to support knowledge transfer and technology improvements for domestic manufacturers: The cost-shared sub-grant approach for technology improvement was tested and proven under REDP\. CRESP again 25  validated the success of the cost-sharing approach\. Cost-sharing activities led in all cases to a higher leverage of the grant, and increased ownership and commitment by implementing counterparts\. For example, the cost-shared sub-grants for the Technology Improvement component leveraged three times the GEF grant from sub-grant recipients\. Such a cost-sharing approach also works well for prefeasibility and feasibility studies for potential RE developers\. This approach can be replicated in other countries as it leads to full ownership of the funded activities by the grantees and greater commitment to achieving their outcomes\. • Improving manufacturing quality is essential for the transition to a world-class manufacturing industry: The key to the success of the wind technology improvement component was to simultaneously address wind turbine standards, testing, and certification, and to support wind manufacturers in developing megawatt-scale wind turbines\. Chinese manufacturers have long been recognized as low-cost producers, although the poor quality and a lack of certification up to international standards had undermined their reputation in the global market\. Thanks to CRESP support, four domestic wind turbine manufacturers received Design Level A Certification by certification institutes up to international standards\. The benefits of a strong and competitive local market, driving continuous product development and innovation have not only benefitted Chinese consumers, but will also extend benefits globally\. The important lessons learned are the following: • The piecemeal approach and fragmentation of policy study contracts resulted in lengthy delays and weakened policy impacts: During project implementation, the PMO issued a large number of small contracts\. Fragmentation of policy studies is detrimental to quality and leads to higher transaction costs and lower impacts on government policy making, especially when not linked to the planning process of the government\. This is an important lesson learned for the second phase of CRESP, as alternative approaches to deliver policy technical assistance are being explored to limit the number of contracts and focus on major issues\. • A core project management team, with contributions from world-class international and Chinese experts is most cost effective: Relying on recruitment of a large number short-term staff is not conducive to high-quality management because of the reluctance of high-caliber experts to be involved in full-time and somewhat administrative activities\. There is evidence from the first phase that hiring a core team to carry out management and due diligence tasks with contributions of international and Chinese world class experts is more cost effective and conducive to higher-quality management\. • Programmatic approach needs intensive supervision from the Bank team: CRESP required intensive supervision to provide guidance and advice to the PMO in implementing the large number of activities under CRESP\. The supervision also included capacity building for the PMO\. The supervision requirement exceeded the supervision budget\. The required supervision could only be provided by combining supervision missions of different projects and through the financial support from ASTAE\. 26 7\. Comments on Issues Raised by Borrower/Implementing Agencies/Partners (a) Borrower/implementing agencies The Borrower/implementing agencies agreed with most the content of the ICR\. They made a few minor corrections\. For example, one additional wind turbine standard supported by the project is now adopted by SAC\. They pointed out that wind power capacity in China jumped to number 1 in the world last year\. They also suggested that the threshold of prior review for consultancy services was too low\. (b) Cofinanciers No comments\. (c) Other partners and stakeholders No comments\. 27 Annex 1\. Project Costs and Financing (a) Project Cost by Component (in US$ Million equivalent) Renewable Energy Scale-up Program (CRESP)—P067828 Actual/Latest Appraisal Estimate Percentage of Components Estimate (US$ millions) Appraisal (US$ millions) Institutional Strengthening and 88\.82 100\.22 113 Capacity Building Support for Wind and biomass 130\.53 177\.87 136 in Pilot Provinces Total Baseline Cost 219\.35 Physical Contingencies 5\.03 Price Contingencies 0\.00 Total Project Costs 224\.38 IDC 3\.71 Front-end fee IBRD 0\.74 Total Financing Required 228\.82 278\.09 122 Follow-up to the China—Renewable Energy Scale-up Program (CRESP)—P096158 Actual/Latest Appraisal Estimate Percentage of Components Estimate (US$ millions) Appraisal (US$ millions) Huitingxile wind farm 94\.73 126\.68 134 Zhejiang SHP plant 27\.80 33\.82 122 Total Baseline Cost 122\.53 Physical Contingencies 4\.72 Price Contingencies 2\.25 Total Project Costs 129\.49 IDC 2\.70 Front-end fee IBRD 0\.22 Total Financing Required 132\.41 162\.50 123 (b) Financing P067828—Renewable Energy Scale-up Program (CRESP) Appraisal Actual/Latest Percentage Type of Source of Funds Estimate Estimate of Financing (US$ millions) (US$ millions) Appraisal Borrower 32\.36 34\.89 108 International Bank for Reconstruction 87\.00 77\.00 88\.5 and Development Local Financial Intermediaries 20\.64 65\.98 320 28 P067625—China—Renewable Energy Scale-up Program (CRESP) Appraisal Actual/Latest Percentage Type of Source of Funds Estimate Estimate of Financing (US$ millions) (US$ millions) Appraisal GEF 40\.22 40\.22 100 Local Sources of Borrowing Country 48\.60 57\.89 119 P096158—Follow-up Project to the China Renewable Energy Scale-up Program (CRESP) Appraisal Actual/Latest Percentage Type of Source of Funds Estimate Estimate of Financing (US$ millions) (US$ millions) Appraisal Borrower 30\.08 34\.45 115 International Bank for Reconstruction 86\.33 84\.68 98 and Development 16\.01 43\.37 271 Local Financial Intermediaries 29 Annex 2\. Outputs by Component CRESP Phase 1 was a complex project with a large number of, in many cases, related activities\. CRESP Phase 1 comprised two components: (a) institutional development and capacity building component; and (b) investment component\. The successful investment component included investments in a 100 MW wind farm in Fujian, a 100 MW wind farm in Inner Mongolia, a 25 MW straw-fueled biomass power plant in Jiangsu and 28 MW incremental SHP capacity from new and rehabilitated SHP plants in Zhejiang\. While supporting large-scale RE investments is very important, the core of CRESP Phase 1 lies in its institutional development and capacity building component that made the biggest difference in RE scale-up in China\. The institutional development and capacity building component comprised four subcomponents: (a) national level institutional development and capacity building; (b) provincial institutional development and capacity building; (c) capacity building investors and scale-up support; and (d) project management\. The subcomponents were further subdivided in elements and sub-elements (see Table A2\.1)\. Table A2\.a presents the situation at closure of CRESP Phase 1\. Table A2\.1\. Structure Institutional Development and Capacity Building Component Subcomponent GEF Element Budget Sub-element (million US$) (i) National Level Institutional Development and Capacity Building National Level Policy 2\.99 Technology Improvement Wind Wind Turbine Technology Transfer (WTTT) 9\.40 Establishment of Wind Turbine Testing Services 2\.43 Development of Standards for the Wind Industry 0\.26 Establishment of Wind Turbine Certification Services 0\.53 Wind Power Electrical Engineering 1\.31 Long Term Capacity Building Wind 1\.95 Technology Improvement Biomass 1\.61 (ii) Provincial Level Institutional Development and Capacity Building Support Implementation Renewable Energy Law 2\.58 Pilot Demonstration Projects 6\.38 (iii) Capacity Building Investors and Scale-up Support Support Investment Projects 1\.76 Investors Scale-up Support Facility (ISSF) 3\.32 (iv) Project Management 5\.70 Total GEF 40\.22 The outputs, outcomes, and achievements of the CRESP program can be summarized in the following three key pillars: (a) Renewable energy (RE) policy studies; (b) technology improvement for wind and biomass; and (c) RE investment support, including investment projects, pilot demonstration, and pipeline building\. (1) Renewable Energy (RE) Policy Studies 30 An effective RE policy framework is a prerequisite for RE scale-up\. The national level policy activities comprised 25 tasks\. Table A2\.5 (at the end of this annex) lists these tasks, as well as outputs and outcomes of each task\. First, the national level policy activities contributed to the creation of a legal and regulatory environment conducive to large-scale development of renewable electricity generation\. The outputs of the RE policy studies were used to develop regulations under the RE Law and as inputs to the amendment of the RE Law\. CRESP-supported policy studies have led to the issuance of nine supporting RE policies (see Table A2\.2)\. In particular, CRESP-supported studies on RE targets, RE quota, financial incentives, and cost sharing mechanism of incremental cost have provided essential inputs to the preparation for the Energy Law and the amendment of the RE Law, which was adopted at the 12th session of the Standing Committee of the 11th NPC on December 26, 2009 and became effective on April 1, 2010\. The feed-in tariff regulations are the cornerstone for RE policies in China\. After the RE Law became effective in 2006, more rounds of wind concession bidding were carried out by the NDRC/NEA\. They were quite effective in reducing costs and establishing cost benchmarks as a pricing finding mechanism to establish feed-in tariffs later on\. However, they produced mixed results—some bidders were induced to bid too low, and the signed contracts were not materialized in some cases\. Based on the results from the wind concession schemes, CRESP supported a wind pricing study laid a solid analytical foundation for and led to the issuance of Notice of Improved Feed-in Tariff for Wind\. The development of solar PV followed a similar path—evolving from concessions to feed-in tariffs, and a CRESP-supported solar PV study also made important contributions to the issuance of Feed-in Tariff for Solar PV, Notice on Implementation for Golden Sun Project, and Interim Management Regulations on Financial Subsidy for Solar PV on Buildings\. The feed-in tariffs for biomass went through several rounds of revision during implementation\. First of all, the prices of biomass fuels (straw from agriculture residues) turned out to be much higher than originally anticipated for many biomass-fired power plants\. As a result, the feed-in tariffs for biomass have been adjusted upward to factor in the fluctuation of biomass fuel prices\. Second, the original biomass feed-in tariffs were designed as a fixed premium on top of baseline prices (based on coal-fired power plants) in each province, which resulted in a large discrepancy of biomass tariffs in different parts of the country\. Again, CRESP-supported biomass studies have provided critical inputs and led to the issuance of Notice of Improved Feed-in Tariff for Biomass and Regulation on Subsidy for Biomass\. Second, CRESP-funded technology strategies and roadmaps for key RE technologies have provided inputs to the 12th FYP RE programs\. In particular, the SHP policy studies and Zhejiang SHP investments put SHP back on the national agenda\. SHP is the least-cost RE technology\. Hence, developing SHP more quickly would allow for meeting the RE target without increasing the incremental cost of the program\. However, currently there are no national-level financial incentive policies for SHP, and China still has a large untapped potential of SHP and rehabilitation\. In addition, CRESP-supported biomass and biogas studies have led to issuance of government’s regulations of the Notice on Management Regulation of Agricultural and Forestry Biomass Combustion Power generation and Notice for Collection and Management of Livestock and Landfill Biogas for Power generation\. Finally, the CRESP-supported green county study, which focused on developing criteria for the “green countyâ€? denomination and related management regulations, has led to the issuance of the Notice on Recommendation of Green County\. 31 Third, at the provincial level, RE policy activities were carried out in each of the four pilot provinces\. Ten policy related tasks were carried out in Jiangsu, 10 in Zhejiang, 5 in Fujian, and 8 in Inner Mongolia\. The pilot provinces used the GEF resources in particular to support their renewable energy planning through preparation of wind, PV, and biomass development plans and to support the preparation of the 12th FYP for renewable energy\. Table A2\.2\. Outputs and Outcomes of RE Policy Studies under CRESP Output Outcome • Review and update national RE objective • Partly adopted by NDRC as background and target document report for amendment the RE • Recommendations for management Law; regulation for quota system of RE power • Partly adopted as a background report for generation the State Council Decision on Accelerating • Recommendations for economic/financial the Strategic New Industries Cultivation and incentive policies for RE Development, the State Council Document, No\. 32 (2010); • Provided inputs to issuance of Notice on Measures for Renewable Electricity Surcharge Subsidies and Quota Trade System from October 2007 to June 2008– Ordinance Code NDRC Price No\. 3052 (2008)\. • Recommendations for management MOF issued Notice on Implementation Plan of regulation on sharing RE power generation Promoting Renewable Energy in Infrastructure, costs MOF Economic Construction No\. 306 (2009)\. • Recommendations for management The notice is being implemented\. regulation for RE development fund Recommendations for wind pricing mechanism NDRC issued Notice on Improved Price Policy for Grid-Connected Wind Power, NDRC Price No\. 1906 (2009)\. The notice is being implemented\. • Recommendations for management • MOF issued Interim Management regulation on biomass energy deployment Regulation on Subsidy for Energized and sector development Biomass, MOF Economic Construction No\. • Biomass power generation cost study 735 (2008); • Technical guideline for biomass power • NDRC issued Agricultural and Forestry plants Biomass Generation, NDRC Price No\. 1579 (2010)\. • NEA issued Notice on Management Regulation of Agricultural and Forestry Biomass Combustion Power generation, NEA No\. 273 (2009) • Recommendations for management • MOF issued Interim Management regulations for solar PV distribution Regulations on Financial Subsidy for Solar • Post evaluation of grid-connected solar PV PV on Buildings\. MOF Build No\. 129 • Recommendation of solar PV for the 12th (2009); FYP • MOF, MOST, and NEA issued Notice on Implementation for Golden Sun Project— Ordinance Code MOF Build No\. 397 (2009) 32 • Recommendations for management NEA issued NEA Notice on Recommendation regulation of Green Energy County (GEC) of Green County, NEA New Energy No\. 343 • Suggestions for assessment standards and (2009) implementation policy of the GEC program (2) Technology Improvement (TI) TI for Wind: Technology Improvement of wind turbines focused on quality improvements, cost reduction, and efficiency enhancement through supporting local wind turbine manufacturers to produce megawatt-scale wind turbines and assisting in establishment of wind turbine standards, testing, and certification systems\. The TI wind component, therefore, included (a) WTTT support and (b) Quality Control (standards, testing and certification)\. In addition, the Technology Improvement component supported the development of short-term wind power output forecasting capabilities and development of a pool well-trained wind energy practitioners (long-term capacity building)\. Wind Turbine Technology Transfer Under WTTT, CRESP supported 5 Chinese wind turbine manufacturers (Windey, Sewind, Dongfang, Goldwind, and Sinovel) to develop Chinese brand name megawatt-size wind turbines type-certified to international standards\. The wind turbines developed by these manufacturers under CRESP all obtained design certification GL Level A or equivalent, and Sewind even obtained type certification by TUV Nord (November 2011)\. For the others, type certification is still ongoing and expected to be obtained in 2012\. Support was provided by cost-sharing projects designed by the manufacturers\. The five manufacturers were competitively selected to participate\. Requiring certification at international level was very demanding and proved to be much more difficult than anticipated\. The benefits, however, outweighed the costs and challenges\. It set a clear target, reaching type-certification up to international standards, which was applied to all participants\. Certification bodies would assess whether or not the target was met\. The intended outcome was not only the success of the wind turbines development in the market, but also the establishment of design capabilities that could be used for developing other wind turbines that meet international quality standards\. Windey developed a 1\.5 MW wind turbine, Sewind a 2 MW wind turbine, Dongfang and Goldwind 2\.5 MW wind turbines and Sinovel a 3 MW wind turbine\. Total sales of the wind turbines developed with CRESP support were 3,516 (Sewind 1,098, Goldwind 627, Windey 893, and Sinovel 898, while Dongfang produced only 2 prototypes)\. This achievement is above expectations\. During implementation of the WTTT subelement, the scope was increased to also support one manufacturer of wind turbine main shaft bearings and one manufacturer of equipment for the installation of wind turbines in the intertidal area\. The manufacturers were uniquely qualified or the only interested party\. With the support from CRESP, Wafangdian Bearing Group Co\., Ltd\. developed a main shaft bearing for the Sinovel 3 MW wind turbine and obtained the ability to develop main shaft bearings for the large wind turbines of other manufacturers\. At the end of CRESP, the manufacturer supplied 40 main shaft bearings to Sinovel and had contracts for an additional 500\. The manufacturer procured the required equipment, software, and training\. Provided that the required quality levels can be maintained, localization of the manufacturing of main shaft bearings will have long-term cost-effective impacts and reduce the dependence on 33 imported main shaft bearing\. Bearings for large wind turbines are at times hard to obtain because of high international demand and restricted supply\. With the support from CRESP, Sinovel developed installation equipment for intertidal wind turbines\. An intertidal installation process was developed, including two 40 ton and two 150 ton cranes\. The four units were used to conduct a trial placement of an offshore installation platform also developed within the project\. This technology has been installed and operated at the first Chinese intertidal wind farm in Shanghai, and will likely be used for future intertidal projects by Sinovel and possibly other developers\. Quality Control Standards: Standards development under CRESP Phase 1 aimed to develop Chinese standards in line with existing IEC standards for wind, and facilitate China to become an active partner in developing future IEC standards for wind\. The latter would automatically mean that future international standards would easily be adopted as Chinese standards\. To develop Chinese standards in line with existing IEC standards, CRESP Phase 1 established a Standards Committee consisting of renowned Chinese wind standards experts and one international wind standards expert\. The Standards Committee formulated eight wind standards (Table A2\.3), all of which have formally adopted as Chinese (GB) standards\. CRESP also facilitated China to become a member of the IEC/TC88 Working Group, which is responsible for formulating IEC wind-related standards\. The IEC/TC88 Working Group is now working on preparing an IEC standard for wind turbine blades based on the Chinese standard for wind turbine blades (GB/T25384-2010 Turbine blades of wind turbine generator system)\. The participation of China in the TC88 is considered important for China and is continued with financial support from the MOST and wind turbine manufacturers in China\. The envisaged outcome of an infrastructure for development of wind standards has been achieved\. Table A2\.3\. Standards Developed with CRESP Support S\.N\. Standard No\. Standard Name Effective Date 1 GB/T 25383-2010 Wind Turbine—Rotor Blades Mar\. 01, 2011 2 GB/T 25384-2010 Wind Turbine—Full-Scale Structure Test of Mar\. 01, 2011 Rotor Blade 3 GB/T 25385-2010 Wind Turbine—Operation and Maintenance Mar\. 01, 2011 Requirements 4 GB/T25389\.1-2010 Wind Turbine—Low-speed Permanent Magnet Mar\. 01, 2011 Synchronous Generator—Part 1: Technical Conditions 5 GB/T25389\.2-2010 Wind Turbine—Low-speed Permanent Magnet Mar\. 01, 2011 Synchronous Generator—Part 2: Test Method 6 GB/Z 25426-2010 Wind Turbine—Measurement of Mechanical Jan\. 01, 2011 Load 7 GB/Z 25458-2010 Wind Turbine—System for Conformity Jan\. 01, 2011 Testing and Certification—Rules and Procedures 8 GB/T 18451\.1-2012 Wind Turbine—Design Requirements Oct\. 1, 2012 34 Under another element, China Electric Power Research Institute (CEPRI) and WINDTEST developed and tested an industrial professional standard (NB standard) for measurement of wind farm power quality\. Testing: As China’s wind industry boomed, the government asked CRESP to support two wind turbine testing centers and two certification bodies instead of one of each\. Furthermore, the support focused more cost-shared sub-grants instead of consultant services contracts and procurement of goods, given the success of the former approach\. The latter change was made to increase flexibility and make cost sharing by the recipients easier\. CRESP supported two testing institutions in China to acquire the technical skills, procedures, and equipment to perform tests required for type certification of wind turbines\. These skills are not only required for type testing, but also useful for wind turbine manufacturers in developing and testing of their wind turbines\. CRESP Phase 1 supported the Wind Test Centre (WTC) and Wind Power Integration Research and Evaluation Centre under the CEPRI to obtain CNAS accreditation for measuring (a) power performance; (b) power quality; (c) mechanical load; and (d) acoustic noise\. WTC obtained CNAS accreditation for these tests on June 20, 2011, and CEPRI on July 19, 2011\. As of August 31, 2011, WTC had contracts for conducting 40 tests (of which 15 were completed), and CEPRI completed 47 tests and has contracts for type certification tests for 8 wind turbine manufacturers\. This indicates that the envisaged outcome of accredited wind testing centers operational on a sustainable basis has been achieved\. CRESP also supported the development of an innovative wind test center in Inner Mongolia\. The test center offers wind turbine manufacturers to test their turbines at the wind rich test site in Inner Mongolia\. The cost of testing is recovered from sales of electricity generated by the prototypes\. The wind test center in Inner Mongolia has a cooperation agreement with CEPRI, which has been accredited to carry out the required tests\. Certification: Certification (or conformity assessment) of wind turbines is a procedure by which a third party gives written assurance that a wind turbine or a wind turbine component conforms to specified requirements (IEC standard or otherwise)\. Certification is important to provide transparency for control of quality\. CRESP supported two certification bodies in China to obtain internationally recognized formal accreditation for design and type certification of wind turbines and wind turbine components\. The certification bodies are the China General Certification Center (CGC) and the China Classification Society (CCS)\. Both are accredited by the CNAS according to ISO/IEC Guide 65:1996 and the Chinese equivalent\. Certification of wind turbines by both CGC and CCS are based on the IEC standard IEC 61400-22 Conformity Testing and Certification, which is the successor of IEC WT 01\. CGC and CCS cannot certify wind turbines based on the GL standard (Germanischer Lloyd standard)\. As of August 2011, CGC had 96 contracts for design certification, 12 contracts for type certification, 89 contracts for component certification, and 8 contracts for project certification\. CCS has 6 contracts for design certification, 6 contracts for type certification, and 95 contracts for component certification\. Short-Term Power Output Forecasting To strengthen local short-term power output forecasting capabilities, a sophisticated approach was adopted, comparing forecasts made by Garrad Hassan and by CEPRI\. SgurrEnergy, an independent third party, compared the forecasts of 8 wind farms with actual performance\. The outcome was that the accuracy of the forecasting of power output was moderate for both institutions\. CRESP cost shared the development of the model by CEPRI by providing a 35 subgrant\. CEPRI continues to use the model developed to provide short-term power output forecasting services on a commercial basis\. Long-Term Capacity Building Wind In Germany with an installed wind capacity of 27 GW, 90,000 technical experts are employed\. For the planned 200 GW in China, an estimated 400,000 technical experts will be required\. The objective of the long-term capacity building wind subelement was to create a pool of well-trained wind energy professionals needed by a fast-growing wind industry in China\. CRESP supported two training centers to develop post-academic training courses for wind practitioners and one university to develop a Master of Science (M\.Sc\.) program for wind power engineering\. The M\.Sc\. program developed by the North China Electric Power University is fully operational\. The first students with a M\.Sc\. Wind Power Engineering will be delivered in 2012\. Northwestern Polytechnical University (NPU) and Suzhou Long Yuan BaiLu developed post-academic training courses and modules for wind practitioners\. CRESP supported the development of training materials and equipment, and the training of trainers\. Under CRESP, NPU provided training to 731 people in 11 training courses\. In addition, 357 people were trained in 5 seminars in China (290 people) and 4 seminars in Germany (67 people)\. Suzhou Long Yuan BaiLu trained 165 technical wind experts\. The M\.Sc\. and post-academic training courses will continue to be conducted after closure of CRESP Phase 1\. TI for Biomass: The Competitive Grant Facility (CGF) Biomass was intended to get new and improved biomass energy equipment into the market\. This would be achieved by encouraging manufacturers to invest in development of new, or improvement of existing, biomass energy equipment\. In order to be successful in the market, the equipment must be of superior quality and/or lower cost\. To encourage manufacturers to invest in technology improvement, CRESP Phase 1 offered to cost share projects that aimed to do this\. Projects were selected on a competitive basis\. During CRESP Phase 1, two rounds of tender were organized, and a total of 10 projects were selected for support from CRESP\. Among those 10 projects, 5 developed biomass briquetting equipment, 4 developed gasifier equipment (the gasifier itself, cracking of producer gas tar and water treatment system for gasifier effluent), and 1 developed equipment for collection of crop residues\. All but one project were rated satisfactory or highly satisfactory\. The intended output was the new or improved equipment\. Nine out of the 10 projects achieved the intended output\. The intended outcome was new or improved equipment will be successfully adopted in the market\. At least two projects are considered highly successful, while two were considered successful in terms of outcomes\. For the other projects, it was too early to judge the outcome\. See Table A2\.4 for detailed outputs and outcomes under technology improvements\. Table A2\.4\. Outputs and Outcomes Localization Activities under CRESP Outputs Outcomes Wind turbines design and type certified Improved manufacturing quality for the according to international standards\. transition to a world class manufacturing industry\. Reduced cost of wind power from local manufacturing rather than import\. Continued quality assurance by the wind turbine testing and certification centers\. Chinese wind turbine standards based on and in Improved manufacturing quality up to compliance with international standards\. international standards for the transition to a world class manufacturing industry\. 36 Wind turbine testing centers and certification Wind turbine testing and certification services bodies accredited according to ISO/IEC Guide available on a commercial basis and used\. 65 requirements\. Wind turbine manufacturers increasingly use the testing and certification services as these are available locally and required for certification and quality improvement\. Short-term wind forecasting capabilities Short-term forecasting services available on a internationally benchmarked\. commercial basis to help smooth grid integration bottlenecks\. Academic and post-academic wind training Trained university students and wind courses\. practitioners\. Wind education established as a discipline\. High-quality and acknowledgeable personnel available for fast-growing industry\. (3) RE investment support Scale-up through pilot demonstration Demonstration of renewable electricity technologies contributes to scaling up renewable electricity investments\. Under the Competitive Grant Facility—Pilot Demonstration Project (CGF-PDP), CRESP supported the identification and preparation of renewable energy demonstration projects in the pilot provinces\. To select the projects receiving CRESP support, a tender system was used\. First, project ideas were submitted to the respective provincial DRCs that selected the most promising project ideas\. The proponents of the selected project ideas were requested to prepare full-fledged project proposals\. A proposal evaluation committee selected 8 projects to receive funding under this facility\. Projects included biomass gasification, biogas, biomass-fueled CHP, PV, ecological buildings and heat pumps\. One project (heat pump in Inner Mongolia) had to be cancelled, since required approvals could not be obtained\. Although CRESP supported only identification and preparation, all 7 projects supported were realized\. The outputs and outcomes are summarized in Table A2\.6 (at the end of this annex)\. The total renewable electricity capacity of these 7 projects is 7\.5 MW\. Particular noteworthy is the support for the 5 MW fixed bed biomass gasification plant in Jiangsu\. This is the largest biomass gasifier in China\. The plant was commissioned in August 2011 and is operating without difficulties\. In addition to the competitive selected projects, 5 additional demonstration projects were supported using the reallocated funds from the provincial policy support\. These projects included tidal power in Zhejiang, biogas in Inner Mongolia, and offshore wind in Jiangsu, Zhejiang, and Fujian\. The total capacity of the envisaged projects is 370 MW\. At present, it is not yet known how much will actually be build\. Scale-up through pipeline building During implementation of CRESP, it was decided to provide pipeline building support through subgrants to the investors using the Investors Scale-up Support Facility (IFFS)\. Under this facility investors could propose pipeline building projects\. The PMO would review the proposals and approve funding as far as the allocation for each investor would allow\. 37 Under this facility, 14 projects were approved: 3 ISSF projects for Jiangsu Guoxin, 9 IFFS projects in Zhejiang, 1 ISSF projects for China Long Yuan Power Group, and 1 ISSF project for Inner Mongolia North Longyuan Wind Power Corporation\. The outputs and outcomes of the 14 projects are summarized in Table A2\.7 (at the end of this annex)\. These 14 projects resulted in an additional renewable electricity capacity of 149 MW (actually build) and may lead to an additional 918 MW renewable electricity generation capacity (envisaged)\. Investment Component Fujian Wind\. The China Long Yuan Power Group Corp\. installed 50x2\.0 MW Vestas wind turbines on Pingtan Island in Fujian (total capacity 100 MW)\. All 50 units were operational on December 31, 2007\. Both the outputs and outcomes have been achieved and surpassed\. The annual electricity generation exceeded the projected value of 260 GWh in the feasibility study\. This project has resulted in improved experience and expertise in international competitive bidding, enhanced capacity, and scale-up of renewable energy investments by the project sponsor—China Long Yuan Power Group Corp\. The GEF grant under the Institutional development and capacity building component was used to contract consultants to provide management support to the developer in the bidding process\. In addition, the CRESP GEF resources were also used to finalize the wind farm improvement program initiated under the REDP\. Jiangsu Biomass\. A 25 MW straw-fired biomass power plant was installed at Yinxing Village, Rudong County, Jiangsu, which started commercial operation on July 1, 2008\. The plant sold 141\.2 GWh of renewable electricity into the grid in 2010\. The location was changed from Mabei Village to Yinxing Village, Rudong County, Jiangsu Province\. Approval procedures were properly followed\. 2 The Jiangsu Rudong Biomass Power Plant faced two issues during implementation—higher-than- expected moisture content of the fuel and breakdown of the straw-feeding equipment\. The first issue was addressed with GEF support by using residual heat from the boiler to dry the fuel prior to use\. The second challenge faced was the breaking down of the straw preprocessing system and feeding system in 2009\. Guoxin attempted to resolve the issue with the original manufacturer, which was unable to find a solution\. Thereafter Guoxin approached four other companies to try to resolve the issue\. However, because of the very specific nature of the system being used, the automatic straw-feeding equipment was not replaced\. The second issue was more challenging, since there is limited experience in processing rice straw in China and around the world\. Little progress has been made to date in the research organized by the project company and supported by equipment suppliers and some universities and research institutes\. In the meantime, Guoxin developed an effective manual feeding system, and the unit is currently operating satisfactorily\. In 2011, the plant generated 157 GWh, corresponding to 98 percent of the target set at appraisal, and in 2012, the output of the plant is expected to meet the generation target\. 2 In additional to the local approval, No Objection Letter (NOL) was issued by the Bank (sector manager) as the provided EIA/EMP, RAP, and FSR were revised and satisfactory to the Bank\. 38 Jiangsu Guoxin gained a wealth of experience by implementing this project\. This experience is being applied in new biomass power projects of the owner\. The GEF resources from the institutional development and capacity building component for Jiangsu, Guoxin, were used to contract consultants to provide management support, including support in the bidding process, for construction, supervision, and fuel supply chain optimization\. Zhejiang SHP\. The SHP investment under CRESP set out to establish an incremental SHP capacity of 28 MW and sell an incremental 95 GWh/year into the local grid\. The IBRD loan financed the construction of 6 new SHP projects and the rehabilitation of 10 SHP projects in Zhejiang\. The total capacity of the 6 newly constructed SHP projects was 13\.6 MW and the incremental capacity of the 10 rehabilitated SHP plants was 9\.91 MW (the total capacity of the rehabilitated SHP plants increased from 26\.38 MW to 36\.29 MW)\. The total incremental capacity was, therefore, 23\.51 MW, which is 4\.49 MW below the target of 28 MW\. This shortfall is caused by cancellation of 2 subprojects (one new and one rehabilitation)\. The 6 new projects generated electricity of 40\.07 GWh and the 10 rehabilitated projects 119\.71 GWh in 2010, of which 63\.71 GWh was incremental electricity generation\. The total incremental electricity of the Zhejiang SHP projects financed from the IBRD loan sold to the grid in 2010 was thus 103\.78 GWh\. This exceeds the target\. The target will be exceeded further, since three new plants (two rehabilitated and one new) have not yet operated at full capacity because construction was only completed in 2010\. Once fully operational, these three plants are expected to generate electricity of 16\.8 GWh\. The shortfall in incremental capacity is more than compensated by the additional SHP projects under the ISSF\. The outcome includes cost benchmarks and proof of the cost effectiveness of SHP rehabilitation, as well as increased capacity and scale-up of SHP investments by the SHP developer beneficiaries\. GEF resources under the institutional development and capacity building component were used in Zhejiang to support the Zhejiang Hydropower Management Center (ZHMC), which oversaw the implementation of the 16 new and rehabilitation SHP projects\. The ZHMC provided technical advice to these small SHP developers, organized training, guided the investors to strictly adhere to Bank’s safeguards requirements and monitored implementation of EMP and RAP, organized procurement for the investors according to the Bank’s procurement guidelines, and monitored implementation progress and reported to the CRESP PMO\. Inner Mongolia Wind: The Inner Mongolia North Longyuan Wind Power Company installed 80x1\.5MW Suzlon wind turbines at Huitengxile, Desheng County, Inner Mongolia\. All turbines were operational in September 2011, and the wind farm sold 79\.71 GWh to the grid in 2011\. The annual electricity generation is expected to reach the target by 2013\. Huitengxile, Desheng County, Inner Mongolia, gained knowledge and experience in international competitive bidding, and improved capacity of its staff and scaled up renewable energy investments\. GEF resources from the institutional development and capacity building component for the Inner Mongolia investor were used to provide assistance in the bidding process and in monitoring the implementation of the EMP and RAP\. In addition, CRESP supported training for staff of the investor by the Suzhou Longyuan Bailu Wind Power Vocational Training Center\. 39 Table A2\.5: Outcome of National Level Policy Activities Task Main Deliverables Activity Status, Outcome, and Follow-up Task 1: Review and update the 1) RE industrial development report 2008 • Deliverable 1 and 2 were published, and contributed to national general objectives, 2) RE industrial development report 2009 increasing public awareness of the status of RE regional deployment strategy, 3) Recommendations for general objectives of industry\. and major projects for RE RE development • Deliverable 3 provided the quantitative analysis reason development by 2010 and 2020 for modifying general objectives of RE development in 2020\. • The deliverables were submitted to the NEA and were partly adopted by the NPC as a background report for Amendment of the RE Law\. Task 2: Develop methodology 1) International experience applicability on • Two case studies were conducted in Guizhou and for provincial RE planning and Chinese provincial-level planning Yunnan provinces\. case studies on RE 2) Methodology of provincial RE planning • The case studies were well received and are expected development planning in two to be replicated in other provinces, using the provinces methodology developed under this task\. Task 3: Propose pricing 1) Study on pricing mechanism for renewable • A study tour took place in May 2007 to Italy and mechanism and cost sharing electricity Demark (Task 10) and an international workshop on system for RE electricity 2) Analysis and recommendations on cost January 15, 2010 in Beijing, China (Task 11)\. Sharing Mechanism for Renewable Power • The deliverables were submitted to and accepted by 3) Management regulations on renewable the NDRC and NEA\. The deliverables were partly electricity tariffs (proposal) adopted by the NPC as a background report for 4) Management regulation on sharing RE power Amendment of the RE Law\. generation cost (proposal) • NDRC issued NDRC Notice on Improved Price Policy for Grid-Connected Wind Power, NDRC Price No\. (2009) 1906 and NDRC Notice on Improved Price Policy for Agricultural and Forestry Biomass Generation, NDRC Price No\. (2010) 1579\. Task 4: Develop management regulations for RE development Task 4\.1: Management 1) Status of RE resource investigation and • The deliverables were submitted to the NEA for regulations development on management reference\. RE resource investigation 2) Management regulations for RE resource 40 Task Main Deliverables Activity Status, Outcome, and Follow-up and assessment investigations and assessment (proposal) Task 4\.2: Management 1) International best practice in biomass • The deliverables were submitted to the NEA and regulations on biomass development and policy recommendations for MOF\. energy development and China • Based on the deliverables, the MOF issued Interim utilization 2) Management regulations on biomass energy Management Regulation on Subsidy for Energized deployment and sector development Biomass, MOF Economic Construction No\. (2008) (proposal) 735\. Task 4\.3: Develop 1) International practice of solar thermal • The deliverables were submitted to the NEA\. management regulations on applications and suggestions for China solar water heaters (SWH) 2) Suggestions on promoting SWH deployment Task 4\.4: Develop 1) World solar PV sector development and • The deliverables were submitted to the NEA\. management regulations on implications for China solar PV distribution 2) Management regulations on medium and small scale solar PV projects (proposal) Task 4\.5: Formulating 1) Analysis on China wind power industry • The deliverables were submitted to and accepted by implementation plans to development and policy recommendations the NEA\. promote wind power 2) Development of standards, conformity testing development and certification of wind turbines 3) Management regulation for development of wind power industry (proposal) Task 5: Propose the quota 1) Management regulation for quota system of • The deliverables were submitted to the NEA, and were system for RE development RE power generation (proposal) partly adopted by the NPC as a background report for 2) Specification of RE quota management Amendment of the RE Law\. regulation • The deliverables were also partly adopted as a background report for the State Council Decision on Accelerating the Strategic New Industries Cultivation and Development, the State Council Document, No\. (2010) 32\. Task 6: Develop the economic 1) Chinese RE industry development report • The deliverables were submitted to the NEA\. incentive measures to promote 2) Evaluation on the implementation of economic • The deliverables were partly adopted by the NPC as a RE development incentive policy for RE and updated background report for Amendment of the RE Law\. suggestions 41 Task Main Deliverables Activity Status, Outcome, and Follow-up 3) Suggestions on updating the guidance catalogue for RE industries development 4) Management regulation for RE development fund Task 7: Work plan for wind 1) Current status of international and national • The deliverables were submitted to the NEA and power public technical testing wind power public testing platform accepted\. platform 2) Work plan for establishment and operation of national wind power public technical testing platform Task 8: Develop award criteria 1) Analysis and evaluation of energy sources • The deliverables were submitted to the NEA\. for the Green Energy County development status in rural areas of China • NEA accepted the deliverable and issued NEA Notice (GEC) and related management 2) Energy development analysis and assessment on Recommendation of Green Energy County, NEA regulations for typical counties in China New Energy No\. (2009) 343\. 3) Management regulation of GEC program (proposal) 4) Suggestions for assessment standards and implementation policy of the GEC program Task 9: Develop other regulations for the implementation of RE Law Task 9\.1: Feasibility study 1) Policy recommendation on practicing green • The deliverable was submitted to the NEA\. on the green electricity electricity trade mechanism in China trade mechanism in China Task 9\.2: Study and 1) Policy suggestions and development strategy • The deliverable was submitted to the NEA\. propose policies to promote on RE development in rural areas • The study was used as a reference for the national exploitation and utilization working meeting on energy in rural areas\. of RE in rural areas Task 10: Organize an 1) A study tour on pricing mechanism and cost • The study tour enabled enhanced knowledge of international study tours on sharing system for RE electricity in Italy and experiences and lessons from EU on pricing pricing mechanism and cost Demark from May 6 to 12, 2007 mechanism and cost sharing system for RE electricity\. sharing system for RE 2) Summary report for the study tour • The study tour was an important reference for the electricity decision makers and experts in finalizing the NDRC 42 Task Main Deliverables Activity Status, Outcome, and Follow-up Notices mentioned under Task 3\. Task 11: Organize an 1) An international workshop on pricing • More than 100 stakeholders attended and exchanged international workshop on RE mechanism and cost sharing system for RE ideas during the workshop, which provided a platform electricity pricing electricity in Beijing, China on January 15, to discuss RE electricity pricing practices in other 2010 countries, and it is expected to be a good reference for 2) Summary report for the workshop Chinese decision makers and experts while deciding on the pricing system\. Task 12: Policy study on small 1) Status of SHP development • The deliverables were submitted to the NEA\. hydropower development 2) Policies for managing the development and • Based on these deliverables, the NEA organized utilization rights of hydropower resources relevant ministries to investigate the status and policies 3) Policies for grid-connected and on-grid SHP for SHP to promote SHP development\. electricity price 4) Economic incentive policy for SHP Task 13: Develop the RE Law 1) Knowledge on RE technologies and industrial • The deliverables were published and distributed to the training materials development public as training materials in task 14\. 2) Knowledge on RE policies and regulations in • The activity contributed to improving knowledge on China RE policy, technologies, and industrial development\. Task 14: Conduct the RE Law 1) Two training classes were conducted • More than 150 people from government, university, training and outreach successfully in Shanghai and Beijing for 3 enterprise and media participated in the training days each class classes 2) Brochure of knowledge on RE Law • The brochures were distributed through training classes and two RE exhibitions in 2009\. The activity contributed to improved awareness of RE Law, RE policy, technologies and industrial development\. Task15: Track and evaluate the 1) Evaluation methodology and survey plans • The deliverables were partly adopted by the NPC as a RE Law implementation effects 2) Evaluation of implementation effects of the background report for the amendment of RE Law and make relevant RE Law 2009 • [Task Ongoing] recommendations Task 16: Strategy study on 1) Strategic study on geothermal energy • The deliverable was submitted to the NEA and task 19 geothermal energy development in China was conducted as the follow-up study per the request development of the NEA\. Task 17: LCA study based on 1) Final report on LCA study based on selected • The deliverable was submitted to the NEA\. 43 Task Main Deliverables Activity Status, Outcome, and Follow-up selected biomass power biomass power technologies • The deliverable was an reference for the NEA to technologies propose the 12th Five-Year Development Plan for biomass energy\. Task 18: Study and propose 1) Development status and related problems of • The deliverables were submitted to the NEA\. technical guideline for biomass biomass direct-fired power generation projects • NEA accepted the deliverable and issued NEA Notice power plants in China on Comments Collection for Management Regulation 2) Technical guideline on the construction of on the Project of Agricultural and Forestry Biomass agricultural and forestry biomass combustion Combustion Power Generation, NEA New Energy No\. power generation project (proposal) (2009) 273 and then the Management Regulation will be issued\. Task 19: Management 1) Final report on management regulations on • The deliverable was submitted to the NEA\. regulation on low and medium- mid-low temperature geothermal resource • NEA is discussing with relevant ministries based on temperature geothermal energy the deliverable\. utilization and development Task 20: Study and develop 1) Investigation report on biogas power • NEA accepted the deliverables and issued NEA Notice technical guideline on biogas generation in China on Comments Collection for Management Regulation power generation projects 2) Technical guideline for the construction of on Scale-up of Biogas Power Generation from biogas power generation project (proposal) Livestock Farms and Refuse Landfill, NEA New Energy No\. (2010) 49 and then the Management Regulation will be issued\. Task 21: Roadmap study of 1) Survey report on development of • The deliverables were submitted to the NEA\. cellulosic ethanol industrialization of domestic and foreign • The deliverable was a reference for the NEA to industrialization development cellulosic ethanol technology propose the 12th Five-Year Development Plan for in China 2) Roadmap of cellulosic ethanol cellulosic ethanol\. industrialization in China Task 22: Recommendations on 1) Global solar power generation status, trends • The deliverables were submitted to the NEA\. PV development for the 12th and policy analysis • Deliverable 3 was accepted by the NEA and will be Five-Year Plan 2) China solar power generation status, trend and issued as the 12th Five-Year Development Plan for policy analysis solar power\. 3) 12th Five-Year Development Plan for solar power Task 23: Post-evaluation on 1) Case Study report for selected projects [Task Ongoing] 44 Task Main Deliverables Activity Status, Outcome, and Follow-up grid-connected PV projects Task 24: Development and 1) Research on the evaluation criteria for new [Task Ongoing] policy study on new energy city energy cities Task 25: Provide support 1) Status of smart grids in Europe • The deliverables were submitted to the State service for framework strategy 2) Smart grid: the US perspective Electricity Regulatory Commission (SERC)\. for smart grid development in 3) Two workshops organized in Dec\. 2010 and • It was an important reference for SERC to propose the China Jan\. 2011 12th Five-Year Development Plan for smart grid construction\. 45 Table A2\.6\. CGF-PDP Projects Project Output Outcome 1 Biogas Power 1 MW biogas power system at Xingtai Capacity build system Generation from pig farm able to supply annually 3 GWh build, technology Agricultural and electricity to the grid prepared\. demonstrated and Herding Waste in renewable electricity Zhejiang supplied to the grid\. 2 Ecological Energy- Eco building at Fujian Shengyuan Capacity build, Saving Building Electronic Technology Co\. Ltd\. system build, Demonstration Project headquarter, including 11\.2 kWp PV on technologies in Zhejiang rooftop, 6\.4 kWp wall mounted PV, 96 demonstrated and m2 solar water heaters; air and water additional business source heat pumps and excellent created\. insulation prepared\. 3 Fixed Bed Biomass 5 MW biomass gasification power plant Capacity build, Gasifier in Jiangsu using 10 500 kW gas engines prepared\. system build, technology demonstrated and renewable electricity supplied to the grid\. 4 Rooftop PV System and Project for developing and testing 100 Capacity build, new Comparative Testing of kW grid connected inverter prepared\. product developed Different PV Modules and successfully put in Jiangsu into the market, system demonstrated\. 5 Biomass-Fueled 1\.5 MW biomass-fueled CHP at Xikou Capacity build, Combined Heat and Town in Fujian prepared\. system build, Power Generation in technology Fujian demonstrated and steam and power produced and sold\. 6 PV Water Pumping Project with 3 PV water pumping Capacity build, Technology in Inner systems prepared (1 500 W, 3 1,000 W, system build, Mongolia and 6 2,000 W systems)\. technology demonstrated and water supply services provided\. 7 Concentrating Solar PV 200 kW second generation Capacity build, in Inner Mongolia concentrating PV installed at Inner technology Mongolia Yitai company\. Concentrating demonstrated, PV has been compared with 5 kW non- information concentrating PV\. generated\. 46 Table A2\.7\. Outputs and outcomes ISSF Projects Project Output Outcome 1 Preparatory Work for 3 Jiangsu Guoxin staff trained on study Only staff trained, no Biomass and 2 wind tour\. pipeline developed\. Projects by Jiangsu Project cancelled\. Guoxin Investment Group, Ltd\. 2 Preparatory Work for 1 Project preparation work for Yancheng The Yancheng Biomass and 1 wind 30 MW biomass power project and 70\.5 biomass power plant power development MW Dongling wind farm\. and Dongling wind Projects by Jiangsu farm have both been Guoxin Investment constructed\. Group Limited 3 Scale-up the Use of Biomass drying system developed and Biomass drying Biomass for Electricity tested\. system will be used Generation through on all future biomass Drying of Biomass combustion projects Fuels by the Waste Heat of Jiangsu Guoxin\. of Boiler Flue Gas by Efficiency of these Jiangsu Guoxin projects is higher, Investment Group, Ltd\. making these projects financially more viable\. 4 Zhejiang Small Hydro SHP investors trained\. Better understanding Investors Capacity of SHP project Building: Study Tour to development and Australia for Experience operation and of new Exchange and Learning technologies\. on Hydro Resources Protection, Development and Management 5 Preparatory Work for Feasibility Study and Blueprint Design 1\.6 MW SHP plant Zhejiang Huanglong build, produced 5,700 Hydro Plant by Zhejiang MWh in 2010 Tiantai Tongbai Power Engineering Management Bureau 6 Preparatory Work for The Design of Construction Drawing 6\.4 MW SHP plant Yuxi Hydro Plant in build produced 15,820 Songyang County by MWh in 2010 Hexi Hydropower Development Co\. Ltd\. 7 Preparatory Works for Feasibility Study, Preliminary Design, 3\.15 MW SHP plant Dongshan Hydro Plant and Design of Construction Drawing build produced 8,500 in Anji County by Anji MWh in 2010 County Laoshikan Reservoir Management Bureau 47  Project Output Outcome 8 Preparatory Works for Project Proposal and Preliminary Design 3\.15 MW SHP plant Dachen Hydro Plant in Report, and Design of Construction build, commissioned Xianju County by Drawing in 2011 Xianju County Yong’anxi Hydropower Development Co\. Ltd\. 9 Preparatory Works for Project Proposal and Preliminary Design SHP plant Expansion of Shuangxi Report, and Design of Construction rehabilitated, capacity Hydro Plant by Xianju Drawing increased from 3 to 4 Hydropower Generation MW produced 8,100 Company by Xianju MWh in 2010 County Hydropower Development Company 10 Preparatory Works for Preliminary Design Report, and Plan of SHP plant Rehabilitation of Automation Improvement rehabilitated capacity Daguangming Hydro increased from 0\.5 Plant in Lishui City by MW to 1\.25 MW Lishui City Liandu produced 1,500 MWh District Yaxi I Power in 2010 Station 11 Preparatory Works for Feasibility Study Report and Technical SHP plant Reconstruction of Consulting Service rehabilitated\. Tongbai Hydro Plant Capacity did not Cascade II by Tiantai change (0\.4 MW) Tongbai Power produced 1,000 MWh Engineering in 2010 Management Bureau 12 Preparatory Works for Project Survey, Preliminary Design SHP plant Rehabilitation of Report, Project Consulting and Bidding rehabilitated\. Jimenkeng Hydro Plant Agent Service Capacity increased in Wencheng County by from 0\.25 MW to Wencheng County 0\.63 MW\. Produced Water Conservancy & 900 MWh in 2010\. Hydropower Service Company 13 Preparation and Investor used the CRESP support to test Investor proceeded Predevelopment of 2 foundation types and to develop with implementing a Intertidal Wind Farms in equipment to install the foundation and 32 MW test wind Rudong by China Long masts\. farm including 9 Yuan Power Group different wind turbine Corp\. types\. 14 Preparatory of Wind The investor completed preparation It is expected that all Farms in Four Potential work of 3 wind farms and started the four wind farms will Areas in Inner Mongolia preparation of the fourth wind farm\. be realized\. by Inner Mongolia North Longyuan Wind Power Company 48 Annex 3\. Economic and Financial Analysis Economic Analysis The economic analyses of the investment subcomponents were conducted at appraisal to justify their economic viability\. Cost-benefit analyses were carried out to estimate the EIRRs of the four investment subcomponents, including (a) Fujian Pingtan Wind Power Generation Project (100MW); (b) Jiangsu Rudong Biomass Power Generation Project (25MW); (c) Inner Mongolia Huitengxile Wind Power Generation Project (100MW); and (d) Zhejiang Small Hydropower Development Project\. Using the same methodology, the EIRRs were recalculated at the time of ICR\. Fujian Pingtan Wind Farm: The EIRR was recalculated at 16\.1 percent, higher than estimated during project preparation (13\.6 percent)\. The increase is mainly caused by (a) higher annual generation than planned; and (b) higher on-grid tariff applied in the region\. The annual utilization hours of Fujian Pingtan Wind Farm was about 3,000 hours, 400 hours higher than the estimate at appraisal, while the on-grid tariff is 0\.539 Y/kWh (VAT excluded), about 0\.07 Y/kWh higher than the estimate at appraisal\. Table A3\.1\. EIRR Calculation for Fujian Pingtan Wind Farm Generation Project Jiangsu Rudong Biomass Power: The EIRR was recalculated at 11\.6 percent, less than estimated during project preparation (20\.8 percent)\. The low EIRR is mainly caused by (a) operation problems occurred from 2008 to 2010 which resulted in a low generation in these years; and (b) higher fuel price than expected—the average straw price at plant gate was about 300 Y/ton in 2011 (equivalent to 950 Y/tce), about 40 percent higher than the estimate at project preparation\. 49  Table A3\.2\. EIRR Calculation for Jiangsu Rudong Biomass Power Generation Project Inner Mongolia Wind Farm: The EIRR was recalculated at 9\.3 percent, less than estimated during project preparation (12\.5 percent)\. The low EIRR is mainly caused by (a) an overrun of investment cost by about 20 percent; (b) delayed project commissioning schedule; and (c) less generation than estimated as a result of grid integration bottleneck—the power cutoff was about 20 percent of its available generation in the first three quarters in 2011\. Table A3\.3\. EIRR Calculation for Inner Mongolia Wind Farm Power Generation Project 50 Zhejiang SHP: The EIRRs were recalculated for all 16 SHP stations, including 10 rehabilitation and 6 new projects\. The EIRRs of the 10 rehabilitated projects were ranged from 10 to 195 percent while the EIRRs of the 6 new projects were ranged from 10 to 22 percent\. The EIRRs of most rehabilitated projects were higher than estimated during project preparation (for all projects ranging from 10 to 33 percent)\. Figure A3\.1\. EIRR Calculation for Zhejiang Small Hydropower Development Project Financial Analysis The financial analyses of the four investment subcomponents were carried out using the same methodology adopted during the project preparation, and the FIRRs were recalculated\. It was found that: • The FIRR of Fujian Pingtan Wind Power Generation Project was recalculated at 10\.9 percent, higher than the estimated at project appraisal (6\.5 percent)\. • The FIRRs of both Jiangsu Rudong Biomass Power and Inner Mongolia Huitengxile Wind Power Generation Project were recalculated at 5\.0 and 5\.1 percent, respectively, lower than the estimated at project appraisal (10\.6 percent for the Jiangsu Rudong Biomass Power project and 7\.0 percent for the Huitengxile wind farm without carbon financing)\. • The FIRRs of Zhejiang Small Hydropower Development Project varied: they were ranged from 6 to 102 percent for the 10 rehabilitated projects and ranged from 6 to 16 percent for the other 6 new projects\. The FIRRs of most SHP projects were higher than or close to those estimated during project preparation (between 7 and 16 percent for all projects)\. Summary The EIRRs and FIRRs for the four investment subcomponents were summarized and compared in Table A3\.4\. 51  Table A3\.4\. Economic and Financial Analysis Summary Project EIRR FIRR Brief Explanation ICR Appraisal ICR Appraisal Fujian Wind 16\.1% 13\.6% 10\.9% 6\.5% - Higher annual generation Power - Higher on-grid tariff Jiangsu 11\.6% 20\.8% 5\.0% 10\.6% - Operation problems 2008–10 Biomass Power - Higher fuel price Inner Mongolia 9\.3% 12\.5% 5\.1% 7\.0% - Overrun of investment cost Wind Power - Delayed project commissioning - Less generation Zhejiang Small 10– 10–33% 6– 7–16% - Advantage of rehabilitation Hydropower 195% 102% 52 Annex 4\. Bank Lending and Implementation Support/Supervision Processes (a) Task Team Members Responsibility/ Names Title Unit Specialty Lending Noureddine Berrah Lead Energy Specialist EASEG TTL Richard Spencer Senior Energy Specialist EASEG Susan Bogach Senior Energy Specialist EASEG Economist Leiping Wang Senior Energy Specialist EASEG Xiaodong Wang Energy Specialist EASEG Carlos Escudero Lead Counsel LEGEA Lawyer Mei Wang Senior Counsel LEGEA Lawyer Xiaoping Li Procurement Specialist EAPCO Procurement Haixia Li Financial Management Specialist EAPCO Financial Management Ximing Peng Energy Specialist EASEG Bernard Baratz Environment Specialist (Consultant) EASEG Clifford Garstang Legal (Consultant) LEGEA Lawyer Enno Heijndermans Renewable Energy Specialist EASEG (Consultant) Youxuan Zhu Resettlement Specialist (Consultant) EASEG Resettlement Miao Hong Renewable Energy Specialist EASEG (Consultant) Weigong Cao Consultant EASEG Power Engineer Cristina Hernandez Program Assistant EASEG Project Processing Chunxiang Zhang Program Assistant EASEG Project Processing Supervision/ICR Richard Jeremy Spencer Lead Energy Specialist EASVS TTL Ranjit J\. Lamech Sector Leader EASIN TTL Dejan Ostojic Sector Leader EASIN TTL Xiaodong Wang Senior Energy Specialist EASIN TTL Yanqin Song Energy Specialist EASCS TTL Ximing Peng Senior Energy Specialist EASCS Defne Gencer Energy Specialist EASIN Noureddine Berrah Consultant EASCS Renewable Energy Specialist Enno Heijndermans EASIN (Consultant) Fang Zhang Financial Management Specialist EAPFM Financial Management Guoping Yu Procurement Specialist EAPPR Procurement Jingrong He Procurement Analyst EAPPR Procurement Mei Wang Senior Counsel LEGES Lawyer Weigong Cao Consultant EASCS Power Engineer Xiaoping Li Senior Procurement Specialist EAPCO Procurement Xin Ren Environmental Specialist EASCS Environmental 53 Bernard Baratz Consultant EASCS Environmental Youxuan Zhu Consultant EASCS Resettlement Cristina Hernandez Program Assistant EASIN Project Processing Kun Cao Program Assistant EACCF Project Processing (b) Staff Time and Cost P067828 Staff Time and Cost (Bank Budget Only) Stage of Project Cycle US$ Thousands (including No\. of staff weeks travel and consultant costs) Lending FY2000 22\.51 70\.56 FY2001 22\.93 98\.05 FY2002 12\.81 61\.45 FY2003 6\.28 30\.21 FY2004 15\.84 140\.46 FY2005 17\.10 108\.38 Total: 97\.47 509\.13 Supervision/ICR FY2006 FY2007 10\.25 73\.05 FY2008 7\.20 54\.86 FY2009 13\.81 88\.09 FY2010 10\.34 58\.11 FY2011 12\.49 67\.72 FY2012 1\.60 3\.39 Total: 55\.69 345\.22 P067625 Staff Time and Cost (Bank Budget Only) Stage of Project Cycle US$ Thousands (including No\. of staff weeks travel and consultant costs) Lending Total: 0\.00 0\.00 Supervision/ICR FY2006 4\.45 40\.10 FY2007 2\.0 30\.60 Fy2008 0\.0 27\.95 FY2009 11\.68 35\.24 FY2010 14\.2 89\.72 FY2011 14\.49 91\.34 FY2012 7\.46 59\.79 Total: 54\.28 374\.74 54 P096158 Staff Time and Cost (Bank Budget Only) Stage of Project Cycle US$ Thousands (including No\. of staff weeks travel and consultant costs) Lending FY2006 6\.8 50\.95 Total: 6\.8 50\.95 Supervision/ICR FY2007 8\.45 86\.98 FY2008 3\.81 28\.18 FY2009 10\.46 46\.31 FY2010 13\.48 110\.63 FY2011 18\.46 83\.15 FY2012 7\.06 39\.43 Total: 61\.72 394\.68 55 Annex 5\. Beneficiary Survey Results At the end of CRESP Phase 1, the CRESP PMO conducted a survey to assess the benefits of CRESP Phase 1 for subgrant recipients\. The five remaining PMO staff also made a self- assessment\. The results of these assessments are presented in Annex 5\. Subgrant Recipients Survey Results In total 36 questionnaires were returned to the PMO\. Table A5\.1 gives a breakdown by facility\. Table A5\.1\. Responses to questionnaire Facility Number of Responses Wind Turbine Technology Transfer (WTTT) 7 Wind Turbine Testing (WTTC) 4 Wind Turbine Certification (WTCC) 2 Biomass Technology Transfer (CGF-Biomass) 9 Provincial Demonstration Projects (CGF-PDP) 11 Investor Scale-up Support Facility (ISSF) 3 Total 36 The questionnaire included questions such as the following: • Why was the support from CRESP through the subgrant important to you? • What would have been different without the support from CRESP? • What did you like about the support provided by CRESP? • What did you not like about the way the support was provided? • If CRESP had to do the subgrant project again, what should CRESP do differently? • What is in your opinion the importance of CRESP for the renewable energy industry in general? In addition, the questionnaire included 10 statements for which the respondents were asked to what extent they agreed with these statements from 0 to 10 in which 0 means total disagreement and 10 total agreement\. These statements were as follows: • Without support from CRESP, we would have done exactly the same\. • With the support from CRESP, we did more than we would have done without the support from CRESP\. • With the support from CRESP, we did a better job than we would have done without the support from CRESP\. • The technical conditions for the support from CRESP were clear\. • The technical conditions for the support from CRESP were too demanding\. • The subgrant approach worked well\. • The PMO was strict, but very helpful during the implementation of the subgrant project\. • CRESP was very important to the development of the renewable energy industry in China\. • Achieving the agreed milestones was more difficult than anticipated\. • A different support than provided by CRESP would have been more useful to us\. Summary of Results 56 Clearly the financial support provided by the project is considered the most important\. However, many of the respondents highlighted that they benefitted from international experience and expertise by involving more international experts than they would have done without the support from CRESP\. Despite the reluctance to hire international experts initially, many respondents mentioned the involvement of international experts is one of the success factors\. Furthermore, they also appreciated the advice provided by the international experts contracted by the PMO to assess progress and check achievement of milestones\. This feedback reinforced the idea that requires subgrant recipients to involve more international experts not only to gain cutting-edge global knowledge but also to be in contact with relevant international organizations and institutions for future follow-up\. In the future, the PMO should insist more involvement of international experts to guide the development process\. Many of the respondents acknowledged that CRESP support has accelerated and improved wind development in China\. The beneficiaries highlighted that CRESP support improved the technology development capacity of local manufacturing industry, taught Chinese manufacturers technology transfer mechanisms and international certification process\. As a result, some of the participating manufacturers now follow the same approach and process to develop more advanced and larger capacity wind turbines on their own\. Furthermore, the support from the World Bank/GEF also helped them gain credibility and reputation\. The use of subgrants to support project identification and preparation worked extremely well\. Almost all of the projects for which CRESP supported preparation work have been or will be realized\. The subgrant recipients appreciate this support because it reduces the financial risk of project preparation, which is considered the highest risk of a project\. The relative small amount of support had a high leverage impact of actual investments\. This is a very efficient way to scale up renewable energy investments and is recommended for replication in CRESP Phase 2 or in other projects\. The PMO has not only a fiduciary role, but also provides guidance and advice to the subgrant recipients\. In particular the latter role was highly appreciated by the subgrant recipients\. When replicating the subgrant approach under other project it is advised to study the details of the approach adopted by CRESP\. Many of the details contributed to the success\. Overall the responses were very positive and indicate that a continuation of this kind support under CRESP Phase 2 would be appropriate\. Details on the outcomes by facility are provided below\. Wind Turbine Technology Transfer (WTTT) The five beneficiary wind turbine manufacturers mention that the financial support was the important\. However, it was not only the money\. Three respondents mention specifically that the reputation, both national and international, was important and that they felt honored to be selected to participate\. Some mentioned that participation accelerated development and that the certification requirement helped to substantially improve quality\. The CRESP support also provided access to international experts who provided valuable advice\. According to the respondents, without the support of CRESP they might not have gone through certification\. Development of the turbine might have been quicker, but this would have been a mistake\. All consider certification important as a quality statement and as a marketing advantage\. 57 Certification also opened up the export market for the certified wind turbines\. Sewind mentioned that they experienced a lot of difficulties during the two years of type certification\. Without CRESP they would not have designed the W2000 type wind turbine and obtain type certification\. On the question of what they liked most about the way the CRESP support was provided, three respondents stated that they liked most the advice from the foreign experts, while two liked most the financial support provided\. Two respondents stated that they also liked the project design with clear milestones and a step-by-step approach\. Also the management by the PMO was very much appreciated\. When they ran into one of the many problems, the PMO always communicated very effectively and suggested solutions\. Suggestions for improvement of the WTTT facility include more financial support (Dongfang and Sinovel), more intensive involvement of CRESP team for smoother implementation (Sewind), strengthen the project management team (Goldwind) and make payments based on completion of tasks and not as a percentage of actual cost after reaching a milestone (Windey)\. Without the support of CRESP, the respondents would have done something different\. Because of the support of CRESP, they did more and did a better job at it\. The conditions of the support from CRESP were clear, but type certification was demanding\. Reaching the specified milestones was somewhat more difficult than anticipated\. The subgrant approach worked very well, and the PMO was very helpful in implementing the WTTT projects\. The responses from the Wafangdian Bearing Group were very detailed and clear\. The most striking points are the following: • The financial support was important\. Wafangdian had already invested Y 1\.5 billion in the development of bearings for MW size wind turbines\. CRESP support released some of the funding pressure\. • Without the support from CRESP, engaging foreign experts and procurement of advanced design software (RomaxDesign) would have been much more difficult\. Wafangdian would have to rely more on its own experts and would have been restricted to domestic design software\. This would have delayed development and might have impacted quality\. For developing installation equipment for intertidal wind turbines, Sinovel appears to be interested only in the financial support provided\. The CRESP contribution may have contributed to implementing the project faster and better\. Wind Turbine Testing (WTTC) The CRESP support was more important to the China Wind Test Centre (WTC) than to CEPRI\. The support was valuable to CEPRI, since it (a) provided financing; (b) provided the chance to establish cooperation with many domestic and international wind power organizations; and (c) received good guidance\. However, without the support from CRESP, CEPRI would still have tried to acquire the required skills and equipment to conduct all tests needed for type certification, but this may have taken longer and might have been less successful\. WTC, by contrast, might not have obtained CNAS accreditation, since it would have been difficult to purchase the required equipment, obtain required training, and establish the required quality system\. CEPRI appreciated the support provided by the PMO and found that the step-by-step approach was helpful\. The support was, however, demanding in that it required a lot of documentation to 58 be provided\. WTC mentioned that in addition to the financial support, it valued the international technical communication and exchange and capacity building of its staff\. The subgrant for short-term wind power forecasting also used the WWTC subgrant facility\. With the support provided, CEPRI refined the short-term wind power forecasting system and applied it to the Inner Mongolia power grid\. The CRESP support was important for the financial resources provided and for the guidance provided by the international experts\. Without the support from CRESP it would have been impossible to compare the results from CEPRI with the results from reputable international short-term wind power forecasting systems\. CEPRI would have preferred to apply its tool to other gird systems than the Inner Mongolia grid system because of the particular problems of Inner Mongolia, such as power restrictions\. Also for the establishment of the Inner Mongolia wind test base, the WWTC subgrant facility was used, although this work was financed from the Inner Mongolia provincial budget\. The Inner Mongolia Test Power Company considered the most important aspect from the CRESP support the technical advice and the financing\. Through the CRESP support, a business plan has been developed based on international best practices\. This will be very helpful in operating the wind test base\. Although the financial support was relatively small, it was very important in the early stage of the project\. It reduced the business risk of the investor and increased confidence in the project\. Without the support from CRESP, the establishment of the wind test base would have been postponed\. Wind Turbine Certification (WTCC) For the CGC, the financial support from CRESP was most important\. Through the financial support from CRESP CGC had more exposure to cutting-edge technology through training and exchange with international institutions, and could procure the required software and equipment\. Further, through the support from CRESP CGC had more cooperation with international institutions and is now closer to mutual recognition of certification\. Both certification bodies agree that without the support from CRESP obtaining accreditation would have taken longer\. CGC recognized the flexibility the subgrant approach provided with respect to selecting partners and contractors\. To the question what CRESP should have done differently, CGC replied that more attention could have been given to promote the certification by Chinese institutions outside China, including developers, utilities, research institutions, banks, insurers, and other financial institutions\. For the CCS, CRESP support made not a big difference\. Without the support from CRESP, they would very much have done the same, maybe at a little slower pace\. Biomass Technology Transfer (CGF-Biomass) Four subgrant projects supported the development of biomass briquetting machines\. These projects provided a relative small support of US$40,000 to US$50,000\. The financial support from CRESP, although small, was important to these subgrant recipients\. One of the respondents mentioned that CRESP helped to complete the project early, and helped to improve the companies’ reputation and credibility\. One also mentioned that the financial support is important because of the high risk of investment in quality improvement\. It is not always possible to recover the investment in quality improvement\. These companies are relatively small\. Therefore, payments and a payment schedule are important\. They mentioned that the first payment (30 percent) was fast (upon signing the subgrant agreement), but that the second payment was too slow (upon proof of meeting milestones and proof that cost had been incurred)\. Improvements 59 suggested (other than more money and bigger initial payment) include that coordination between subgrant recipients should have been established\. CRESP also supported two research projects of the East China University of Science and Technology\. One project for the development of a gasifier and one project for catalytic cracking of the gasifier tar\. As CRESP provided the only source of funding, these projects could not have been done without the support from CRESP\. The National Bio Energy Company stated that without the support from CRESP, the outputs would have been the same (as the biomass industry needed the equipment developed), although obtaining the outputs may have taken longer\. The subgrant recipient did not like that demonstration could not be included in the project\. Beijing Dahuajiva Small Town Investment Consulting Company received a subgrant to develop a biomass gasification system for village power generation\. Without the support from CRESP, this project would not have taken place as a funding gap would have remained\. The CRESP support was only a small part of total funding needs\. The Jiangsu Huijia Environment Protection Development Company received a subgrant to develop a wastewater treatment system for wastewater from scrubbing gasifier gas containing tars\. Because of the CRESP support, the project could be completed earlier\. Provincial Demonstration Projects (CGF-PDP) The PMO received 11 responses from CGF-PDP subgrant recipients\. From the responses, it is clear that outreach received adequate attention\. The outreach was done through site visits (including local school students), reports, leaflets, presentations at workshops and conferences, DVDs, a website, patents, and TV programs\. Through this attention to outreach, a large number of people know about these demonstration projects\. Replication of the demonstration projects is still limited\. The Gaoyou 4 MW biomass gasifier for power generation in Jiangsu is claimed to be replicated at Jiangsu’s Dongtai, Jurong, and Xuzhou where five 6 MW biomass gasifiers for power generation will be installed\. The PV water pumping project in Inner Mongolia has been replicated at Inner Mongolia’s Xilingoler for 10 solar water pumping systems of 2 kW capacity for drinking water supply and five 20 kW capacity systems for irrigation in Hohot’s Wuchuan County\. All these systems are operational and working well\. The building integrated PV (BIPV) project at Guanya Power Equipment company in Nanjing was replicated by the Tenghui BIPV project\. The recipient of the subgrant for the Zhejiang biogas power project mentioned that if they had to do the project again they would, among others, address the grid connection and tariff issue before commencing with the project\. The additional projects under the provincial demonstration projects were to prepare renewable energy investments in the pilot provinces and offshore wind projects\. One of the 5 projects will not be realized because of land acquisition problems in Inner Mongolia\. The other projects will very likely be realized\. The Jiantiao 21 MW tidal power plant has been listed as Zhejiang Province Key Project for 2011–15\. The Zhejiang DRC approved the feasibility study\. The developer is waiting for approval of implementation\. According to the respondents, it is (a) 100 percent certain that the 100 MW offshore wind farm in Fujian will be build; (b) 100 percent certain that the 100 MW pilot offshore wind farm in Hangzhouwan in Zhejiang will be build (the 60 wind farm has been listed on the offshore wind farm plan prepared by the local authority); and (c) very likely that the 150 MQW intertidal wind farm in Rudong County in Jiangsu province will be realized\. Other noteworthy comments are from Longyuan the developer of the 21 MW tidal power plant in Zhejiang\. Longyuan found in particular the midterm evaluation and the acceptance process (of milestones reached) efficient\. They would, however, have liked to reduce the cost for international consultants\. Investor Scale-up Support Facility (ISSF) Inner Mongolia North Longyuan Wind Power Company used the ISSF for the preparation of 4 additional wind farms\. Of these, the Wuliji 49\.5 MW phase 1 wind farm has been approved (Wuliji is in total 300 MW) and the Huitengxile 24 MW wind farm is under construction\. The company expects that also the other two projects (Huitengliang 49\.5 MW phase II project and Wulate Qianqi 200 MW wind farm) and remaining phases of Wuliji will be approved\. The CRESP support was important, since it reduced the project preparation risk and provided technical training and advanced international management experience\. It also contributed to standardization of project preparation procedures\. This contributed to scaling up the companies’ involvement in renewable energy\. The developer proposes to focus in CRESP Phase 2 more on training of technical and management staff, in particular for improvement of existing wind farms\. Technical training is considered fundamental for the companies’ growth\. In Zhejiang the ISSF was used to prepare 8 SHP projects\. Five of these projects are operational, while the other three are under construction\. The Zhejiang Hydropower Management Center considers the ISSF support flexible and suitable for different projects\. The conditions for disbursement are clearly defined, and the process is well defined in the Project Implementation Plan (PIP)\. It only considered that disbursement took too long\. Recommendations for Phase 2 include focusing on improving the performance of existing projects, including the development of new industry models, management, safety measures and restoring of environmental damage\. The response from Jiangsu Guoxin was, like all the others, very positive and specifically acknowledged the help provided by the PMO\. PMO Staff Survey Results PMO staff reduced from 16 at the start of CRESP to 5 at the end of CRESP\. Two PMO staff members were there from start to finish\. The PMO is of the opinion that CRESP Phase 1 was successful\. The original goals of CRESP Phase 1 were achieved, and the project had a significant impact on China’s renewable energy industry and significantly accelerated its development\. CRESP played an important pioneering role in renewable energy\. CRESP was involved in all of the most important milestones and aspects of renewable energy development in China in recent years\. This includes work on RE policy studies, wind turbine technology transfer, wind turbine standards, testing and certification, and long-term capacity building\. This established a solid foundation for further development of the renewable energy industry in China\. Through this work, CRESP brought advanced international concepts to China, most notably type certification\. 61 The PMO considers the national policy studies and technology improvement for wind had the biggest and most important impacts in China\. The provincial level activities are considered of limited impact\. The main problem in implementing CRESP was the workload\. One of the reasons for the tremendous workload was the fragmentation of a large number of small contracts\. Other reasons included the limited capacity of some of the provincial implementation bodies\. The PMO highlighted that the subgrant system overall worked very well\. The PMO feels very proud of the financial management system established by the PMO\. The system developed and used by the PMO served as a best practice example for other World Bank projects in China and abroad\. The electronic version of the contract files is another major achievement of the CRESP PMO that is well beyond what may be expected from an implementing agency\. This will serve as an example for other projects and may be developed further for use in other projects\. If the PMO had to redesign CRESP Phase 1 again, the PMO would: • Reduce the number of cost categories\. • Reduce the number of contracts\. • Only have a national program without pilot provinces\. World Bank supervision was helpful in the successful implementation of CRESP Phase 1, with good supervision quality\. However, supervision could have been more efficient by planning supervision missions better\. 62 Annex 6\. Stakeholder Workshop Report and Results The NEA, Ministry of Finance (MOF), and the World Bank jointly organized a stakeholder closing workshop at the end of CRESP Phase 1 to present achievements and share lessons learned\. The workshop was held in Beijing on December 15, 2011\. The workshop was well attended by more than 100 participants, including senior government officials (including the Vice Minister of the NEA, two deputy Director Generals from the NEA, a Director General from the MOF, senior officials from NPC’s Environmental and Resources Protection Committee, the National Development and Reform Commission, the Ministry of Agriculture, the Ministry of Water Resources, the Standardization Administration, and the Certification and Accreditation Administration, government’s think tanks, and provincial governments), project beneficiaries (including RE manufacturers, RE developers, research institutes, academic), RE industry associations, the World Bank team, and other international organizations (such as the UNDP, GTZ, and DANIDA)\. The closing workshop also presented awards to selected project beneficiaries in recognition of the achievements and outcomes as a result of CRESP support\. Both the NEA and MOF gave high marks to the significant contributions that the CRESP program made to China’s renewable energy scale-up, and thanked the World Bank for its assistance\. The senior government officials reiterated that renewable energy is a high priority to the government, and the fast-growing renewable energy development in China offers a good opportunity for close international cooperation, taking advantage of the cutting-edge global best practices with a focus on the most relevant renewable technologies, policies, and innovations in China\. They also told all the relevant parties to get ready for CRESP Phase II preparation and implementation\. Senior officials from the NEA presented the overall achievements and lessons learned from CRESP Phase I, demonstrating the strong government’s ownership of the CRESP program\. According to Chinese experts, CRESP Phase I has brought about over Y 9 billion investment in China in the renewable energy related industries, with annual incremental production more than Y 10 billion\. The positive social, economic, and environmental benefits also include 3\.5 billion kWh electricity added from renewable sources and about 9 million tons of greenhouse gas reduced for each year\. The participants highlighted the following achievements of the CRESP program: • CRESP has strongly influenced RE policy development, RE Law and regulations in China, through supporting policy studies and technical assistance to help develop and implement the RE Law\. The recommendations made in many policy studies supported by CRESP have been adopted by policy makers into laws and regulations\. In particular, feed-in tariffs for power and biomass, important studies under CRESP, have been instrumental to scale up RE development in China; • CRESP has played an essential role in rapid growth and quality improvement of the domestic wind, and to a less extend biomass, manufacturing industry, through supporting domestic manufacturers with cost-shared subgrants\. Before the CRESP project started, Chinese wind manufacturers were facing difficulties producing megawatt-scale wind turbines and securing international quality certification\. At the end of CRESP Phase I, four domestic wind manufacturers supported by the CRESP program have won Level A certification for their megawatt-scale wind turbine design, and in particular, Sewind has won type certification for its 2 MW wind turbine design from internationally recognized 63  wind turbine certification center\. The program also supported the development of 8 wind turbine standards based on international standards, and establishment of the wind testing and certification centers in China\. Today, China has four out of the top 10 wind manufacturers in the world\. The quality improvements and cost reduction of Chinese wind manufacturing industry has benefitted China and the world\. • CRESP has contributed to large-scale RE investments by supporting 2 x 100 MW wind farms in Fujian and Inner Mongolia, a 25 MW biomass power plant in Jiangsu, and 16 SHP plants with a total installed capacity of 24 MW\. These investments are among the largest RE investments at the time\. These projects substantially improved the capacity of RE developers\. In particular, the 100 MW wind farm in Fujian set high standards of large scale wind farms in China and is considered as a best practice in the country\. The project introduced and facilitated transfer of international best available technologies, improved quality and reduced costs of such plans, and set up cost benchmarks through international competitive bidding\. The SHP projects in Zhejiang province enhanced technical and management capacity of local small and medium-size enterprises, increased their access to financing, and improved SHP technical design, environmental and social safeguard, and installed capacity at project sites\. CRESP Phase I also assisted RE developers in identifying and preparing more than 1,000 MW of new RE investments through the support to the investors and supported the four pilot provinces (Jiangsu, Zhejiang, Fujian, and Inner Mongolia) for demonstration of 24 renewable energy projects under the GEF grant\. The participants also discussed the following lessons learned: • The commitment to a long-term partnership between the government and World Bank/GEF is a critical success factor of CRESP Phase 1\. • The conducive and effective RE policy framework is the driver for RE scale-up in China\. • The cost shared subgrant approach worked very well and proved to be a cost-effective way to leverage the GEF grant and build true ownership\. • Improving manufacturing quality is essential for the transition to a world-class manufacturing industry\. The simultaneous support for technology development, improved standards, development of testing services and development of certification services produced outcomes far greater than support of any of these activities in isolation\. • The piecemeal approach and fragmentation of policy study contracts resulted in lengthy delays and weakened policy impacts\. • Supporting RE policies in pilot provinces has become irrelevant with the issuance of the RE Law\. • For the investment projects the key lessons were as follows: o Focus should be on electricity generation (kWh) and not just installed capacity (kW)\. o Good quality, low cost, and high efficiency are essential for scale-up\. o International competitive bidding helps get the best cost-to-quality ratio\. o Allocating GEF resources for troubleshooting during implementation is of great help\. • A core project management team, with contributions from world-class international and Chinese experts is most cost effective\. The stakeholder workshop also had a lively discussion on the preliminary design and priorities for CRESP Phase II, which will incorporate these lessons learned and many useful suggestions made by the participants\. 64 Annex 7\. Summary of Borrower’s ICR and/or Comments on Draft ICR Summary of Borrower’s ICR The Borrower prepared a detailed Recipient Completion Report (Borrower ICR)\. The Recipient Completion Report described project outputs and outcomes by theme, changes during implementation, risks and sustainability, Borrower’s and Bank’s performance, and success factors, and lessons learned\. The Recipient Completion Report is summarized as follows: Outcomes: The renewable energy policy studies have provided important inputs and recommendations on improving China’s renewable energy regulations, development planning at the national and provincial level, electric power pricing, quota system, and industrial policy\. The CRESP-supported policies studies led to the issuance of 9 supporting policies: • Preparation for the Energy Law; • Amendment of the RE Law; • Notice on Measures for Renewable Electricity Surcharge Subsidies and Quota Trade System from October 2007 to June 2008—Ordinance Code NDRC Price No\. 3052 (2008); • Interim Management Regulation on Subsidy for Energized Biomass, MOF Economic Construction No\. 735 (2008); • MOF, Notice on Implementation Plan of Promoting Renewable Energy in Infrastructure, MOF Economic Construction No\. 306 (2009); • Interim Management Regulations on Financial subsidy for Solar PV on Buildings\. MOF Build No\. 129 (2009); • MOF, MOST, and NEA Notice on Implementation for Golden Sun Project—Ordinance Code MOF Build No\. 397 (2009); • NDRC Notice on Improved Price Policy for Grid-Connected Wind Power—Ordinance Code NDRC Price No\. 1906 (2009); and • NEA, Notice on Recommendation for Green Energy County\. NEA New Energy No\. 343 (2011)\. The Borrower’s ICR highlighted the following policy impacts: • Development of overall renewable energy development targets and technology development roadmaps to promote the sustainable development of the renewable energy industry in China\. • Gradual establishment of a suitable differentiated tariff system for renewable energy products to promote large-scale development of renewable energy\. • Development of a renewable energy development foundation to encourage a stable source of funding and investment mechanisms for renewable energy development\. • Development and promulgation of renewable portfolio approach to implement the RE Law and especially the power purchase of electricity generated from renewable energy\. • Improvement of incentive policies and regulatory measures for renewable energy industry development to facilitate healthy and rapid development of renewable energy industry in China\. 65  • Demonstration of the green energy county program to promote efficient renewable energy development and utilization in rural areas\. On the provincial level, 32 policies were supported, some of which have been adopted by local governments, and the implementation measures for the RE Law have been issued in pilot provinces and effectively implemented\. With the support of CRESP, a solid basis has been laid for the renewable energy scale-up development in Jiangsu Province, Zhejiang Province, Fujian Province, and Inner Mongolia\. The wind turbine technology transfer activities (WTTT) was successful in not only exceeding the targets for the 5 participating wind turbine manufactures, but also progressively building up their in-house design and engineering capabilities\. Although all projects were considered successful, the real winners will be those who can apply these capabilities to future technology development\. All the companies chose the same technology transfer route by developing partnerships with European partners to improve design and engineering capabilities to bridge the knowledge gap with international competitors\. They applied the capabilities and knowledge gained through such partnerships to design megawatt-scale wind turbines\. The design capacity building has led to the development of further turbines with longer blades and higher-rated capacities—a strong indicator of the success and sustainability of the wind turbine technology transfer\. A similar development took place at Wafangdian Bearing Company\. CRESP supported the development of the main shaft bearing for the 3 MW from Sinovel\. With the capabilities developed, the bearing manufacturer can now develop main shaft bearing for other wind turbines and is sufficiently confident to develop main shaft bearings for 3\.6 and 5 MW wind turbines\. The Chinese wind sector has undoubtedly met the challenge\. In a very short period, just three years of this Technology Improvement Program, the manufacturers have moved forward tremendously\. The technology gap has been closed, and costs have certainly come down as localization and competition has increased\. There has been considerable capacity building with much reduced dependence on overseas support in all areas\. The growing status and size of the Chinese turbine manufacturers is having a global impact\. Turbine prices have come down, in particular in new and developing markets such as Brazil\. Domestic manufacturers can offer their turbines at up to 30 percent lower cost than equivalent imported machines\. The Chinese offering has certainly influenced the market, directly through sharpening prices and competition, but also through adding greatly to the global manufacturing capacity\. In conclusion, CRESP Institutional Development and Capacity Building created a legal, regulatory, and institutional environment conducive to large-scale, renewable-based electricity generation\. Renewable electricity capacity and electricity production has significantly been increased, and the rate of increase is accelerating\. China has established ambitious renewable energy targets and is well on its way to meeting these targets\. The renewable energy industry in general and the wind industry in particular have gone through very rapid growth, and until recently saw big industrial players entering the wind turbine manufacturing market to produce large-scale wind turbines\. The project objectives are fully achieved\. Indicators: CRESP reached or substantially surpassed the indicator targets established at appraisal, except for the SO2 emissions reduction because of a dramatically reduced emission factor as a result of large-scale deployment of flue gas desulphurization\. 66 Sustainability: The Borrower considers many of the achievements of CRESP Phase 1 sustainable\. The Borrower mentions in particular the wind turbine testing and certification centers, the long- term capacity building training courses, and the provincial demonstration projects (in particular the 5 MW fixed bed gasifier developed by Gaoyou and Aoke Ruifing)\. The Borrower also believes that many of the projects for which CRESP supported project preparation will be realized\. In particular, the Zhejiang Jiantiao 21 MW tidal power plant and the 100 MW Fujian offshore wind farm are mentioned in this respect\. The sustainability is further expected to be safeguarded by CRESP Phase II\. Borrower Performance: The Borrower is of the opinion that during operation of CRESP, the PMO has functioned well\. Comprehensive internal procedures have been developed and used\. The financial management was done very well\. The PMO produced reports in line with World Bank reporting requirements and summary reports for internal use and use by the World Bank supervision team\. Over the years, CRESP has been audited frequently\. No problems were found\. In the most recent financial audit results, CRESP received the highest satisfaction rating from the World Bank and the highest ranking by the National Audit Office\. Out of the 49 World Bank programs, 11 received top ranking appraisal, which include the CRESP\. The PMO established a contract management and filing system that can serve as example for other project within and outside China\. The first phase CRESP has not only successfully introduced a verification mechanism for the financial subgrants, but also achieved very good financial management performance, which is highly appraised in a number of financial audits by China’s National Audit Office\. CRESP PMO played an incredible important role as a coordinator between the various departments of Government of China and the World Bank\. World Bank Performance: The CRESP PMO has a very pleasant cooperation with the World Bank\. In addition to trainings in procurement and payment at the beginning of the program, regular inspection and a supervision process also help capacity building progress in the PMO\. The success of CRESP phase I implementation owes much to the efforts of the World Bank\. Although the PMO is very grateful to all support provided by the World Bank, the PMO proposed some changes for Phase II\. These recommendations include the following: • Supervision can be less frequent, for example, 1–2 times a year\. More frequent and long missions take too much time from the PMO’s normal project management tasks and reduce work efficiency\. Adequate working time, combined with effective progress inspection, shall benefit the smooth implementation of the project\. • Before each supervision mission, the World Bank should provide a detailed work schedule and requirements, so that the PMO can plan the supervision missions better and prepare the required inputs before the mission arrives\. • World Bank staff should reserve more time for field visits instead of staying in Beijing too much\. Field visits will increase understanding and will help to solve problems quickly\. Success Factors: • 2005 Renewable Energy Law\. CRESP benefitted greatly from the quick passing of the RE Law in February 2005\. The CRESP PAD envisaged enactment of the law in 2009\. With the early enactment renewable energy, development proceeded much faster than anticipated\. • Active Involvement of Renewable Energy Enterprises\. Driven by national incentive policies, renewable energy industry is booming in China\. Both public and private 67  investments have entered the field of renewable energy\. A large number of Chinese institutes and companies have actively engaged in the renewable energy technology research and development, equipment manufacturing, and market penetration activities\. Many renewable energy bases have been developed\. Because of the support at government and corporate levels, new energy and renewable energy will lead a new round of energy industry growth\. • The Right Timing\. Timing can be everything and it appears that the timing and vision of the Wind Technology Improvement Program was right\. The Chinese wind industry is undoubtedly on a very steep learning curve, growing in size and in technology at a rate not seen elsewhere\. And it has the advantage of an established global knowledge base\. As an ever present theme, the Wind Technology Improvement Program aimed to benefit from this knowledge base by introducing overseas expertise to all the activities\. It was its effectiveness in the bringing of expertise to bear across the full breadth of the sector, which stood out\. • Integrated Programmatic Approach\. In demanding the level of quality dictated by the requirement for design approval, the turbine development also linked across to the work on standards and certification authorities\. Without this joining together of the strands of manufacture with standards and skills capacity building, the result would have been greater risk and a slower pace of development\. The CRESP program added value by addressing skills and capacity building across the wind sector\. It introduced expertise at a critical period of rapid growth, reducing the chances of the Chinese industry suffering from avoidable mistakes\. • International Cooperation\. With the strengthening of international cooperation in multiple formats, including international study tours, exchange workshops and seminars, concept and technology transfer, joint R&D, and international technical assistance, renewable energy technology gap between China and advanced countries are getting flat\. In some areas, China owns more advanced technologies\. Companies have improved their capacity because of the international exchanges, and they have gained experience and achieved fast growth\. The international cooperation activities have effectively contributed to the smooth implementation of CRESP\. Lessons Learned: • Use flexibility in design and implementation\. Some project activities planned were obsolete because of the very fast development of renewable energy in China\. The PMO in consultation with the World Bank cancelled some activities and redesigned new ones\. This flexibility is desirable\. • Separation of national and provincial activities did not work well\. The national and provincial level activities were difficult to coordinate\. The national level activities were implemented under the coordination of the NEA; while the implementation of local-level projects was coordinated by the four pilot provincial Energy Bureaus\. According to this model, the PMO has to establish two level teams to works with central and local government\. Because various ideas and different goals, it was difficult for the PMO in project coordination and hence affected implementation quality of some projects\. This complexity should be avoided\. • Avoid fragmentation\. CRESP Phase I had too many small activities\. This increased workload, reduced focus, and led to suboptimal use of the outputs\. • Avoid too much turnover of staff\. The PMO staff moved frequently\. In the CRESP project implementation, some project manager staff left for various reasons, for some posts staff members changed four times\. This has affected the continuity of project 68 management to a certain extent and resulted in a negative impact on PMO normal operation\. 69 Annex 8\. Comments of Cofinanciers and Other Partners/Stakeholders The only written comments received are from the subgrant recipients\. See Annex 5\. 70 Annex 9\. List of Supporting Documents 1\. Project Documents a\. World Bank Project Appraisal Document\. First Phase of CRESP\. May 19, 2005 (Report No\. 30698-CN) b\. World Bank Project Appraisal Document\. Follow-up Project to the First Phase of CRESP\. January 5, 2006 (Report No\. 33018-CN) 2\. Project Implementation Plans a\. PIP CRESP Phase 1 Institutional Development and Capacity Building (July 2005) b\. Pingtan Phase II Wind Farm Project (January 31, 2005) c\. 100 MW Huitengxile Wind Farm (January 25, 2005) d\. Rudong Biomass Power Plant (January 30, 2005) e\. Zhejiang Small Hydro (January 15, 2005) 3\. Closing Reports a\. CRESP Phase 1 Policy Summary Report\. May 2011\. b\. CRESP Indicators Report\. October 2011\. c\. CRESP Subgrant Report\. October 2011\. 4\. Supervision Reports (Aide Memoires) a\. Aide Memoire CRESP supervision mission September 6–23, 2011 b\. Aide Memoire CRESP supervision mission April 4–17, 2011 c\. Aide Memoire CRESP supervision mission July 12–30, 2010 d\. Aide Memoire CRESP supervision mission March 15 – April 2, 2010 e\. Aide Memoire CRESP supervision mission October 12–30, 2009 f\. Aide Memoire CRESP supervision mission April 20 – May 15, 2009 g\. Aide Memoire CRESP supervision mission January 12–24, 2009 h\. Aide Memoire CRESP supervision mission October 27 – November 7, 2008 i\. Aide Memoire CRESP supervision mission January 21–30, 2008 j\. Aide Memoire CRESP supervision mission August 13–24, 2007 k\. Aide Memoire CRESP supervision mission January 29 – February 9, 2007 l\. Aide Memoire CRESP supervision mission June 19–23, 2006 5\. Legal Documents a\. World Bank GEF Trust Fund Agreement\. CRESP Phase 1\. August 11, 2005\. 6\. Project Reports a\. Status of smart grids in Europe\. Math Bollen\. January 2011\. b\. Smart Grids: The US Perspective\. Mladen Kezunovic\. January 2011\. c\. Study Report on Development of Standards, Conformity Testing and Certification of Wind Turbines\. d\. Analysis on China Wind Power Industry Development and Policy Recommendations\. e\. CRESP Work Plan for Wind Power Public Technical Testing Platform\. Romax Technology Ltd\. f\. 2008 China Biomass Industry Report\. CREIA\. g\. 2008 China Wind Industry Report\. CREIA, December 2008\. h\. Pricing Mechanisms and Cost Sharing Systems for Renewable Energy Electricity\. Arrhenius\. July 2008\. 71 i\. Study on Apportionment Mechanism of Renewable Energy Development Fund\. Liu Shu Jie\. December 2008\. j\. Models on Renewable Power Pricing and Cost Sharing\. Zhou Sheng\. March, 2009\. k\. Study on Biomass Power Pricing Mechanism\. Yuan Zhenhong\. March, 2009\. l\. Suggestions on Promoting Rural Energy Development in Poor Area\. September 2008\. m\. Feasibility Study on Establishment of Wind Electricity Trade System in China\. Wang Jixue\. n\. Feasibility Study of Green Power Market in China\. December 2008\. o\. Develop Award Criteria for the Green Energy County\. Wang Gehua\. September 2008\. p\. CRESP Renewable Energy Industrial Development Report 2009\. 72  80° 90° 100° 110° 120° CHINA RUSSIAN RENEWABLE ENERGY SCALE-UP PROGRAM FEDERATION 50° Tongjiang KAZAKHSTAN Manzhouli HEILONGJIANG Harbin Suifenhe Kuytun MONGOLIA Changchun Urumqi Dahuangshan JILIN Turpan L XINJIANG N GO O Shenyang M I 40° NE LIAONING DEM\. Sea of Jining Dandong PEOPLE’S Yellow Hohhot REP\. OF Japan This map was produced by R\. BEIJING KOREA the Map Design Unit of The World Bank\. The boundaries, Tianjin Dalian colors, denominations and TIANJIN any other information shown on this map do not imply, on HEBEI Yantai REP\. OF the part of The World Bank Yinchuan Group, any judgment on the Shijiazhuang KOREA Taiyuan BO legal status of any territory, or any endorsement or SHANXI Jinan NING (Huang He) acceptance of such Lanzhou Qingdao Yellow boundaries\. QINGHAI Xining SHANDONG Sea Xinxiang Lianyuang GANSU Luoyang Kaifeng Weinan Baoji Sanmenxia Zhengzhou Xuzhou Tongguan Xi'an For detail, see JIANGSU inset A below SHAANXI HENAN Nantong Hefei SMALL HYDRO Nanjing Shanghai 30° SHANGHAI SICHUAN HUBEI ANHUI ING AREAS ABOVE 3,000 FEET ELEVATION Chang Jian g Wuhan Hangzhou Ningbo Chengdu East China Sea GQ Jiujiang SELECTED TOWNS ON Chongqing ZHEJIANG CH PROVINCE CAPITALS Nanchang NATIONAL CAPITAL Changsha PROVINCE BOUNDARIES HUNAN JIANGXI For detail, see INTERNATIONAL BOUNDARIES GUIZHOU Hengyang inset B below FUJIAN Fuzhou Guiyang 0 100 200 300 400 500 MILES Quanzhou 0 200 400 600 800 KILOMETERS GUANGXI GUANGDONG Xiamen TAIWAN BIOMASS POWER PLANT SELECTED CITIES WINDFARM SITES COUNTY CAPITALS 00 MW INSTALLED CAPACITY PROVINCE CAPITALS AREAS ABOVE 3,000 FEET ELEVATION COUNTY BOUNDARIES MAIN ROADS PREFECTURE BOUNDARIES RAILROADS PROVINCE BOUNDARIES RIVERS 119°30’ 120°00’ INSET A 121° 122° 33° INSET B 0 5 10 5 20 25 KILOMETERS LIANJIANG 0 5 10 15 20 25 MILES MINHOU Minhou Lianjiang 33° FUZHOU Fuzhou Tingjiang East China Sea 26°00’ Nanyu Mawei 26°00’ CHANGLE Changle Ferry Hai'an YONGTAI YONGTAI Rudong Rudong Biomass FUQING Rugao Power Plant Fuqing JIANGSU Chingfeng PROVINCE 32° PUTIAN Pingtan Windfarm PINGTAN 100 MW Pingchao 25°30’ Pingtan 25°30’ Nantong Haimen Qidong Daqiu Ch Jingjiang 32° an Zhangjiagang g Jia ng CHONGMING Jiangyin ISLAND Shicheng Chongming 0 10 20 30 KILOMETERS IBRD 33786 MAY 2005 Changshu 0 10 20 MILES SHANGHAI 121° 119°30’ 120°00’ MUNICIPALITY  IBRD 34208R 80° 90° 100° 110° 120° RUSSIAN CHINA CHINA FEDERATION 50° RENEWABLE TO THE PHASE 1 FOLLOW-UP PROJECT ENERGY SCALE-UP PROGRAM CHINA RENEWABLE ENERGY Tongjiang KAZAKHSTAN SCALE-UP PROGRAM Manzhouli HEILONGJIANG Harbin Suifenhe Kuytun MONGOLIA Changchun Urumqi Dahuangshan JILIN Turpan L XINJIANG N GO O Shenyang M I 40° NE LIAONING DEM\. For detail, see PEOPLE’S Sea of map below Jining Dandong Yellow REP\. OF Japan This map was produced by R\. Hohhot BEIJING KOREA the Map Design Unit of The World Bank\. The boundaries, Tianjin Dalian colors, denominations and TIANJIN any other information shown on this map do not imply, on HEBEI Yantai REP\. OF the part of The World Bank Yinchuan Group, any judgment on the Shijiazhuang KOREA BO legal status of any territory, Taiyuan or any endorsement or SHANXI Jinan NING acceptance of such Yellow Lanzhou (Huang He) Qingdao boundaries\. QI N GH A I Xining SHANDONG Sea Xinxiang GANSU Kaifeng Lianyuang Luoyang Baoji Weinan Xuzhou Sanmenxia Zhengzhou Tongguan Xi'an JIANGSU SHAANXI HENAN Nantong Hefei SMALL HYDRO Shanghai 30° Nanjing SHANGHAI SICHUAN HUBEI ANHUI ING AREAS ABOVE 3,000 FEET ELEVATION Chang Jian g Chengdu Wuhan Hangzhou East China Sea GQ Ningbo SELECTED TOWNS Jiujiang ON Chongqing ZHEJIANG For detail, see CH PROVINCE CAPITALS IBRD 34209 Nanchang NATIONAL CAPITAL Changsha PROVINCE BOUNDARIES HUNAN JIANGXI INTERNATIONAL BOUNDARIES GUIZHOU Hengyang FUJIAN Guiyang Fuzhou 0 100 200 300 400 500 MILES Quanzhou 0 200 400 600 800 KILOMETERS GUANGXI GUANGDONG Xiamen TAIWAN 112° 113° SHANGDU 114° KANGBAO 115° Chara’er 0 50 100 KILOMETERS Youyizhong 0 50 MILES CHAHA’ER HEBEI YOUYIZHONG WINDFARM SITES ZHANGBEI Zhangbei 00 MW INSTALLED CAPACITY Huitengxile JINING 100 MW Windfarm CHAHA’ER SHANGYI AREAS ABOVE 3,000 FEET ELEVATION Jining WA LL YOUYIGIAN T 41° 41° HUHEHAOTE Shangyi EA CHONGLI MAIN ROADS ZHUOZI GR Huangqi WAN- Hai Xinghe Wanquan RAILROADS Hohhot NEI Zhuozi QUAN Chara’er Zhangjiakou RIVERS Youyigian XINGHE ZHANGJIAKOU SELECTED CITIES LIANGEHENA Huai'an FENGZHEN Xuanhua COUNTY CAPITALS MONGGOL HUAI´AN L L XUANHUA PROVINCE CAPITALS Liangehena T WA Huai’ancheng EA HELINGE’ER Dai Fengzhen GR COUNTY BOUNDARIES Helinge’er Hai Tianzhen WALL PREFECTURE BOUNDARIES GUTIAN AT ZHUOLU GRE PROVINCE BOUNDARIES YANGYUAN SHANXI Yangyuan He Hun 112° 113° 114° YUXIAN Datong JULY 2012  80° 90° 100° 110° 120° RUSSIAN CHINA RENEWABLE ENERGY FEDERATION 50° SCALE-UP PROGRAM Tongjiang KAZAKHSTAN Manzhouli HE I LONGJI ANG Harbin Suifenhe Kuytun MONGOLIA Changchun Urumqi Dahuangshan JILIN Turpan L X I N JI A N G N GO O Shenyang M I 40° NE LIAONING DEM\. For detail, see PEOPLE’S Sea of IBRD 34208 Jining Dandong Yellow REP\. OF Japan This map was produced by R\. Hohhot BEIJING KOREA the Map Design Unit of The World Bank\. The boundaries, Tianjin Dalian colors, denominations and TIANJIN any other information shown on this map do not imply, on HEBEI Yantai REP\. OF the part of The World Bank Yinchuan Group, any judgment on the Shijiazhuang KOREA BO legal status of any territory, Taiyuan or any endorsement or SHANXI Jinan NING acceptance of such Yellow (Huang He) boundaries\. Lanzhou SHANDONG Qingdao Q I N GH AI Xining Sea Xinxiang GANSU Kaifeng Lianyuang Luoyang Baoji Weinan Xuzhou Sanmenxia Zhengzhou Tongguan Xi'an JIANGSU SHAANXI HENAN Nantong Hefei SMALL HYDRO Shanghai 30° Nanjing SHANGHAI SICHUAN HUBEI ANHUI NG AREAS ABOVE 3,000 FEET ELEVATION Chang Jian g Wuhan Hangzhou QI Chengdu Ningbo East China Sea NG SELECTED TOWNS Jiujiang Chongqing ZHEJIANG For detail, see O CH PROVINCE CAPITALS map below Nanchang NATIONAL CAPITAL Changsha PROVINCE BOUNDARIES HUNAN JIANGXI INTERNATIONAL BOUNDARIES GUIZHOU Hengyang FUJIAN Guiyang Fuzhou 0 100 200 300 400 500 MILES Quanzhou 0 200 400 600 800 KILOMETERS GUANGXI GUANGDONG Xiamen TAIWAN 118° 119° 120° 121° 122° JIANGSU To Changzhou Tai Hu SHANGHAI 31° To Shanghai To Xuanzhou 31° ANHUI 2, Xiaofengwangjiazhuang 1000 410 1, Laoshikan I an 3500 1307 Ha ngzho uW HANGZHOU Tia 30° nm u 30° ng Jia un ch Caoe Jiang Fu Xinanjiang ng J ia Payang 8, Nanjiang II 6, Tongbai 5, Changting 1600 300 10000 1949 1800 420 g g Jian Jian Qu ua Jinh 7, Nanjiang I 18, Xixialu 29° 6100 1200 4000 736 17, Yuxi I 29° 1000 278 g Jiang Lin 14, Jinlong II 11, Hebu Dong Hai 1600 422 2000 680 13, Jinlong I 3200 817 9, Yaxi I 3, Wutongyuan 7200 2290 1260 324 4, Xiakou 16, Pishiqu 15, Hedui 15000 1438 2000 545 JIANGXI 800 270 12, Hexi 3200 1153 Longquan X i 122° 28° 28° HYDROPOWER STATIONS IDENTIFICATION: Description Installed Capacity (kw) Output (101 kw • h) 10, Xiaojiuxi PROVINCE CAPITAL FUJIAN 2500 606 PRIMARY ROADS RAILROADS IBRD 34209R 0 20 40 60 80 PREFECTURE BOUNDARIES To Fuzhou JULY 2012 KILOMETERS PROVINCE BOUNDARIES 118° 119° 120° 121°

REVIEW

P000282

 ICRR 10437 Report Number : ICRR10437 ICR Review Operations Evaluation Department 1\. Project Data : OEDID : OEDID: C2244 Project ID : P000282 Project Name : Burkina Faso Education IV Project Country : Burkina Faso Sector : Primary Education L/C Number : C2244 Partners involved : EEC, Kingdom of Norway, Kingdom of Belgium Prepared by : Angela Ransom, OEDST Reviewed by : Linda Ankrah Dove Group Manager : Gregory K\. Ingram Date Posted : 08/18/1999 2\. Project Objectives, Financing, Costs and Components : Goals Increase the level of basic education in Burkina Faso Improve girls' access to education Promote social and economic development through the integration of population, health, nutrition, and environmental education in school programs Increase both public and private sector resources devoted to education Increase the efficiency in the use of education resources Objectives Increase the access and improve the quality of primary education Increase the quality of general secondary education Strengthen institutional development and the allocation and management of sector investments Components Increase the access and improve the quality of primary education Increase the number of primary school classrooms Promote female participation in education Improve students' health and nutritional status Upgrade the quality of teaching Increase the availability of textbooks and materials Improve the quality of general secondary education Upgrade teacher skills and school inspection Increase the supply of low-cost textbooks and teaching materials Strengthen institutional development and the management of sector investments Strengthen key sector institutions Improve the allocation of sector resources Increase the efficiency in the use of educational resources Promote private initiatives in the provision of education Finance Appraisal Estimate: IDA: US$24\.0 M; Govt: 0\.8 M; Local Particip: 1\.8 M; Norway: 3\.8 M; EEC: 7\.3 M; CIDA: 8\.7 M; Belgium: 0\.0 M Actual/Latest: IDA: US$26\.0 M; Govt: 0\.2 M; Local Participation: 0\.5 M; Norway: 3\.4 M; EEC: 3\.7 M; CIDA: 0\.0 M; Belgium: 5\.8 M Cost Appraisal Estimate: US$46\.4 M Actual/Latest: US$39\.6 M 3\. Achievement of Relevant Objectives : Quantitative targets were achieved for access and quality objectives \. One noteworthy example is that the proportion of qualified teachers increased from a national average of 18\.6 percent to 67\.7 percent (54\.5  percent in rural areas; 80\.8 percent in urban areas)\. The project objectives to develop low -cost strategies for school construction, teacher upgrading, and textbook and materials provision were successful \. Small enterprises and local community and laborers were used for the construction and rehabilitation of primary school classrooms \. SAR targets were exceeded and more than a third of the new classrooms were built using the local community approach \. Teams of pedagogical advisors were created to conduct decentralized inservice training for primary school teachers in networks of schools \. National competitive bidding to select private authors reduced the preparation time of manuscripts which combined with international competitive bidding to select private publishers to increase the supply and quality of low-cost textbooks and teaching materials \. Sufficient time devoted to consensus building within government and in the education community on sensitive policy issues before and during project implementation contributed to successful outcomes of policy measures to increase budgetary allocations for primary education and reduce student subsidies in secondary and higher education\. At the same time, the share of the primary education budget devoted to teacher salaries decreased, the amount allocated to materials and equipment increased, and the shortage of primary school teachers declined\. The ICR reports that pupil/teacher ratios have declined from 57:1 to 47:1 during the project period\. The ICR indicates that the government introduced incentives measures to promote private provision of education such as deregulation of fees, easier access to land for school construction, and government provision of inservice training for private school teachers \. As a result, enrollment in private schools doubled during the project period, although the proportion of girls did not increase \. 4\. Significant Achievements : According to the ICR, the construction and rehabilitation of primary schools together with the adoption of double-shift and multi-grade teaching contributed to the successful achievement of the enrollment objectives of the project\. The ICR assesses the achievement of enrollment objectives for females as mixed \. Although the share of girls enrolled rose from 31 to 39 percent in the public school system during the project period, the overall share of girls enrolled only increased from 37 to 40 percent and stagnated in private schools \. In OED's view, this may indicate the reluctance of even parents who can afford to pay for their children's education to invest in the education of girls \. The ICR reports that the use of competitive bidding to select private authors and publishers not only reduced the costs of textbooks 65 percent, but resulted in the project's publishing program being completed ahead of schedule and producing better quality textbooks \. OED notes that the ICR does not assess actual book use in the classroom or the ratio of textbooks per pupil which would provide greater indications of the impact of textbook availability\. According to the evidence provided, the project did contribute to the overall development of in-country capacity to procure, develop, produce, and distribute textbooks more efficiently and effectively \. The ICR and the Borrower's contribution to the ICR provide data which indicate that internal efficiency for primary education improved during the project period \. The proportion of pupils finishing primary school rose over 15 percent between 1985 and 1997\. During the same period, the number of years to produce a primary school graduate decreased from 26 to 12 years\. The success rate on the primary school certificate examination doubled while repetition rates decreased slightly \. Progressive reduction of student subsidies in secondary and higher education supported under the project, was accompanied by the development of criteria for allocating scholarships which give priority to females and/or students in scientific fields \. This will likely contribute to greater female participation in secondary and higher education, graduates with more relevant skills \. The ICR indicates that cost-recovery in the form of fees have been introduced in secondary and higher education\. For secondary education schools are able to use 75 percent of the fee amount to finance pedagogical inputs\. OED views this as a small step toward greater flexibility and decision -making at the school level\. OED concurs with the ICR assessment that the development of a draft Ten -year Basic Education Program and the integration of education issues into the country assistance strategy as evidence of the success of project activities to improve the policy analysis capacity within the Ministry of Basic Education \. 5\. Significant Shortcomings : Although government commitment and consensus on key policy issues appear strong, OED agrees with the ICR assessment that high levels of poverty and insufficient demand for education, especially in rural areas will  be an obstacle to sustained local financing \. External financing will be critical to sustain project achievements \. OED finds that weak donor coordination at the design and preparation stages had a negative impact on the project objective to introduce cost -sharing by local communities in the rehabilitation and construction of schools\. The local community questioned the rationale for cost -sharing in the IDA-financed project when it was not required in other donor -support activities in the same area \. In this regard, the ICR noted that the mid-term review was the catalyst for donor coordination \. In OED's view donor coordination occurred too late, considering their role in co-financing the project\. The performance of the project sub -component to improve educational evaluation and the examination system was not assessed in the main body of the ICR, although it is presented in the table on indicators of project implementation\. It is unclear to OED why the performance of this component did not receive deeper analysis since one of the key lessons of the ICR is the need for standardized assessment of student learning and better mechanisms to monitor educational access and quality \. The Region indicated that an evaluation of student achievement was carried out under the project, by the Conference of National Education Ministers, but an in-country mechanism for carrying out evaluation and assessment activities is not in place \. 6\. Ratings : ICR OED Review Reason for Disagreement /Comments Outcome : Satisfactory Satisfactory Institutional Dev \.: Partial Modest Sustainability : Likely Likely With continued external assistance \. Bank Performance : Satisfactory Satisfactory Borrower Perf \.: Satisfactory Satisfactory Quality of ICR : Satisfactory 7\. Lessons of Broad Applicability : OED agrees with the ICR lessons on the need for : a coherent and comprehensive framework for donor coordination and collaboration; greater emphasis on stimulating demand for education in poor and rural areas; and more attention to monitoring education access and quality, as well as evaluating student achievement \. OED finds that the success of the project's policy objectives underscores the importance of using IDA funds to leverage policy impact, especially for difficult and sensitive policy reforms \. At the design and appraisal stages, IDA strengthened the likelihood of successful implementation of policy measures to increase budgetary allocations for primary education and reduce student subsidies in secondary and higher education by making them conditions of tranche release in the first SAC \. The ICR does not spell out whether this was a sector or a structural adjustment credit; whether it originated in the Bank or IMF; and whether the condition was enforced \. OED received clarification from the Region that the operation was a World Bank Structural Adjustment Credit and that the conditions for tranche release were enforced \. Project experience indicates the need for flexibility when introducing innovative measures such as the textbook rental scheme\. At mid-term the project was able to adjust the scheme, which was originally limited to book rental, to meet the needs of beneficiaries with different abilities to pay : free book rental for those who could not afford to pay, rental fees for those who could afford them; and the sale of books to students who could afford to buy them\. 8\. Audit Recommended? Yes No Why? If done as a sector development, cluster audit \. 9\. Comments on Quality of ICR : The ICR was thorough and its arguments convincing \. It went beyond the cataloguing of quantitative achievements and outcomes and tried to provide an indication of broader impacts on the performance of the sector \.

REVIEW

P001658

 ICRR 10903 Report Number : ICRR10903 ICR Review Operations Evaluation Department 1\. Project Data: Date Posted : 06/26/2001 PROJ ID : P001658 Appraisal Actual Project Name : Fisheries Development Project Costs 15\.5 15\.1 Project\. US$M ) (US$M) Country : Malawi Loan/ Loan US$M ) 8\.8 /Credit (US$M) 7\.9 Sector (s): Board: RDV - Central Cofinancing 4\.5 4\.2 government administration US$M ) (US$M) (43%), Animal production (40%), Agricultural extension and research (13%), Other industry (4%) L/C Number : C2225 Board Approval 91 FY ) (FY) Partners involved : NDF, ICEIDA Closing Date 06/30/1999 06/30/2000 Prepared by : Reviewed by : Group Manager : Group : George T\. K\. Pitman John R\. Heath Alain A\. Barbu OEDST 2\. Project Objectives and Components a\. Objectives To realize the potential of the fisheries subsector to the economy as a whole \. This was to be achieved through : fish production to increase nutrition and food supply; generating off -farm employment to reduce rural poverty, particularly among women; ensure environmental conservation and sustainability; and improving subsectoral institutional capacity for policy formulation, research, planning, monitoring and regulation \. b\. Components There were four: Institution Building to strengthen the Fisheries Department with a focus on regulatory instruments and functions, staff training and technical assistance (US$7\.3 million)\. A corollary was for the FD to divest itself of all commercial enterprises (boat building, ice plants, commercial fishing, sale of gear and spares )\. Production Component to rehabilitate capture fisheries through support of traditional /artisinal fishermen, semi-commercial and commercial activities, and establish a pilot program to increase women's involvement in fish marketing (US$5\.3 million)\. Research directed at fish stock assessment, pilot lake conservation and aquaculture ((US$1\.9 million)\. Infrastructure Component to rehabilitate /upgrade and build access roads, fishing jetties and shore -based facilities ($1\.0 million)\. c\. Comments on Project Cost, Financing and Dates The project objectives were informally restructured in 1993 to eliminate the fisheries production component (because of fears of over-fishing), and simplification of components to more closely match the demonstrated lower -level institutional capability of the Fisheries Department \. Thus the objectives became focussed on improving the institutional and managerial capacity of the FD and measures to improve the enabling environment for private-enterprise in fishing and related activities, including boat building and supply of gears and services \. At mid-term review in 1996, further informal restructuring dropped the credit program, rural access roads and aquaculture initiatives and gave further emphasis to improving FD organization and management \. As the modified objectives were the result of inadequate appraisal and implementation problems and not unforeseen exogenous factors, the original objectives are the basis of evaluation \. 3\. Achievement of Relevant Objectives: The main objective, realizing the economic potential of the fisheries sector was not realized although sectoral institutional capacity was significantly improved, albeit not very efficiently \. 4\. Significant Outcomes/Impacts: A new and progressive Fisheries Conservation and Management Act was passed in 1997 and allows for co-management of artisanal fisheries which has improved the FD effectiveness in the field \. As a result, extension activities have allowed formation of 267 Beach Village Communities to manage and regulate fisheries in their localities - but only 34 have been trained\.  The Fisheries Department was reorganized, strengthened, rehoused, provided with logistical support and decentralized\. Divestiture of commercial activities took place but, in the absence of a viable private sector, they fell into disuse and the fisheries sector is less well served now than before the project - particularly the artisinal and semi-commercial fisheries\. The private sector commercial fisheries (MALDECO) was revitalized by project investment and now returns a pre-tax profit\. Incremental fish production attributable to the project increased by 900 tons compared with the 7,500 tons projected at appraisal\. The shortfall was caused by failure of the boat building component and credit support for fisheries which would have allowed artisinal fishermen to upgrade boats and move offshore, and the number semi-commercial paired-trawl fishing boats to increase (there were 10 operational at appraisal, only 4 at completion)\. Fisheries staff facilitated formation of 259 credit groups (covering about 4,000 people)\. While achieving high coverage of women and repayment, much of this credit went into trade of consumer goods not related to fishing \. It is unclear how much of the success of this component was due to parallel activities by other donors (GTZ)\. The Fisheries Training College at Mapwepwe was expanded and the college curricula updated and revised - however, its capacity far exceeds national requirements \. 5\. Significant Shortcomings (including non-compliance with safeguard policies): Appraisal was defective in that it diagnosed the FD as weak yet at the same time overloaded it with a complex array of activities, many of which it was ill -equipped to implement (like managing the new office replacement which eventually cost $7\.6 million against the $2\.4 million budgeted)\. As a result the project had to be restructured - twice\. The divestiture of FD's commercial activities was highly counter -productive because of inadequate understanding of local commercial incentives and interest \. Poor fishermen are worse off now than before the project and the Bank's focus on helping private sector commercial fishing is seen as insensitive in view of prevailing rural poverty in Malawi \. The fisheries credit program failed - in part due to restructuring of the credit sector - because of high interest rates (40-50%) and short-term lending that discriminated against investment in capture fisheries, fish processing and marketing\. The design of women's program to support fish processing activities did not match demand and failed because of lack of credit facilities, iceplants and cancellation following restructuring in 1996\. 6\. Ratings : ICR OED Review Reason for Disagreement /Comments Outcome : Unsatisfactory Unsatisfactory Institutional Dev \.: Modest Modest Sustainability : Unlikely Unlikely Bank Performance : Unsatisfactory Unsatisfactory Borrower Perf \.: Unsatisfactory Unsatisfactory Quality of ICR : Satisfactory NOTE: NOTE ICR rating values flagged with ' * ' don't comply with OP/BP 13\.55, but are listed for completeness\. 7\. Lessons of Broad Applicability: Failure to undertake realistic appraisal of institutional capability, capacity and limitations risks overloading projects with unachievable objectives and components \. Doctrinaire or ill-thought out privatization has high risks were the private sector has been suffocated by undemocratic political regimes\. Losing sight of the Bank's poverty alleviation goal and focussing investment on the private sector may create reputational risks to the Bank \. Reaction to unsubstantiated threats to the sustainability of natural resources may have perverse consequences - in this case, cancelling measures to promote off -shore fishing put greater pressure on fragile inshore fisheries and had adverse impacts on poverty alleviation objectives \. 8\. Assessment Recommended? Yes No Why? A cluster audit with the parallel GEF/SADEC Lake Malawi/Nyasa Biodiversity Conservation project may cast light on how to assess sustainable level of natural resource utilization and manage and regulate them \. 9\. Comments on Quality of ICR: Very thorough and candid - and it both explores the issues and provides good and consistent arguments underlying difficult judgements\.

REVIEW

P000219

 ICRR 10616 Report Number : ICRR10616 ICR Review Operations Evaluation Department 1\. Project Data : Date Posted : 06/20/2000 PROJ ID : P000219 OEDID:OEDID : C2230 Appraisal Actual Project Name : Energy sector US$M ) Project Costs (US$M) 32\.2 26\.3 rehabilitation Country : Burundi Loan /Credit (US$M) Loan/ US$M ) 22\.8 21\.6 Sector, Major Sect \.: Distribution & US$M ) Cofinancing (US$M) 3\.2 3\.1 Transmission , Electric Power & Other Energy L/C Number : C2230 FY ) Board Approval (FY) 92 Partners involved : CIDA, JPGA Closing Date 06/30/1996 12/31/1998 Prepared by : Reviewed by : Group Manager : Group : Kevin Warr Fernando Manibog Ridley Nelson OEDST 2\. Project Objectives and Components a\. Objectives The project's two objectives are to promote rational energy policies and strengthen the efficient management of energy resources\. b\. Components The project had four components : 1\. Develop efficient institutions in the country's energy sector and improve the quality of public investments; 2\. Increase efficiency in the use of energy resources through reforms in the pricing structure of electricity, petroleum products and wood fuels; 3\. Expand the population's access to electricity; 4\. Reduce the negative environmental effects of energy use through charcoal efficiency and improved stoves programs\. c\. Comments on Project Cost, Financing and Dates The Bank's portion of the financing was USD 22\.8 million\. Total disbursements equaled USD21\.6 million\. USD1\.2 million was canceled\. The project closed on December 31, 1998, 2\.5 years late\. The Canadian International Development Agency (CIDA) provided financing in the amount of USD 2\.8 million and the Japanese Government contributed USD 300,000 (approximately)\. The Government of Burundi contributed USD 2 million\. The implementation of the project was hindered by significant civil unrest, which began in 1993 and continued intermittently over the course of the project's life \. Implementation was further retarded by IDA suspension of its operations in the country from October 1996 to May 1997\. On June, 1997, IDA lifted the suspension\. 3\. Achievement of Relevant Objectives : Neither of the two objectives were achieved \. The project had the following outcomes : 1\. Develop efficient institutions in the country's energy sector and improve the quality of public investments : This component was not achieved \. While a financial restructuring package for REGIDESO was approved, it has not been implemented\. Some training took place and the division of responsibility between DGHER/REGIDESO was achieved, however, the quality of public investments remains poor and the institutions are still inefficient\. 2\. Increase efficiency in the use of energy resources through reforms in the pricing structure of electricity, petroleum products and wood fuels : This component was not achieved \. The electricity tariff has been revised, but REGIDESO continues to operate inefficiently \. 3\. Expand the population's access to electricity: This component was not achieved \. 4\. Reduce the negative environmental effects of the use of energy through charcoal efficiency and improved stoves programs\. The charcoal efficiency and improved stove programs were terminated because of the civil unrest\. This component was not achieved \. While the ICR notes that "a number" of households have been electrified in the rural areas, the ICR did not quantify the number of houses with electricity \. Indeed, because of the civil conflict, "the number of households in the rural areas with access to electricity is less now than  compared to when the project was launched \." Also, because of the civil unrest, REGIDESO's power system was vandalized and capacity dropped from 37 MW to less than 3 MW in 1995\. Under the project the power system was restored to about 27 MW, which is still less than it was before the project \. 4\. Significant Outcomes /Impacts : Except for the approval of a financial restructuring package for REGIDESO, the division of responsibilities between DGHER/REGIDESO, and staff training, there are very few significant outcomes \. 5\. Significant Shortcomings (including non -compliance with safeguard policies ): Many of the issues that were raised in the SAR still persist in the sector \. REGIDESO remains inefficient and the attempts to improve overall sector efficiency have been unsuccessful \. The pricing structure of petroleum and wood fuels has not changed \. 6\. Ratings : ICR OED Review Reason for Disagreement /Comments Outcome : Satisfactory Unsatisfactory OED rates the project as unsatisfactory, since this project did not achieve its objectives\. While the text indicates that the project was Marginally Satisfactory, this is not an option for the ICR Review ratings\. Institutional Dev \.: Negligible Negligible Sustainability : Uncertain Unlikely The OED rating is based on the continued civil strife in Burundi and the fact that most of the needed reforms have yet to be implemented\. Bank Performance : Satisfactory Unsatisfactory The risks were underestimated\. Bank supervision failed to insist on the appointment of a project coordinator outside the Ministry of Energy and Mines or the Government\. It also failed to advise the Government to cancel the credit after the economic embargo, when the project's satisfactory completion was highly unlikely\. Borrower Perf \.: Deficient Unsatisfactory OED's rating is the same as the ICR\. Quality of ICR : Unsatisfactory 7\. Lessons of Broad Applicability : In countries with a volatile environment, special attention should be given to political risks that may jeopardize the achievement of project objectives and implementation \. The SAR is deficient by not having raised the issue of political risk\. A Performance Contract between the Government and a Government -owned power utility is not necessarily an effective mechanism for improving the operational and financial performance of the sector or the utility \. The designation of an entity outside the government to implement the privatization program could help ensure greater commitment to the goal, more objective decision -making based on sound economic principles, and efficient implementation\. 8\. Audit Recommended? Yes No 9\. Comments on Quality of ICR : The quality of the ICR was unsatisfactory \. In its attempts to put the best face on the project, the ICR tried to derive too broad conclusions from unquantified and unsubstantiated information \. This detracted seriously from the overall quality of the ICR\. For instance the ICR's reference to the project 's, "forging of a national consensus about the benefits of private sector participation in the electricity and water sectors " is too broad and is unsubstantiated, especially since, at the writing of the ICR, there were no significant outcomes on the ground \. In another example, the ICR links the sponsoring of seminars and training to actual improvement in capacity without substantiating the causal link\. Finally, there are numerical discrepancies between the written text of the ICR and Annex 8B, (see pages 1, 8 and 9 as compared to page 20)\.

REVIEW

P098146

Document of  The World Bank  FOR OFFICIAL USE ONLY      Report No: ICR00004177        IMPLEMENTATION COMPLETION AND RESULTS REPORT  (IDA 58180, 52420, 43500)   ON A  CREDIT    IN THE AMOUNT OF SDR 45\.4 MILLION  (US$ 68\.1 MILLION EQUIVALENT)  TO THE  PEOPLE’S REPUBLIC OF BANGLADESH    FOR A  PUBLIC PROCUREMENT REFORM PROJECT II ( P098146 )    December 19, 2017              Governance Global Practice  South Asia Region        This document has a restricted distribution and may be used by recipients only in the performance of their official  duties\. Its contents may not otherwise be disclosed without World Bank authorization\.     CURRENCY EQUIVALENTS     (Exchange Rate Effective November 20, 16, 2017)    Currency Unit =  =  Bangladesh Taka (BDT)  BDT 78  =  US$1  US$1\.50  =  SDR 1      FISCAL YEAR  July 1 ‐ June 30      ABBREVIATIONS AND ACRONYMS  AF  Additional Financing  AF II  Additional Financing II  BCCP  Bangladesh Center for Communication Programs  BIM  Bangladesh Institute of Management  BIGD  BRAC University Institute of Governance and Development  BREB  Bangladesh Rural Electrification Board  BWDB  Bangladesh Water Development Board  CAS  Country Assistance Strategy  CIPS  Chartered Institute of Procurement and Supply/ U\.K\.  CPF  Country Partnership Framework  CPI  Corruption Perception Index  CPTU  Central Procurement Technical Unit  CSM  Civil Society Members  DLI  Disbursement‐Linked Indicator  e‐GP  Electronic‐Government Procurement  e‐PMIS  Electronic‐Procurement Management Information System  ECoP  Environmental Code of Practice  ESCB  Engineering Staff College Bangladesh  FI  Financial Institutions  FM  Financial Management  GCF  Government Contractors Forum  GOB  Government of Bangladesh  HQ  Headquarters  ICR  Implementation Completion and Results Report  ICT  Information and Communication Technology  IMED  Implementation, Monitoring, and Evaluation Division  ISM  Implementation Support Mission  ISR  Implementation Status and Results Report  LGED  Local Government Engineering Department  M&E  Monitoring and Evaluation  MCIPS  Member of The Charted Institute of Procurement and Supply  MIS  Management Information System   NCB  National Competitive Bidding  NSAPR  National Strategy for Accelerated Poverty Reduction  PAD  Project Appraisal Document  PDO  Project Development Objective  PE  Procuring Entity  PPA  Public Procurement Act   PPR  Public Procurement Rules/Regulation  PPRP  Public Procurement Reform Project  PPRPII  Public Procurement Reform Project II  PPSC  Public‐Private Stakeholders Committee  PROMIS  Procurement Management Information System  RHD  Roads and Highways Department  SRGB  Survey Research Group Bangladesh                              Regional Vice President: Annette Dixon  Country Director: Qimiao Fan  Senior Global Practice Director: Deborah L\. Wetzel  Practice Manager: Felipe Goya  Task Team Leader(s): Zafrul Islam  ICR Main Contributor: Paul J\. Kaiser           TABLE OF CONTENTS    DATA SHEET \. 1  I\.  PROJECT CONTEXT AND DEVELOPMENT OBJECTIVES \. 6  A\. CONTEXT AT APPRAISAL \. 6  B\. SIGNIFICANT CHANGES DURING IMPLEMENTATION \. 9  II\.  OUTCOME \. 12  A\. RELEVANCE OF PDOs \. 12  B\. ACHIEVEMENT OF PDOs (EFFICACY) \. 13  C\. EFFICIENCY \. 19  D\. JUSTIFICATION OF OVERALL OUTCOME RATING \. 20  E\. OTHER OUTCOMES AND IMPACTS \. 20  III\.  KEY FACTORS THAT AFFECTED IMPLEMENTATION AND OUTCOME \. 21  A\. KEY FACTORS DURING PREPARATION\. 21  B\. KEY FACTORS DURING IMPLEMENTATION \. 22  IV\.  BANK PERFORMANCE, COMPLIANCE ISSUES, AND RISK TO DEVELOPMENT OUTCOME \. 23  A\. QUALITY OF MONITORING AND EVALUATION (M&E) \. 23  B\. ENVIRONMENTAL, SOCIAL, AND FIDUCIARY COMPLIANCE \. 25  C\. BANK PERFORMANCE \. 26  Bank Performance Rating: Satisfactory \. 28  D\. RISK TO DEVELOPMENT OUTCOME \. 28  V\.  LESSONS AND RECOMMENDATIONS \. 28  ANNEX 1\. RESULTS FRAMEWORK AND KEY OUTPUTS \. 33  ANNEX 2\. BANK LENDING AND IMPLEMENTATION SUPPORT/SUPERVISION \. 42  ANNEX 3\. PROJECT COST BY COMPONENT\. 44  ANNEX 4\. EFFICIENCY ANALYSIS \. 45  ANNEX 5\. DISBURSEMENT LINKED INDICATORS\. 47  ANNEX 6\. BORROWER, CO‐FINANCIER AND OTHER PARTNER/STAKEHOLDER COMMENTS \. 50  ANNEX 7\. SUPPORTING DOCUMENTS \. 52        The World Bank Public Procurement Reform Project II ( P098146 )        DATA SHEET      BASIC INFORMATION   Product Information  Project ID  Project Name  P098146  PUBLIC PROCUREMENT REFORM PROJECT II ( P098146 )  Country  Financing Instrument  Bangladesh  Technical Assistance Loan  Original EA Category  Revised EA Category  Not Required (C)  Not Required (C)  Related Projects              Relationship  Project  Approval  Product Line  Additional Financing  P132743‐Additional  09‐May‐2013  IBRD/IDA  Finaning of Public  Procurement Reform  Project II  Additional Financing  P158783‐Second  06‐Jun‐2016  IBRD/IDA  Additional Financing to  Public Procurement  Reform Project II  Organizations  Borrower  Implementing Agency  People's Republic of Bangladesh, Economic Relations  Implementation Monitoring and Evaluation Division  Division (ERD)  (IMED), Central Procurement Technical Unit (CPTU)  Page 1 of 52  The World Bank Public Procurement Reform Project II ( P098146 ) Project Development Objective (PDO)    Original PDO  The Project Development Objective (PDO) is to improve performance of the public procurement system  progressively in Bangladesh, focusing largely on the target agencies\.  The PDO would be achieved by strengthening  the ongoing reform process and moving it further along with the following outputs: (i) enhanced capacity in  creating a sustained program to develop skilled procurement professionals, (ii) strengthened management and  monitoring of procurement in target agencies, (iii) introduction of e‐government procurement in CPTU and the  target agencies on a pilot basis, and (iv) creation of greater public awareness of a well functioning public  procurement system by engaging civil society, think tanks, beneficiaries, and the private sector\.  All these actions  are key elements in effective implementation of the procurement law/ regulations\.      FINANCING      Original Amount (US$)   Revised Amount (US$)  Actual Disbursed (US$)  World Bank Financing          23,600,000  23,600,000  24,041,237  IDA‐43500    34,500,000  34,500,000  32,446,437  IDA‐52420    10,000,000  10,000,000  9,638,638  IDA‐58180  Total    68,100,000  68,100,000  66,126,312  Non‐World Bank Financing        Borrower  1,300,000  4,800,000  3,610,000  Total  1,300,000  4,800,000  3,610,000  Total Project Cost  69,400,000  72,900,000  69,736,312        KEY DATES      Approval  Effectiveness  MTR Review  Original Closing  Actual Closing  05‐Jul‐2007  12‐Sep‐2007  09‐Dec‐2010  31‐Mar‐2013  30‐Jun‐2017      Page 2 of 52  The World Bank Public Procurement Reform Project II ( P098146 )   RESTRUCTURING AND/OR ADDITIONAL FINANCING      Date(s)  Amount Disbursed (US$M)  Key Revisions  09‐May‐2013  23\.62  Additional Financing  29‐Sep‐2015  39\.94  Change in Disbursements Arrangements  Other Change(s)  06‐Jun‐2016  45\.26  Additional Financing      KEY RATINGS      Outcome  Bank Performance  M&E Quality  Satisfactory  Satisfactory  Substantial    RATINGS OF PROJECT PERFORMANCE IN ISRs      Actual  No\.  Date ISR Archived  DO Rating  IP Rating  Disbursements  (US$M)  Moderately  01  28‐Mar‐2008  Moderately Unsatisfactory  0  Unsatisfactory  02  30‐Sep‐2008  Moderately Satisfactory  Moderately Satisfactory  1\.67  03  26‐Mar‐2009  Moderately Satisfactory  Moderately Satisfactory  2\.11  04  01‐Oct‐2009  Moderately Satisfactory  Moderately Satisfactory  3\.46  05  23‐Dec‐2009  Moderately Satisfactory  Satisfactory  3\.69  06  14‐Jun‐2010  Moderately Satisfactory  Moderately Satisfactory  4\.73  07  30‐Apr‐2011  Satisfactory  Satisfactory  8\.43  08  20‐Aug‐2011  Satisfactory  Satisfactory  9\.61  09  07‐Jan‐2012  Satisfactory  Satisfactory  10\.51  10  07‐Jul‐2012  Satisfactory  Satisfactory  12\.49  11  18‐Jun‐2013  Satisfactory  Satisfactory  15\.22  12  29‐Dec‐2013  Satisfactory  Satisfactory  18\.10  13  27‐Jun‐2014  Moderately Satisfactory  Moderately Satisfactory  19\.66  14  22‐Dec‐2014  Moderately Satisfactory  Moderately Satisfactory  22\.10  Page 3 of 52  The World Bank Public Procurement Reform Project II ( P098146 ) 15  22‐Jun‐2015  Satisfactory  Satisfactory  23\.36  16  01‐Feb‐2016  Satisfactory  Satisfactory  26\.77  17  06‐Jul‐2016  Satisfactory  Satisfactory  31\.77  18  30‐Dec‐2016  Satisfactory  Satisfactory  39\.63    SECTORS AND THEMES      Sectors  Major Sector/Sector  (%)    Public Administration  100  Central Government (Central Agencies)  80  Sub‐National Government  10      Information and Communications Technologies  100  Other Information and Communications Technologies  5      Social Protection  100  Social Protection  5      Themes    Major Theme/ Theme (Level 2)/ Theme (Level 3)  (%)    Private Sector Development  10    Public Private Partnerships  10        Public Sector Management  87    Public Finance Management  15    Public Expenditure Management  15      Public Administration  72    Administrative and Civil Service Reform  14    Transparency, Accountability and Good  58  Governance        Page 4 of 52  The World Bank Public Procurement Reform Project II ( P098146 ) Social Development and Protection  14    Social Inclusion  14    Participation and Civic Engagement  14            ADM STAFF  Role  At Approval  At ICR  Regional Vice President:  Annette Dixon  Annette Dixon  Country Director:  Johannes C\.M\. Zutt  Qimiao Fan  Senior Global Practice Director:  Deborah L\. Wetzel  Deborah L\. Wetzel  Practice Manager:  Felipe Goya  Felipe Goya  Task Team Leader(s):  Zafrul Islam  Zafrul Islam  ICR Contributing Author:    Paul J\. Kaiser                   Page 5 of 52  The World Bank Public Procurement Reform Project II ( P098146 )   I\. PROJECT CONTEXT AND DEVELOPMENT OBJECTIVES  A\. CONTEXT AT APPRAISAL  Context  1\. At the time of appraisal of the Public Procurement Reform Project II (PPRPII) in 2007, Bangladesh  was one of the least developed countries in the world, with 40 percent of the population living below the  national  poverty  line\.1  Despite  considerable  progress  in  reducing  poverty  since  the  country  became  independent  in  1971,  inefficient  and  ineffective  governance  practices  prevented  Bangladesh  from  achieving its full economic potential and accelerating the pace of poverty reduction\. Inefficiencies in public  procurement practices, poor financial  management (FM), and corrupt  practices were identified as  key  challenges that undermined good governance in the country\. Vested interests in maintaining the status  quo were strong, and there was initial reluctance by the political leadership to address these issues\.  2\. The World Bank 2002 Country Procurement Assessment Report, which was broadly endorsed by  the  Government  of  Bangladesh  (GOB),  identified  several  deficiencies  in  public  procurement  practices\.  They included the absence of a sound legal framework governing public sector procurement, protracted  bureaucratic  procedures,  a  lack  of  professionals  to  manage  public  procurement,  and  the  absence  of  transparency  and  accountability  mechanisms\.  With  World  Bank  support  through  a  credit  Public  Procurement Reform Project (PPRP), the GOB began addressing these issues in 2002 by establishing the  Central  Procurement  Technical  Unit  (CPTU),  issuing  new  public  procurement  regulations  in  2003,  and  enacting a Public Procurement Law in 2006 based on international best practices\. Despite these initial  accomplishments,  there  was  limited  progress  in  achieving  improved  procurement  outcomes\.  Ongoing  challenges  included  inconsistent  implementation  of  procurement  regulations  across  government  agencies, substantial delays in the issuance of contracts, and inappropriate bidding practices\.  3\. The World Bank’s 2006 Country Assistance Strategy (CAS), which was aligned with the GOB’s 2005  National  Strategy  for  Accelerated  Poverty  Reduction  (NSAPR),  identified  governance  as  the  major  constraint preventing Bangladesh from improving its investment climate and empowering the poor\. The  NSAPR  specifically  highlighted  the  need  for  enhancing  the  efficient  use  of  resources,  promoting  transparency and accountability in resource use, and tackling corruption\. PPRPII was designed to address  these  issues,  specifically  focusing  on  strengthening  the  public  procurement  system  at  the  key  sector  ministries/agencies, a key element of good governance\.  Theory of Change (Results Chain)  4\. The four clusters of activities and outputs in figure 1 correspond to the four project components  described in the original PPRPII, Additional Financing (AF), and AF II Project Appraisal Documents (PADs),  including the intermediate results/outcomes presented in the Results Frameworks and Monitoring Plans\.  The project focuses mainly on the four target agencies of the key ministries that spend about 50 percent  of  the  annual  development  program  of  the  GOB:  Roads  and  Highways  Department  (RHD),  Local  Government  Engineering  Department  (LGED),  Bangladesh  Water  Development  Board  (BWDB),  and  1 See: https://data\.worldbank\.org/indicator/SI\.POV\.NAHC?locations=BD\.  Page 6 of 52 The World Bank Public Procurement Reform Project II ( P098146 ) Bangladesh  Rural  Electrification  Board  (BREB)\.  The  theory  of  change  in  the  original  and  subsequent  projects  identified  the  following  assumptions  for  project  success:  (a)  capacity  of  the  CPTU,  the  implementing  agency,  to  implement  this  operationally  complex  and  politically  challenging  project;  (b)  sufficient Internet connectivity across the country to ensure fair and equal access by bidders/contractors  to  electronic‐government  Procurement  (e‐GP);  and  (c)  political  will  of  GOB  leadership  to  support  the  public procurement reforms required for improving the use of public resources with greater efficiency,  transparency, and accountability\.   5\. During  implementation,  the  CPTU  continually  enhanced  its  operational  capacity,  the  GOB  effectively rolled out Internet connectivity across the country, and the highest levels of GOB leadership  supported the reform agenda associated with PPRPII after initial reluctance\. This was the evolving context  for the theory of change described in Figure 1\.   Figure 1\. PPRPII Theory of Change/Results Chain at Appraisal  Note: BIM = Bangladesh Institute of Management; CIPS = Chartered Institute of Procurement and Supply; ESCB = Engineering  Staff College Bangladesh; GCF = Government Contractors’ Firm; PDO = Project Development Objective; PROMIS = Procurement  Management Information System\.  Project Development Objectives (PDOs)  6\. The  original  PDO,  as  stated  in  the  Legal  Agreement,  was  “to  strengthen  the  Recipient’s  public  procurement system, with a particular focus on improving the performance of Target Agencies, through  Page 7 of 52  The World Bank Public Procurement Reform Project II ( P098146 ) (a) enhancing capacity by creating a sustained program to develop skilled procurement professionals; (b)  strengthening  management  and  monitoring  of  the  procurement  process;  (c)  introducing  electronic  government  procurement;  and  (d)  creating  greater  public  awareness  of  a  well‐functioning  public  procurement  system  through  mobilization  of  civil  society,  think  tanks,  beneficiaries,  and  the  private  sector\.  All  these  actions  are  key  elements  in  effective  implementation  of  the  procurement  law/regulations\.”  The  PDO,  as  stated  in  the  PAD,  was  much  shorter  and  included  the  first  part  of  the  original PDO in the Legal Agreement, that is, “to improve performance of the public procurement system  progressively  in  Bangladesh,  focusing  largely  on  the  key  sectoral  ministries  and  targeting  their  implementing agencies\.”  Key Expected Outcomes and Outcome Indicators  7\. There were three expected outcomes, based on the original PDO (see Components 1–4 below  derived from the PDO) and reflected in the original PDO indicators: (a) about 60 percent contracts in at  least three target agencies reduce delays by making contract awards within the initial bid validity period,  (b)  e‐GP  introduced  in  at  least  two  target  agencies  at  the  headquarter  (HQ)  level  for  international  procurement, and (c) increased stakeholder engagement in following procurement issues in at least two  target agencies\. The project identified four agencies of the key sectoral ministries as ‘target agencies’:  RHD; LGED;  BREB; and the BWDB\.  The CPTU, housed in  the  Ministry of Planning and under the  direct  authority  of  the  Implementation,  Monitoring,  and  Evaluation  Division  (IMED),  was  designated  as  the  primary implementing agency\.  Components  8\. The  project  comprised  four  interrelated  components  that  are  summarized  below,  including  resource allocations and actual costs\. Also, project financing is provided in Figure 2\.  (a) Component 1: Furthering Policy Reform and Institutionalizing Capacity Development  (Total estimated cost: US$21\.4 million; Actual cost: US$21\.4 million)  ï‚ Support  the  public  procurement  reform  legal  framework  based  on  the  2003  Public Procurement Regulations and the 2006 Public Procurement Act (PPA)   ï‚ Enhance  the  capacity  development  program  that  provides  core  procurement  skills required to institutionalize procurement capacity  (b) Component 2: Strengthening Procurement Management at Sectoral Level and  CPTU/IMED (Total estimated cost: US$15\.9 million; Actual cost: US$10\.35 million)   ï‚ Strengthen  the  four  key  sectoral  target  agencies,  along  with  20  additional  agencies  in  seven  different  ministries  (added  in  the  AF),2  for  improved  management and monitoring of procurement  2 The seven ministries/divisions were Ministry of Education, Power Division, Ministry of Primary and Mass Education, Energy and Mineral  Resources Divisions, Ministry of Health and Family Welfare, Local Government Division, and the Ministry of Housing and Public Works\.  Page 8 of 52 The World Bank Public Procurement Reform Project II ( P098146 ) (c) Component 3: Introducing e‐Government Procurement (e‐GP) (Total estimated cost:  US$30\.2 million; Actual cost: US$33\.1 million)   ï‚ Pilot  e‐GP  on  a  phased  approach  in  the  targeted  agencies  to  increase  procurement  transparency  and  lower  transaction  costs  and  build  the  physical  capacity of the e‐GP system to sustain a countrywide rollout (added in the AF  and AF II)   (d) Component 4: Communication, Behavioral Change, and Social Accountability (Total  estimated cost: US$5\.4 million; Actual cost: US$4\.87 million)   ï‚ Create greater public awareness of the public procurement system and e‐GP by  engaging civil society, think tanks, beneficiaries, and the private sector with the  expectation of initiating a long‐term process of procurement monitoring\.    Figure 2: Project Financing (US$ Million)    B\. SIGNIFICANT CHANGES DURING IMPLEMENTATION  Revised PDOs and Outcome Targets   9\. Original PDO revisions\. The original PDO was clarified in 2013, but the intent of the original PDO  remained  unchanged\.  The  AF  PDO  was  to  “improve  performance  of  the  public  procurement  system  progressively  in  Bangladesh,  largely  focusing  on  the  Target  Agencies\.”  This  adjusted  PDO  was  shorter,  similar to the original PAD, and focused to reinforce the project ‘s four target agencies (RHD, LGED, BREB,  and  BWDB)  while  expanding  the  scope  to  provide  capacity  development  assistance  to  20  additional  agencies  in  several  sectors,  including  health,  education,  power,  and  public  works\.  The  more  detailed  content of the longer PDO at appraisal was further refined in the AF and AF II as project components and  intermediate results in the Results Frameworks and Monitoring Plans but not formally included in the  PDOs in the AF and AF II Legal Agreements\.  10\. Outcome revisions\. In the AF, PDO indicator targets (related to the reduction in delays in making  contract  awards,  the  rollout  of  e‐GP,  and  expanded  capacity  development)  were  scaled  up  to  reflect  expanded  scope,  additional  funds,  and  the  extended  closing  date\.  Two  new  indicators  were  added  to  reflect  assistance  to  the  20  additional  agencies  and  the  publication  of  quarterly  reports  by  the  target  Page 9 of 52 The World Bank Public Procurement Reform Project II ( P098146 ) agencies for monitoring of procurement performance\. In AF II in 2016, AF PDO targets were again scaled  up to reflect expanded scope, additional funds, and the extended closing date, and a new indicator related  to the rollout of e‐GP was added\.  Revised PDO Indicators  11\. PDO  indicators  were  revised  and  added  to  reflect  the  expanded  scope,  additional  funds,  and  extended closing dates of the AF and AF II\. Table 1 summarizes the PDO revisions in the AF and AF II\.  Table 1\. Revised PDO Indicators  Original  Additional Finance  Additional Finance II  Comments  About 60% contracts in  About 80% contracts  About 82% contracts  AF: Number of target  at least 3 target  awarded within the initial bid  awarded within the initial  agencies for PDO  agencies reduce delays  validity period by the 4 target  bid validity period by the 4  measurement  by making contract  agencies  target agencies  increased from 3 to 4  awards within the  and end target  initial bid validity  increased;   period  AF II: End target  increased  —  4 target agencies publish  4 target agencies publish  AF: Number of target  PROMIS quarterly report for  PROMIS quarterly report  agencies for PDO  monitoring of procurement  for monitoring of  measurement  performance covering 90% of  procurement performance  increased from 3 to 4  bids/invited contracts  covering 95% of  and end target  awarded  bids/invited contracts  increased;   awarded  AF II: End target  increased  e‐GP introduced in at  4 target agencies expand e‐ 4 target agencies expand  AF: Number of target  least 2 target agencies  GP to all 64 districts using  e‐GP to all 64 districts  agencies increased and  at their HQ level for  National Competitive Bidding  using NCB procurement  expansion from HQ to  international  (NCB) procurement (80% in  (83% in 2017)  districts;   procurement (80% in  2016)  AF II: End target  2016)  increased  Increased stakeholder  Dropped  —  Target achieved during  engagement following  original project  procurement issues in  at least 2 target  agencies  —  Procuring entities of 20  Procuring entities of 20  AF: Introduced to  additional agencies with one  additional agencies with  reflect measurement of  trained/certified  one trained/certified  new outcome;   procurement staff (70% in  procurement staff (78% in  AF II: End target  2016)  2016)  increased  —  —  Number of public sector  AF II: Introduced to  organizations registered in  reflect measurement of  the e‐GP system  new outcome in the e‐ GP system with  enhanced capacity  Page 10 of 52 The World Bank Public Procurement Reform Project II ( P098146 ) Revised Components  12\. All four components were revised in the AF, and two components were revised in AF II\. These  revisions focused on adding new and enhancing existing activities with additional funds and an extended  closing date\. Table 2 summarizes project component revisions in the AF and AF II\.  Table 2\. Project Component Changes  Original Component  Additional Finance  Additional Finance II  1: Furthering Policy  Scope of the capacity development program  Additional training provided for  Reform and  expanded to 20 additional agencies beyond the 4  bidders and master's students  Institutionalizing  target agencies, with further targeting and  Capacity  refinement of training programs that include  Development  procurement compliance and core competence  training, along with master’s level training in  procurement\.   2: Strengthening  The organizational capacity for procurement  Procurement  performance management further strengthened at  Management  CPTU and the four target agencies, with full  implementation of online performance monitoring  (PROMIS) using indicators and an M&E framework\.     3: Introducing e‐ The transaction levels of the four target agencies  Expansion of CPTU data center to  Government  substantially increased and the e‐GP network was  manage e‐GP growth  Procurement (e‐GP)   initiated in 20 additional agencies\.  4: Communication,  Efforts to raise awareness regarding public  Behavioral Change,  procurement reform and e‐GP through behavior  and Social  change communications and social accountability  Accountability  mechanisms strengthened     Other Changes  13\. Revised closing dates\. At the request of the GOB, the original closing date of March 31, 2013, was  extended by six months to September 30, 2013, to ensure implementation continuity and enable timely  processing of the AF, including its effectiveness within the project’s implementation time frame\.  14\. Additional Financing\.  There were also two AF agreements that expanded the scope, extended  closing  dates,  and  added  funds  to  the  project\.  The  original  total  estimated  project  cost  was  US$24\.9  million,  of  which  the  IDA  contribution  was  US$23\.6  million\.  In  the  AF,  this  was  increased  to  US$60\.9  million,  with  an  added  financing  of  US$34\.5  million  from  IDA\.  The  closing  date  was  extended  from  September 30, 2013, to December 31, 2016 (for both the original project and the AF)\. In AF II, the total  added project cost was US$12 million, with IDA financing of US$10 million\. With AF II, the total project  cost increased to US$72\.9 million, with IDA financing of US$68\.1 million\. The closing date for all three  credits was extended six additional months from December 31, 2016, to June 30, 2017\.  Rationale for Changes and Implications for the Original Theory of Change  15\. Rationale for changes\. The changes to the project reflected in the AF and AF II were in response  to  the  achievement  of  targets  in  the  original  project,  as  political  will  began  to  evolve  in  support  of  Page 11 of 52 The World Bank Public Procurement Reform Project II ( P098146 ) procurement reform, target agencies were beginning to see improved results, and the bidding community  increasingly  supported  World  Bank‐supported  procurement  reform  efforts\.  At  the  time  of  the  original  project appraisal, the GOB and the World Bank established modest and realistic project expectations in  specific reference to e‐GP, recognizing the sensitive nature of procurement reform, specifically the vested  interests  that  needed  to  be  overcome  to  improve  the  use  of  public  resources  with  greater  efficiency,  transparency, and accountability\. Over time, the CPTU successfully built on the stakeholders’ ownership,  both public and private, by extensive consultations and ground‐level engagements with behavioral change  communication program, followed by political support at a later stage for procurement reform to achieve  the targets set in the original, AF, and AF II projects\. The key rationale for AF was to introduce e‐GP with  an adjustment in the financing arrangement (DLI‐based financing) and expand the capacity development  program to additional 20 agencies\. Subsequently, due to the quicker‐than‐expected rollout of e‐GP, AF II  supported the development of enhanced capacity data center to accommodate increased demand across  the country so that all public‐sector organizations are covered\.   16\. Impact on theory of change\. The original theory of change remained relevant throughout the life  of the project\. The slight adjustments to the PDO, PDO indicators and targets, and project components in  the  AF  and  AF  II  further  refined  project  activities,  outputs,  and  outcomes  and  strengthened  their  relationship  to  the  PDO\.  Providing  additional,  targeted  training  for  key  procurement  stakeholders  (including  procurement  entities  and  the  bidder/contractor  communities),  adding  20  additional  agency  beneficiaries  across  a  wide  range  of  sectors,  and  further  refining  communication  and  stakeholder  engagement were three concrete changes to the project that contributed to the PDO by strengthening  the public procurement system while specifically improving the performance of the 4 target agencies\.  II\. OUTCOME  A\. RELEVANCE OF PDOs  Assessment of Relevance of PDOs and Rating    17\. The  current  Country  Partnership  Framework  (CPF)  for  Bangladesh  (FY16–20)  “identifies  governance reforms as a long‐term agenda that demands sustained effort as well as downstream and  upstream interventions” by supporting policies and systems that improve transparency and efficiency in  service delivery\. The current CPF specifically states the World Bank’s commitment to support Bangladesh’s  efforts to strengthen its public procurement system, including e‐GP\.  18\. Throughout the project appraisal process and implementation (2007–2017), the PDO’s focus on  strengthening the public procurement system and improving the performance of the four target agencies,  remained relevant to, and clearly supported, the World Bank’s objectives in Bangladesh\. In addition to the  current CPF, there are also references to the preceding Country Assistance Strategies (FY06–09; FY11–14)  since the project was originally developed in 2007\. The CAS FY11–14 specifically had a core governance  pillar  (enhance  accountability  and  promote  inclusion)  under  which  enhanced  transparency  and  accessibility of public services through information technology came in prominently\.  Relevance Rating: Substantial Page 12 of 52 The World Bank Public Procurement Reform Project II ( P098146 ) B\. ACHIEVEMENT OF PDOs (EFFICACY)  Assessment of Achievement of Each Objective/Outcome    19\. The achievement of the PDO is assessed by reviewing the achievement of the activities, outputs,  and outcomes associated with the four project components, which are reflected as intermediate results  in the Results Framework\. Throughout implementation, the GOB and the World Bank worked together  closely to assess the relevance of Intermediate Results Indicators used to monitor key activities and assess  the achievement of results associated with each component, along with the higher‐level PDO indicators’  relevance to the PDO\. There were slight adjustments to the PDO and Intermediate Outcome Indicators at  the time of the AF and AF II, with some dropped, added, and revised, retaining the main objective\. Several  also remained unchanged for AF II\.  20\. All PDO indicators were achieved fully, with some of them substantially exceeding the targets (for  example,  e‐GP)\.  This  has  contributed  to  bringing  about  a  systemic  change  in  the  public  procurement  environment  (see  annex  1  for  a  complete  list  of  indicators)\.  One  PDO  and  10  Intermediate  Results  Indicators were dropped in the AF because the targets were met in the original project\. The indicators  that were revised in the AF (two PDO and four Intermediate Results Indicators) and AF II (four PDO and  six  Intermediate  Results  Indicators)  also  achieved  indicator  targets  fully  and  were  adjusted  upward  to  reflect this progress\. The original PDO and Intermediate Results Indicator targets of e‐GP were modest  given  the  prevailing  challenging  environment  at  that  time  with  inadequate  infrastructure,  inadequate  knowledge of e‐GP, limited willingness of implementing agencies, and unsure political commitment\. Also,  it was not possible to accurately measure the political will of key decision makers, whose proactive and  public support for public procurement reform came at a later stage and their support of the rollout of e‐ GP was essential to project success\. Extensive stakeholders’ consultation and broad ownership of both  the  procuring  organizations  and  the  bidding  community  helped  substantially  in  the  successful  implementation  of  e‐GP  because  improved  transparency  in  e‐GP  attracted  large  numbers  of  the  beneficiaries\. This was reflected in the original theory of change for the project\. The improvements to the  overall  public  procurement  system,  resulting  from  the  capacity  development  and  e‐GP  initiatives,  are  summarized in Figure 3 in terms of efficiency, transparency, and competitiveness\.3 Similarly, Bangladesh  improved its ranking in the Corruption Perception Index (CPI)\. In 2007, the CPI ranking was 162 out of 179  countries, with a score of 2 (out of 10), while in 2016 it ranked 145 out of 176 countries, with a score of  26 (out of 100)\.  Figure 3\. System Improvements Indicator Results    3 Efficiency is measured in terms of timeliness of awarding tenders, transparency is related to the publication of awards, and  competition is based on the average number of bidders\. Improvement in these three measures correlated with the rollout of e‐ GP\.  Page 13 of 52 The World Bank Public Procurement Reform Project II ( P098146 ) 21\. Over time, the Prime Minister, Minister of Finance, and the Minister for Planning became strong  supporters of the project by observing its contribution to improving the procurement environment with  drastically reduced inappropriate and/or coercive bidding practices at the decentralized level\. They clearly  communicated  this  support  publicly  and  to  key  project  stakeholders\.  In  addition,  IMED  also  strongly  supported  the  project  and  the  CPTU’s  status  as  implementing  agency\.  CPTU  leadership  managed  to  capitalize on  this political  support while effectively  managing the project, despite  the ongoing staffing  challenges described in section IIIB\.   22\. While the PDO and Intermediate Results Indicators were organized in accordance with the four  project  components  that  guided  implementation,  many  of  them  were  cross‐cutting  and  mutually  reinforcing across components/Intermediate Results\. This contributed to the achievement of the PDO and  supported  the  longer‐term  goal  of  improving  the  use  of  public  resources  with  greater  efficiency,  transparency, and accountability\.  23\. A brief analysis of relevant project data, including Results Framework Indicator results (both at  the PDO and Intermediate Results levels), provides further empirical basis for an accurate assessment of  project efficacy\.   Intermediate Result/Component 1: Furthering Policy Reform and Institutionalizing Capacity Development   24\. The  project’s  comprehensive  capacity  development  program  effectively  provided  core  procurement  skills  required  to  institutionalize  procurement  capacity  at  the  4  target  and  20  additional  public agencies\. There were five categories of training offered by the project: (a) 1–5‐day short courses  for 17 different types of audiences covering policy makers to journalists; (b) three ‐week training sessions  on the procurement of goods, works, and consultant services along with e‐GP training for five days; (c) a  Procurement Core Competence Program offered by the  Chartered Institute of Procurement and Supply,  U\.K\. (CIPS) in collaboration with BRAC University Institute of Governance and Development (BIGD) for top  performers of the three‐week training sessions; (d) a top‐up Master’s Program in Procurement and Supply  Management offered by BIGD; and (e) a one‐year Master’s Program in Public Procurement Management  for Sustainable Development in the Turin School of Development at the University of Turin in Italy\.   25\. The establishment of this comprehensive capacity development program, with five discrete but  interrelated training opportunities (from one‐day courses to master’s level study), provided much‐needed  capacity for a wide array of procurement professionals\. By focusing on building the procurement training  capacity  of  two  local  training  institutes  (the  ESCB  and  BIM)  and  BRAC  University,  the  project  also  developed a sustainable approach to training procurement professionals\. Table 3 provides a final tally of  capacity development project beneficiaries\.   Table 3\. Capacity Development Program Beneficiaries  Capacity Development Program  Number of Beneficiaries  Comments  Short courses (1–5 days)  14,083  17 topics, multiple stakeholders  3‐week training sessions  6,414  4 target agencies, 20 additional agencies  MCIPS (CIPS‐UK and BRAC‐IGD)  143  Top performers in 3‐week training  Top‐up Master's Program (BRAC‐IGS)  107  Potential MCIPS participants  Master's (University of Turin)  25  Potential participants from target agencies  Note: MCIPS = Master’s Charted Institute of Purchasing and Supply\.  Page 14 of 52 The World Bank Public Procurement Reform Project II ( P098146 ) 26\. There were two indicators directly related to capacity development when the project closed: (a)  building  procurement  expertise  in  the  procurement  entities  of  the  20  additional  agencies  (PDO  and  Intermediate  Results)  and  (b)  building  the  capacity  of  the  ESCB  to  deliver  procurement  training  (Intermediate Results) from its own resources beyond PPRPII\. Both were added in the AF\.   27\. Three additional Intermediate Results Indicators focusing on capacity development were dropped  in the AF because targets were already achieved: (a) curriculum and training materials, (b) faculty capacity  at a local training institute, and (c) institutional capacity at a local training institute or university to deliver  core competence skill certification and accreditation in procurement\.   28\. There  were  indicators  fully  achieved  in  the  Results  Framework  for  the  second  part  of  this  component, which focused on furthering policy reform, along with one indicator in the Monitoring Plan\.  In the original and AF PADs, reference is made to supporting secondary legislation resulting from the 2003  Public Procurement Regulations and the Public Procurement Act (PPA)\. Policy reform activities focused  on  preparing  and  updating  policy  documents,  standard  bidding  documents,  request  for  proposals,  bid  evaluation  and  post  review  guidelines,  and  ensuring  for  transparency  and  accountability  by  posting  relevant public procurement information on appropriate GOB websites\. This work was done by the CPTU,  with the assistance of FINEUROP and ESCB\.  Intermediate Result/Component 2: Strengthening Procurement Management  29\. The  original  project  focused  on  improving  procurement  management  and  monitoring  in  the  4  target agencies, with an additional 20 agencies receiving procurement management support in the AF and  AF II\. Additional Component 2 activities included (a) initial development of M&E frameworks for the four  target agencies, (b) implementation of an online procurement performance monitoring system as part of  e‐GP, and (c) provision of additional space for the CPTU with the vertical extension of a third floor in its  building\. AF II enabled the CPTU to meet the unexpected rapid growth in e‐GP demand across the country,  with resources for additional processing and storage capacity of the e‐GP system\.  30\. There were four indicators that focused on strengthening procurement management when the  project closed: (a) reducing delays by making contract awards within initial bid validity period (PDO), (b)  publishing  online  PROMIS  quarterly  reports  for  monitoring  of  procurement  performance  (PDO  and  Intermediate  Results),  (c)  publishing  all  contract  awards  above  Public  Procurement  Regulation  (PPR)  thresholds on the CPTU website (Intermediate Results), and (d) the satisfactory handling of complaints  (Intermediate Results)\.   31\. Two  additional  Intermediate  Results  Indicators  were  dropped  in  the  AF  because  targets  were  already  achieved  in  the  original  project:  (a)  procuring  computer  hardware  and  software  and  (b)  the  submission of annual implementation plans\.  32\. Because the four target agencies embraced and implemented original project activities, indicators  were added and targets expanded in the AF and AF II to reflect this progress\. In addition, indicators were  also dropped that were achieved before the AF Agreement in June 2013\. When PPRPII ended on June 30,  2017,  all  indicator  targets  were  fully  achieved,  with  some  substantially  exceeding  these  targets\.  For  example, e‐GP achievements far exceeded the target, which contributed to transform the procurement  environment,  and  PROMIS,  which  tracked  procurement  entity  performance  related  to  efficiency,  Page 15 of 52 The World Bank Public Procurement Reform Project II ( P098146 ) transparency, and competitiveness, was effectively rolled out by the CPTU and implemented by all four  target agencies, eventually producing quarterly reports on a regular basis\. This system was integrated into  e‐GP as the e‐Procurement Management Information System (e‐PMIS) module, with the CPTU and the  four target agencies publishing quarterly procurement performance reports on their respective websites\.   33\. To create incentives for the target agencies to implement e‐GP and publish quarterly procurement  performance  reports  on  a  regular  basis,  Disbursement‐Linked  Indicator  (DLI)  with  performance‐based  financing, approximately valued at US$7\.5 million, was introduced in the AF\. There were two DLIs relating  to  e‐GP  introduction  and  procurement  performance  measurement  of  the  four  target  agencies\.  Disbursement was contingent on each of the four agencies meeting the above two DLIs\. Three of the four  target  agencies  spent  100  percent  of  their  available  DLI  funds  with  the  fourth,  the  BREB,  spending  87  percent\.  Intermediate Result/Component 3: Introducing e‐Government Procurement (e‐GP)  34\. The project initially, and realistically, piloted e‐GP in the four target agencies but subsequently  supported the rollout of this platform nationally for these four target agencies in the AF and AF II, once  initial targets were achieved\. It started with a pilot in four PEs only, then to 50 PEs, followed by 308 PEs,  and eventually 1000s of PEs in four target agencies\. The broadening of the scope of the e‐GP rollout in the  AF and AF II reflect the rapid and growing acceptance and use of e‐GP by procuring entities and the bidding  community, with the support of national‐level stakeholders and political leaders\. Currently, over 1,000  other implementing agencies are registered in the e‐GP system and many of them are using it\. Figure 4  elucidates the expanded rollout and use of e‐GP across Bangladesh by tracking the number of registered  bidders/suppliers,  the  number  of  bid  invitations,  and  the  value  of  these  bid  invitations  from  e‐GP’s  launching in 2011 until the end of PPRPII in June 2017\.  Figure 4\. Implementation of e‐GP Status    35\. The milestone of exceeding 100,000 e‐GP tenders by nearly 34,000 registered bidders over the  past  five  years  demonstrates  the  widespread  acceptance  and  sustainability  of  electronic  public  procurement throughout Bangladesh\.   36\. There were two indicators focusing on e‐GP when the project closed: (a) rollout of e‐GP in all 64  districts using NCB procurement by four target agencies (PDO and Intermediate Results) and (b) number  of public sector organizations registered in the e‐GP system (PDO)\.  Page 16 of 52 The World Bank Public Procurement Reform Project II ( P098146 ) 37\. Two indicators were dropped in AF because targets were already achieved in the original project:  (a) establishment of network and connectivity for management information systems (MIS) at the district  level at two target agencies and (b) development and installation of e‐GP at the CPTU and all four target  agency HQs\.   38\. In  a  survey  that  analyzed  the  impact  of  e‐GP  implementation  in  cost  savings  for  agencies  in  Bangladesh,  the  World  Bank  collected  comprehensive  procurement  contract‐level  data  from  implementing agencies\. Based on an analysis of this data, e‐GP reduced the cost ratio between 13 percent  and 20 percent, resulting in cost savings of more than US$ 446 million that includes transaction costs,  advertising cost, and record‐keeping costs\. There was also evidence that e‐GP improved competition by  limiting political influence, because the e‐GP system allowed bidders to place bids from anywhere there  was Internet access\. This limited rent‐seeking opportunity at various stages of the procurement process  that migrated to a more insulated, online environment in e‐GP\. Overall, e‐GP promoted more competition  among bidders, resulting in more competitive pricing and lowered transaction costs through improved  access for bidders across the country\. This resulted in cost savings, as shown in Figure 5\.  Figure 5\. Cost Savings in e‐GP    Intermediate Result/Component 4: Communication, Behavioral Change, and Social Accountability  39\. While  the  first  three  components  built  government  capacity,  this  supply‐side  approach  was  complemented by the fourth component’s attention to the demand for public procurement reform\. It  created  greater  public  awareness  of  the  importance  of  public  procurement  to  local  development  by  engaging civil society, think tanks, beneficiaries, and the private sector, along with key public officials at  the local and national levels\.  40\. The  CPTU  undertook  a  massive  behavioral  change  and  communication  campaign  to  demystify  procurement  at  the  grassroots  level  and  build  ownership  of  stakeholders\.  The  Bangladesh  Center  for  Communication Programs (BCCP) assisted the CPTU on promoting behavior change communication by  developing  and  implementing  a  multi‐faceted  communications  strategy\.  The  key  activities  included:  conducting 99 events on procurement reforms covering over 5,700 participants that includes future 64  search conference and e‐GP launching; convening 64 e‐GP awareness workshops at the district level with  over 2,400 participants; establishing 64 GCFs covering over 3,300 Pes and tenderers; and organizing four  e‐GP workshops including one at the national level for 44 registered banks in the e‐GP system\. The GCF  provided  an  informal  platform  for  GOB  officials  and  bidders  to  share  information  and  experience,  Page 17 of 52 The World Bank Public Procurement Reform Project II ( P098146 ) including  issues  and  resolutions  about  procurement  and  the  e‐GP  system\.  The  BCCP  also  developed  a  mobile  app;  produced  an  e‐GP  theme  song,  videos,  radio  and  television  commercials,  TV  talk  shows,  success  story  videos,  infographics,  email  and  on‐line  marketing;  and  created  two  digital  billboards  in  Dhaka that display online live procurement data with a direct feed from the e‐GP platform\. CPTU produced  newsletters, leading articles in media\.  41\. The CPTU pursued citizen engagement at the policy level by creating a Public Private Stakeholders  Committee (PPSC), headed by the Planning Minister, and comprising representatives of key GOB agencies,  leading think tanks, civil society, and business apex bodies\. The PPSC was designed as a platform to discuss  procurement policy guidance and provide opportunity for the public and private sector to share updates  and focus on challenges and opportunities associated with ongoing procurement reforms, including the  e‐GP rollout across the country\. The BIGD under BRAC University provided technical support to the CPTU  for the PPSC\. Concurrently, the BIGD also piloted citizens’ monitoring of procurement contracts at the  decentralized level through the establishment of citizens’ committees in four sub‐districts in two northern  districts\.  This  pilot  program  brought  together  community  members,  private  contractors,  and  local  procurement entities around a specific public works project, providing opportunities for joint oversight  and  problem  solving\.  The  BIGD  held  four  divisional  workshops,  produced  a  documentary  of  social  accountability, and shared its findings in a national citizens’ engagement forum\. Three case studies on  school construction and textbook delivery and three policy notes on citizen engagement and e‐GP were  also produced\.   42\. These activities demonstrated a clear recognition by the GOB and the World Bank that successful  procurement reform requires improved supply and informed demand by key stakeholders at the local and  national  levels\.  The  BCCP  and  BIGD  proactively  reached  out  to  key  stakeholders  across  the  country,  sensitizing them to the ongoing procurement reform process with a range of activities at the community,  district, and national levels\. Many of these activities were attended by CPTU officials and World Bank staff,  strengthening  relationships  and  increasing  communications  between  stakeholders  regarding  procurement  reforms  implemented  by  the  CPTU\.  Toward  the  end  of  the  project,  BCCP  conducted  a  qualitative perception opinion research (end‐line evaluation) of procurement reforms covering a target  group of tenderers, procuring entities, civil society members, media, and financial institutions\. Overall,  79\.3  percent  of  respondents  were  positive  about  improved  transparency  in  public  procurement;  76\.6  percent expressed procurement reforms as effective; 72\.3 percent recognized the system as efficient; and  81\.9 percent mentioned improved accountability\. Variations among audiences are summarized in Figures  6 to 9\.                       Figure 6: Opinion on Transparency of Procurement Reforms      Figure 7: Opinion on Effectiveness of Procurement Reforms      Page 18 of 52 The World Bank Public Procurement Reform Project II ( P098146 )     Figure 8: Opinion on Efficiency of Procurement Reforms             Figure 9: Opinion on Accountability of Procurement Reforms    43\. There were three Intermediate Results Indicators focusing on behavioral change communication,  and social accountability  when the  project  closed:  (a) GCFs held in all 64 districts, holding semiannual  meetings;  (b)  e‐GP  awareness  workshops  held  in  all  64  districts;  and  (c)  public‐private  stakeholders  committee workshops held\. There were no PDO Indicators\.  44\. Four  indicators  were  dropped  in  the  AF  because  targets  were  already  achieved:  (a)  increasing  stakeholder engagement on procurement issues in at least two target agencies (PDO), (b) developing a  government  communications  strategy  (Intermediate  Results),  (c)  organizing  communications  and  advocacy  workshops  in  all  64  districts  (Intermediate  Results),  and  (d)  convening  workshops  on  public  procurement and social accountability for key stakeholders (Intermediate Results)\.   Justification of Overall Efficacy Rating    45\. The project strengthened the public procurement system and improved the performance of the  four target agencies based on the achievement of PDO and Intermediate Results Indicator targets and the  project data presented earlier\. Both parts of the PDO were weighted equally in the original, AF, and AF II  PADs, and indicators and targets used were appropriate measures of project efficacy\.  Efficacy Rating: Substantial    C\. EFFICIENCY  Assessment of Efficiency and Rating    46\. The  project  was  designed  to  strengthen  the  public  procurement  system  and  improve  the  performance  of  the  four  target  agencies  by  supporting  sustainable  procurement  reforms  to  improve  competition in the competitive bidding process, reduce procurement delays, and improve procurement  quality through better management and monitoring at the target agencies\. To gauge the impact of project  activities, a set of well‐defined procurement performance indicators was developed and improved in the  AF and AF II\. The existing procurement management information systems at the CPTU and the four target  agencies were enhanced  and expanded to  monitor their performance against established benchmarks  Page 19 of 52 The World Bank Public Procurement Reform Project II ( P098146 ) throughout  implementation\.  Because  project  results  could  not  be  fully  quantified  in  monetary  terms,  there was no calculation of an economic rate of return\.  47\. The business model that was developed for the e‐GP system included revenue generation from  end‐user  fees  (bidders’  registration  fee,  renewal  of  registration,  and  sale  of  bidding  documents)\.  This  model was designed to ensure the sustainability of the e‐GP system beyond the life of PPRPII\. At the end  of  the  project,  the  e‐GP  system  was  generating  revenues  that  exceeded  initial  targets\.  Earnings  forecasts/actuals  are  as  follows:  FY14‐  US$0\.55  million/US$1\.8  million;  FY15‐  US$0\.95  million/US$4  million; FY16‐ US$1\.25 million/US$5 million; and FY17‐ US$2 million/US$ US$8\.8 million\. As opposed to  these  earnings,  on  average,  the  annual  operation  and  maintenance  cost  of  the  e‐GP  system  is  US$2\.5  million\.  This  exemplifies  that  the  system  is  already  generating  higher  revenues  than  expenses  and  is  becoming  self‐sustainable\.  The  CPTU  also  fully  funded  all  staff  salaries  throughout  the  project  and  implemented the e‐GP operation and management (O&M) contract including 24 x 7 helpdesk services  with substantial financing (60 percent) from the GOB\.  48\. Overall, the project costs incurred to achieve its broader objectives were reasonable in terms of  the  tangible  benefits  achieved  (as  described  in  the  last  section)  and  ‘value  for  money’  given  the  sustainability of these benefits\.    Efficiency Rating: Substantial    D\. JUSTIFICATION OF OVERALL OUTCOME RATING    49\. The PDO remained relevant to the GOB’s and the World Bank’s plans and priorities throughout  implementation\.  Project  objectives  measured  by  PDO  and  Intermediate  Results  Indicators  and  related  project  data  were  consistently  achieved  or  exceeded,  and  project  resources  were  efficiently  used  to  achieve sustainable results\.     Overall Outcome Rating: Satisfactory  E\. OTHER OUTCOMES AND IMPACTS   Gender  50\. AF II specifically addressed the impact of Components/Intermediate Results 1 and 3 on closing  the gender gap in public procurement\. The e‐GP created more professional opportunities for computer‐ literate women, particularly working in computer cafes given the increased Internet access demands by  the bidding community across the country and at procuring entities\. Women also participated in training  programs,  providing  them  with  opportunities  for  professional  advancement\.  Furthermore,  women  participated  effectively  in  the  citizen  engagement  component  with  specific  reference  to  contract  monitoring and e‐GP workshops at the decentralized level\.   Institutional Strengthening  51\. The project contributed to institutional strengthening of the public procuring entities, civil society  organizations, and associations along with the public and private sectors, through the training, technical  Page 20 of 52 The World Bank Public Procurement Reform Project II ( P098146 ) assistance,  and  outreach  initiatives  described\.  Key  public  sector  beneficiaries  included  the  focal  implementing agency, CPTU, along with the 4 target and additional 20 agencies\. Representatives from the  bidding community also received various levels of procurement training—in Dhaka and at the district and  sub‐district levels\. Civil society and educational organizations were also beneficiaries, including the BCCP,  BIDG, BIM, and ESCB\.  Mobilizing Private Sector Financing  52\. Not applicable\.  Poverty Reduction and Shared Prosperity  53\. Throughout  implementation,  there  was  a  growing  recognition  by  the  GOB  regarding  the  importance  of  enhanced  accountability  and  improved  governance  to  reducing  poverty,  improving  the  investment  climate,  and  accelerating  private  sector‐led  growth\.  Because  the  annual  government  expenditure on the procurement of goods, works, and services accounted for 20 to  40 percent of the  annual national budget and 60 to 80 percent of the annual development budget at appraisal, improving  procurement  was—and  continues  to  be—a  foundational  aspect  of  good  governance  and  enhanced  accountability\.  54\. PPRPII  addressed  accountability  and  governance  issues  directly,  improving  the  public  procurement  system  by  developing  and  successfully  rolling  out  e‐GP\.  During  consultations  by  the  Implementation  Completion  and  Results  Report  (ICR)  Team  with  key  GOB  stakeholders  and  representatives of the bidding community, there was a clear consensus among public and private sector  beneficiaries that the project improved accountability and governance in public procurement by limiting  opportunities for corrupt practices when e‐GP became operational\.4  55\. The e‐GP also leveled the playing field in the procurement process for the bidding community by  limiting the impact of personal connections, informal relationships, and rent‐seeking behaviors of public  officials at the national and local levels\. This contributed to a broader, shared prosperity in the bidding  community, empowering contractors previously unable to successfully navigate the daunting challenges  of the pre‐e‐GP paper‐based procurement process\.  Other Unintended Outcomes and Impacts  56\. Not applicable\.  III\. KEY FACTORS THAT AFFECTED IMPLEMENTATION AND OUTCOME  A\. KEY FACTORS DURING PREPARATION  57\. Project design\.  The project was well designed at the outset, aligning the original PDO with the  GOB’s and World Bank’s priorities (see section IA and IB), identifying appropriate activities relevant to the  PDO (see section IIB), and applying lessons learned from the PPRP, specifically regarding the importance  4 The ICR team conducted two missions to Dhaka in June and July 2017, meeting with the World Bank and CPTU teams, along  with a wide range of project stakeholders\.   Page 21 of 52 The World Bank Public Procurement Reform Project II ( P098146 ) of including the supply and demand dimensions of procurement policy reform\. There were four clearly  structured and sequenced components with an appropriate array of interrelated activities\. In addition,  there  was  a  clear  operational  logic  with  a  motivated  focal  implementing  agency  (CPTU),  4  targeted  agencies,  and  in  the  AF,  an  additional  20  agencies\.  There  were  also  19  legal  covenants  that  were  established for the project focusing on a range of operational issues related to the CPTU and target agency  staffing, installation of e‐GP systems, and performance and financial reporting\. Most covenants were fully  in compliance, with a few partially, at the end of the project\. Compliance was delayed for nine of these  covenants\.   58\. Results  Framework\.  There  were  five  PDO  and  nine  Intermediate  Results  Indicators  well  distributed across components when the project closed\. This included three indicators that were common  as PDO and Intermediate Results Indicators\. Eleven additional indicators were dropped in the AF because  targets were already achieved in the original project\.   59\. Monitoring Plan\.  The project’s Monitoring Plan placed the responsibility for data collection on  the CPTU and the four target agencies, with the assistance of the firm, Survey Research Group Bangladesh  (SRGB), which reported to the CPTU\. For the indicators that monitored incremental progress in achieving  specific results, target values were set annually for the anticipated five‐year duration\. Overall, appropriate  baselines and target were set, given the working assumptions of the GOB and the World Bank at the time  of appraisal, as reflected in the theory of change described in Section IA\.  60\. Stakeholder  selection\.  The  project  identified  a  subset  of  public  procurement  stakeholders  to  serve as implementers and beneficiaries\. This included the CPTU, the four target agencies, BIM, and ESCB\.  The CPTU and the four target agencies were the key drivers for developing and rolling out e‐GP, with BIM  and  ESCB  contributing  to  capacity  building\.  Additional  project  beneficiaries  included  the  bidding  community (including banks), along with civil society organizations, institutions of higher learning, and  professional associations representing bidders with common expertise and focus\.   61\. Risk mitigation measures\.  There were three risks to the PDO and six risks to component‐level  results identified at preparation, all rated Modest or Substantial\. The overall risk to project completion  was rated Substantial\. Lack of capacity, political will for reform, and willingness to embrace change were  three main drivers for these risks\. Project approach and planned activities were designed to mitigate these  risks  when  feasible\.  Component/Intermediate  Result  1  focused  on  capacity,  while  political  will  and  willingness  to  change  were  addressed  by  empowering  and  equipping  motivated  change  agents  in  implementer and beneficiary agencies\. A comprehensive stakeholder engagement and strategic behavior  change communication program was integrated throughout the life of the project to neutralize and/or  reduce the possibility of perceived risks from non‐PE and bidding community stakeholders such as civil  society organizations (CSOs), media, and other advocacy groups\.  B\. KEY FACTORS DURING IMPLEMENTATION  62\. GOB/implementing agency\. With the initial encouraging results on the ground, the GOB strongly  supported the rollout and increased use of e‐GP by government procurement entities and the bidding  community\. This was conveyed by the highest levels of political leadership (see section IIB)\. There were,  however, issues related to human resources and the organizational capacity of the CPTU during the early  stages of implementation\. A few positions were not filled, with this challenge compounded by periodic  Page 22 of 52 The World Bank Public Procurement Reform Project II ( P098146 ) staff transfers\. This contributed to the slow mobilization of project activities, but this was subsequently  resolved when the positions were eventually filled\.   63\. PPR 2008 and PPA 2006 served as the legal and regulatory foundation for project activities\. There  were—and continue to be—challenges associated with subsequent amendments to the PPA that were  not favored by some bidders and development partners, including the World Bank\. Some amendment  requirements  also  did  not  conform  with  international  best  practices  and  World  Bank  procurement  requirements\.  This  included  the  following  changes  to  provisions  for  contracts  valued  at  US$300,000:  lottery  for  works  contracts  in  case  there  was  a  tie  in  price  because  of  an  artificial  price  cap,  no  experience/qualification requirement for small‐value works contracts, and the rejection of bids above or  below  a  fixed  percent  of  the  estimate  for  small  works  contracts\.  None  of  these  amendments  were  or  continue to be acceptable for World Bank‐financed contracts\.   64\. There were no major issues related to basic logistics, M&E, or fiduciary, social, and environmental  practices\.  65\. World  Bank  PPRPII  team\.  The  World  Bank  Team  proactively  supervised  all  four  project  components and worked closely and collaboratively with the primary implementers of the project: CPTU,  the four target agencies, FINEUROP, ESCB, BCCP, and BIGD\. Continuity of project leadership (there was  one  Task  Team  Leader  throughout  appraisal  and  implementation)  contributed  to  building  strong  relationships with stakeholders and facilitating open and constructive dialogue that focused on resolving  issues as they arose\.   66\. Project  reporting  was  conducted  regularly  and  predictably,  ensuring  that  project  data  were  routinely collected and analyzed by the GOB and used to effectively monitor implementation progress\.  There were some challenges with the collection and analysis of data for the project, but the team carefully  monitored this and worked closely with the CPTU and SRGB to resolve these challenges\.   67\. There were 18 implementation supervision missions that were conducted on a regular basis, with  detailed and well‐documented Aide Memoires\. In addition, 17 Implementation Status and Results Reports  (ISRs) documented implementation progress according to the Results Framework and Monitoring Plan up  to December 2016\. The 18th and final Implementation Support Mission (ISM) findings and conclusions  are recorded in the ICR\.   Outside Project’s Manageable Control: Not applicable  IV\. BANK PERFORMANCE, COMPLIANCE ISSUES, AND RISK TO DEVELOPMENT OUTCOME  A\. QUALITY OF MONITORING AND EVALUATION (M&E)  M&E Design  68\. Project M&E was conducted by the CPTU and target agencies\. The SRGB assisted the CPTU by  preparing semiannual reports on the overall project M&E, including progress on the Results Frameworks,  for review by the World Bank\.   Page 23 of 52 The World Bank Public Procurement Reform Project II ( P098146 ) 69\. Results  monitoring  for  the  original  project  covered  (a)  procurement  activities  by  the  target  agencies to determine compliance with the PPR, (b) procurement performance by the target agencies, (c)  a  capacity  development  program  and  its  impact,  (d)  behavioral  change  communication  and  social  accountability subcomponents, (e) the status of procurement and FM, and (f) overall project performance  and its impact\. For each component, a separate monitoring system was developed\.   70\. AF results monitoring was enhanced by addressing (a) procurement performance by the target  agencies, (b) capacity development by the additional agencies, (3) procurement monitoring by the target  agencies using PROMIS, and (d) conducting of procurement using e‐GP\.  71\. Due to quicker‐than‐expected progress in developing and rolling out e‐GP in the AF and AF II, and  strengthening civic engagement during the original and AF projects, the M&E design in AF II was further  refined\. The GOB established e‐PMIS for tracking procurement performance with a set of indicators to  measure  efficiency,  transparency,  and  competitiveness  of  the  system,  with  all  four  target  agencies  publishing e‐PMIS indicator reports on their respective organization websites and on the CPTU website\.  During  AF,  e‐GP  system  information  became  available  to  the  public,  including  bid  invitations,  contract  awards, and  quarterly online  procurement performance monitoring reports with 45 system‐generated  indicators\.  72\. To  meet  the  demand  side  of  governance  with  civic  engagement  as  the  ‘third  eye’  on  overall  procurement,  the  model  of  third‐party  monitoring  was  piloted  by  the  BIGD,  with  two  field‐level  nongovernmental organizations using feedback from the citizen committee at the subdistrict level\. The  PPSC,  which  included  high‐level  representatives  of  different  key  stakeholders  including  leading  think  tanks, regularly convened to provide strategic support\.  73\. Overall, project M&E covered all components and subcomponents of the project, with M&E data  used to evaluate the project in three stages: baseline at preparation and progress made at midterm and  end  of  project  implementation\.  The  indicators  selected  for  all  the  three  projects  adequately  reflected  PPRPII’s theory of change, tracking progress made for all four project components and, more generally,  for the PDO\. Two project indicators were repeated as PDO and Intermediate Results Indicators without  any explanation in the AF II PAD\.  M&E Implementation  74\. During  implementation  of  the  original,  AF,  and  AF  II  projects,  M&E  implementation  gradually  improved after a challenging start\. The SRGB initially did not collect, analyze, and report the data needed  for  the  Results  Frameworks  and  Monitoring  Plans,  requiring  the  World  Bank  and  CPTU  to  clarify  expectations\. This was well documented in many Aide Memoires, proactively addressed by the Task Team  Leader  and  the  team,  and  further  discussed  during  ISMs\.  The  e‐GP  system  offered  systematic  data  collection which enabled the SRGB, along with the  World Bank  and CPTU, to access much of the  data  required for the Results Framework and Monitoring Plan regularly during the AF and AF II\.  75\. The target agencies and the CPTU provided required information to the SRGB, including direct  data  from  the  agencies;  published  data  in  the  MIS  of  the  target  agencies’  and  CPTU  (e‐PMIS);  and  documentation of field visits, consultations with official sources (including the bidding community, civil  society, and beneficiary groups), and interviews with key informants\.  Page 24 of 52 The World Bank Public Procurement Reform Project II ( P098146 ) M&E Utilization  76\. The  project  effectively  used  the  original  and  AF  Results  Frameworks  and  Monitoring  Plans  to  update and improve subsequent iterations for both AF agreements\. Both PDO and Intermediate Results  Indicators were dropped and added based on progress achieving indicator targets, with some indicator  targets increased to reflect strong progress in implementation\. The methodology for one indicator was  revised to improve accuracy based on available data\. No targets were lowered in the original, AF, and AF  II projects\.  Justification of Overall Rating of Quality of M&E    77\. Despite initial challenges with the M&E firm (SRGB) and the unexplained repetition of indicators  in the PDO and Intermediate Results categories, overall the project Results Framework and Monitoring  Plan did a commendable job capturing  results, adapting to the rapid acceptance of  e‐GP  by procuring  entities and the bidder community\. The original and AF indicators also appropriately informed the content  and form of both AF agreements\.     M&E Quality Rating: Substantial    B\. ENVIRONMENTAL, SOCIAL, AND FIDUCIARY COMPLIANCE  78\. Environmental  compliance\.  The  project  was  assigned  Category  ‘C’  at  preparation,  since  no  environmental impacts were expected to arise due to project implementation\. This designation remained  for  the  AF  and  AF  II\.  Overall,  the  project  did  not  involve  any  acquisition  of  land  and  displacement  of  population,  and  there  were  no  project‐affected  persons  issue  on  this  account\.  The  AF  supported  the  vertical  extension  of  the  CPTU  building  (from  two  to  three  stories),  but  no  significant  and  irreversible  environmental  impacts  arose  during  implementation,  and  the  construction  was  subject  to  proper  adoption of an Environmental Code of Practice (ECoP), including occupational health and safety issues\.  The bidding document included environmental clauses and kept provisions for better occupational health  and safety for the workers\. The Public Works Department supervised and ensured proper implementation  of the ECoP\.   79\. Social compliance\. Extensive efforts under PPRPII contributed positively to changing the ‘mindset’  of  stakeholders,  including  public  procurement  officials  and  the  bidding  community\.  Under  the  AF,  the  involvement of civil society organizations and project beneficiaries further contributed to procurement  monitoring, with specific reference to e‐GP awareness and bringing the reform agenda at the grassroots\.  The  framework  for  stakeholder  participation  (a)  initiated  a  gradual  approach  to  the  concept  of  social  accountability  in  procurement,  (b)  conducted  public  awareness  campaigns  in  the  beneficiary/user  communities, and (c) instituted a communications strategy to build support procurement reform\.  80\. The social accountability and citizen engagement subcomponent of the project included PPSCs,  GCFs, and third‐party monitoring by citizen/beneficiary groups on a pilot basis in two districts covering  four sub‐districts\. This approach generated deep interest in the community to take the reforms to the  grassroots and is concurrently making the public procurement officials more accountable to the citizens\.  Page 25 of 52 The World Bank Public Procurement Reform Project II ( P098146 ) 81\. The  project  also  contributed  positively  to  improved  gender  inclusion\.  The  e‐GP  initiative  (Component  3)  specially  created  more  opportunities  for  the  computer‐literate  female  workforce  at  computer cafes and in data processing specifically in the bidding community and procurement entities\.  Furthermore, women benefitted from capacity development (Component 1), and increased participation  in the monitoring of procurement contracts through citizen engagement\.   82\. Fiduciary compliance\. The CPTU, with the assistance of two FM consultants, implemented PPRPII  in the absence of its own FM organization\. The target agencies received project funds through the CPTU  in  their  dedicated  project  bank  accounts\.  In  the  AF,  funds  were  disbursed  to  the  agencies  based  on  achievement  of  targeted  results  related  to  DLIs\.  After  initial  challenges  establishing  the  disbursement  modalities related to DLIs, they served their purpose and three of the four target agencies received 100  percent of available DLI funds, with the BREB receiving 87 percent\.  C\. BANK PERFORMANCE  Quality at Entry  83\. Strategic relevance and approach\. The World Bank leveraged the GOB’s evolving understanding  of the importance of procurement reform to good governance at entry, building on, and learning from  the PPRP, the previous operation\. The 2003 PPR, followed by subsequent passage of the PPA 2006 and  issuing  the  PPR  2008,  provided  the  legal  framework  for  developing  a  strategic  approach  to  public  procurement reform in Bangladesh\.   84\. Technical,  financial,  and  economic  aspects\.  The  World  Bank  team  that  prepared  PPRPII  adequately considered the technical, financial, and economic aspects of the proposed project\. The PPRP  provided  some  helpful  lessons  learned,  including  nontechnical  elements  such  as  political  economy  analyses  to  inform  and  improve  implementation  and  operationalizing  technical  insights  regarding  the  importance  of  addressing  both  the  supply  and  demand  aspects  of  supporting  and  institutionalizing  sustainable  reform\.  The  IDA  funds  allocated  for  the  original  and  two  AF  projects  correctly  reflected  absorption capacity for the implementing agency and four target agencies\.   85\. Poverty,  gender,  and  social  development  aspects\.  The  World  Bank  team  focused  on  the  importance of good governance to economic growth and poverty reduction, based in part on the GOB  and World Bank strategic planning documents\. While gender was not an explicit focus of the original, AF,  and  AF  II  projects,  there  was  a  recognition  that  the  project  could  promote  gender  inclusion,  even  if  indirectly\. Social development was directly related to Component 4 activities related to behavior change  communication and stakeholder engagement (see section IVB)\.  86\. Environmental and fiduciary aspects\.  The World Bank assessed that the project was a Category  ‘C’ at entry, because no environmental impacts were expected during implementation\. Category ‘C’ status  remained for the AF and AF II as well\. Given limited FM capacity of the CPTU at entry (see section IIIB),  the World Bank supported hiring of two FM consultants to address fiduciary requirements and build the  CPTU’s capacity in this area\.   87\. Policy and  institutional  aspects\.  The World Bank Team and GOB recognized at preparation that  the  2003  PPR  along  with  the  PPA  required  follow‐up  assistance,  including  the  revision  of  bidding  Page 26 of 52 The World Bank Public Procurement Reform Project II ( P098146 ) documents and English language translations of key documents\. Component 1 specifically addressed this  requirement\.   88\. Implementation arrangements\. The CPTU was identified as the lead implementing agency, given  its  prominent  role  as  the  public  procurement  focal  point  for  the  GOB,  and  to  ensure  implementation  continuity  from  the  PPRP  to  PPRPII\.  The  four  target  agencies  were  also  identified  as  important  implementing  partners  given  the  project’s  focus  in  building  the  capacity  of  procurement  entities  to  improve public procurement across sectors and throughout the country\. Three of the four target agencies  had a physical presence outside Dhaka\.  89\. M&E arrangements\. The M&E framework at entry for the original, AF, and AF II projects evolved  to  reflect  implementation  progress,  additional  funds,  and  expanded  scope\.  This  was  done  by  adding  indicators, increasing targets for existing indicators, and dropping indicators when targets were met\. The  GOB and the World Bank recognized the needed for additional M&E support at preparation and hired a  consultant  to  assist  the  CPTU  with  data  collection  and  analysis  required  for  the  project’s  Results  Frameworks and Monitoring Plans\.   90\. Risk assessment\.  The Bank Team assessed the overall risk to PDO achievement and component  results  as  substantial\.  The  main  assessed  risk  to  PDO  was  inadequate  support  and  commitment  from  target agency upper management at the initial phases due to the sensitive nature of procurement reform,  and  the  important  role  they  needed  to  play  in  initially  piloting,  and  subsequently  rolling  out  e‐GP\.  Component #4 activities related to civil society monitoring of procurement processes were assessed as  the  most  controversial  and  highest  risk  to  achieving  results  due  to  the  politically  sensitive  nature  of  monitoring in sub‐districts outside of Dhaka\.  Quality of Supervision  91\. The  World  Bank  conducted  18  ISMs  which  carefully  monitored  implementation  progress  and  identified key challenges to development impact that required additional attention by the GOB and the  World  Bank\.  The  World  Bank  team  was  a  multi‐sectoral  team  with  fiduciary,  urban,  water,  transport,  energy, communication, and information and communication technology (ICT) expertise\. Key staff and  consultants  with  required  technical  expertise  at  the  component  level  participated  in  these  missions  regularly\.  The  project  Task  Team  Leader  and  most  team  members  were  based  in  Dhaka,  with  a  few  international consultants hired on an as‐needed basis\. The team developed an intimate knowledge of the  project and maintained a strong working relationship with the GOB\.   92\. The PDO and longer‐term outcomes in the theory of change informed the prioritization of the  challenges identified during ISMs and routine oversight protocols\. The Aide Memoires for ISMs clearly  identified  these  challenges  and  documented  general  recommendations  for  the  GOB,  along  with  key  stakeholders including the CPTU, the four target agencies, and others involved in implementing activities  for each component\. The ISR also documented progress against Results Framework indicators and legal  covenants\.   93\. The World Bank team prioritized sustainable project outcomes for all four components and for  the PDO more generally\. Building the capacity of the ESCB to deliver procurement training without project  funds and developing a business model for e‐GP that prioritized cost‐recovery from user fees were two  Page 27 of 52 The World Bank Public Procurement Reform Project II ( P098146 ) innovative approaches used by the GOB and the World Bank to prepare for project sustainability after the  project closes\.  Justification of Overall Rating of Bank Performance  94\. Despite the highly challenging environment, the World Bank team’s continuous efforts to pursue  the  reform  agenda,  by  consistently  maneuvering  and  adjusting  its  approach  to  implementation,  is  commendable\. Most ISMs were held on time, fully and transparently recorded in Aide Memoires, and  followed  by  quality  ISRs\.  This  formal  ISM  is  beyond  the  day‐to‐day  field‐based  supervision  of  project  implementation by the World Bank team\. Generally, the team was realistic and, at times, conservative in  the ratings included in the ISRs\. Overall, the team demonstrated its passion for reform and was able to  form a critical mass within the GOB’s leading agencies who themselves now own the agenda\. It is rare for  politically  sensitive  and  challenging  reforms  to  be  supported  and  institutionalized  by  governments,  especially when they go against vested interests in the system\. This took several years to be accomplished,  but the World Bank’s perseverance and partnership with the GOB was well worth the effort\.    Bank Performance Rating: Satisfactory    D\. RISK TO DEVELOPMENT OUTCOME    95\. There  are  two  primary  risks  to  the  development  outcome,  specifically  related  to  financial  sustainability and government/stakeholder ownership of, and commitment to, the continued rollout and  institutionalization  of  e‐GP  across  the  country\.  This  requires  continued  political  support  for  public  procurement reforms that facilitate greater efficiency, transparency, and accountability\.   96\. Regarding financial sustainability, the GOB needs to remain committed to restructuring the CPTU  to (a) enhance its authority to recruit high‐performing information technology professionals, (b) further  refine its current business model that generates revenues from user fees to cover operational costs, and  (c) continually upgrade the e‐GP system to meet the increasing demand and improve existing services\.   97\. As described in section IIIB, the GOB made some PPA amendments, of which couple were not  consistent with international best practices or with World Bank procurement requirements\. To ensure the  continued  development  of  a  transparent  and  accountable  e‐GP  system,  the  GOB  will  need  to  remain  committed to public procurement reforms that ensure the integrity of e‐GP, and public procurement more  generally, even when there are political pressures against this\.  V\. LESSONS AND RECOMMENDATIONS  98\. The following lessons learned and recommendations from PPRPII can inform future World Bank‐ funded  governance,  and  more  specifically,  procurement  reform‐related  projects  focusing  on  policy  reform, e‐GP, and capacity development\. Given the success of this operation, which is the World Bank’s  single  largest  operation  in  procurement  reform  under  credit  financing,  these  lessons  and  recommendations offer tangible and practical insights transforming global knowledge into ‘good local fit’  practices that may help in undertaking procurement reforms in other countries and regions\.   Page 28 of 52 The World Bank Public Procurement Reform Project II ( P098146 ) 99\. Challenges  and  enabling  conditions  for  a  sustainable  reform\.  Enabling  conditions  for  a  sustainable reform are not straightforward in a challenging environment like Bangladesh and often follows  a complex trajectory, affected by numerous factors such as external influence, vested interest groups,  political backlash, conflicting interest of stakeholders, corrupt practices, lack of appreciation to pursue a  good  governance  agenda,  and  reluctance  to  change\.  Despite  this,  the  factor  that  remained  as  crucial  enabler  was  the  appropriate  recognition/understanding  of  the  country’s  operating  context  and  its  inherent political economy\. Other key supporting enablers include—recognizing the Government as the  driver  of  reforms;  identifying  a  political  leader  to  manage  the  political  pathway;  working  with  a  few  reform‐minded public officials both at the core ministry and the implementing agency level to design and  implement  the  actual  reform  actions;  and  coordinating  with  influential  stakeholders  outside  the  Government  (bidding  community/civil  society)\.  In  that  regard,  the  development  partner’s  role  was  instrumental in terms of providing the required global knowledge and technical support with funding\.  100\. Commitment and ownership\.  Successful and sustainable procurement reforms require ongoing  high‐level commitment and ownership of the key stakeholders, especially the implementing agencies and  the bidding community, as well as high‐level political commitment from the government\. Such combined  ownership enhances the probability of sustainable reform\. Although both operations enjoyed support of  the two governments in power that came successively from two opposition parties, such backing was not  high at the initial phase of reforms\. Instead, the actual implementation of crucial reforms like e‐GP was a  bottom‐up approach, mainly owned by the mid‐level public officials of a few key agencies (who wanted  to see changes) and a relatively young bidding community, both with knowledge of computers\. Initially, it  was  a  slow  growing  ownership  of  the  e‐GP  system  by  those  stakeholders\.  The  project  implementers,  including the key officials of the CPTU and the four target agencies key officials, leveraged the support of  enthusiastic mid‐level officers and the young community of bidders and banks by widening the ownership  circle\. When political leaders saw that e‐GP was becoming popular at the field level because it reduced  rampant  bid‐rigging/coercion/collusion,  and  thus  directly  contributing  to  containing  unruly  elements,  then they started to support e‐GP\. Within a short time, e‐GP became one of the most prominent political  commitments  of  the  Bangladesh  Prime  Minister,  along  with  key  members  of  the  Cabinet  (Finance,  Planning) who supported and mandated its rollout in all of the nation’s 64 districts\. This was evidenced  by the successful development and exponential rollout of e‐GP\.   101\. Sustainable  institutional  mechanism\.  Having  in‐built  institutional  mechanism  within  the  Government’s existing framework makes the reform more sustainable in the longer term, although the  pace of reform initially may be slow\. An example of such sustainable mechanisms is how the CPTU has  been fully funded by the Government, as opposed to creating a Project Implementation Unit with project  funds\.  Over  time,  the  CPTU’s  visibility  within  the  Government  has  become  highly  prominent,  with  credibility ratings of the implementers and the bidding community\.   102\. Self‐sustainable e‐GP business model\.  Early attention to developing a locally relevant, revenue  generating  e‐GP  business  model  can  help  instill  long‐term  sustainability  that  is  not  dependent  on  the  government  or  development  partner  resources\.  Generated  revenue  can  cover  e‐GP  operation  and  maintenance costs, along with new investments in the system, and also can strengthen and accelerate  the e‐GP roll‐out while increasing revenue over the long‐term\. Despite initial concerns over such a model  and its feasibility, it eventually worked very well in Bangladesh\. PPRPII’s revenue generation model has  resulted in the establishment of a sustainable e‐GP system and also contributed to its accelerated roll‐ out\.   Page 29 of 52 The World Bank Public Procurement Reform Project II ( P098146 ) 103\. Continuity  of  engagement\.  The  slow  process  of  procurement  reform  needs  sustained  engagement  by  the  government  as  the  leading  agent,  along  with  other  stakeholders  including  the  development partners (if applicable), to bring about desired changes in institutions and systems\. Tangible  outcomes on the ground resulted from a sustained effort over time through two successive interventions  to granulate and institutionalize policy changes and capacity development within the government system\.   104\. Leadership continuity\. Longer‐term and comprehensive reform initiatives require continuous and  uninterrupted knowledge of, and commitment to, the sequential and inter‐related activities that achieve  sustainable  results\.  The  GOB  successfully  managed  changes  in  the  CPTU  with  minimal  disruption  to  implementation  by  appointing  two  successive  qualified  and  experienced  Project  Directors  with  deep  interest in reforms\. In addition, there was only one PPRPII Task Team Leader throughout the project life  cycle, from conception to completion\. The continuity in leadership facilitated progressive implementation  and ensured progression of the thought process, with the focus on the implementation of activities and  achievement of sustainable results on the ground\.   105\. Change management and client‐Bank relationship\. The Bank team and the key government team  at the CPTU worked like one unit for the same goal, without a hierarchical regime\. Building an informal  relationship of collaboration created huge momentum within this core group to collectively pursue the  arduous reform agenda\. The CPTU Head and Bank Task Team Leader worked hand‐in‐hand at all times,  while maintaining their own institutional boundaries\. At the implementation level, members of technical  working groups at the four target agencies implemented the critical tasks of actual reform actions at the  head office and decentralized level\.  106\. Sequencing  of  reform  activities\.  Proper  sequencing  of  actions  over  a  longer‐term  horizon  is  critical, most likely through a series of successive interventions/operations that have specific objectives  within  the  overall  reform  framework\.  Lessons  learned  from  PPRP  were  incorporated  in  the  design  of  PPRPII, and internal learning from the second operation was incorporated in the two subsequent PPRPII  additional  financing  mechanisms\.  Based  on  PPRPII  learning,  recently  another  new  operation  has  been  approved with US$55 million credit financing for digital project implementation monitoring at national  level and e‐GP enhancement across the entire country\.  107\. Supply  and  demand  of  reform\.  Implementation  of  politically  sensitive  and  challenging  public  procurement reform requires attention to the supply and demand sides of the procurement life cycle\.  Supply‐side issues related to developing an efficient and effective legal and regulatory framework and  enhancing  the  service  delivery  capacity  of  key  implementers  need  to  be  complemented  by  nurturing  informed demand for such reforms\. PPRPII supported ongoing procurement reform, developed and rolled  out e‐GP, and built the capacity of key implementers to effectively use this system while also focusing on  educating potential users and beneficiaries about the benefits of PPR and, more specifically, e‐GP\. The  communications and behavior change components of the project specifically focused on the demand side\.   108\. Communication  and  behavior  change  of  stakeholders\.  Sustainable  and  transformative  policy  reform needs an integrated suite of interventions that move beyond the actions of passing new laws and  providing  specialized,  targeted  training  and  technical  assistance\.  Beyond  technical  contents  of  laws,  capacity  development  and  e‐GP,  PPRPII  undertook  a  massive  stakeholders’  engagement  program  that  supported a  range of activities in engaging and sensitizing key stakeholders  across the  country on the  importance of procurement reform and the benefits of e‐GP\. The program involved different strata of  Page 30 of 52 The World Bank Public Procurement Reform Project II ( P098146 ) communities,  including  political  leaders,  implementers,  bidders,  bankers,  civil  societies,  academia,  journalists, and, most importantly, common citizens and project beneficiaries\. The PPSC and GCF played  an important role, combined with numerous workshops and deeper dialogues directly with the field level  officials,  bidding  community,  and  journalists  across  the  country  that  created  visible  momentum\.  Partnerships with BCCP and BIGD represented the recognition by the Bank and the CPTU that directly  engaging stakeholders was essential to project success, in terms of communicating the content and form  of  reforms  on  a  regular  basis,  and  changing  behavior  based  on  the  reforms\.  Taken  together,  these  activities effectively moved beyond simplistic technical “solutions,” reflecting an integrated approach to  reform that explicitly addressed both supply and demand issues\.  109\. Staffing at nodal agency (CPTU)\. The project suffered at times from the inadequacy of staff or  non‐availability  of  skilled  staff,  in  particular  IT‐based  technical  staffing\.  Market  constraints  to  identify  properly skilled staff added to delays in implementation\. Appropriate staffing, both in terms of numbers  and skills, is important for timely implementation of the reform agenda\.  110\. Target‐setting  for  DLIs  ‐  Government  buy‐in  and  political  economy  considerations\.  During  project development, the Government and the World Bank agreed on DLI targets that reflect the political  economy risks related to challenging procurement reform while developing targets that challenge and  incentivize  government  partners  to  proactively  support  difficult  reform\.  During  the  development  of  PPRPII, the Government and the World Bank recognized the political economy and technical challenges  associated with an effective and accelerated development and rollout of e‐GP, including inadequate IT  infrastructure, limited capacity of key partners, a recalcitrant mindset to maintain the status quo, and  reluctant  political  will\.  This  influenced  the  establishment  of  DLI  targets  that  were  eventually  mostly  exceeded by three of the four target agencies\.  111\. Disbursement  versus  DLI  targets  and  project  restructuring\.  The  project  faced  serious  fund  flow/disbursement issues for several months because the DLI values set against each DLI period did not  match the actual expenses incurred for that corresponding  period, although  the implementing agency  fully achieved DLI targets ahead of time in most cases\. This required restructuring of the project to amend  the specific provision of disbursement, allowing a more flexible approach of cumulative expenses over  period(s)  as  against  expenses  of  each  DLI  period\.  The  lesson  learned  is  that,  in  Investment  Project  Financing with DLIs, disbursement provisions should be made flexible enough in the Financing Agreement,  allowing  disbursement  against  DLI  values  upon  cumulative  expenses,  instead  of  matching  values  with  expenses in each DLI period\.   112\. Integrated,  incentive‐based  capacity  development\.  Clear  incentives  for  beneficiaries  to  participate  in  multiple  professional  development  opportunities,  improves  the  efficacy  of  training  and  technical assistance\. PPRPII’s capacity development program comprised an integrated set of trainings with  increasingly  higher  order  levels,  ranging  from  one‐day  sessions  to  master’s  level  study  abroad\.  Procurement professionals that excelled in specific programs could ‘graduate’ to the next level of training\.  Top performers went on to earn international procurement accreditation such as MCIPS/UK or master’s  degrees at the University of Turin in Italy\.   113\. Country system and integration with associated fields\. With this procurement reform, now all  World Bank‐funded projects in Bangladesh have been largely using the country systems for all national  procurement\. Work is going on to adopt the country systems for international procurement as well\. As  Page 31 of 52  The World Bank Public Procurement Reform Project II ( P098146 ) part of the overall improvement of the public‐sector institutions and public financial management system,  an integrated approach is under way to link e‐GP with the budgetary system and national identification  system  of  the  Government  for  effective  public  service  delivery\.  Also,  the  procurement  review/audit  function is being linked to e‐GP using a separate module\.   114\. Theory  of  change,  PDO,  and  indicators\.  Focused  PDO  with  measurable  result  indicators,  complemented by measurable Intermediate Outcome Indicators, make the project design robust\. PPRPII  was  designed  with  clearly  measurable  indicators,  and  the  same  approach  has  been  continued  in  the  follow‐on  project  that  recently  become  effective\.  The  theory  of  change  provided  the  framework  for  effective  change  management  throughout  implementation,  accommodating  the  evolving  drivers  for  political reform to ensure that results were effectively captured by refining the PDO and indicators in the  AF and AF II\. This was implemented by adopting a combined approach of political economy, relationship  management, technical solutions, stakeholder management, and behavioral change communications to  the grassroots level\.  115\. Skill mix in the World Bank’s team\. More diversified skills in the World Bank’s project team, with  greater intensity of continuous field‐based supervision and adequate budget provision, results in better  project design and implementation\. The PPRPII World Bank team includes a broad array of multi‐sectoral  skills (including fiduciary, transport, power, water resources, communication, social, and ICT)\. This lesson  has now been duly incorporated in the follow‐on new project, with even more diversified skills on the  team, including skills in cutting‐edge technology such as Big Data, Open Contracting, and IT‐based social  media\.  116\. Capitalize  on  enabling  policy  environment\.  When  developing  the  technical  approach  to  procurement reform in partner countries, the World Bank needs to leverage the enabling environment  for reform in addition to identifying the challenges and roadblocks\. From the outset of PPRPII, the World  Bank recognized that the national procurement laws in Bangladesh allowed foreign bidders to participate  in procurements without restriction regardless of national or international competitive bidding\. Thus, the  project did not need to address the issue of eligibility and fairness for foreign bidders separately, instead  focusing  on  the  reforms  required  for  its  development,  capacity  development,  and  rollout  and  sustainability of e‐GP with performance measurement\.      \.    Page 32 of 52  The World Bank Public Procurement Reform Project II ( P098146 ) ANNEX 1\. RESULTS FRAMEWORK AND KEY OUTPUTS          A\. RESULTS INDICATORS    A\.1 PDO Indicators            Objective/Outcome: Four target agencies fully introduce e‐GP in national competitive bidding  Formally Revised   Actual Achieved at  Indicator Name  Unit of Measure  Baseline  Original Target  Target  Completion  Four target agencies publish  Percentage  0\.00  5\.00  95\.00  100\.00  PROMIS quarterly report for  monitoring of procurement    23‐May‐2007  31‐Dec‐2012  30‐Jun‐2017  30‐Jun‐2017  performance covering 90% of  bids invited/ contracts  awarded annually (2013‐  20%, 2014‐ 50%, 2015‐ 70%,  2016‐ 90%)    Comments (achievements against targets):         Unlinked Indicators  Formally Revised   Actual Achieved at  Indicator Name  Unit of Measure  Baseline  Original Target  Target  Completion  Percentage of contracts  Percentage  10\.00  60\.00  82\.00  85\.00  Page 33 of 52  The World Bank Public Procurement Reform Project II ( P098146 )   awarded within initial bid    23‐May‐2007  31‐Dec‐2012  30‐Jun‐2017  30‐Jun‐2017  validity period by the 4 target  agencies (2013‐ 68%, 2014‐  73%, 2015‐ 78%, 2016‐80%,  2017‐82%)    Comments (achievements against targets):       Formally Revised   Actual Achieved at  Indicator Name  Unit of Measure  Baseline  Original Target  Target  Completion  Four target agencies expand  Percentage  0\.00  3\.00  83\.00  95\.00  electronic government  procurement (e‐GP) to all 64    23‐May‐2007  31‐Dec‐2012  30‐Jun‐2017  30‐Jun‐2017  districts using national  competitive bidding  procurem ent (2013‐ 10%,  2014‐ 35%, 2014‐ 60%, 2016‐  80%, 2017‐ 83%))    Comments (achievements against targets):       Formally Revised   Actual Achieved at  Indicator Name  Unit of Measure  Baseline  Original Target  Target  Completion  Percentage of procuring  Percentage  0\.00  70\.00  78\.00  80\.00  entities of 20 additional  agencies with one trained/    31‐Dec‐2012  29‐Dec‐2016  30‐Jun‐2017  30‐Jun‐2017  certified procurement staff  (2013‐ 10%, 2014‐ 30%, 2015  Page 34 of 52  The World Bank Public Procurement Reform Project II ( P098146 )   ‐ 50%, 2016‐ 70%, 2017‐ 78%)    Comments (achievements against targets):       Formally Revised   Actual Achieved at  Indicator Name  Unit of Measure  Baseline  Original Target  Target  Completion  Number of public sector  Number  0\.00  130\.00  200\.00  800\.00  agencies registered in the e‐ GP system    31‐Dec‐2012  29‐Dec‐2016  30‐Jun‐2017  30‐Jun‐2017    Comments (achievements against targets):         A\.2 Intermediate Results Indicators        Component: Capacity development program institutionalized locally and develop skilled professionals  Formally Revised   Actual Achieved at  Indicator Name  Unit of Measure  Baseline  Original Target  Target  Completion  Percentage of procuring  Percentage  0\.00  70\.00  78\.00  80\.00  entities of 20 additional  agencies with one trained/    31‐Dec‐2012  29‐Dec‐2016  30‐Jun‐2017  30‐Jun‐2017  certified procurement staff  (2013‐ 10%, 2014‐ 30%,  2015‐ 50%, 2016‐ 70%, 2017‐  78%))    Comments (achievements against targets):   Page 35 of 52  The World Bank Public Procurement Reform Project II ( P098146 )         Unlinked Indicators  Formally Revised   Actual Achieved at  Indicator Name  Unit of Measure  Baseline  Original Target  Target  Completion  Number of weeks of  Number  0\.00  2\.00  55\.00  150\.00  procurement training  delivered by local training    23‐May‐2007  31‐Dec‐2012  30‐Jun‐2017  30‐Jun‐2017  institute (ESCB) with its own  fund/ resources outside of  PPRPIIAF (2013‐ 5, 2014‐ 25,  2015‐ 45, 2016‐ 55, 2017‐  55))    Comments (achievements against targets):       Formally Revised   Actual Achieved at  Indicator Name  Unit of Measure  Baseline  Original Target  Target  Completion  Percentage of contract  Percentage  10\.00  70\.00  91\.00  100\.00  awards published by four  target agencies in CPTU's    23‐May‐2007  31‐Dec‐2012  30‐Jun‐2017  30‐Jun‐2017  website for awards above  PPR specified threshold  (2013‐ 75%, 2014‐ 80%,  2015‐ 85%, 2016‐ 90%, 2017‐  91%))    Comments (achievements against targets):   Page 36 of 52  The World Bank Public Procurement Reform Project II ( P098146 )       Formally Revised   Actual Achieved at  Indicator Name  Unit of Measure  Baseline  Original Target  Target  Completion  Percentage of complaints  Percentage  5\.00  25\.00  72\.00  74\.00  handled satisfactorily by four  target agencies (2013‐ 35%,    23‐May‐2007  31‐Dec‐2012  30‐Jun‐2017  30‐Jun‐2017  2014‐ 45%, 2015‐ 55%, 2016‐  70%, 2017‐ 72%)    Comments (achievements against targets):       Formally Revised   Actual Achieved at  Indicator Name  Unit of Measure  Baseline  Original Target  Target  Completion  Four target agencies publish  Percentage  0\.00  5\.00  95\.00  100\.00  PROMIS quarterly report  covering 90% of bids invited/    23‐May‐2007  31‐Dec‐2012  30‐Jun‐2017  30‐Jun‐2017  contracts awarded (2013‐  20%, 2014‐ 50%, 2015‐ 70%,  2016‐ 90%, 2017‐ 95%)    Comments (achievements against targets):       Formally Revised   Actual Achieved at  Indicator Name  Unit of Measure  Baseline  Original Target  Target  Completion  Percentage of contract/ bid  Percentage  0\.00  3\.00  83\.00  95\.00  Page 37 of 52  The World Bank Public Procurement Reform Project II ( P098146 )   invited through e‐GP by four    23‐May‐2007  31‐Dec‐2012  30‐Jun‐2017  30‐Jun‐2017  target agencies using NCB in  64 districts (2013‐ 10%,  2014‐ 35%, 2015‐ 60%, 2016‐  80%, 2017‐ 83%)    Comments (achievements against targets):       Formally Revised   Actual Achieved at  Indicator Name  Unit of Measure  Baseline  Original Target  Target  Completion  Expanding Government‐ Number  0\.00  4\.00  64\.00  64\.00  contractors forum to all  disitricts and holding semi‐   23‐May‐2007  31‐Dec‐2012  30‐Jun‐2017  30‐Jun‐2017  annual meetings (2013‐ 10,  2014‐ 20, 2015‐ 40, 2016‐ 64,  2017‐ 64))    Comments (achievements against targets):       Formally Revised   Actual Achieved at  Indicator Name  Unit of Measure  Baseline  Original Target  Target  Completion  Number of e‐GP awareness  Number  0\.00  64\.00  64\.00  64\.00  workshops in all districts  (2013‐ 10, 2014‐ 20, 2015‐    31‐Dec‐2012  29‐Dec‐2016  30‐Jun‐2017  30‐Jun‐2017  45, 2016‐ 64, 2017‐ 64))    Comments (achievements against targets):   Page 38 of 52  The World Bank Public Procurement Reform Project II ( P098146 )       Formally Revised   Actual Achieved at  Indicator Name  Unit of Measure  Baseline  Original Target  Target  Completion  Number of Public‐Private  Number  0\.00  6\.00  14\.00  12\.00  Stakeholders Committee  (PPSC) workshops/ meetings    23‐May‐2007  31‐Dec‐2012  30‐Jun‐2017  30‐Jun‐2017  held (2013‐ 7, 2014‐ 10,  2015‐ 12, 2016‐ 14, 2017‐  14))    Comments (achievements against targets):                      Page 39 of 52  The World Bank Public Procurement Reform Project II ( P098146 ) B\. KEY OUTPUTS BY COMPONENT    Objective/Outcome 1: Strengthened Public Procurement System  1\. Percentage of procuring entities of 20 additional agencies with one   Results/Outcome Indicators  trained/certified procurement staff   2\. Number of public sector organizations registered in the e‐GP system  1\. Expand GCF to all districts and holding semiannual meetings  2\. Number of weeks of procurement training delivered by a local institute (ESCB  and BIM) funds/resources outside of PPRPII AF   3\. Percentage of contracts/bids through e‐GP by four target agencies using NCB in  Intermediate Results/Outcome Indicators  64 districts  4\. Number of e‐GP awareness workshops in all districts  5\. Number of PPSC workshops/meetings held  6\. Percentage of procurement entities of 20 additional agencies with one  trained/certified procurement staff (also Outcome Indicators)  1\. Public sector organizations registered in e‐GP  2\. GCF established in all 64 districts and GCF meetings held  Key Outputs   3\. Procurement trainings delivered by ESCB and BIM  (linked to the achievement of the Objective/Outcome 1)  4\. On‐line e‐GP system developed (procurement planning to contract completion  5\. e‐GP awareness workshop held in all 64 districts  6\. PPSC formed and workshops/meetings held  Objective/Outcome 2: Improved Performance of Four Target Agencies  1\. Percentage of contracts awarded within initial bid validity period by 4 target  agencies   Result/Outcome Indicators  2\. Four target agencies publish PROMIS quarterly report for monitoring of  procurement  3\. Four target agencies expand e‐GP to all 64 districts using NCB procurement  Page 40 of 52  The World Bank Public Procurement Reform Project II ( P098146 ) 1\. Percentage of contract awards published by 4 target agencies in CPTU’s website  for awards above PPR specified threshold  Intermediate Results/Outcome Indicators  2\. Percentage of complaints handled satisfactorily by 4 target agencies  3\. Four target agencies publish PROMIS quarterly report covering 90% of  bids/invited contracts awarded (also Outcome Indicator)  1\. On‐line system developed in e‐GP to calculate procurement contract  performance   Key Outputs   2\. PROMIS system made operational  (linked to the achievement of the Objective/Outcome 2)  3\. CPTU’s website published contract award information as per the PPR threshold  4\. Complaint handling system introduced in e‐GP    Page 41 of 52  The World Bank Public Procurement Reform Project II ( P098146 )   ANNEX 2\. BANK LENDING AND IMPLEMENTATION SUPPORT/SUPERVISION    A\. TASK TEAM MEMBERS  Name  Role  Preparation/Supervision/ICR  Zafrul Islam  Task Team Leader  Ishtiak Siddique  Procurement Specialist  Mohammad Reaz Uddin Chowdhury  Financial Management Specialist  Zahed Hossain Khan  Team Member  Shakil Ahmed Ferdausi  Environmental Safeguards Specialist  Zubair K\.M\. Sadeque  Team Member  Masud Mozammel  Team Member  Marghoob Bin Hussein  Team Member  Tanvir Hossain  Team Member  Sabah Moyeen  Social Safeguards Specialist  Jorge Luis Alva‐Luperdi  Legal  Satish Kumar Shivakumar  Disbursement  Srivathsan Sridharan   Disbursement  Mehrin Ahmed Mahbub  Team Member  Dipanwita Chakraborty  Team Member  Nadia Sharmin  Environmental Safeguards Specialist  Nafisa Rusmila  Team Member  Mahmuda Nusrat Hussain  Team Member  Paul Schapper  Team Member (Consultant)  Peter‐Armin Trepte  Team Member (Consultant)  Joseph Fagan  Team Member (Consultant)  Omar Khandaker   Team Member (Consultant)  Md\. Rafiqul Islam  Team Member (Consultant)  A\.N\.M\. Mustafizur Rahman  Team Member (Consultant)  S M Hafiz Al Mamun  Team Member (Consultant)  Page 42 of 52  The World Bank Public Procurement Reform Project II ( P098146 )          B\. STAFF TIME AND COST  Staff Time and Cost  Stage of Project Cycle  No\. of staff weeks  US$ (including travel and consultant costs)  Preparation  FY06  2\.273  10,213\.96  FY07  21\.345  159,117\.93  FY08  0    34\.41  Total  23\.62  169,366\.30    Supervision/ICR  FY08  21\.954  94,351\.73  FY09  29\.127  110,014\.91  FY10  31\.772  91,176\.86  FY11  33\.714  103,110\.60  FY12  26\.115  103,030\.96  FY13  20\.782  122,950\.69  FY14  10\.763  32,582\.22  FY15  9\.506  25,472\.67  FY16  28\.106  207,418\.49  FY17  13\.216  113,733\.66  FY18  3\.634  68,639\.56  Total  228\.69  1,072,482\.35                 Page 43 of 52  ANNEX 3\. PROJECT COST BY COMPONENT        Amount at Approval  Actual at Project  Components  Percentage of Approval  (US$M)  Closing (US$M)  Component 1: Furthering  Policy Reform and  21\.40  21\.40  100\.00  Institutionalizing Capacity  Development  Component 2: Strengthening  Procurement Management at  15\.90  10\.35  65\.09  Sector Level and CPTU/IMED  Component 3: Introducing e‐ Government Procurement (e‐ 30\.20  33\.12  109\.67  GP)  Component 4:  Communication, Behavioral  5\.40  4\.87  90\.19  Change, and Social  Accountability  Total   72\.90   69\.74  95\.66          Page 44 of 52  ANNEX 4\. EFFICIENCY ANALYSIS    1\. The costs incurred to achieve project objectives were reasonable in terms of the benefits achieved (as  described in sections I–V), and the ‘value for money’ given the high probability of sustaining and building on the  project outcomes of strengthening the public procurement system and improving the performance of the four  target agencies (see section IIC)\. Because the project results could not be fully quantified in monetary terms,  there was no calculation of an economic rate of return\. Nevertheless, beyond the achievements made in terms  of efficiency, transparency, and competitiveness, the other major benefits of the project is the sustainability of  major interventions, that is, building the institution for regulating public procurement that is fully funded from  the  Government’s  own  resources  (CPTU);  establishing  the  e‐GP  system  that  is  becoming  self‐sustainable  by  generating its own revenues greater than expense; and institutionalizing procurement management capacity  within the country using collaboration of local institutes with the internationally reputed organizations\. Despite  such achievements, there are still areas that need improvements, as summarized in the following paragraphs\.  2\.  Overall  system  efficiency  in  public  procurement  had  improved  with  this  intervention  of  PPRPII\.  The  country has one uniform system for all its public procurement organizations regardless of the sector, resulting  in  consistency  of  documentation  throughout  the  entire  procurement  cycle\.  This  streamlined  process  and  uniformity  of  documents  also  helped  the  bidding  community  in  reducing  bid  preparation  time  for  different  organizations\. The end‐line evaluation shows an overall satisfaction level of about 69 percent in the use of public  funds  with  variations  as  follows  in  the  type  of  stakeholders:  bidding  community  ‐  76  percent,  procurement  officials ‐ 78 percent, civil society ‐ 48 percent, and media professionals ‐ 30 percent\.   3\.  Respondents agreed that the improved delegation of approving authority in the later part of the project,  and the sub‐delegation of that authority within organizations, speeded up the approval process in general, in  particular, reference to the contract decisions made at decentralized levels or within the agency level\. Also, this  has  been  clearly  demonstrated  through  reduction  of  procurement  processing  time  in  the  results  indicators\.  Nevertheless, still there are major issues of procurement delays, especially in the large‐value contracts requiring  approval of the ministry and/or cabinet\. Also, the propensity to push decisions to higher‐than‐necessary levels  continues, thus increasing the time taken for approval\.   4\.  Introduction of e‐GP has contributed to substantial improvements in improving the overall efficiency of  the system,  with specific  reference to  reducing inappropriate/coercive/collusive bidding  practices, improving  speed  of  the  procurement  process,  significantly  reducing  the  number  of  complaints,  and  reducing  overall  transaction costs\. An analysis done for the four key agencies shows a savings range between 13 percent and 20  percent compared with the traditional tendering practices\.  5\.  Overall, the complaints handling mechanism has built confidence levels, especially with the independent  review panel mechanism\. Review shows that in about 45 percent cases, the decision of this review panel was in  favor of the bidders while about 55 percent was in favor of the procuring entities\. This is a reasonable signal that  the system is functioning well\. Nevertheless, results also show that there are issues in dealing with complaints  at some of the implementation agencies’ level, particularly in reference to the soft sectors, with some variations  for the other sectors\. The mechanism needs improvement for those agencies\.  6\.  Self‐sustainability of the e‐GP system has increased substantially over time\. The e‐GP system‐generated  revenues have been exceeding the expenses being incurred by the system\. Earnings are as follows: FY14: US$1\.8  million;  FY15:  US$4  million;  FY16:  US$5  million;  FY17:  US$8\.8  million  (sale  of  bidding  documents:  US$7\.67  million; registration of bidders: US$0\.75 million; and renewal registration: US$0\.38 million)\. Average annual cost  Page 45 of 52 of operating and managing the system is about US$2\.5 million\. This clearly demonstrates that the system is self‐ sustaining\.  7\.  In  conclusion,  it  may  be  said  that  though  PPRPII  made  substantial  contributions  in  bringing  about  a  systemic change in the public procurement environment of the country, there are still systemic issues that affect  the efficiency gains\. It has been demonstrated that some of the problems can be effectively addressed by the  procuring entities themselves, or by their controlling ministries, simply through greater respect for and sincerity  toward current procurement laws/rules\.     Page 46 of 52   ANNEX 5\. DISBURSEMENT LINKED INDICATORS  I: Improving procurement performance by using e‐GP in the Target Agencies  DLI Verification  DLI  DLI Target (Number of bids)/DLI Value (US$, millions) per Target Agency  Protocol  Period 1  Period 0  Period 2  Period 3  Period 4  (July 1, 2013– DLI Period  (July 1, 2012– (January 1, 2014  (July 1, 2014– (July 1, 2015–   December 31,  June 30, 2013)  –June 30, 2014  June 30, 2015)  June 30, 2016)  2013)  DLI 1: Minimum            Definition: All bids  number of bids invited  invited under NCB  in NCB using e‐GP by  across the target  each of the Target  agency regardless of  Agencies  location of its  RHD  100/ 0\.20  400/0\.20  1,000/0\.20  2,400/0\.20  3,200/0\.20  procuring entities (HQ,  LGED  100/0\.30  400/0\.30  1,000/0\.30  2,400/0\.40  3,200/0\.40  districts, and sub‐ BWDB  60/0\.19  120/0\.19  300/0\.19  720/0\.19  960/0\.19  districts) will be  REB  8/$0\.06  15/0\.06  40/0\.06  96/0\.06  128/0\.06  eligible\.                 Source/Verification:  The target agency’s e‐ GP/PROMIS cell  reconciled  data/reports based on  actual invitations of  bids by various  procuring entities\. The  procurement  monitoring  coordinator of the  target agency will  report the DLIs  achievement to the  Page 47 of 52  CPTU for validation by  the Association\. The  DLIs will also be  verified by an  independent  consultant contracted  by the recipient\.  II: Improving procurement performance monitoring using PROMIS by the Target Agencies  DLI Verification  DLI  DLI Target (Number of bids) and DLI Value (US$, millions) for Each Target Agency  Protocol  Period 1    Period 0  Period 2  Period 3  Period 4  (July 1, 2013 –  DLI Period  (July 1, 2012 –  (January 1, 2014  (July 1, 2014 –  (July 1, 2015 –  December 31,  June 30, 2013)  – June 30, 2014  June 30, 2015)  June 30, 2016)  2013)  DLI 2: Minimum            Definition: Monitoring  number of tenders  of procurement steps  entered into published  forward for all bids  PROMIS report, with  invited under NCB  procurement  during the  performance  corresponding period  indicators covering  of the respective DLIs  various stages from  across the target  bid invitations to  agency regardless of  award of contracts  location of its procuring  RHD  200/0\.20  800/0\.20  1,200/0\.20  2,800/0\.20  3,600/0\.20  entities (HQ, districts,  LGED  200/0\.30  800/0\.30  1,200/0\.30  2,800/0\.30  3,600/0\.30  sub‐districts)\.  BWDB  120/0\.19  240/0\.19  360/0\.19  840/0\.19  1,080/0\.19  Source/Verification:  REB  16/0\.06  30/0\.06  45/0\.06  112/0\.06  144/0\.06  The target agency’s e‐ GP/PROMIS cell  reconciled data/reports  based on actual  invitations of bids by  various procuring  entities\. The  procurement  Page 48 of 52  DLI Verification  DLI  DLI Target (Number of bids) and DLI Value (US$, millions) for Each Target Agency  Protocol  monitoring coordinator  of the target agency  will report DLIs to the  CPTU for validation by  the Association\. The  DLIs will also be  verified by an  independent  consultant contracted  by the recipient\.    Page 49 of 52  ANNEX 6\. BORROWER, CO‐FINANCIER AND OTHER PARTNER/STAKEHOLDER COMMENTS      Government of the People's Republic of Bangladesh  Ministry of Planning  Implementation Monitoring & Evaluation Division (IMED)  Central Procurement Technical Unit (CPTU)  Sher‐e‐Bangla Nagar, Dhaka‐1207  Tel: 9144252‐3, Fax: 9180968, E‐mail: info@cptu\.gov\.bd; Website: www\.cptu\.gov\.bd   21\.00\.0000\.367\.14\.981\.17\.425                       17 December 2017    Subject: Comments on Implementation Completion and Result Report (ICR): Public Procurement Reform  Project II (P098146) [PPRP II: Cr\. 58180, 52420 and 43500‐BD]    The undersigned is directed to inform you that the draft ICR on PPRP II project has been reviewed by the  CPTU\. The CPTU has agreed almost on all assessment on implementation\. However, the followings are  the observations on the ICR:    (1) In paragraph 24, line 4, Clause (i): the word eighteen will be replaced by seventeen\. Line 5, Clause (ii):  the words  training for 5 days will be added after e‐GP\. In line 8, first word Government will be replaced  by Governance\.    (2) In Table 3, after paragraph 25, Figures put in Column 2 and 3 will be replaced as under:    Capacity Development Programme Type  # of Beneficiaries  Comments    14083  17 topics…\.    6414      143      103      No Change  The following words will be deleted  “3 Week Training top performer &”    (3) In paragraph 34, line 8: 2012 will be replaced by 2011;    (4)  In  paragraph  40,  from  line  4  onward  the  paragraph  will  be  reconstituted  as:  “The  key  activities  included: conducting 99 events on procurement reforms including 64 Future Search Conference at District  level,   National  Level  Launching  event  of  Social  awareness  program,  National  Level  Launching  of  e‐GP  having  Prime  Minister  as  Chief  guest  covering  over  5,700  participants;   convening  64  e‐GP  awareness  workshops  at  district  level  with  over  2,400  participants,  establishing  64  Government  and  Contractor’s  Forums (GCF) covering over 3391 PEs and tenderers, and organizing four e‐GP workshops for 44 registered  Bank’s in the e‐GP system, one at the national level in Dhaka and three in three were held in the Divisional  Headquarters e\.g\. Sylhet, Rajshahi and Khulna\. The GCF provided an informal platform for GOB officials  and bidders to share information and experience including issues and resolutions about procurement and  e‐GP  system\.  BCCP  also  developed  a  mobile  app,  produced  an  e‐GP  theme  song,  videos,  radio  and  Page 50 of 52  television commercials,  TV talk shows, success story videos, info graphics; disseminated mobile SMS, TV  scrolling messages, email and on line marketing and created two digital billboards in Dhaka that displays  on‐line  live  procurement  data  with  a  direct  feed  from  the  e‐GP  platform  and  conducted  opinion  and  satisfaction  surveys\.  CPTU  produced  newsletters,  managed  social  media,  arranged  TV  talk‐shows  and  numerous news, articles in media on public procurement issues\.”  (5)  In  paragraph  41,  the  second  last  sentence  will  be  reconstituted  as:  “BIGD  held  four  divisional  workshops, produced two documentaries on citizen engagement, formed and trained citizen committees  and got monitored a number of public works projects and distribution of school text books\.”    (6) In paragraph 42, line 5: the word attend will be replaced by attended by CPTU and Bank officials\.     You are kindly requested to instruct the concerned wing to forward these comments to the World Bank  for incorporating into the ICR for finalizing the same\.                   Shish Haider Chowdhury  Director (Coordination and Training)  Tel: 9144232  Secretary  Economic Relations Division  Ministry of Finance  Block No\. 8, Room No\. 3  Sher‐e‐Bangla Nagar  Dhaka      Copy to:    1\. Ms\. Mahmuda Begum, Additional Secretary, ERD;  2\. Dr\. Zafrul Islam, Lead Procurement Specialist and Task Team Leader, DIMAPPP;  3\. PS to Secretary, IMED, Ministry of Planning                  Page 51 of 52  ANNEX 7\. SUPPORTING DOCUMENTS    2002: The World Bank: Bangladesh Country Procurement Assessment Report  2005: BD National Strategy for Accelerated Poverty Reduction   2006: The World Bank BD: Country Assistance Strategy  2006: BD Assessment of Readiness for Introduction of Electronic Bidding  2007: Public Procurement Reform Project II‐ PPRPII (P098146)‐ Project Appraisal Document  2007–2012: Procurement Management Information System Reports  2007–2017:  The World Bank Project Implementation Status Reports  2007–2017: Capacity Development Consultants Progress Reports  2007–2017: M&E Consultants Semi‐Annual Reports  2007–2017: Behavioral Change Communication Consultant’s Reports  2011: BD Sixth Five‐Year Plan‐ Accelerating Growth and Reducing Poverty  2011: The World Bank BD: Country Assistance Strategy  2013: PPRPII Additional Financing (P132743)‐ Project Appraisal Document  2013–2017‐ Quarterly e‐Procurement Management Information System (e‐PMIS) Reports   2013: PPRPII Additional Financing (P132743)‐ Project Appraisal Document  2016: BD Seventh Five‐Year Plan‐ Accelerating Growth and Empowering Citizens   2016: The World Bank BD: Country Partnership Framework  2016: PPRPII Second Additional Financing (P158783)‐ Project Appraisal Document  2016: CPTU restructuring and e‐GP Study Report  2017: Consultant’s Citizen Engagement Report  2017: Consultant’s End‐Line Evaluation Report    Page 52 of 52

REVIEW

P076807

 Document of The World Bank Report No: 00002342 IMPLEMENTATION COMPLETION AND RESULTS REPORT (IBRD-72690) ON A LOAN IN THE AMOUNT OF US$50\.26 MILLION EQUIVALENT TO THE REPUBLIC OF CHILE FOR THE INFRASTRUCTURE FOR TERRITORIAL DEVELOPMENT PROJECT June 18, 2012 Sustainable Development Department Country Management Unit – LCC6C Latin America and Caribbean Region  CURRENCY EQUIVALENTS (Exchange Rate Effective May 29, 2012) Currency Unit = Chilean Peso (CLP) CLP 1\.00 = US$ 0\.00195 US$ 1\.00 = CLP 512\.77 FISCAL YEAR January 1 to December 31 ABBREVIATIONS AND ACRONYMS CAS Country Assistance Strategy CONADI Corporacion Nacional de Desarrollo Indígena (National Corporation for Indigenous Development) DIPRES Dirección de Presupuestos – Ministerio de Hacienda (Budget Directorate – Ministry of Finance) DOH Dirección de Obras Hidraúlicas (Directorate of Hydraulic Works) EMF Environmental Management Framework ESW Economic and Sector Work FNDR Fondo Nacional de Desarrollo Regional (National Fund for Regional Development) GOC Government of Chile GORE Gobiernos Regionales (Regional Governments) ICR Implementation Completion Report ICT Information Communication Technology KPI Key Performance Indicators IPDF Indigenous Peoples Development Framework LIL Learning and Innovation Loan M&E Monitoring and Evaluation MIDEPLAN Ministerio de Planificación y Cooperación (former Ministry of Planning and Cooperation – currently Ministry for Social Development, Ministerio de Desarrollo Social) MOF Ministry of Finance MOP Ministry of Public Works MOPTT Ministry of Public Works, Transport and Telecommunications PAD Project Appraisal Document PDO Project Development Objective PIRDT Proyecto de Infraestructura Rural para el Desarrollo Territorial (Infrastructure for Territorial Development Project) PMDT Plan Marco de Desarrollo Territorial (Territorial Development Framework Plan) QAG Quality Assurance Group QAT Quality Assurance Team ii SERPLAC Secretaría Regional Ministerial de Planificación (Regional Secretariat of MIDEPLAN) SIL Single Investment Loan SME Small and Medium Enterprises SUBDERE Subsecretaría de Desarrollo Regional (Subsecretariat of Regional Development) SUBTEL Subsecretaría de Telecomunicaciones (Subsecretariat of Telecommunications) TU Technical Unit UDG Management Development Unit Vice President: Hasan Tuluy Country Director: Susan Goldmark Sector Manager: Aurelio Menendez Project Team Leader: Veronica I\. Raffo ICR Team Leader: Veronica I\. Raffo iii  REPUBLIC OF CHILE INFRASTRUCTURE FOR TERRITORIAL DEVELOPMENT PROJECT CONTENTS Data Sheet A\. Basic Information……………………………………………………………\. v B\. Key Dates……………………………………………………………………… v C\. Ratings Summary……………………………………………………………… v D\. Sector and Theme Codes…………………………………………………\. vi E\. Bank Staff……………………………………………………………………… vi F\. Results Framework Analysis…………………………………………………\. vii G\. Ratings of Project Performance in ISRs……………………………………… xii H\. Restructuring ………………………………………………………………… xii I\. Disbursement Graph…………………………………………………………\. xiii 1\. Project Context, Development Objectives and Design…………………………… 1 2\. Key Factors Affecting Implementation and Outcomes…………………………… 4 3\. Assessment of Outcomes…………………………………………………………\.13 4\. Assessment of Risk to Development Outcome…………………………………\.18 5\. Assessment of Bank and Borrower Performance…………………………………18 6\. Lessons Learned…………………………………………………………………\.20 Annex 1\. Project Costs and Financing ………………………………………………\.22 Annex 2\. Outputs by Component\.24 Annex 3\. Economic and Financial Analysis…………………………………………\.31 Annex 4\. Bank Lending and Implementation Support/Supervision Processes……\.43 Annex 5\. Beneficiary Survey Results………………………………………………\.45 Annex 6\. Stakeholder Workshop Report and Results………………………………\.48 Annex 7\. Summary of Borrower's ICR and/or Comments on Draft ICR……………\.51 Annex 8\. Comments of Cofinanciers and Other Partners/Stakeholders……………\.65 Annex 9\. List of Supporting Documents……………………………………………\.66 iv A\. Basic Information Infrastructure for Country: Chile Project Name: Territorial Development Project Project ID: P076807 L/C/TF Number(s): IBRD-7269- ICR Date: ICR Type: Core ICR Lending Instrument: SIL Borrower: GOVERNMENT Original Total USD 50\.26M Disbursed Amount: USD 50\.26M Commitment: Revised Amount: USD 50\.26M Environmental Category: B Implementing Agencies: Subsecretaría de Desarrollo Regional (SUBDERE) Cofinanciers and Other External Partners: N/A B\. Key Dates Revised / Actual Process Date Process Original Date Date(s) Concept Review: 08/21/2003 Effectiveness: 08/16/2005 02/12/2009 Appraisal: 10/20/2004 Restructuring(s) 09/04/2009 Approval: 12/16/2004 Mid-term Review: 10/30/2007 Closing: 06/30/2010 12/31/2011 C\. Ratings Summary C\.1 Performance Rating by ICR Outcomes: Satisfactory Risk to Development Outcome: Moderate Bank Performance: Satisfactory Borrower Performance: Satisfactory C\.2 Detailed Ratings of Bank and Borrower Performance (by ICR) Bank Ratings Borrower Ratings Quality at Entry: Satisfactory Government: Satisfactory Implementing Quality of Supervision: Satisfactory Satisfactory Agency/Agencies: Overall Bank Overall Borrower Satisfactory Satisfactory Performance: Performance: v C\.3 Quality at Entry and Implementation Performance Indicators Implementation QAG Assessments Indicators Rating Performance (if any) Potential Problem Project Quality at Entry No None at any time (Yes/No): (QEA): Problem Project at any Quality of Yes None time (Yes/No): Supervision (QSA): DO rating before Highly Satisfactory Closing/Inactive status: D\. Sector and Theme Codes Original Actual Sector Code (as % of total Bank financing) General energy sector 9 4 General public administration sector 12 10 General water, sanitation and flood protection sector 30 10 Roads and Highway 27 76 Telecommunications 22 0 Theme Code (as % of total Bank financing) Administrative and civil service reform 14 14 Infrastructure services for private sector development 14 14 Participation and civic engagement 14 14 Rural policies and institutions 29 29 Rural services and infrastructure 29 29 E\. Bank Staff Positions At ICR At Approval Vice President: Hasan Tuluy David de Ferranti Country Director: Susan Goldmark Axel von Trotsenburg Sector Manager: Aurelio Menendez Jose Luis Irigoyen Project Team Leader: Veronica I\. Raffo Aurelio Menendez/Jennifer Sara ICR Team Leader: Veronica I\. Raffo ICR Primary Author: Mirtha Pokorny vi F\. Results Framework Analysis Project Development Objectives (from Project Appraisal Document) The project development objective is to increase the effective and productive use of sustainable infrastructure services by poor rural communities in selected territories of the regions of Coquimbo, Maule, Bio-Bio, Araucanía, and Los Lagos (or any other region as may be proposed by the Borrower and agreed to by the Bank)\. vii Revised Project Development Objectives (as approved by original approving authority) (a) PDO Indicator(s) Original Target Formally Actual Value Values (from Revised Achieved at Indicator Baseline Value approval Target Completion or documents) Values Target Years Increase in use of quality and sustainable services in selected territories, as Indicator 1 measured by: Water and Sanitation: 90% of population 0% benefiting from project PMDTs with sustained access and 100% effective use of services provided by the project Roads: 20% of Value increased use of quantitative or na 0% transport services increased used of qualitative along transport services rehabilitation road infrastructure Electrification: 90% of population Not applicable\. See benefiting from comments below project PMDTs 0% increased use of electricity for economic activities Date achieved 11/19/2004 06/30/2010 Water: Rural water supply subprojects were designed taking into consideration sustainability\. In a survey carried out in November 2011 (comprising 12 water subprojects financed under the program), it was reported that all of them were working, and that the systems were generating enough resources to cover operational and maintenance costs\. Based on this, the achievement of this output was 111% of the original target\. Comments Roads: In a survey carried out in November 2011 (comprising 22 subprojects (incl\. % financed under the program) beneficiaries reported an increase in the achievement) availability of transport services, but it was not possible to quantify such increase (only one case reported that the availability of transport before the project was once per day, and after the project it was once per hour)\. Beneficiaries also reported that they could increase their production because of the improved condition of the road (e\.g\. production of berries, very sensitive to viii damage during transportation)\. This increase in production is also linked to an  increase in usage of public transport\. Electricity: This indicator is not consistent with the project’s objective of supporting productive activities\. In any community only a minority of the population uses electricity for economic activities\. In the case of this project, electricity benefitted activities such as small fisheries, olive oil production among others (a total of 12 electricity subprojects were reported to have been financed under the program)\. (b) Intermediate Outcome Indicator(s) Component 1 Original Target Actual Value Formally Values (from Achieved at Indicator Baseline Value Revised approval Completion or Target Values documents) Target Years Indicator 1 Number of PMDTs approved by the CORE Value quantitative or 5 25 na 31 qualitative Date achieved 11/19/2004 06/30/2010 na 12/31/2011 31 PMDTs have already been approved by COREs: 18 correspond to the first Comments generation and 13 to the second one\. In addition, 14 PMDTs are under (incl\. % preparation (third generation of PMDTs) for a total of 45 PMDTs\. The achievement) achievement of this output was 124% of the original target\. If ongoing PMDTs were included, the achievement of the output increases to 180%\. ix Component 2 Original Target Actual Value Formally Values (from Achieved at Indicator Baseline Value Revised approval Completion or Target Values documents) Target Years Indicator 2 Annual percentage level of compliance with targets set in PMDTs Water and Sanitation: 95% 100% of connections constructed with service providers having revenues greater than cost of operation and maintenance Roads: 95% of roads Value rehabilitated with sustained 100% quantitative or na na routine maintenance qualitative mechanisms established Electricity: 95% of electrification constructed with service providers having revenues greater than the cost of operation and maintenance 100% Date achieved 11/19/2004 06/30/2010 na 12/31/2011 Water and Electricity: In the case of revenue generating sectors (i\.e\. water and electricity) tariffs are set with the help of the private suppliers to fully recover marginal costs\. In the case of water, affordability is ensured by local subsidies going directly to the users\. Comments Roads: Roads under the jurisdiction of Vialidad are routinely maintained\. (incl\. % Vialidad also agreed to incorporate in their maintenance programs all roads achievement) improved under the PIRDT (even if not formally under their responsibilities, i\.e “no enroladasâ€? ) For the three indicators proposed, the achievement of the targets was 105% of the original values\. Percentage of PMDT subprojects managed by local organizations or entities, Indicator 3 with adequate consideration of indigenous and gender issues Value quantitative or na 80% na 100% qualitative Date achieved 11/19/2004 06/30/2010 na 12/31/2011 Social considerations are fully embedded in project design, including both indigenous and gender issues\. The consultation process is inclusive; the National Comments Corporation for Indigenous Development considered the methodology as the (incl\. % most appropriate to represent indigenous’ points of view\. achievement) There are 7 subprojects identified were all beneficiaries are indigenous\. Women are highly represented in the Water Management Committees: 40% of elected members are women\. x Component 3 Original Target Actual Value Formally Values (from Achieved at Indicator Baseline Value Revised approval Completion or Target Values documents) Target Years MIDEPLAN evaluation methodology expanded to include assessment of Indicator 4 subprojects within the territorial development advanced by the Project Value Methodology Methodology tested quantitative or No methodology tested and applied na and applied qualitative as appropriate Date achieved 11/19/2004 06/30/2010 na 12/31/2011 The methodology was formally approved by MIDEPLAN in March 2010\. An Comments updated version was prepared in August 2010\. The formulation of the (incl\. % methodology has been recognized as one of the main Project contributions\. The achievement) methodology is now used for other than the PIRDT program (e\.g\. it contributed to prioritize investments for reconstruction works after the 2010 earthquake)\. Indicator 5 New approaches adopted in water and sanitation (a) Appropriate technologies for water for dispersed populations and rural sanitation, (b) improved financial policy to increase cost recovery, (c) legal Value Implemented framework that would allow quantitative or na na (see comments qualitative providers higher management for details) and revenue raising capacity, and (d) assignment of institutional responsibilities for rural sanitation and water dispersed population Date achieved 11/19/2004 06/30/2010 na 12/31/2011 The project contributed in the elaboration of a comprehensive rural water Comments manual, which is currently being used by SUBDERE, DOH and municipalities (incl\. % for the selection and implementation of appropriate low cost technologies\. This achievement) work provided substantial inputs to drafting a Rural Water Law, which is currently under review by Congress\. xi  Number of quality PMDTs implemented outside project regions using non Indicator 6 project resources or % of regional public investments program implemented with a territorial approach, outside Project financing Value 3 quantitative or 0 na 25% qualitative Date achieved 11/19/2004 06/30/2010 na 12/31/2011 New Regions by the end of 2012: By the end of 2012 three new regions were incorporated into the program: Los Rios, Aysen and Libertador\. Los Rios and Libertador have PMDTs, Aysen is beginning the process for new PMDTs\. In Comments 2012 three additional regions were incorporated, and will begin with the (incl\. % preparation of its PMDTs\. achievement) In terms of financing, the project was envisaged to have a total cost of US$90\.26 million\. Until December 2012, US$ 153\.7 million were invested only in infrastructure subprojects (additional US$12\.9 million have been invested in productive initiatives identified in the PMDTs)\. G\. Ratings of Project Performance in ISRs Actual Date ISR No\. DO IP Disbursements Archived (USD millions) 1 04/22/2005 Satisfactory Satisfactory 0\.00 2 11/21/2005 Satisfactory Satisfactory 0\.25 3 06/23/2006 Satisfactory Satisfactory 2\.54 4 12/13/2006 Moderately Unsatisfactory Unsatisfactory 2\.54 5 04/13/2007 Moderately Unsatisfactory Unsatisfactory 3\.45 6 07/20/2007 Moderately Unsatisfactory Moderately Satisfactory 4\.80 7 12/18/2007 Moderately Unsatisfactory Moderately Satisfactory 7\.76 8 03/20/2008 Moderately Satisfactory Moderately Satisfactory 7\.76 9 10/22/2008 Moderately Satisfactory Moderately Satisfactory 12\.31 10 05/21/2009 Satisfactory Satisfactory 20\.46 11 11/10/2009 Satisfactory Satisfactory 24\.79 12 05/15/2010 Satisfactory Satisfactory 27\.77 13 02/18/2011 Highly Satisfactory Satisfactory 43\.27 14 07/27/2011 Highly Satisfactory Satisfactory 44\.93 15 01/13/2012 Highly Satisfactory Satisfactory 50\.26 H\. Restructuring (if any) ISR Rating at Amount Board Restructuring Disbursed at Restructuring Approved Reasons for Restructuring & Key Restructuring Date(s) PDO Changes Made DO IP in USD Change millions 10/11/2007 6\.33 Inclusion of Los Rios as Eligible xii  Region (Los Rios was created in March 2007, as the result of the division of the region of Los Lagos)\. 02/12/2009 Measures taken in order to accelerate project implementation: (i) retroactively increase financing percentages for works and consulting services; (ii) expand the definition of eligible sub- S S 14\.49 projects; (iii) allow financing of pre- investment studies for productive sub- projects; (iv) allow for financing operation and maintenance activities; and (v) modify the role of national coordination body for the project 09/04/2009 Extension of the project closing date by S S 24\.79 18 months from June 2010 to December 2011 07/20/2010 Reallocation of proceeds from category 1\.b (Consultant’s services) to 1\.a (works and goods)\. Following OP 13\.25 S S 31\.90 this does not constitute a reallocation since it was due to cost savings (the GoC financed consultant services with national funds)\. 04/14/2011 Inclusion of “del Libertador Bernardo O’Higginsâ€? and “Aysen del General HS S 43\.27 Carlos Obanez del Campoâ€? Regions as Eligible Regions\. xiii xiv 1\. Project Context, Development Objectives and Design 1\.1 Context at Appraisal By the time of project appraisal Chile had already at least two decades of impressive economic growth and poverty reduction\. While important strides had been made to increase access of the poor to public services, including in rural areas, there were still about 500,000 of the estimated 2,000,000 rural populations that lived in poverty and lacked basic services\. The Chilean government had made a significant commitment to expanding rural infrastructure services as a means to address poverty and income inequality in the rural space\. This took a variety of forms: the creation of rural infrastructure programs and expertise within technical ministries, the establishment of specialized funding streams, and applying versatility to the selection of service delivery options\. The sector agencies gathered the human and financial resources necessary for planning, evaluating and implementing rural standard infrastructure subprojects of high quality\. During the 1998-2003 period, the government invested approximately one billion dollars in rural water supply, electricity, roads, and public telephones, with the majority designated for roads\. This focus on rural infrastructure allowed Chile to achieve high rural infrastructure coverage rates\. 1 The challenge was then to continue coverage expansion into the highly dispersed and hard to reach rural populations while maximizing the sustainability and productive and social impact of existing infrastructure investments\. To find new approaches to the delivery of rural infrastructure services the Government of Chile (GOC) started working with the Bank in 2003 on the preparation of a comprehensive economic and sector work (ESW) that became the project underpinning\. These studies identified the major constraints of the existing system of which the main one was the use of social and economic evaluation methodologies that prevented the approval of project designs able to adapt to the realities of dispersed populations and small settlements\. Other major constraints were: (i) inefficiencies due to centralized decision-making based on individual sector programs and funding allocations; (ii) a long project preparation and approval process; (iii) unrealized development impact due to lack of coordination across sectors; (iv) investments that did not always responded to community and municipal priorities or to a local economic development strategy; (v) inappropriate technical standards that were expensive to maintain and an inability to reach the dispersed populations with more cost-effective solutions; (vi) excessive focus on coverage expansion without ensuring quality and sustainability of existing services by strengthening the capacity of local management bodies (such as water committees, SMEs, etc); and (vii) need for increasing cost recovery and improving the efficiency of rural road maintenance\. The studies provided the project with an instrument to develop, test and expand solutions for improving the access, quality, sustainability and impact of rural infrastructures within a territorial approach to local economic and social development\. So the dialogue with the GOC evolved from a possible loan to partially finance specific sector investments to the design of an operation supporting a new system for the delivery of rural infrastructure that would empower regional and territorial entities with a decisive role in the planning and allocation of resources\. Key to the new approach was the GOC decision to transition away from the centralized sector- driven approaches to investment decision-making\. During the years before project preparation, the Ministry of Finance (MOF) was progressively increasing the amount of fiscal transfers to regional governments, particularly via the Fondo Nacional de Desarrollo Regional (FNDR) which is managed by Subsecretaría de Desarrollo Regional (SUBDERE) of the Ministry of the 1 At the time of appraisal, coverage rates were estimated at 86% in electricity and over 90% in water supply for concentrated rural populations\. In addition the government constructed 6,093 new public telephone centers covering 2\.2 million people, 25,000 individual rural telephone lines and an extensive rural road network\. Interior, to allow regional governments (GOREs) prioritize investments within each sector allocation, especially in the rural infrastructure sectors\. MOF and SUBDERE were keen to further advance regional government’s discretion in the allocation of resources across sectors, and particularly in the infrastructure sectors that were the domain of FNDR\. At the same time, MOF wanted to ensure continued efficiency in resource expenditures on rural infrastructure while increasing their impact on improving the economic development potential of the rural poor\. On this basis, the GOC requested Bank support in preparing and financing a multi-sector rural infrastructure program (Infrastructure for Territorial Development Project - Proyecto de Infraestructura Rural para el Desarrollo Territorial - PIRDT)\. The PIRDT was expected to address both cross-sector constraints as well as the limitations of the existing institutional and policy frameworks of the water, sanitation, transport, electricity and ICT sectors as they relate to services in rural areas\. The project rested on three basic conceptual pillars: (i) decentralization accompanied by greater community representation, participation, and accountability: (ii) a “spatial or territorial developmentâ€? approach as reflected in regional development plans (Territorial Development Framework Plans – Planes Marco de Desarrollo Territorial - PMDTs) involving productive transformation of the region and ensuring investments geared towards that end; and (iii) integration of different levels of government and different sectors to ensure a holistic method for rural development\. 1\.2 Original Project Development Objectives (PDO) and Key Indicators The project development objective as stated in the PAD was to increase the effective and productive use of sustainable infrastructure services by poor rural communities in selected territories of the regions of Coquimbo, Maule, Bio-Bio, Araucanía, and Los Lagos (or any other region as may be proposed by the Borrower and agreed to by the Bank)\. The infrastructure services include water supply, sanitation, roads, information communications infrastructure technology (ICT) and electricity\. As an intermediate institutional objective, the project was also expected to strengthen the capacity of participating agencies to implement territorially based, demand-responsive and multi-sector approaches to rural infrastructure as a contribution to local economic, social and environmental sustainability\. The learning and results of the project was to provide a basis for implementing a longer-term institutional reform on how rural infrastructure services are planned, financed and delivered in Chile\. Project outcomes were to be measured by the increased use of sustainable and quality services by the rural population and their contribution to economic and productive activities as spelled out in Annex 3 of the PAD\. The institutional outcomes were to be measured by the mainstreaming of the territorial development approach to rural infrastructure within government programs, specifically: (i) new methodology for integrated economic and social evaluation of multi-sector projects implemented by MIDEPLAN; (ii) more effective, decentralized service delivery models and appropriate technical solutions adopted by relevant sector agencies to reach unserved and dispersed populations; and (iii) multi-sector territorial-based planning and service delivery model replicated in other non-project territories and regions\. 1\.3 Revised PDO (as approved by original approving authority) and Key Indicators, and reasons/justification The above development objectives and key indicators remained unchanged during the project execution period\. In 2009 the GOC found, as part of a project evaluation exercise, that the original PDO and key indicators did not fully capture the spirit of the project and revised them 2 to emphasize the income generating nature of the objective\. 2 These changes, however, were not formally incorporated in Bank documents, reflecting the Bank’s team emphasis to allocate the limited supervision resources to address the implementation complexities of a difficult project\. 1\.4 Main Beneficiaries The proposed project was expected to benefit the inhabitants of the participating rural communities by (i) better and more productive use of the infrastructure; and (ii) empowering their members through increased participation in the decision making process\. Rural population in Chile approximates 2,000,000 inhabitants, of which 500,000 are located in dispersed rural communities\. The project has benefitted 320,000 inhabitants in poor dispersed rural communities\. 1\.5 Original Components The Project Appraisal Document (PAD) listed the following project components: (a) Participatory Territorial Planning (US$3\.94 million): this component was to assist local stakeholders and regional government agencies to: (i) prepare in prioritized rural territories in the five eligible regions development framework plans (PMDTs); (ii) identify demands for improved infrastructure services, and (iii) monitor progress with plan implementation\. (b) Infrastructure Service Delivery (US$80\.29 million): this component was to support: (i) feasibility and design studies of subproject proposals to submit for financing under this component, (ii) rehabilitation of rural roads and construction, rehabilitation and expansion of rural water, sanitation, electricity and ICT infrastructure, (iii) supervision of the mentioned works, and (iv) studies and support for the establishment and strengthening of local service providers to operate, maintain and administer the services to achieve quality and sustainability\. (c) Institutional Strengthening (US$5\.52): this component was to support: (i) project coordination units at national and regional levels, (ii) implementation of studies and capacity building to strengthen policies and institutions in areas of territorial planning and rural infrastructure service delivery (including those related to the application of social and environmental safeguards), and (iii) project monitoring, evaluation and learning as a contribution to national level expansion of the program\. 1\.6 Revised Components In February 2009 the Loan Agreement was amended to (i) expand the definition of eligible subprojects to include the financing of small port works; (ii) allow financing of pre-investment studies for productive subprojects (something that would help communities access additional funding, under other programs); and (iii) allow for financing operation and maintenance\. 1\.7 Other significant changes In addition to the changes listed in 1\.6 above, the February 2009 amendment included the following changes: (i) retro-actively increase financing percentages for works and consulting services; and (ii) modify the role of a national coordination body for the project\. These measures were seen as needed to accelerate overall project implementation and keep the project relevant for Chile's evolving territorial development strategy\. In addition, the amendment enabled the 2 The GOC is defining the POD of the PIRDT as “to contribute to the development of the selected productive territories through the effective and productive use of the rural infrastructure servicesâ€? and identifies as the key indicator “the percentage increase in production in the key areas identified in the PMDTsâ€?\. 3 loan to finance up to 100% of works and consultant services (originally 50% and 70% respectively)\. These changes were expected to speed up subproject implementation and disbursements\. The Government agreed to finance the additional necessary subprojects/consultancies to keep the same overall pari passu (44%)\. A second amendment took place on September 2009 when the loan closing date was extended from the original June 30, 2010 to December 31, 2011\. Finally, in April 2011 the GOC and the Bank agreed to include for financing under the loan projects in the regions Libertador Bernardo O’Higgins and Aysen del General Carlos Obañez del Campo\. 2\. Key Factors Affecting Implementation and Outcomes 2\.1 Project Preparation, Design and Quality at Entry Project quality at entry was satisfactory for the reasons described below\. The project was fully in line with the Country Assistance Strategy (CAS)\. The background analysis that supported the project design was sound as it was fully aligned with the main pillars of the 2002 CAS that set three broad goals: (i) sustaining economic growth and social progress, (ii) heightening inclusion, especially of rural populations and vulnerable groups, and (iii) modernizing the state as a foundation of the two previous objectives\. The CAS emphasized that one of the building blocks for sustained economic growth and social progress was maintaining and improving key rural infrastructure assets that facilitated regional development and the inclusion of marginal rural areas in the market economy\. Finally, the project supported the CAS objective of modernizing the state to better achieve the inclusion of rural population and vulnerable groups through: (i) efforts to strengthen the capacity of national and regional agencies to implement the project; (ii) conducting policy and institutional reform studies; and (iii) supporting a program for monitoring, evaluation and replication\. Lesson learned from other projects were incorporated\. The project incorporated in its design the lessons learned from both previous Bank-financed operations and the comprehensive ESW carried out prior to project preparation, essentially related to: • Avoiding the main shortcomings related to lack of inter-sector coordination and sustainability identified by the ESW of the different delivery mechanisms implemented in Chile\. The key lessons from this work (characteristics of successful programs, limited investment coordination among sectors, focus on coverage rather than long terms sustainability, need to adapt technical standards to reach dispersed populations, etc\.) were incorporated in the project design\. • Incorporating participatory approaches in the design and implementation of rural infrastructure projects as a means to enhance ownership, tailor the investment to local demands and needs, and improve the sustainability of investments\. • Looking into a range of technical options for improving infrastructure services in rural areas, with the objective of introducing more appropriate and lower cost technologies, especially to serve the large number of rural dispersed communities, and assess their willingness to pay and preferences for operating the services as a means to enhance sustainability\. • Acknowledging that territorial approaches can provide a mean to improve coordination and complementarity of investments, and also build linkages to productive activities\. Project design incorporated the experience in other countries showing that when several 4  infrastructure services are made available simultaneously in the same rural area, the impact is greater than the sum of the individual effects when the services are provided individually in separate areas\. Institutional and implementation arrangements were highly complex, multi-layered but well defined\. Most of the officials interviewed for the ICR acknowledged the quality and effectiveness of the Project Operational Manual in delineating the myriad of steps necessary to select PIRDT supported territories and subprojects\. Community participation, approvals, signing of working agreements, validations, just to mention a few, were required at one point or another from community representatives, municipalities, local elected legislators, central government appointed local authorities, representatives of the sector infrastructure agencies both at the central and regional levels, MIDEPLAN and any other agency supporting productive infrastructure and activities\. Project design was pragmatic, allowing for a meaningful size and scope for learning\. It recognized the difficulties of adopting a completely novel approach to infrastructure planning which involved different levels of government, multiple sector agencies, community participation, interface with other rural development program\. Thus its main focus was on learning and eventually replicating successful experiences\. The possibility of a LIL, considered at one time during project identification, was correctly rejected because of the constraints it would have imposed on the size of the project and its learning possibilities\. A range of risks was identified during project preparation and appropriate mitigation measures were considered\. In particular, the possible limited capacity of the different levels of government to deal with new participatory approaches to planning were mitigated though the inclusion of legal instruments clearly specifying the roles and accountability of the different agents, incentives to counterbalance possible resistance by local governments to switch to new forms of planning and financing rural infrastructure, and flexibility to support through technical assistance and consultants any possible weakness in institutional capacity\. The attention and documentation in regard to social issues in general, and social safeguards specifically, was considered outstanding by the QAT 3\. The specific regions to which the project was targeted had about 42% of Chile’s Mapuche Indian population, according to the 1992 census of adults\. As noted in the Social Assessment carried out during project preparation, the Mapuche and other indigenous groups are generally among Chile’s poorest and most disadvantaged populations\. Appropriately, an Indigenous Peoples Plan (IPP) was prepared 4 and the National Corporation for Indigenous Development (Corporación Nacional de Desarrollo Indígena – CONADI) was consulted during project preparation\. The PAD indicated that SUBDERE would monitor the specific participation of women and indigenous groups in the process of preparing regional development plans\. During preparation, the Government’s commitment and support to the project, at different levels were very good\. The less than highly satisfactory rating is based on the considerations listed below: (i) The PDO did not fully capture the strong emphasis of the project on supporting only existing productive activities and enhancing their potential for income generation\. 5 The project key instrument, the PMDT, aimed to develop and 3 Currently Safeguards Advisory Team (SAT)\. 4 The IPP was prepared according the requirements of Operational Directive 4\.20 on Indigenous People\. The project was appraised prior to the approval of OP 4\.10 on Indigenous Peoples\. 5 During the preparation of the ICR both Chilean officials and Bank members presented this very specific and focused view of the project objectives\. In fact, a necessary criterion for the selection of a territory to be included under the project was the existence of ongoing potentially viable economic activities\. 5  implement a “business planâ€? approach for ongoing rural activities requiring multi- sector infrastructure investments to increase their profitability\. This concept does not clearly and/or explicitly appear in the PAD\. (ii) The less than explicit association of the PDO with income generating activities resulted in a strong consideration of the use of infrastructure as an output rather than an input while “the increase in annual production for the key priority areas identified would be tracked separately by SUBDERE as it involves a broader set of actions not under the control of the project\.â€? The need for a stronger linkage between investments and income generation (or any other measure of wellbeing) was to be addressed later in the project as discussed in section 2\.3 of this report\. (iii) Although recognizing and explicitly stating in the PAD that because of its characteristic project implementation needed a substantial lead time, the expected pace of execution and disbursements were unrealistic and resulted in an early downgrading of the performance rating which in turn at one point jeopardized Chile’s continuous support of the project\. QAG did not evaluate nor rate the Quality at Entry of the project\. 2\.2 Implementation Project implementation experienced two distinct stages; with the project emerging from a period of unsatisfactory ratings because of serious execution problems to a remarkable turnaround that progressively transformed the project into a highly successful and effective instrument for streamlining the territorial development approach\. Early implementation period (2005-2008): The project became effective in August 2005 once the main effectiveness condition of creating the Project Steering Committee6 was complied with\. The committee was to ensure high-level coordination for a project that challenged the existing sector approach to infrastructure development and thus shifted responsibilities from the sector agencies to the Management and Development Unit (UDG) of SUBDERE\. One of the main linchpins of the project was the Territorial Development Framework Plans (PMDTs)\. Adoption of these plans were the culmination of a process that started with the identification of territories responding to a minimum set of socio-economic criteria, with the consensus of the Regional Council (CORE)\. Subsequently, participatory planning led to the design of a PMDT that identified the priority rural infrastructure investments -the subprojects- to be funded by the project, as well as other activities such as productive initiatives, that would be implemented by other government programs, or with private financing (e\.g\., productive initiatives)\. The plans and infrastructure investments had to be validated by the CORE\. All infrastructure subprojects also needed to be approved by MIDEPLAN, based on the socio-economic appraisal performed by its regional units (SERPLACs)\. Almost from the start of the implementation period Bank supervisions reported execution problems and about a year after effectiveness the project was rated unsatisfactory\. The many reasons for the delays were identified and widely discussed by both the Bank and the Chilean institutions\. The latter (i\.e\. MoF, Contraloría, MIDEPLAN) thoroughly scrutinized and evaluated the project during this period and contributed to find and implement remedial actions\. A summary list of the main problems affecting project performance were: • Lack of coordination at the highest level to ensure the smooth inter-sector bundling of subprojects\. National Directorate meetings, which initially were expected to be at the level of under-secretaries, never took place\. A project that introduced a new paradigm 6 The Project Steering Committee (Directorio Nacional) was to comprise high level representatives of the Ministry of Public Works, Transport and Telecommunications (MOPT), the Ministry of Finance (MOF), MIDEPLAN, Ministry of Agriculture, and Ministry of Economy and provide overall strategic directives for project implementation\. 6  moving individual sector decisions to a more “collegiateâ€? process involving new stakeholders required a supra-institutional cohesion that did not take place as planned\. Only in 2008, when the project started to regain its momentum, a technical committee was formed to provide the type of coordination originally expected from the Directorate\. • SUBDERE’s lack of experience with project execution and project coordination\. SUBDERE successfully went through the preparatory stages of conveying the merits of the territorial planning approach to the future beneficiaries in the regions and securing their early ownership and commitment to the project\. However, once the project moved into the implementation stage poor project management and coordination skills became evident\. These weaknesses were in time overcome through changes in personnel, incorporation of procurement experts and active Bank handholding\. • Sectors agencies difficulties to change\. Chile’s outstanding public sector management includes very strict and efficiently enforced rules and regulations that standardized the process of project selection and execution\. The PIRDT program challenged and, to a certain extent undermined, the existing arrangements\. Technical Units (TUs) at the regional level comprising representatives of the MOPTT or each sector, were in charge of implementing their respective subprojects\. New procurement rules together with investment priorities that differed from those identified in the central sector agency programs and could not pass the strict economic evaluation filters of MIDEPLAN took time to be accepted by the relevant sector agencies\. The latter were either resistant to change and/or were extremely cautious in making decisions against their long established modus operandi\. • Inordinate lead-time to produce the initial PMDTs\. The first PMDTs (which were to be known as the “first generationâ€? or PMDT1) were a rather alien concept to the main regional stakeholders\. Lack of clear terms of reference for their development and the rather uneven capabilities of the local consultants retained for their preparation contributed to the problem\. The fact that the development and approval of an evaluation methodology able to quantify the combined economic merits of a bundle of subprojects was not in place at the time also delayed MIDEPLAN’s approval of the subprojects identified in the PMDTs\. Mid-Term Review and Ministry of Finance (DIPRES) Report: By the time of the mid-term review (October 2007) project performance had been categorized as unsatisfactory for 10 months\. Actual disbursements were only 20% of those planned at appraisal\. Support at the regional level was weakened and the project started to be seen by some regional officials as a rigid and slow alternative to single sector opportunities\. Some officials even thought that cancellation was a better alternative than keeping a non-performing project in SUBDERE’s portfolio\. It was clear that by then a combination of unrealistic expectations developed during the initial “sellingâ€? of the territorial approach to the regions plus the severe delays in implementation had substantially eroded the project attractiveness\. A very thorough and critical review of the PIRDT program by Dirección de Presupuesto (DIPRES, Budget Office within the Ministry of Finance) confirmed this view\. It found that the project was: (i) slow to implement; (ii) complicated by multiple objectives; and (iii) too restrictive (both in terms of eligible infrastructure subprojects and the non-inclusion of financing for productive activities)\. More importantly, the report identified the flaws of the project’s logical framework, which eventually resulted in launching an exercise to review the framework, identify relevant monitoring indicators, and set up an impact evaluation study\. Throughout this initial period Bank supervision missions and SUBDERE proactively tried to reverse the slow pace of implementation\. This was supported by new managers in SUBDERE 7 that firmly believed in the merits of the project\. As a result: (i) comprehensive and closely monitored action plans were agreed to smooth out main constraints to finalize PMDTs; (ii) workshops were launched to improve communication at the political and technical levels; (iii) re-launching meetings were made when the unfulfilled expectations at the community level started to erode the original enthusiasm for the project; and (iv) expert consultants were hired by some regions to help in the preparation of the PMDTs and strengthen procurement capabilities\. Late implementation period (2009-2011)\. The concerted GOC-Bank’s efforts to improve the project performance soon started to show visible results\. The necessary time elapsed to complete the first few plans, validate them through the different agencies, and contract works\. Results in some regions could be shown to others more skeptical about the project\. Additional circumstances that helped strengthen positive developments were: (i) the GoC’s commitment towards decentralization and the decision of reforming SUBDERE to increase its role as a coordinator of regional investments; (ii) the GoC strong pressure to public entities to accelerate disbursements as part of a US$700 million macroeconomic stimulus package emphasizing regional infrastructure; and (iii) Bank approval of financing pre PMDTs “obvious subprojectsâ€?, that is, those with such an evident priority that could be included even when the PMDT was not yet completed\. In the 12 months between late 2008 and 2009, the project disbursed almost as much as during the previous three years of implementation, building on the pipeline of rural infrastructure investments prioritized by the PMDTs\. Execution accelerated even more, as a result of the loan amendment that increased loan financing to 100% of the cost of works and services and expanded the definition of works eligible under the project\.7 By late 2009 it was clear that the project started to be positively perceived by national and regional stakeholders and its outputs were starting to influence Chile's territorial development policies\. After years of uncertainties due to the initial implementation delays, the project successfully rebuilt its credibility\. The PIRDT by then was having a better execution record than all other SUBDERE programs, largely due to the quality and quantity of the infrastructure pipeline that was built through the territorial planning process\. At the regional level, the territorial development concept became progressively streamlined: some regions started the preparation of new Territorial Development Plans\.8 These PMDT2 are now fully accepted tools for rural development in Chile\. A key element of the project turn-around was the completion and gradual formal adoption of the new methodology for the economic evaluation of subprojects to be included in the PMDTs\. A basic tenet of the project was that the cost-benefit analysis used in Chile for the inclusion of an investment in the budget were inadequate to capture the economic merits of many initiatives in highly dispersed rural areas\. Good subprojects were systematically ruled out by analysis based on consumer surpluses rather than the more appropriate producer surpluses\. More importantly, individual project merits are increased when the benefits brought about by the synergies of bundling investments in several sectors at the same time are quantified but these extra benefits were not included\. Development of the new methodology capturing the concept of integrated territorial development experienced the same delays than the rest of the project\. The idea of bundling 7 The list was expanded to include financing of small port works, pre-investment studies for productive subprojects, and operation and maintenance\. 8 For instance, the region of Maule conducted an external evaluation that ranked the project's approach first among three territorial planning methodologies\. That same region adopted the project's approach as part of its own regional development strategy\. At the national level, the Project's Steering Committee met in order to discuss options to generalize MIDEPLAN's new economic evaluation methodology for rural infrastructure investments\. 8 subprojects, a concept that for many years was seen in MIDEPLAN as a possible sign of hiding bad projects under good ones, was hard to adopt\. A local consultant was finally retained in 2009 to develop the new methodology and the proposal was subjected to a thorough process of consultations and revisions until it was fully accepted by MIDEPLAN in 2010\. Its usefulness was fully recognized when the government adopted it for the reconstruction process after the earthquake of 2010\. BOX 1: What is a Territory? As in the case of other aspects of the project, the selection of a territory evolved with time as part of the development of the different generations of PMDTs (See Box 2)\. Selection of the original territories was the result of ad-hoc identifications carried out by the local legislatures with varying degrees of political considerations\. As concepts became better understood and the views of the communities acquired a heavier weight in the process, the ideas of cultural identity, social cohesion, economic relationships, interactions and networks started to be weaved in the definition\. For practical purposes the PIRDT territory is now defined in MIDEPLAN’s methodology for the evaluation of PMDTs as “a space of public/private and community consensus and of decision making about investment priorities, thus becoming an integral planning unit at the sub-regional level\. In a territory several economic and social relations take place that, thus, determine the flow of exchanges affecting their own population and that of other territories and external entities\. Within the interior of the territory we can identify the focused areas of investments or sub-territories that correspond to concrete spaces where the program takes place, identifying the local demand, project ideas, and investment allocations\.â€? 9 2\.3 Monitoring and Evaluation (M&E) Design, Implementation and Utilization 2\.3\.1\. Design\. The PAD’s outline of M&E arrangements was fairly comprehensive\. It envisaged: (i) SUBDERE to implement an M&E system to: a\. assess the gradual impacts of the implementation of the infrastructure components of the PMDTs on the communities in the selected territories and on the related productive activities; b\. keep track of the achievement of the project performance indicators included in the Results Framework\. These indicators would track final and intermediate project outcomes, while SUBDERE was to have a more elaborate M&E system to report on project results and processes\. (ii) During the preparation of each PMDT, coverage rates, quality and use of the infrastructure services in the territory would be measured to establish a baseline of information\. Upon completion of subproject activities in that territory a new measurement of the same data would be carried out to assess progress in increasing coverage rates, quality and use of those services\. (iii) The Project was also to undertake an assessment of intermediate socio-economic impact indicators related to the contribution of infrastructure services to productive activities and the socio-economic wellbeing of participating families\. Control cases would be included to compare similar territories that were not subject to project interventions\. (iv) A participatory monitoring process was to be incorporated into the overall M&E system to include a beneficiary assessment of adherence to project rules, progress and results of implementation\. It would track overall participation, but also that of indigenous peoples and 9 MIDEPLAN’s integrated economic and social evaluation for multi-sector projects (Chile 2011), available at: http://sni\.ministeriodesarrollosocial\.gob\.cl/documentos/Sectores_2011/Pirdt/guia_pmdt2011\.pdf 9 women\. Household data sheets were to be completed in a representative sample of households within benefiting territories to collect demographic and ethnic data, gender information, infrastructure priorities, and willingness to pay for improved services and to participate in implementing local service delivery systems\. 2\.3\.2\. Implementation The planned M&E system was only marginally implemented\. Readily available data such as physical output, number of PMDTs completed, potential aggregated beneficiary population in a given territory, etc\. was routinely collected and reported\. That was not the case of the more complex (and more relevant) impact assessments\. Both the Borrower and the Bank claim that the continuous struggle to keep the project alive reduced the priority conferred to M&E\. In 2006 there was a period in which the project M&E was rated unsatisfactory\. But this was mostly related to the delays in contracting a consultancy for “Project Management and Monitoringâ€? which was not directly related to the tracking of the key indicators\. The monitoring of subproject implementation by the TUs and compliance with the established procurement and financial management was carried out by SUBDERE and scrupulously reviewed by the Contraloría Nacional, Chile’s main auditing entity\. BOX 2: Territorial Development Framework Plan - PMDTs Main Characteristics and Evolution First Generation (PMDT1) • Uneven quality among regions due to lack of clear TORs • Lack of an unifying evaluation methodology • Limited familiarity with the concept of an integrated territorial planning • Limited availability of qualified consultants for the preparation of the plans • Did not include a reliable and homogenous base line for future assessment Second Generation (PMDT2) • Territories, subterritories and project selection and evaluation based on newly approved MIDEPLAN methodology • Include reliable and homogenous baselines • Benefitted from technical assistance to implementation units, detailed TORs and workshops with consultants preparing PMDTs • Brings early in the planning period the participation of key actors in the technical and/or financial support of economic activities Third Generation (PMDT3) • Social capital and participatory processes are further strengthened by including the “nucleo gestorâ€?, headed by community leaders, local producers and local political and technical authorities in charge of coordinating and leading the participatory planning and implementation of PMDTs • Methodology includes now a standardized questionnaire for baseline surveys, and information to carry out comprehensive IE studies, including control groups • Methodology is further improved to include iterative process to strengthen priorization of subprojects and exclude subprojects with low economic, financial and social rates of return Late in the project implementation period, and as the government confirmed the PIRDT’s 10 importance as a full-fledged tool for the delivery of rural infrastructure, the interest in evaluating its impact on productivity and rural incomes resumed\. Project results for the initial first generation PMDTs (or PMDT1) were inferred from simple community surveys since: (i) they did not include baselines; and (ii) they were developed prior to the existence of the approved methodology thus casting doubts on the quality of the selected subprojects in terms of their productive impact (i\.e\. social rather than productive considerations in many cases may have prevailed)\. Also, consultants have been retained to: (i) redefine the logical framework of the PIRDT (emphasizing the income enhancing objectives for those involved in the existing and potentially more productive economic activities); (ii) develop the relevant key indicators closely linked to the actual economic activities; (iii) define the baseline for the PMDT2 (second generation plans); and (iv) establish a control group of territories not involved in the PIRDT with whom to compare the results (for PMDT2)\. As a result, for the second generation of PMDTs, the definition of the baseline has been completed (for both the sample and the control group) and the impact assessment will be carried out in about two years time, once the civil works have been completed and their impact become measurable\. The GoC key definitions on the frequency of the assessments and the dissemination of the results are still pending\. 2\.4 Safeguard and Fiduciary Compliance 2\.4\.1 Procurement Procurement issues were one of the main roadblocks hindering the early stages of project implementation\. A CPAR for Chile carried out prior to appraisal revealed that local legislation differed from Bank rules in several aspects\. These differences became part of the legal documents agreed upon at negotiations, and were to be taken into account in the elaboration of the national bidding documents for the project\. This proved to be a difficult task in part because: (i) notwithstanding the Bank’s preference for centralizing procurement in SUBDERE, the GOC decided that decentralization efforts would be better served by carrying out procurement through the regional TUs; (ii) TUs comprised the technical representative of each sector agency (MOPTT’s Vialidad and DOH for roads and water, respectively) who were responsible for the implementation of the subprojects in their sector but had no procurement experience with Bank documents); (iii) sector technical staff in many regions were reluctant to contradict long established procurement rules and risk the Contraloria’s sanctions; and (iv) SUBDERE had no authority over the other Ministries to enforce international agreements\. The high level project Steering Committee, designed to coordinate and resolve these types of inter-agency issues, never met\. Early in the project implementation period, a consultant was retained to harmonize the Bank’s and MOPTTs bidding documents with the approval of the Contraloria\. After a protracted exercise that included the review of existing legislation supporting adherence to international agreements a document was completed in October 2005\. In mid 2006 MOPTT sent to its regional representatives the order to use the new bidding documents\. Training and hiring of procurement experts helped to incorporate the new documents although there were still some regions reluctant to change\. Full acceptance of the Bank’s agreed documents with the consent of Contraloria took place in a formal act in 2007, about 2 years after loan effectiveness\. 2\.4\.2 Financial Management\. In terms of Financial Management arrangements, the project was characterized by a satisfactory performance and a low risk\. In particular, SUBDERE has maintained qualified staff and adequate internal controls\. As the project pre-financed expenditures, SUDBERE put in place a mechanism to validate information from regional governments and interact permanently with regional governments to assure expenditures eligibility\. The project used the Integrated 11 Financial Management System SIGFE complemented by SUBDERE’s own system to produce financial information\. Interim un-audited reports (IFRs) have been sent on timely basis, except for the IFR for the second semester 2011 which is overdue and it is expected to arrive before the end of April 2012\. Audit reports were by and large submitted on time, with unqualified audit opinions and considered acceptable by the Bank\. Although the project closing date was on December 2011, the project continues executing final activities with local counterpart funds\. Therefore, it was agreed the last audit covers the period January 2011 to June 30, 2012\. The audit report is expected to arrive before December 2012\. 2\.4\.3 Safeguards Social Safeguards\. The project triggered OD 4\.20 on Indigenous Peoples (the project was approved prior to the issuance of OP 4\.10 on Indigenous Peoples) and OP 4\.12 on Involuntary Resettlement\. A Social Assessment and an Indigenous Peoples Plan (IPP) were prepared to comply with OD 4\.20\. During project supervision the Bank observed that the project delivered significant benefits to communities of Indigenous Peoples in the regions of Araucanía, Maule and Bío Bío and that negative social impacts were minor or nonexistent\. Subprojects responded to needs expressed by the community and facilitated productive activities\. Community participation in the planning and implementation of subprojects was a critical ingredient of their success, particularly in the case of subprojects to provide rural water supply to indigenous communities\. A Resettlement Policy Framework was prepared to comply with OP 4\.12 on Involuntary Resettlement\. In practice, the project did not cause physical displacement (relocation of people)\. Land for subprojects was acquired through voluntary transactions, except in the case of a road rehabilitation subproject that required the expropriation of narrow strips of land adjacent to the road\. Expropriation became necessary in this subproject due to changes in its original design\. The expropriation was carried out by the Roads Department of the Ministry of Public Works (MOP), which allocated funds for the compensation payments; however, some of the payments had to be deposited in the courts because the expropriated owners did not have title to the land affected\. These persons are entitled to the payments as soon as they legalize their tenure status\. Environmental Safeguards\. Project preparation with respect to environmental assessment was carried out in accordance with the World Bank operational policy 4\.01 on Environmental Assessment\. The project was correctly categorized as B given the scope and nature of planned infrastructure subprojects which were rather simple in environmental terms and thus would probably not require screening according to national regulations\. A high quality Environmental Management Framework (EMF) provided procedures to screen infrastructure subprojects and mitigate potential impacts that went beyond national requirements\. This procedure included: (i) a preliminary environmental assessment, (ii) subproject categorization, (iii) selection of the environmental assessment instrument, and (iv) implementation of a given environmental assessment instrument\. However, with regard to preparation of Planes Marco de Desarrollo Territorial (PMDTs), the EMF prepared by the Borrower did not include information and guidance for mainstreaming of environmental considerations into formulation of PMDTs\. Furthermore, the project’s Operations Manual did not incorporate the aforementioned procedure nor the environmental guidelines\. Even though the procedures agreed with the Bank during project preparation were not implemented, SUBDERE followed the national environmental requirements for infrastructure projects, and supervision missions did not detect any negative environmental impacts\. 2\.5 Post-completion Operation/Next Phase The PIRDT has become a well-established mechanism for the delivery of sustainable infrastructure to rural areas\. The demand for PMDTs in new regions is exploding\. In 2012 the regions of Arica, Parinacota, Tarapaca and Magallanes are being incorporated to the program\. 12 The inclusion of Antofagasta and Atacama is being planned for 2013 while Valparaiso and the Metropolitan regions are programmed to join in 2014 (by then the program will have national coverage)\. In addition, the allocation of resources in the 2012 budget for the continuation of the PIRDT beyond the loan closing date for up to US$33 million, above 2011 budget levels, attest to the attractiveness and developmental merits of the territorial approach and the very high likelihood of its sustainability\. 3\. Assessment of Outcomes 3\.1 Relevance of Objectives, Design and Implementation Rating: High overall relevance The PIRDT objectives remain highly relevant to the country’s priorities of rural development and decentralization\. GOC is satisfied with achievements under PIRDT and its sustained relevance, as proven by the continued expansion of the program and the commitment of the former and present administrations to improving the quality of the PMDTs and their implementation\. 3\.2 Achievement of Project Development Objectives Objective: Increase the effective and productive use of sustainable infrastructure services by poor rural communities in selected territories of the regions of Coquimbo, Maule, BioBio, Araucania, and Los Lagos (or any other region as may be proposed by the Borrower and agreed to by the Bank)\. This objective was achieved: The project successfully achieved all the intermediate institutional targets leading to the GOC full adoption of a novel territorial planning approach that is providing disperse populations with productive infrastructure subprojects that would have not been approved or considered before\. The project has become the main vehicle of the Chilean Government to satisfy previously unmet demand for rural infrastructure having a direct and tangible impact on rural incomes, increasing the effective and productive use of infrastructure services by rural communities\. In particular, the PIRDT financed 250 subprojects (158 road subprojects, 65 water supply subprojects, 7 sewage subprojects, 12 energy subprojects, 6 ICT subprojects and 2 port subprojects) benefiting about 320,000 beneficiaries in participating, poor rural communities\. These outcomes include subprojects financed directly with loan proceeds, national counterpart, SUBDERE’s funds (different from the project counterpart) and other sources 10 (the project envisaged only the first two sources at project preparation)\. Investments in infrastructure subprojects amounted to US$153\.7 million: roads accounted for 75% of total investments, with 15% going to water, 5% to sewerage, 3% to energy, 1% for ICT and 1% to ports\. Regarding the nature of the funds, the loan contributed with 30% of total investments in infrastructure, whereas counterpart funds accounted for 25%, SUBDERE’s funds (different from project counterpart) represented 26% and others 19%\. Figure 1: Number of Subprojects Figure 2: Investments per Sector 10 Mainly budget from sectoral ministries and FNDR\. 13  Number of Projects Total Investment (US$ Million) 180 140\.0 158 114\.7 160 120\.0 140 100\.0 120 80\.0 100 80 65 60\.0 60 40\.0 40 22\.9 12 20\.0 7\.5 20 7 6 2 5\.4 1\.8 1\.6 0 0\.0 Water Sanitation Roads Energy ICT Ports Water Sanitation Roads Energy ICT Ports SOURCE: SUBDERE and UGRs SOURCE: SUBDERE and UGRs 14 Figure 3: Investments per Source Figure 4: Investment per Sector and Source Project Financing (US$Million) Ports 50\.0 45\.9 45\.0 40\.6 ICT 40\.0 38\.1 35\.0 Bank Energy 29\.2 30\.0 Counterpart 25\.0 Roads Other SUBDERE 20\.0 Other 15\.0 Sanitation 10\.0 5\.0 Water 0\.0 Bank Counterpart Other SUBDERE Other 0 50 100 150 SOURCE: SUBDERE and UGRs SOURCE: SUBDERE and UGRs A total of 45 PMDTs were prepared under the project (some of them are still in the process) covering 185 territories\. 18 PMDTs belong to first generation of PMDTs (covering 74 subterritories in 5 regions); 13 PMDTs belong to the second generation (covering 71 subterritories in 3 regions); and 14 PMDTs belong to the third generation (covering 40 subterritories in 3 regions)\. PMDTs also identified productive activities\. It was reported that 27 of such initiatives were financed under the program, representing an additional investment of US$12\.9 million (it was not envisaged that the project would finance productive activities)\. Initiatives included mainly studies, training and irrigation\. As already discussed relevant information on the PIRDT’s impact on incomes and the well being of the beneficiaries is still pending (baseline data has been collected for sample and control group for PMDT2)\. Many subprojects have long preparation periods\. That is the case for instance of rural water supply subprojects which require on average three or four years between identification and completion\. Also, considering that many of the productive activities supported under the project have substantial maturing periods the lag between investments and incomes might be considerable\. This is particularly true for non-farm activities such as tourism or fishing that require investments other than basic infrastructure\. Thus any quantitative measurement of the project impact on income before three or four years is unlikely to be meaningful\. A qualitative assessment of the project achievements fully confirms the effect of the new infrastructure on economic activities and the welfare of the population\. Every community visited during project supervision and during the preparation of this report reported the positive developments that could be attributed to the project\. They ranged from the basic avoidance of loss of perishable goods because of better roads, to the opening of export markets for berries or sea food because of rural water supply for cleaning products or electricity for refrigeration\. The PAD identified as intermediate institutional objectives: (i) the project will strengthen the capacity of participating agencies to implement territorially- based, demand-responsive and multi-sector approach to rural infrastructure as a contribution to local economic, social and environmental sustainability\. The learning and results of the project will provide a basis for implementing a longer-term institutional reform on how rural infrastructure services are planned, financed and delivered in Chile\. These intermediate institutional objectives were fully achieved\. The institutional outcomes were to be measured by the mainstreaming of a territorial, demand-responsive and multi- sectoral approach to rural infrastructure within government programs, namely: (a) new methodologies for integrated economic and social evaluation of multi-sector 15  projects implemented by MIDEPLAN\. This objective was fully achieved\. As discussed before the methodology for the integrated economic and social evaluation of multi-sector projects was completed in 2010 and formally adopted by MIDEPLAN for the evaluation of PMDTs\. This new methodology filled a vacuum in MIDEPLAN’s conceptual resources for economic evaluations that were negatively affecting the possibility of including in the government’s budget necessary investments for disperse populations\. (b) more effective, decentralized service delivery models and appropriate technical solutions adopted by relevant sector agencies to reach un-served and dispersed population\. This objective was fully achieved\. The decentralized PIRDT approach has become the preferred mode of the Chilean government to help dispersed populations to enhance their productive capabilities\. Moreover, the project brought to the forefront of the GOC’s agenda sector shortcomings that needed to be addressed and made remarkable inroads in bringing sector policies and/or processes in line with the needs of the rural communities\. In particular: • Water Sector\. The Manual on Water and Sanitation Technical Solutions for Rural Areas financed under the project had vast influence in reshaping the sector\. The changes in the legal and regulatory framework of the water sector that took place in the 90s to concession the urban systems left the rural areas, particularly the sewage services, in a normative vacuum\. The study’s contributions were twofold: (i) it resulted in the preparation and SUBDERE’s adoption of a manual of different water and sewage technical and financial solutions for the rural sector that are now broadly used for project preparation; and more importantly (ii) it served as the basis for the drafting of a Water and Sewage Sector Law that is now on the way of being sanctioned\. The law addresses the issues of putting in place adequate rules in terms of community participation, targets, appropriate technical regulation, and clarity in terms of institutional responsibilities for service delivery\. One of the main contributions of the law is the creation of the “Superintendencia de Saneamientoâ€? (Sanitation Superintendency) in the MOPTT\. • Transport Sector\. The most important pending issue in the sector is the maintenance of “caminos no-enroladosâ€? (unregistered roads that are currently not enrolled under the periodic maintenance system) and of roads in indigenous areas\. MOPTT has under its jurisdiction a network of 80,000 km of secondary and tertiary roads\. Rural roads lack clear classification, leading to difficulties in analyzing traffic safety and maintenance data, and the evaluation of resource needs is carried out on a basis similar to that of inter-urban roads which results in a reduced level of maintenance funds available for low-traffic roads\. There is a need to enhance the assessment and categorization of rural roads, as well as the evaluation of maintenance needs and the assignment of responsibilities and allocation of funds at an appropriate level to meet local economic development priorities\. The GOC is in the process of reviewing the maintenance policy and responsibilities for non-enrolled rural roads\. Meanwhile it was agreed that the maintenance of any road rehabilitated under the PIRDT, regardless of its classification, would be the responsibility of the MOPTT\. • Telecommunications\. The Bank, SUBDERE and SUBTEL worked closely during project implementation in search of possible collaboration\. In many cases subprojects identified for possible PIRDT financing were carried with alternative sources (6 subprojects have been financed under the program, all of them with SUBDERE’s own resources)\. More importantly, SUBTEL acknowledges that the PIRDT has been instrumental in the revision of their policies and that the PMDT provides the right umbrella for the delivery of services to disperse populations\. In their words, they perceive the SUBTEL-PIRDT 16  synergy as a win-win situation that combines the former’s know-how on telecommunications with the latter’s grasp on regional information\. SUBTEL now adopted as a public policy the support of the regions though the PIRDT\. To that end they have appointed regional technical units and incorporated into their surveys the productive aspects of demand\. (c) multi-sector territorial-based planning and service delivery model replicated in other non-project territories and regions\. This objective was fully achieved\. Currently PIRDT is being replicated in other than the initial territories (since 2011 five regions were incorporated to the program), and is planned to cover the full national territory by 2014\. 3\.3\. Efficiency Economic and Financial Evaluation\. Due to the demand-based nature and characteristics of the multiple, relatively small subprojects that was to be financed, it was not feasible to carry out an ex-ante specific economic or financial rates of return type of analysis for the project\. Since the project was considered a framework-type of project, the eligibility criteria, procedures and methodologies for evaluation and screening of the subprojects were determined at appraisal\. These methodologies relied largely on the systems in use by MIDEPLAN until 2010 adjusted so that it: (i) accounted for the complementary benefits that stem from a combined set of rural infrastructure subprojects; and (ii) introduced more streamlined procedures for evaluating smaller scale subprojects through the application of per capita investment thresholds and promoted the use of more appropriate and cost-effective technologies for dispersed rural populations\. Once the new evaluation methodology was introduced, PMDTs were subjected to: (i) a financial evaluation based on the net revenues of the productive activities accruing to the community quantifying as costs the outlays of the community members but considering the government’s investments in infrastructure as sunk costs; and (ii) an economic evaluation in which all the costs to the economy are included and benefits are calculated on the basis of the producer surplus generated by the productive activities\. When justified, the benefits also include the consumer surplus of users of the infrastructure other than those engaged in the productive activities being considered\. The strict controls of MIDEPLAN for the inclusion of subprojects in the national budget ensured that both before and after the introduction of the new methodology all subprojects financed under the PIRDT had positive Net Present Values at a discount rate of 6%\. Full description of MIDEPLAN’s evaluation methodology and examples of these evaluations are presented in Annex 2 of this report\. 3\.4 Justification of Overall Outcome Rating Rating: Satisfactory The overall outcome rating of Satisfactory follows Bank guidelines for ratings\. However this ICR considers that the project achievements are outstanding\. Starting with a pilot concept of “learning by doingâ€?, the community driven vision of development based on territorial cohesion spread to all the regions of Chile and the PIRDT is now the instrument that disperse rural populations are adopting to enhance their productive capacity\. In addition: (i) project objectives remain highly relevant to the rural development of Chile\. The new territorial approach has been fully adopted as a government policy\. This is confirmed by the inclusion of the PIRDT in the 2012 budget, the expansion of the project to cover the entire national territory by 2014, and the growing demand for PMDTs in participating regions\. 17  (ii) the project demonstrated satisfactory achievement of its DOs, especially in regard to the institutionalization of a territorial development approach and the introduction of a sound inter-sectoral agenda as part of Chile’s national policy/strategy\. (iii) policy gains at individual sectors level are substantial as shown by: (a) the now widespread use of a manual with alternative cost effective technologies in the water and sanitation sector; (b) the shortly expected approval of a new Rural Water and Sanitation Law ; (c) the decision of MOP to revise road classification issues plus the commitment for the maintenance of the “no-enroladasâ€? improved under the PIRDT; and (d) the policy changes of SUBTEL to reach disperse rural communities through the PIRDT\. (iv) there is a good outlook for the sustainability of subproject investments through the introduction in the latest generation of PMDTs of a ‘management group’ comprising local officials, technical experts and beneficiaries to follow up on PMDTs implementation and, if necessary, periodic updating\. GOC’s strong ownership of the ongoing efforts to revise the project logical framework and set the basis for a carrying out a sound impact assessment of the project is another proof of sustainability\. 3\.5 Overarching Themes, Other Outcomes and Impact (a) Gender According to an evaluation of the social and environmental aspects of the PIRDT, 11 women account for about 40% of the members of the “Water Committeesâ€? (the local social organizations/entities that managed the operation and maintenance of PIRDT’s rural water supply subprojects) and women’s participation grew substantially during the life of the Project\. (b) Indigenous People: The Project delivered significant benefits to poor, indigenous communities lacking basic infrastructure and services\. Specific subprojects contributed to improving the quality of life in these communities by removing bottlenecks to productive activities and making indigenous territories more habitable\. The Project was also instrumental in the issuance of legislation that removed obstacles to public investments within indigenous territories\. (c) Institutional Change/Strengthening The project contributed to important institutional changes and/or strengthening such as: (i) MIDEPLAN’s ongoing revision of their methodological approaches for the evaluation of rural infrastructure subprojects; (ii) strengthening the coordination of different government agencies for the delivery of rural infrastructure services; (iii) acting as a catalyst for the mobilization and coordinated actions of different government programs to support the development of small enterprises; (iv) enhancing the capabilities local and community actors for planning and implementing productive activities while maximizing the use of available institutional resources; (v) actively and effectively supporting the improvement of the legal and regulatory framework of the rural water and sanitation sector; (vi) the revision of the classification of rural roads; and (vii) the introduction in SUBTEL of new policies for reaching disperse rural areas with coverage and relevant content of new communication technologies\. (d) Other Unintended Outcomes and Impacts (positive or negative) N/A 11 “Evaluación Social y Ambiental Independiente del Programa de Infraestructura Rural para el Desarrollo Territorial, PIRDTâ€?, Krisol Ingeniería Ambiental and Capablanca Ltda\., February 2012\. 18 3\.6 Summary of Findings of Beneficiary Survey and/or Stakeholder Workshops Subprojects undertaken under the first generation PMDT (or PMDT1) were selected prior to the development of the subsequently agreed methodology\. These subprojects, while responding to the demand of the communities, were identified during a period in which the whole PMDT concept was only starting to be fully grasped by all the stakeholders (including the consultants retained for their preparation), lacked a reliable baseline and to a certain extent, might have been influenced by pressures to accelerate the initially slow project implementation\. Therefore they are inadequate for a full impact assessment, which is being carried out with the PMDT2 and PMDT3 subprojects\. To gather data on the qualitative effect of the PMDT1 subprojects on the wellbeing of the communities a results survey of around 40 communities was carried out during November 2011\. Survey results are summarized in Annex 5, and they show a very positive assessment of the beneficiary communities on the impact of the project in their economic and social life\. During the stakeholders workshops carried out in January 2012 and May 2012 to discuss the ICR, key project stakeholders emphasized that a valuable contribution of the program has been the inclusion of systematic and sound participatory approaches, which are an important innovation in terms of how infrastructure investments are planned and implemented in Chile as they are now based on demand-driven processes\. In particular, sector agencies such as SUBTEL and CONADI have pointed out that the PIRDT program has become a key tool for planning new investments in rural areas and working on the ground with beneficiary communities\. 4\. Assessment of risk to development objectives Rating: Moderate Sustainability: Factors taken into account include: (i) most subprojects implemented to specification; (ii) social capital formation, permanence and functionality of many community associations, and evidence of community capacity to leverage new benefits/resources; and (iii) major changes in the national institutional framework supporting rural development\. 5\. Assessment of Bank and Borrower Performance 5\.1 Bank Performance (a) Bank Performance in Ensuring Quality at Entry Rating: Satisfactory The ICR reaches the satisfactory rating on the basis of the following considerations: the project concept and approach, technical aspects, environmental and social features, financial management, institutional capacity, risk assessment and sustainability elements as well as incorporation of lessons of experience and consideration of design alternatives were highly satisfactory\. However, readiness for implementation is being rated as marginally satisfactory due to inadequate realism in the planned pace of implementation\. Also marginal satisfactory were an imprecise PDO and consequent weak causal links to the KPI, inadequate arrangements for M&E and lack of baseline data, and lack of sufficient attention to the local-procurement decision processes\. (b) Quality of Supervision Rating: Satisfactory This rating is based on the following: (i) regular supervision, candidly reported, with monitored and agreed actions; (ii) strong relationship with SUBDERE throughout, appropriate advice and solutions to the Borrower, and consistent effort to remain abreast of significant implementation difficulties; (iii) commitment to maximizing the project’s disbursement and achieving the DO; (iv) good procurement oversight; (v) highly effective dialogue on sector issues and policies 19 supported by the inclusion of sector experts in most supervision missions; (vi) adequate emphasis on maximizing the PIRDT potential to mobilize different agencies and/or programs to participate in the project’s territorial approach\. These factors are balanced by certain weaknesses: (i) the intense and commendable efforts to turn around a quasi-problem project were at the expense of a more even attention to safeguards; (ii) insufficiently intensive consideration to the development of initial quality PMDTs including the development of reliable baselines for future impact assessments; and (iii) lack of follow-up on SUBDERE’s obligations for M&E\. (c) Justification of Rating for Overall Bank Performance Rating: Satisfactory This rating tries to balance performance against a series of complicated factors such as (i) difficulties of a complete change in the paradigm of rural infrastructure delivery in Chile; and (ii) the complexities inherent in projects involving multiple actors and layers of government\. 5\.2 Borrower Performance (a) Government Performance Rating: Satisfactory This rating reflects the following: (i) Government’s willingness to support a novel and complex operation designed to overhaul Chile’s system of infrastructure delivery to rural populations; (ii) continuous support for decentralized, demand-driven approaches, and for giving local communities and agencies substantial latitude to develop their own strategies for rural development; (iii) Government’s endorsement of a completely new methodology for the evaluation of rural infrastructure subprojects and their subsequent inclusion in the national budget; (iv) eventual high receptiveness of sector agencies to review and revise ongoing policies for rural infrastructure; and (v) outstanding project overseeing particularly by the Contraloría de la Nación and DIPRES\. The less than highly satisfactory rating is due to the government’s failure to convene the Steering Committee as legally agreed, and the shortcomings in the implementation of the safeguards screening mechanisms agreed as part of the EMF of the project\. (b) Implementing Agency or Agencies Performance Rating: Satisfactory This rating is based on the following: (i) SUBDERE for the most part showed decisive efforts to keep the project alive during its most difficult stages; (ii) the fluctuations in leadership, management quality and progress experienced during the initial implementation period were promptly remedied in line with Bank’s recommendations; (iii) these initial periods were balanced later on by the continuity and professionalism of the project’s core technical and administrative teams; (iv) at the regional level SUBDERE successfully conveyed the support necessary to implement a decentralized and demand-driven rural investment program with excellent results and meeting a high proportion of key targets\. However, (i) efforts to establish organized project monitoring and data management had only modest results and the ground work for a meaningful impact assessment exercise has only started recently; and (ii) complying with agreements such as the ESF and reporting on monitoring indicators\. (c) Justification of Rating for Overall Borrower Performance Rating: Satisfactory This rating balances the Borrower’s efforts – reflected in successful outcomes for critically important activities – against its incapability to provide needed sector coordination through the Steering Committee and agreed M&E framework\. 20 6\. Lessons learned The main lessons to be derived from the project are: Operational processes (a) The design and implementation of complex projects involving substantial involvement of specialists in several disciplines requires above average resource allocations\. The thorough preparation which involved comprehensive studies, very detailed multi-layered institutional arrangements and a high quality operational manual, required above average Bank resources which were complemented by a PHRD grant\. On the other hand, the strengths and weaknesses of the project to a certain extent reflect the tradeoffs faced by Bank teams in allocating limited resources to achieve project objectives in several sectors and several regions with different challenges while ensuring compliance with fiduciary and safeguard requirements\. (b) The design of fairly complex technical assistance for planning in projects with national coverage in poor rural areas might require higher than usual preparation in terms of a thorough assessment of existing community needs and available optimal social delivery systems\. Rural development projects need to diagnose the quantity and quality of technical assistance services at an early stage of project preparation and include appropriate measures for their improvement, which may include public/private arrangements, piloted in selected territories, and strategies for ensuring the delivery of services consistent with the type of expected product\. (c) The right amount of flexibility in project design and implementation might be key to project success\. In retrospect the project was too specific on certain areas thus imposing a level of rigidity that challenged its viability\. Some of these rigidities were eventually corrected\. In particular (i) the amendment of February 2009 allowed for the expansion in the type of activities eligible for project financing and changed the financing arrangements in a way that unlocked the pace of works; and (ii) the acceptance of “obvious subprojectsâ€? for Bank financing disengaged subprojects with evident economic merits from the slow approval of the overall investment plan (PMDT)\. Less successful were the attempts to solve procurement differences with a country with undisputable governance qualities, which remains a pending issue in Bank policy\. Sectoral perspective (d) Institutions with a strong mindset and with the capacity to manage a decentralized program of interventions as well as the selection of territories with ample social capital were key to project success\. To a great extent the important project achievement can be attributed to: (i) the presence of highly effective Chilean institutions with the national reach to provide thorough project implementation and oversight; (ii) the selection of a leading agency with a clear mandate to ensure the coordination required in a multi-sector and multi-layered project, and with a decentralized mindset open to involvement from the local level; (iii) the selection of territories with ample social capital and ongoing potentially viable economic undertakings; and (iv) a culture of participation and accountability in selected rural communities, which was built over the course of project implementation; in this sense, PMDTs were a mechanism that helped structure the dialogue and the participation as they reflected the agreements on what investments were going to be financed and implemented\. (e) Managing expectations should become an integral part of projects pioneering substantive and complex changes in servicing rural communities\. The project showed the importance of (i) having realistic estimates of intermediate and final targets and the lead time to achieve them; (ii) having in place continuously open channels of communication with beneficiaries to discuss progress/problems/remedial actions to reach the agreed targets; and (iii) creating synergies, disseminating information and building participatory networks which 21 promote direct interface between government officials of different regions and beneficiaries of different communities\. (f) Inclusion of productive activities in the project might add a level of complexity in design and implementation but could be the key for project success\. This is particularly true in countries that do not count with the rich array of programs that Chile has to support entrepreneurial productive activities in rural communities\. But even when these programs exist, it is crucial for the project to ensure an adequate coordination by facilitating community access to these programs through, for instance, financing pre-investment studies for productive activities, providing technical assistance and training to producers in the communities, establishing the initial contacts with the agencies and/or programs that would be relevant for the long term success of the productive activity\. (g) M&E should remain a high priority during both project design and implementation and weaknesses in the original arrangements and responsibilities should be addressed as soon as detected\. This is even more important in quasi-pilot projects having to prove their effect for the purpose of future replication\. Project design should consider establishing M&E as a legally binding obligation that if necessary could persist beyond project closing so as to ensure reliable measurement of impacts with substantial lags\. In the case of this particular project that because of its quality might become a reference for future operations, the Bank should strongly consider alternatives (such as AAA or FBS engagement) to follow up on the Government impact assessment, identify best practices and disseminate the results\. (h) Sustainability of the investments\. This project shows the increased impact of multi- sectoral investments that provide a full package of demand-driven infrastructure services linked to productive activities, which brings greater efficiency, complementarity, and sustainability of services through cross-sectoral service bundling based on a territorial development approach\. For the project to really achieve its objectives, it is important to have sustainable arrangements in terms of operation and maintenance\. The introduction of lower cost technologies, and the assessments of willingness to pay and preferences for operating services which were carried out through participatory processes proved to be key for ensuring enhanced sustainability\. Local involvement in operation and maintenance, in particular in the case of rural water supply subprojects but also in rural electrification and ICT subprojects, proved to be instrumental in improving management and maintenance practices\. (i) Lessons for decentralization efforts\. Tools under PIRDT program offer important lessons for decentralization processes in other areas, such as education and health sectors, as they reflect the importance of territorial planning processes, participatory approaches, and social capital dimensions in order to better tailor to particular needs the pace and scope of the decentralization process\. 22  Annex 1 Project Costs and Financing A\. Project Cost by Component (in USD Million Equivalent) Appraisal Actual/Latest Percentage of Components Estimate (USD Estimate (USD Appraisal millions) millions) Participatory Territorial Planning Elaboration and approval of PDTs 2\.625 1\.809 68\.9% Sub-total 2\.625 1\.809 68\.9% Infrastructure Service Delivery Pre-investment project formulation 5\.600 0\.000 0% Execution of investments 31\.760 44\.657 146\.6% Supervision of execution of 1\.640 0\.000 0% investments Support to establish local 1\.825 0\.000 0% management mechanisms for O&M Sub-total 40\.825 44\.657 109\.4% Institutional Strengthening Strengthening capacity to 2\.112 3\.078 145\.7% implement territorial development program Policy improvements 0\.385 0\.346 89\.9% Monitoring & evaluation, and 0\.875 0\.000 0% program expansion Incremental operating costs 0\.308 0\.119 38\.6% Sub-total 3\.680 3\.543 96\.3% Contingencies 2\.879 0\.000 0% Front-end-fee 0\.251 0\.251 100\.0% TOTAL 50\.260 50\.260 100\.0% 23  B\. Financing Appraisal Actual/Latest Type of Co- Percentage at Source of Funds Estimate (USD Estimate (USD financing Appraisal millions) millions) Borrower 40\.00 40\.00 (*) 44% International Bank for Reconstruction 50\.26 50\.26 56% and Development (*) The Borrower allocated additional resources to the program\. SUBDERE contributed with US$40\.6 million from its own budget (for a total contribution of US$80\.6 million)\. Sectoral ministries and FNR contributed with US$29\.2 million\. In addition, 27 productive initiatives linked to the PMDTs were financed, amounting US$12\.9 million\. 24  Annex 2 Outputs by Components Component 1: Participatory Territorial Planning – PMDTs A total of 45 PMDTs have been prepared (or are in the process), covering 185 PMDTs subterritoriess: 18 PMDTs belong to first generation of PMDTs (covering 74 subterritories in 5 regions); 13 PMDTs belong to the second generation (covering 71 subterritories in 3 regions); and 14 PMDTs belong to the third generation (covering 40 subterritories in 3 regions)\. The following tables present the PMDTs by generation\. Table 1: PMDT – First Generation REGION COQUIMBO Territory Targeted Area (Subterritory) Costero Norte Cuenca de Los Choros (Comuna La Higuera) 1 Borde Costero de La Higuera (Comuna La Higuera) Corredor Limari Fray Jorge – Valle del Encanto (Comuna Ovalle) Ribera Sur del Embalse Paloma (Comuna Monte Patria) 2 Parte Norte de la Comuna de Putinaqui (Comuna Putinaqui) Comunidades Agricolas Combarbalá Poniente (Comuna Combarbalá) Valle Interior Ruta Antakari (Comunas Vicuna, Río Hurtado y Andacollo) Turismo Mágico (Comuna Paihuano) 3 Sector Norte de la Cordillera de Las Cardas (Comuna Coquimbo) Cuenca del Río Turbio (Comuna Vicuna) Cuenca Choapa Desembocadura del Río Choapa y Cuenca del Río Illapel 4 (Comunas Canela e Illapel) Valle del Quillimarí (Comuna Los Vilos) REGION MAULE Cuenca de Mataquito Palquibudis – El Corazón (Comuna Rauco) Duao – Lipimavida (Comuna Licanten y Vichuquen) Boyeruca – Lloncaben (Comuna Vichuquén) El Parrón – Barba Rubia (Comunas Rauca y Hualané) 5 Idahue – Leonera (Comuna Licanten) Espinalillo (CONAF – PIRDT) (Comuna Hualané) Uraco (CONAF – PIRDT) (Comuna Vichuquén) Rarin (CONAF – PIRDT) (Comuna Vichuquén) Maule Sur Coronel Maule – Quinhue (Comuna Cauquenes) Carreras Cortas – Santa Rosa (Comuna Chanco) Loanco – Pahuil (Comuna Chanco) 6 Quilicura – Canelillo (Comuna Pelluhue) Pocillas (CONAF – PIRDT) (Comuna Cauquenes) Name (CONAF – PIRDT) (Comuna Cauquenes) Cauquenes Costa (CONAF – PIRDT) (Comuna Cauquenes) Area Influencia Embalse Ancoa La Ballica – Los Batros (Comuna Linares) Santa Elena – Maitencillo (Comuna Yerbas Buenas) Pataguas – San Manuel (Comuna Villa Alegre) Embalse Ancoa (Comunas Linares y Colbún) 7 Carrizal – Melozal (Comuna San Javier) San Dionisio – Caracoles (Comuna Colbún) Huerta de Maule (CONAF – PIRDT) (Comuna San Javier) Nirivilo (CONAF-PIRDT) (Comuna San Javier) Area Poniente de la Provincia de La Orilla (Comuna Pencahue) Talca La Aguada – El Boldal (Comuna Empedrado) Palmas de Toconey – Cancha Quillay (Comuna Pencahue) 8 Guaquen – Limavida (Comuna Curepto) Estancilla (CONAF – PIRDT) (Comuna Curepto) Secano Costero Sur (CONAF – PIRDT) (Comuna Constitucion) Llongocura (CONAF – PIRDT) (Comuna Curepto) 25  REGION BIOBIO Valle del Itata Minas de Leuque – trehuaco (Comunas de Trehuaco y 9 Portezuelo) Guarilihue – Batuco (Comunas Coelemu y Ranquil) Punilla Tanilvoro (Comuna Coihueco) 10 Secano de Transicion (Comuna de San Carlos y Niquen) 11 Pencopolitano Los Cerezos (Comuna Tomé) Laja Diguillín Santa Rosa – Bulnes (Comuna Bulnes) 12 Rinconada – Calle Dávila (Comuna El Carmen) 13 Bio Bío Cenro Quiebra Frenos (Comuna Laja) Bio Bío Cordillera Las Canoas (Comunas Negreto y Mulchen) 14 Paralillo – Tinajón o Precordillera de Quilleco (Comuna Quilleco) REGION LOS RIOS Valdivia Liquiñe (Comuna de Panguipulli) Lago Maihue (Comuna Futrono) Maiquillahue (Comuna Mariquina) Chaihuin (Comuna Corral) 15 Cumleufu (Comuna La Unión) Riñinahue (Comuna Lago Ranco) Antilhue – Chosday (Comuna Lanco) Río Bueno Rural (Comuna Río Bueno) REGION LOS LAGOS Borde Costero Pacífico Sur Pucatrihue – Tril – Tril (Comuna San Juan de la Costa) San Pedro Hueyelhue – Riachuelo – El Bolsón – Millatue – Putrihue (Comunas de Río Negro y Purranque) 16 El Dao – Yaco Bajo y Alto Aguantao – Huayun (Comuna Calbuco) Llico Bajo – Estaquilla Hua Huar – Quenuir (Comunas Fresia, Los Muermos y Maullín) Chiloé Peninsula de Lacuy y zona noroeste de la comuna Ancud (Comunas Ancud, Castro y Chonchi) Parque Nacional Chiloé y Cuencas de los Lagos Huillinco y Cucao (Comunas Castro y Chonchi) Península de Rilán y Borde Interior Costero de Chonchi 17 (Comunas de Castro y Chonchi) Estero de Huildad y Zona Centro Interior de Quellón (Comuna Quellón) Borde Costeri Interior Centro Norte Isla Grande de Chiloe (Comunas Ancud, Quemchi, Dalcahue) Islas de Quinchao (Comunidad de Quinchao) Palena Pichicolo – El Manzano (Comuna Hualaihué) Villa Santa Lucía (Comuna Chaitén) 18 Río Azul – La Dificultad – Las Escalas (Comuna Futaleufu) Puerto Ramírez – El Malito – El Tranquilo (Palena) Table 2: PMDT – Second Generation REGION BIO BIO Territory Targeted Area (Subterritory) Valle del Itata Montaña Sur El Manzano – Salamanca 1 Cayumanqui – Coyanco Dadinco – Monte León Cuna de Prat Punilla San Fabián Cordillera Precordillera del Punilla 2 Precordillera Coihueco Arrocero Laja Diguillín Saltos del Itata 3 Valle Regado Pemuco Poniente Arauco Los Patos – Nine 4 Punta Morguilla Lonalhue Sur 26  Lleu – Lleu Norte Bio Bío Centro Santa Fé 5 Choroico Rucahue Sur Bio Bío Cordillera Mulchén Oriente Alto Quilaco 6 Los Boldos Bajo Duqueco Valle del Laja Amdel Circuito Campesino Torre Dorada 7 Ruta de Las Flores Cuenca San Cristobal REGION ARAUCANIA Vergel del Sur Collipulli Angol Renaico Angol 8 Angol Ercilla Gorbea Gorbea Territorio Nahuelbuta (ex Cluster Traiguén Forestal) Lumaco Los Sauces Puren 9 Puren Galvarino Galvarino Galvarino Araucanía Andina Lonquimay Cunco Curacautín Curacautín 10 Victoria Victoria Vilcun Melipeuco Valle Araucanía Nueva Imperial Freire Nueva Imperial Cholcol Nueva Imperial Nueva Imperial 11 Perquenco Perquenco Lautaro Lautaro Lautaro Lautaro REGION LOS LAGOS Estuario del Reloncaví Comunidades Costeras Cuenca del Lago Llanquihue Sector Rural Puerto Octay 12 Norde Costero Norte (Comuna Llanquihue) Borde Costero Frutillar Río Pescado – Ralun Corredor Bioceanico Eje Ruta 215 13 Ribera Sur Río Bueno Table 3: PMDT – Third Generation REGION MAULE Territory Targeted Area (Subterritory) 1 Curicó Oriente Itahue – Parque Inglés (Comuna de Molina) 27  Villa Prat – El Durazno (Comuna de Sagrada Familia) Santa Berta – La Laguna (Comuna de Teno) La Laguna – Los Coipos (Comuna de Romeral) Potrero Grande – Tutuquén (Comuna de Curicó) Talca Oriente Colin – Duao (Comuna de Maule) Carretones – La Mina (Comuna de San Clemente) 2 Santa Rita – Huncuecho Norte (Comuna de Pelarco) San Camilo de Bella Vista – La Chispa (Comuna de Río Claro) Pangue Abajo – Los Cuncos (Comuna de San Rafael) Tierra de Neruda Los Robles – Santa Rosa (Comuna de Retiro) 3 Canelos – El Carmen (Comuna de Longavi) San Eugenio – Villa Baviera (Comuna de Parral) REGION LIBERTADOR Unidad de Desarrollo Estrategico Subterritorio No 1 (Comuna de Marchingue) No 2 Subterritorio No 3 (Comuna de Marchingue) 4 Subterritorio N 2 (Comuna de Pichilemu) Subterritorio No 4 (Comuna de Paredones) Subterritorio No 5 (Comuna de Paredones) Unidad de Desarrollo Estrategico Subterritorio No 1 (Comuna de Peralillo) No 4 Subterritorio No 2 (Comuna de Pumanque) Subterritorio No 3 (Comuna de Lolol, Santa Cruz) Subterritorio No 4 (Comuna de Palmilla) 5 Subterritorio No 5 (Comuna de Santa Cruz) Subterritorio No 6 (Comuna de Nancagua) Subterritorio No 7 (Comuna de Chepica) Subterritorio No 8 (Comuna de Lolol) Unidad de Desarrollo Estrategico Subterritorio No 1 (Comuna de Placilla) No 7 Subterritorio No 2 (Comuna de Chimbarongo, San Fernando) 6 Subterritorio No 3 (Comuna de Chimbarongo) Subterritorio No 4 (Comuna de Chimbarongo) REGION LOS RIOS 7 Panguipulli Liquiñe 8 Lanco Antilhue Chosdoi Mariquina Maiquillahue 9 Tralcao Corral Chaihuin 10 Isla del Rey 11 Futrono Huienahue Lago Ranco Riñinahue 12 Rupumeica 13 La Unión Puerto Nuevo 14 Río Bueno Mantilhue Analysis of First Generation of PMDTs As stated before, the first generation of PMDTs comprises 18 PMDTs, covering 74 subterritories in 5 regions (Coquimbo, Maule, Bio Bio, Los Rios and Los Lagos)\. Since those PMDTs were elaborated before the formal development of the methodology, it was agreed that no impact evaluation would be undertaken\. Each region presented a report assessing the status of PMDT1\. Unfortunately each region followed a different structure in presenting the results, making it impossible to consolidate all the information\. Results are shown based on available data\. The report also included some surveys (following questionnaire prepared by the Bank)\. The results of the surveys are presented in Annex 5\. 28 Table 4: Region El Maule Cuenca de Maule Embalse Talca TOTAL Mataquito Sur Ancoa Poniente MAULE Planned Actual Planned Actual Planned Actual Planned Actual Planned Actual (*) (PMDTs) (*) (PMDTs) (*) (PMDTs) (*) (PMDTs) (*) (PMDTs) Number of Beneficiaries 6,584 8,415 43,606 2,829 61,434 Water 5 3 4 2 19 14 9 5 37 24 Sanitation 2 1 2 1 23 4 3 1 30 7 Roads 9 9 9 8 24 22 9 9 51 48 Electricity 2 1 0 0 3 0 1 1 6 2 ICT 1 1 1 1 2 2 2 1 6 5 Port 1 1 1 1 0 0 0 0 2 2 SUBTOTAL 20 16 17 13 71 42 24 17 132 88 Sports (not PIRDT) 1 0 0 0 0 0 0 0 1 0 Cycling Safety (not PIRDT) 1 0 0 0 0 0 0 0 1 0 Productive Inf\. (not PIRDT) 1 0 0 0 0 0 0 0 1 0 Channels (not PIRDT) 0 0 1 0 0 0 1 0 TOTAL 23 16 17 13 71 42 24 17 135 88 (*) Incl udes both compl eted a nd under cons tructi on Table 5: Financing of PMDT MAULE Cuenca de Maule Embalse Talca % % % % TOTAL % Mataquito Sur Ancoa Poniente PIRDT 8 34\.8% 7 41\.2% 28 38\.9% 11 45\.8% 54 39\.7% MOP 3 13\.0% 1 5\.9% 7 9\.7% 1 4\.2% 12 8\.8% SUBDERE 3 13\.0% 3 17\.6% 4 5\.6% 2 8\.3% 12 8\.8% Private Investment 2 8\.7% 2 11\.8% 0 0\.0% 0 0\.0% 4 2\.9% FNDR 0 0\.0% 0 0\.0% 4 5\.6% 2 8\.3% 6 4\.4% SUBTEL 0 0\.0% 0 0\.0% 0 0\.0% 1 4\.2% 1 0\.7% No Advance 7 30\.4% 4 23\.5% 29 40\.3% 7 29\.2% 47 34\.6% 23 100\.0% 17 100\.0% 72 100\.0% 24 100\.0% 136 100\.0% Table 6: Region Coquimbo COQUIMBO Costero Norte Corredor Limari Valle Interior Cuenca Choapa TOTAL Planned Actual Planned Actual Planned Actual Planned Actual Planned Actual % PIRDT Infrastructure 15 9 20 7 20 10 36 16 91 42 46\.2% Projects No PIRDT 14 2 15 6 18 2 7 4 54 14 25\.9% Infrastructure Projects (Fomento Productivo) Table 7: Region Bio Bio Completed Under Excecution Other TOTAL Amount Amount Amount Amount No of No of No of No of (US$ (US$ (US$ (US$ Projects Projects Projects Projects Million) Million) Million) Million) Roads 23 11\.989 5 5\.878 21 6\.567 49 24\.434 Energy 2 0\.277 1 0\.153 0 3 0\.43 Water 2 0\.447 3 2\.337 6 10\.578 11 13\.362 Sanitation 0 0 2 3\.518 3 3\.652 5 7\.17 TOTAL 27 12\.713 11 11\.886 30 20\.797 68 45\.396 29 Component 2: Infrastructure Service Delivery The project financed 250 subprojects: 65 water subprojects, 7 sewerage subprojects, 158 road subprojects, 12 energy subprojects, 6 ICT subprojects and 2 port subprojects\. Total investment amounted US$153\.7 million: 15% for water, 5% for sewerage, 75% for roads, 3% foe energy, 1% for ICT and 1% for ports\. Regarding the source of the investment: 30% was financed through the Loan, 25% with counterpart, 25% with SUBDERE’s own budget (different from the counterpart) and 18% from other sources (mainly sectoral ministries budgets and FNR)\. The following figures illustrate the outputs achieved until December 2012\. Figure 1: Subprojects per Sector Figure 2: Investments per Sector Number of Projects Total Investment (US$ Million) 180 140\.0 158 114\.7 160 120\.0 140 100\.0 120 80\.0 100 80 60\.0 65 60 40\.0 22\.9 40 20\.0 7\.5 12 5\.4 1\.8 1\.6 20 7 6 2 0\.0 0 Water Sanitation Roads Energy ICT Ports Water Sanitation Roads Energy ICT Ports Source: SUBDERE and UGRs\. Source: SUBDERE and UGRs\. Figure 3: Investments per Source Figure 4: Investment per Sector and Source Project Financing (US$Million) Ports 50\.0 45\.9 45\.0 40\.6 ICT 40\.0 38\.1 Bank 35\.0 Energy 29\.2 Counterpart 30\.0 25\.0 Roads Other SUBDERE 20\.0 Other 15\.0 Sanitation 10\.0 5\.0 Water 0\.0 Bank Counterpart Other SUBDERE Other 0 50 100 150 Source: SUBDERE and UGRs\. Source: SUBDERE and UGRs\. Figure 5: Financing per Source (Water) Figure 6: Financing per Source (Sanitation) Financing per Sector: Water Financing per Sector: Sanitation (US$ Million) (US$ Million) 0\.7 4\.5 5\.0 0\.7 Bank Bank Counterpart Counterpart Other SUBDERE 1\.4 Other SUBDERE Other 4\.7 Other 4\.2 9\.2 Source: SUBDERE and UGRs\. Source: SUBDERE and UGRs\. Figures for ICT and Ports were not included since investments were financed only with SUBDERE’s own resources\. Component 3: Institutional Strengthening The Loan contributed with US$3\.54 million to finance several studies (versus US$3\.68 million originally envisaged)\. Main activities covered were: (i) strengthening capacity to implement territorial development program (US$3\.08 million versus US$2\.12 initially envisaged), (ii) 30 policy improvements (US$0\.36 million versus US$0\.39 million initially envisaged), and (iii) incremental operating costs (US$0\.12 million versus US$0\.31 million initially envisaged)\. The only shortcoming of this component was the in the monitoring and evaluation expenditures\. Nevertheless, it is important to note that even though the Loan did not finance this activity, several analysis were undertaken financed with local funds\. 31  Annex 3 Economic and Financial Analysis 1\. Economic and financial analyses Due to the demand-based nature and characteristics of the multiple, relatively small subprojects that were to be financed by the project, an ex-post specific economic or financial rates of return analysis for the overall project is not feasible (the PAD did not include an ex-ante overall rate of return)\. Since this was a framework-type of project, the eligibility criteria, procedures and methodologies for evaluation and screening of the subprojects were determined at appraisal These methodologies relied largely on the systems then in use by MIDEPLAN although with some adjustments since one of the major shortcomings of MIDPLAN approaches was the inability of capturing investment benefits accruing to disperse populations\. These adjustments entailed (a) taking into account the territory-based approach and so that complementary benefits that stem from a combined set of rural infrastructure subprojects and (b) more streamlined procedures for evaluating smaller scale subprojects through the application of per capita investment thresholds and to promote the use of more appropriate and cost-effective technologies for dispersed rural populations\. This "adjusted" framework was in place until the development of the new methodology for the evaluation of territorially-based multi-sector infrastructure plans\. The new methodology, considered one of the main contributions of the project and now fully in use in Chile, is described below\. Methodological Framework The methodology is designed as a sequence of steps to guide the process of formulation, approval and execution of PMDTs\. The steps are: PMDTs\. Formulation and Approval Stages\. 1\. Identification of territories 12 and subterritories\. 2\. Technical and Political validation of the proposed territories and subterritories\. 3\. Identification of productive activities and business opportunities associated with the territories and subterritories\. 4\. Diagnosis of the social and institutional capital of the territory\. 5\. Generation of mains stakeholders of a joint vision of territorial development (participatory approach)\. 6\. Definition of the vision for the subterritory and identification of the restrictions (gaps) of the productive processes and of the environment for the development jointly agreed business opportunities\. 7\. Identification of instruments for productive enhancement and (infrastructure or public services) that facilitate the development of business opportunities (pipeline identification) 8\. Optimized private evaluation (business evaluation for each type of a standard productive unit considering the increased productivity derived from the application of the development instruments and the effect of the public investments identified for the subterritory\. 9\. Social evaluation of public and private initiatives identified for the development of the subterritory, considering the total productive units\. 10\. PMDT proposal preparation for the territory\. For practical purposes the territory is defined as a space of public/private and community consensus and of decision making about investment priorities, thus becoming an integral planning unit at the sub-regional level\. In a territory several 12 economic and social relations take place which, thus, determine the flow of exchanges affecting their own population and that of other territories and external entities\. Within the interior of the territory we can identify the focused areas of investments ore subterritories that correspond to concrete spaces where the program takes place, identifying the local demand, project ideas, and investment allocations\. This focus is developed by the political and technical regional institutions\. 32 11\. Approval of the PMDT and definition of priorities for the pipeline identified for the subterritory\. 12\. Definition of the Logic Framework Matrix (LFM), definition of the base line of the subterrritory development and targets for the program\. 13\. Presentation to MIDEPLAN of the program according to current regulations\. 2\. Implementation Stage of PMDTs 1\. Design of a monitoring and evaluation system\. 2\. Execution of the investments\. 3\. Integrated management of the PMDT\. 4\. Monitoring and periodic updating of the PMDT\. 5\. Impact assessment of the results of the PMDTs implementation\. The following sections present the Matrix with a summary of the methodological development\. 33 Summary Matrix: Objectives – Processes - Products Stage I: Formulation and Approval of PMDTs General Objective Specific Objectives/Recommended Methodology Intermediate Products Process/Activity ■ Technical Report on the productive potential of territories focused and prioritized and the productive strategic guidelines of each one of the territories to be submitted to the CORE\. ■ A power point presentation to be submitted to the CORE ■ A check list and confirmation of at least the following criteria: - The territories are being considered in strategies, sector or local regional plans as areas of rural Specific objectives: development, ■ Identify specific territories, where through the updating or creation of public - The productive sector(s) have real and/or potential investment plans, the achievement of objectives and the development targets in markets\. the Strategic Plans of the institutions that govern and administer the territory can 1\. Identification and selection of - In the development of productive activities there is be achieved\. territories some experience of working with institutions of Recommended methodology: productive development\. ■ Gathering and analysis of relevant information - The development of productive activities does not ■ Seminars, Workshops and Meetings with the participation of the different face any legal or institutional restrictions that cannot institutional levels that govern the territory\. be easily resolved within the next two years (land ownership, water rights, and use restrictions)\. - There are public institutions with associative experience able to manage the PMDT\. - There is at the municipal level enough capacity or the existing capacity can be strengthened to formulate and manage projects\. - In the identified territories there is a social capital (even an incipient one) that can be strengthen for the sustainable development of the PIRDT subprojects 2\. Technical and political Recommended methodology: ■ CORE’ act approving the documents and the list of approval of the territories • This is a technical –political process recommended by the Mayor which should territories and subterritories\. and subterritories lead to the CORE’s decision on the specific territories where the PIRDT will ■ Start of the public bidding process to carry out the intervene\. following aspects of the methodology\.  Specific objectives: ■ Diagnosis of the current level of development of the productive activity in each Diagnosis Report of the productive activity(ies) in the subterritory\. subterritory including the identification and analysis of the possible scale of production and the size of the production ■ Viability analysis of the business opportunities associated with the productive units\. 3\. Identification and activities of each subterritory\. ■ Technical reports on the viability of the productive evaluation of productive ■ Approval of the subterritories selected by the CORE activities considering the sustainability that would activities by subterritory and the Recommended methodology: permit to know the magnitude of the physical and associated business ■ Surveys to gather primary information on the productive capacity of each productive potential of the subterritory\. It should opportunities\. subterritory\. include the identification of respective chain values\. ■ Team work of productive development experts to assess relevant demand and supply scenarios for the development of productive activities value chains of the ■ Identification of the Opportunity Map and justified subterritory\. selection of the more promising business opportunities\. ■ Preparation of technical reports in a coordinated and participatory way\. Specific Objective: ■ Determination of the social and institutional capital supporting the development ■ With the information gathered under objectives 3 and of business opportunities in the subterritory\. 4, preparation of a “competitive reportâ€? realistically 4\. Diagnosis of the social and Recommended methodology: determining if each “subterritoryâ€? and the “peopleâ€? in institutional capital of the ■ “Focus groupâ€? for the gathering of primary information\. it can develop the “business opportunitiesâ€?\. (Guidelines territory\. ■ Semi-structured interviews\. for the preparation of of a competitive report are ■ Preparation of technical reports including primary and secondary information so provided) as to provide a thorough analysis of the social and institutional potential of the subterritory\. ■ Shared vision of the territory with relevant stakeholders\. Specific Objective: ■ Create with the relevant stakeholders a shared vision of the subterritory 5 Creation of a shared vision Documents of Agreements and Territorial Pacts between for the subterritory the Authority, the Civil Society and the Entrepreneurial Recommended methodology: Sector\. ■ Workshops for strategic planning ■ Working Program of the “núcleo gestorâ€? (discussion ■ Subscription of commitments\. tables, association or any modality of territorial interaction) 35  ■ Flow chart of a model productive process or productive unit\. Specific objective: ■ Based on a business model that takes into consideration people, groups, micro- ■ Model diagram Supplier-Process-Client Proveedor- entrepeneurs and potential s of the subterritory define a “wished situationâ€? of Proceso-Cliente, with all the actors network the productive activity(ies) with due consideration of the subterritory intervening and affected by the process in the territory\. competitiveness ,, possible business opportunities and coherence with the shared 6\. Definition of the “wanted vision of the subterritory\. situationâ€? of the productive ■ Gaps to achieve the “whished situationâ€? Once the “wished situationâ€? of the productive activity(ies) is defined, it is necessary activity and identification of to identify the gap with respect to the actual situation in relation to the technical gaps\. ■ Competitiveness report, which will show the viability capacities, labor, infrastructure, social capital, institutional capital, others\. of the “wished situationâ€? and will give guidelines to Recommended methodology: identify the necessary public and private investments\. ■ Competiveness analysis of the productive activities in the subterritory\. ■ FODA analysis of the productive activities\. ■ Stakeholders’ network participating in the territorial ■ Business environment\. development and their interaction with the governmental institutional network\. Specific objectives: ■ To identify and formulate at the project profile level (PIRDT pipeline) and at the ■ List of investments in productive activities and idea level (non-PIRDT pipeline) the project pipeline and initiatives that are infrastructure already planned in the subterritory and considered necessary to reach the “wished situationâ€? in each subterritory\. To formulated at the level of idea or of project\. identify the existence and operation of instruments of productive development ■ Competitiveness report resulting from the inclusion of in the area\. infrastructure investments\. ■ Recommended methodology: 7\. Identification and ■ To identify the infrastructure investment already decided and the future formulation of the integrated infrastructure investments to be carried out in the territory and that support the ■ Performing review of the portfolio of investments in project pipeline of the PMDT sustainability of the productive activities in the subterritory\. infrastructure produced with the tools from SQL and for each subterritory\. ■ Formulation of PIRDT infrastructure project profiles according to the analysis OLAP of the Bank of Integrated Projects\. of alternative solutions to the identified gaps and the use of minimum cost ■ Coherence analysis between the “wished situationâ€? and criteria\. the investment initiatives in the territory (activities for ■ Gathering and analysis of information about investment initiatives and productive development and infrastructure instruments of productive development available in the Municipal and Regional investments)\. Public Institutions\. ■ Portfolio programming of the integrated pipeline ■ Review of the information from the BIP\. The National Budget Law, and others, (PIRDT and not- PIRDT)\. relative to infrastructure investments\. Specific objectives: ■ The private financial returns of the productive units ■ To determine the financial returns or contributions of the net investments to the considering the additional “revenuesâ€? and/or ‘reduction 8\. Financial evaluation of increase in the income of the producers through the financial evaluation of the in costsâ€? resulting from the investment of the business opportunities\. businesses associated to the “wished situationâ€? of the subterritory and its instruments of productive development and access to productive activities\. new markets\. ■ To prepare and evaluate the Integral Project in the subterritory building up the 36  following flows: ■ Indicators of financial returns NPV, IRT\. 1\. Development Investments 2\. Operating costs 13 Identification of the intangible benefits for the producers 3\. Maintenance Costs which establish the difference of between “withâ€? and 4\. Reinvestments (reposition) “withoutâ€? project scenarios\. 5\. Adjustment of the project life-cycle ■ An electronic spread sheet allowing to simulate a most 6\. Technological changes of the possible scenarios in the following situations: Recommended methodology: o With and without project ■ In the financial evaluation the benefits or annual revenues come from the sales o Adjustments in time of goods(products) or services and the costs or outlays from the acquisition of o Macroeconomic scenarios: optimistic, realistic, inputs and the payment of the factors of production (factors that have to be paid and pessimistic\. and products that can be sold) o Changes in demand and supply\. ■ The financial evaluation uses market prices to value the productive factors, it o Technological changes\. considers the direct effect of taxes and doesn’t consider positive or negative o Etc externalities that the producer is not obligated to internalize (for instance environmental impacts)\. ■ Estimated increase in the income level of the producers ■ An evaluation period of eight to ten years is considered adequate taking into in the subterritory\. account the uncertainty in projecting the benefits and the costs of this type of subprojects\. ■ If the consultant proposes a different evaluation period it has to be with a justification\. ■ The outcome of this evaluation indicates the profitability from the point of view of the group of producers of the subterritory\. Specific objectives: ■ To determine the economic returns or contribution of the net investments to the local economic growth through the social evaluation of the business associated with the “wished situationâ€?\. Recommended methodology: ■ Indicators of social returns ■ The social evaluation considers among its costs public and private investments; the positive and negative externalities derived from the production process and 9\. Economic (social) evaluation ■ Plan of prioritized investments of the investments in infrastructure and identifies the possible intangible of business opportunities\. benefits\. ■ Recommendations about executing or not executing the ■ In the social evaluation the factors: foreign exchange, labor, discount rate and portfolio of subprojects\. the value of time are valued with social or shadow prices established by MIDEPLAN\. ■ In the social evaluation the direct effect of taxes are not considered\. ■ The indicators of economic returns are: NPV, IRT and B/C social\. ■ Maximum evaluation period of eight to ten years is considered adequate given 37  the uncertainties in the benefit and cost projections in this type of subprojects\. If the consultant proposes a different period it has to be justified\. ■ The outcome of this evaluation indicates the economic merits of the project from the point of view of all the population in the subterritory\. Specific objectives: ■ Preparation and approval by CORE of a PMDT with a prioritized project 10\. Preparation and approval of portfolio\. Implementation of the subprojects would support the sustainable ■ Plan de Desarrollo Económico Local Territorial, a PMDT proposal for the development of each of the subterritories\. PMDT territory and subterritories\. Recommended methodology: ■ Presentation to CORE ■ Analysis and interpretation of the outcomes of the private and social evaluations\. Specific objectives: ■ To transform the PMDT into an asset for the community which, with a sense of ownership will require an acceptable performance of the authorities for the 11\. Territorial approval of the ■ Approved and socialized PMDT given to the successful implementation of the plan and also their commitment with the PMDT\. community\. development of the productive activities that the investments are facilitating\. Recommended methodology: ■ Workshops at the levels of local and territorial public institutions\. Specific objectives: ■ To propose the logical design of the PMDT, to be approved by MIDEPLAN, 12\. Definition of the MML and with the definition of productive development objectives to be reached in the ■ Logic Framework Matrix of the PMDT and the definition of the base line for the subterritory as a result of the implementation of the prioritized investments corresponding base line\. PMDT\. portfolio Recommended methodology ■ A Logic Framework Matrix approach Specific objectives: ■ Formal inclusion of the PIRDT portfolio (prepared at the “profileâ€? level) in the ■ EBI entry for each infrastructure project in the project National Investments System together with the respective PMDT in a state of portfolio to be financed by the PIRDT program\. 13\. Inclusion of the PIRDT preparation ready to obtain RS for the design or implementation phase\. portfolio in the SIN\. Recommended methodology: ■ Evaluation RS for the total of the integrated PIRDT ■ Computation system of the National Investments System\. portfolio\. ■ Ficha EBI ■ Integral Methodology for the preparation and evaluation of subprojects 38 The change in the approach can be seen in the following tables of benefits and externalities, showing the benefits related to the productive activities (producer surplus) while the consumer surpluses accruing to the population other than that involved in the project supported economic activities mostly appear as “positive externalitiesâ€?\. Type of PIRDT investment Type of effect on benefits Type of effect on costs Increase in price due to product improvement Accessibility Savings in transport costs Increased sales due to reduction of losses during transport Increased price due to better product quality Cost increases due to payment of Water availability Increased production due to better quality water market access Increased production due to continuous energy supply Increased costs due to payment of Energy availability Increase in production due to new energy of better quality technologies requiring continuous energy supply Increased production due to access Investments in equipment and to new markets\. Availability of telecommunications training Increased production due to Increased costs of RRHH management improvements Possibility of producing for more Cost increase (because of sanitation Disposal of waste waters exigent markets tariff) 39  Positive Externalities of the investments Investment type Benefit type Accessibility • Reduced travel time Transport - inter-urban and urban • Reduced vehicle operating costs (fuel, oil, tires, spare parts, etc\.)\. • Reduced pollution through the reduction of suspended particles • All year accessibility through the elimination of problems such as flooding, Accessibility • Reduced pedestrian’s accidents through the improvement of sidewalks\. Transport - Paving • Improvement of the neighborhood image • Increase in the value of the benefitted properties • Reduced costs of alternative water systems Water Supply\. • Benefits from increased water consumption • Increased family consumption of kilowatts/month\. • Freeing resources used for the supply of substitute energy sources: batteries, gas, generators, etc\. Energy availability • Increased security in public ways Rural Electricity • Increased social activity • Increased production • Introduction of new technologies in schools Availability of telecommunications - Rural telephones • Savings in time and transport costs to neighboring locations to make or receive a telephone call • Increased communication for the recipient and nearby localities\. • Reduced time and travel costs to make administrative or legal activities\. • Savings from reduced telephone calls • Increased family income due to reduced intermediation • Increased productivity Availability of telecommunications - Telecenters • Reduced time in obtaining medical diagnostics\. • Increased access to educational information\. • New business opportunities • Increased social and cultural interaction • Increased access to government programs • Preservation of public health Waste waters disposition • Mitigation of environmental damages • Improved town esthetics 40 SAMPLE EONOMIC EVALUATION UNDER THE PIRDT\. What follows is an example of MIDEPLAN's economic and financial evaluations for investments in the road sector at a cost of $ 1,379,482, in a rural water supply system at a cost of $ 419,731 and basic sewage at a cost of $ 259,056 in the subregions of Circuito Campesino, Ruta de las Flores, Torre Dorada and Cuenca San Cristobal\. The investments are expected to increase the production and income derived from agricultural products in the region (particularly vegetables, berries, production of honey, vineyards\. forestry, flowers and poultry) and directly benefit 149 producers out of a labor population of 614\. Based on the average current and potential productivity of an agricultural unit (calculated as the minimum area necessary for the profitability of a certain production), the financial evaluation yielded rates of return between 66% and 86% with a discount rate of 10% and a project life of 14 years\. The economic evaluation, which includes the economic cost of the public investments, yielded rates of return ranging from 20% to 36% when the discount rate is 8% and the life of the project is estimated at 14 year\. (j) Subregions and Products Oportunidad de Unidad de la JH x unidad de Nº productores Cantidad x Empleo por unidad Total personas SUB - Negocio (ON) ON la ON (año) (unidad Unidad productiva (Conversión Nº empleadas tiempo TERRITORIO productiva) (*) productiva (*) pers\. empl\. en 1 año) (**) completo por un año 1\. Hortalizas Ha\. 250\.0 57 0\.1 0\.11 6 2\. Cerezos Ha\. 250\.0 36 0\.6 0\.65 23 CIRCUITO 3\. Miel Colmena 4\.3 35 62 1\.16 41 CAMPESINO 4\. Viñas Ha\. 50\.0 17 8\.6 1\.86 32 5\. Silvicultura Ha\. 36\.0 17 11 1\.71 29 Subtotal 131 1\. Hortalizas Ha\. 250\.0 36 0\.1 0\.11 4 2\. Miel Colmena 4\.3 35 62 1\.16 41 3\. Frutillas Ha\. 400\.0 15 0\.4 0\.69 10 RUTA LAS 4\. Papas de Guarda Ha\. 60\.0 41 1\.02 0\.26 11 FLORES 5\. Aves Cabezas 3\.6 12 282 4\.39 53 6\. Flores Ha\. 600\.0 36 0\.04 0\.10 4 7\. Viñas Ha\. 50\.0 20 8\.6 1\.86 37 8\. Silvicultura Ha\. 36\.0 6 9\.4 1\.46 9 Subtotal 168 1\. Hortalizas Ha\. 250\.0 60 0\.1 0\.11 6 2\. Miel Colmena 4\.3 60 62 1\.16 70 TORRE 3\. Frutillas Ha\. 400\.0 40 0\.4 0\.69 28 DORADA 4\. Papas de Guarda Ha\. 54\.0 50 1\.02 0\.24 12 5\. Viñas Ha\. 50\.0 20 8\.6 1\.86 37 6\. Silvicultura Ha\. 36\.0 6 12\.7 1\.98 12 Subtotal 165 1\. Hortalizas Ha\. 250\.0 58 0\.1 0\.11 6 2\. Miel Colmena 4\.3 25 62 1\.16 29 3\. Frutillas Ha\. 400\.0 15 0\.4 0\.69 10 CUENCA SAN 4\. Cerezos Ha\. 250\.0 15 0\.6 0\.65 10 CRISTOBAL 5\. Aves Cabezas 3\.6 20 282 4\.39 88 6\. Ganadería Ovina Ha\. 7\.4 7 19\.2 0\.61 4 7\. Ganadería Bovina Ha\. 2\.8 7 17 0\.21 1 8\. Viñas Ha\. 50\.0 20 8\.6 1\.86 37 Subtotal 149 TOTAL TERRITORIO 614 40 (ii) Financial Evaluation FLUJO DE CAJA PROYECTADO SITUACION ACTUAL 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 Ingresos totales 1,306,505,918\.6 1,312,779,049\.4 1,328,461,876\.3 1,328,461,876\.3 1,328,461,876\.3 1,623,129,702\.2 1,328,461,876\.3 1,328,461,876\.3 1,328,461,876\.3 1,328,461,876\.3 1,328,461,876\.3 1,328,461,876\.3 1,328,461,876\.3 2,836,880,508\.8 Egresos totales 657,125,490 680,850,986 678,184,437 690,534,803 682,928,822 740,839,909 685,564,591 688,200,360 692,154,014 692,154,014 692,154,014 692,154,014 692,154,014 692,154,014 INVERSIONES 910,455,049 369,008 0 150,637,050 0 150,637,050 0 150,637,050 0 150,637,050 0 150,637,050 0 150,637,050 0 FLUJO DE CAJA NETO -910,455,049 679,514,958 661,628,682 523,123,488 667,909,646 518,156,117 923,757,413 515,396,466 670,353,807 508,497,341 666,214,332 508,497,341 666,214,332 508,497,341 2,245,528,640 TIR 71% VAN PROM\. ISO PROM\. INV PROM VTAS PROM\. VAN 10% $ 4,125,304,167 1,026,328,990 2,036,391,394 Unidades Productivas 190 21,712,127 5,401,732 4,791,869 10,717,849 FLUJO DE CAJA PROYECTADO SITUACION ACTUAL CON INFRAESTRUCTURA 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 Ingresos totales 1,436,102,203 1,443,002,647 1,460,253,756 1,460,253,756 1,460,253,756 1,784,388,365 1,460,253,756 1,460,253,756 1,460,253,756 1,460,253,756 1,460,253,756 1,460,253,756 1,460,253,756 3,119,514,252 Egresos totales 657,403,049 681,128,546 678,461,996 690,812,362 683,206,381 741,117,468 685,842,150 688,477,919 692,431,573 692,431,573 692,431,573 692,431,573 692,431,573 692,431,573 INVERSIONES 910,455,049 369,008 0 150,637,050 0 150,637,050 0 150,637,050 0 150,637,050 0 150,637,050 0 150,637,050 0 FLUJO DE CAJA NETO -910,455,049 814,911,663 797,682,184 660,818,981 805,605,140 655,851,611 1,092,304,629 653,091,960 808,049,301 646,192,834 803,909,826 646,192,834 803,909,826 646,192,834 2,541,155,565 TIR 86% VAN 10% $ 5,195,220,283 Unidades Productivas 190 FLUJO DE CAJA PROYECTADO SITUACION OPTIMIZADA 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 Ingresos totales 1,871,538,980 1,891,425,332 1,867,533,829 1,936,694,604 2,029,417,448 2,252,556,353 2,101,045,054 2,139,899,627 2,157,648,590 2,280,209,879 2,325,944,943 2,205,107,762 2,309,639,879 3,832,379,846 Egresos totales 815,185,515 838,611,352 847,723,357 862,146,486 869,645,936 933,987,303 897,580,094 909,807,953 943,590,412 961,734,122 968,624,240 961,005,310 967,953,122 962,405,240 INVERSIONES 1,549,962,560 1,604,108 117,923,400 189,577,550 159,687,528 197,498,800 136,020,255 206,038,800 178,902,528 222,024,879 156,353,400 225,253,800 194,888,607 225,253,800 156,353,400 FLUJO DE CAJA NETO -1,549,962,560 1,104,322,578 978,830,438 869,253,870 957,859,037 1,007,499,530 1,238,128,588 1,044,305,189 1,100,595,036 1,038,658,864 1,216,742,107 1,185,274,047 1,098,526,895 1,168,905,305 2,841,161,403 TIR 66% VAN 10% $ 6,705,842,561 Unidades Productivas 190 FLUJO DE CAJA PROYECTADO SITUACION OPTIMIZADA CON INFRAESTRUCTURA 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 Ingresos totales 2,066,051,508 2,084,312,480 2,060,518,041 2,132,698,928 2,237,174,849 2,477,591,678 2,312,771,248 2,350,463,028 2,369,246,073 2,497,567,973 2,551,143,544 2,414,955,645 2,533,207,973 4,204,954,937 Egresos totales 815,447,651 838,873,489 847,985,494 862,408,623 869,908,072 934,249,440 897,842,231 910,070,089 943,852,549 961,996,259 968,886,377 961,267,447 968,215,259 962,667,377 INVERSIONES 1,549,962,560 1,604,108 117,923,400 189,577,550 159,687,528 197,498,800 136,020,255 206,038,800 178,902,528 222,024,879 156,353,400 225,253,800 194,888,607 225,253,800 156,353,400 FLUJO DE CAJA NETO -1,549,962,560 1,307,702,738 1,180,508,824 1,071,033,883 1,162,801,107 1,224,747,071 1,473,466,116 1,265,708,057 1,320,780,460 1,259,926,971 1,444,041,574 1,420,782,525 1,317,963,171 1,402,706,643 3,230,973,066 TIR 80% VAN 10% $ 8,337,366,823 Unidades Productivas 190 Total 190 ON 113 BENEFICIO PROMEDIO POR UNIDAD PRODUCTIVA 1 2 3 4 5 6 7 8 9 10 11 12 13 14 PRO MEDIO INGRESO ACTUAL 6,876\.35 6,909\.36 6,991\.90 6,991\.90 6,991\.90 8,542\.79 6,991\.90 6,991\.90 6,991\.90 6,991\.90 6,991\.90 6,991\.90 6,991\.90 14,930\.95 7,655\.6 INGRESO ACTUAL C/INFRAEST 7,558\.43 7,594\.75 7,685\.55 7,685\.55 7,685\.55 9,391\.52 7,685\.55 7,685\.55 7,685\.55 7,685\.55 7,685\.55 7,685\.55 7,685\.55 16,418\.50 8,415\.6 M ARGEN ACTUAL 3,576\.4 3,482\.3 2,753\.3 3,515\.3 2,727\.1 4,861\.9 2,712\.6 3,528\.2 2,676\.3 3,506\.4 2,676\.3 3,506\.4 2,676\.3 11,818\.6 3,858\.4 M ARGEN ACTUAL C/ INFRAEST 4,289\.0 4,198\.3 3,478\.0 4,240\.0 3,451\.9 5,749\.0 3,437\.3 4,252\.9 3,401\.0 4,231\.1 3,401\.0 4,231\.1 3,401\.0 13,374\.5 4,652\.6 INCREMENTAL ACTUAL 712\.6 716\.1 724\.7 724\.7 724\.7 887\.1 724\.7 724\.7 724\.7 724\.7 724\.7 724\.7 724\.7 1,555\.9 794\.2 INGRESO OPTIM IZADO 9,850\.2 9,954\.9 9,829\.1 10,193\.1 10,681\.1 11,855\.6 11,058\.1 11,262\.6 11,356\.0 12,001\.1 12,241\.8 11,605\.8 12,156\.0 20,170\.4 11,729\.7 INGRESO OPTIM IZADO C/INFRA 10,874\.0 10,970\.1 10,844\.8 11,224\.7 11,774\.6 13,040\.0 12,172\.5 12,370\.9 12,469\.7 13,145\.1 13,427\.1 12,710\.3 13,332\.7 22,131\.3 12,892\.0 M ARGEN OPTIM IZADO 5,812\.2 5,151\.7 4,575\.0 5,041\.4 5,302\.6 6,516\.5 5,496\.3 5,792\.6 5,466\.6 6,403\.9 6,238\.3 5,781\.7 6,152\.1 14,953\.5 6,334\.6 M ARGEN OPTIM IZADO C/ INFRA 6,882\.6 6,213\.2 5,637\.0 6,120\.0 6,446\.0 7,755\.1 6,661\.6 6,951\.5 6,631\.2 7,600\.2 7,477\.8 6,936\.6 7,382\.7 17,005\.1 7,550\.1 INCREMENTAL OPTIMIZADO 1,070\.4 1,061\.5 1,062\.0 1,078\.6 1,143\.4 1,238\.6 1,165\.3 1,158\.9 1,164\.6 1,196\.3 1,239\.5 1,154\.9 1,230\.5 2,051\.6 1,215\.4 COSTO PROMEDIO POR UNIDAD PRODUCTIVA 1 2 3 4 5 6 7 8 9 10 11 12 13 14 SITUACION ACTUAL 3,460\.5 3,583\.4 4,362\.2 3,634\.4 4,387\.2 3,899\.2 4,401\.1 3,622\.1 4,435\.7 3,642\.9 4,435\.7 3,642\.9 4,435\.7 3,642\.9 5,558\.6 S\.A\. C/ INFRAESTRUCTURA 3,462\.0 3,584\.9 4,363\.7 3,635\.9 4,388\.6 3,900\.6 4,402\.5 3,623\.6 4,437\.2 3,644\.4 4,437\.2 3,644\.4 4,437\.2 3,644\.4 5,560\.6 INCREMENTAL ACTUAL 1\.5 1\.5 1\.5 1\.5 1\.5 1\.5 1\.5 1\.5 1\.5 1\.5 1\.5 1\.5 1\.5 1\.5 2\.0 SITUACION OPTIM IZADA 4,298\.9 5,034\.4 5,459\.5 5,378\.1 5,616\.6 5,631\.6 5,808\.5 5,730\.1 6,134\.8 5,884\.7 6,283\.6 6,083\.7 6,280\.0 5,888\.2 7,951\.3 S\.O\. C/ INFRAESTRUCTURA 4,300\.3 5,035\.8 5,460\.9 5,379\.5 5,617\.9 5,633\.0 5,809\.9 5,731\.4 6,136\.2 5,886\.1 6,284\.9 6,085\.0 6,281\.4 5,889\.6 7,953\.2 INCREMENTAL POTENCIAL 1\.4 1\.4 1\.4 1\.4 1\.4 1\.4 1\.4 1\.4 1\.4 1\.4 1\.4 1\.4 1\.4 1\.4 1\.9 INVERSION POR UNIDAD PRODUCTIVA 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 SA C/INFRAESTRUCTURA 4,791\.87 1\.94 - 792\.83 - 792\.83 - 792\.83 - 792\.83 - 792\.83 - 792\.83 - SO C/INFRAESTRUCTURA 8,157\.70 8\.44 620\.65 997\.78 840\.46 1,039\.47 715\.90 1,084\.41 941\.59 1,168\.55 822\.91 1,185\.55 1,025\.73 1,185\.55 822\.91 SITUACION ACTUAL 4,791\.87 1\.94 - 792\.83 - 792\.83 - 792\.83 - 792\.83 - 792\.83 - 792\.83 - SITUACION OPTIMIZADA 8,157\.70 8\.44 620\.65 997\.78 840\.46 1,039\.47 715\.90 1,084\.41 941\.59 1,168\.55 822\.91 1,185\.55 1,025\.73 1,185\.55 822\.91 (iii) Economic Evaluation 41 INDICADOR DE PRIORIZACIÓN INFRAESTRUCTURA RURAL PIRDT Monto (miles de pesos) TOTAL INVERSIÓN PIRDT 1,757,012\.0 Ingreso 1er año con oportunidades de negocio (*) 1,070\.4 Ingreso 1er año sin oportunidades de negocio (*) 712\.6 (*)Corresponde ingreso incremental por aumento de ventas producto del menjoramiento de la infraestructura rural (inversiones PIRDT )\. Como margen, incorpora los costos\. 1\. Análisis por proyecto de Infraestructura Rural VALOR Benef\. Benef\. VALOR INVERSION Beneficiarios VAN SOCIAL Nº NOMBRE PROYECTO PERFIL IRDT Directos con Directos sin TIR Relación B/C INVERSION (M$) CORREGIDA Directos (*) (8% , 10 años) ON (**) ON (M$) Mejoramiento Camino 1,078,637\.0 1,063,487\.1 1 Barrancas Juntas 2,76 km 147,764\.0 145,688\.6 51 26 26 262,850\.4 31\.6% 2\.80 Barrancas Juntas 51 2 Santa Lastenia 7,45 km 327,432\.0 322,833\.1 23 23 0 -100,199\.5 2\.5% 0\.69 Lastenia 1 3 Camino Ateuco 3,654 km 438,749\.0 432,586\.6 35 35 0 -93,796\.4 4\.3% 0\.78 Ateuco 19 4 Acceso Puente Vegas de Diuca (500 m\.) 43,761\.0 43,146\.4 36 18 18 245,234\.1 75\.1% 6\.68 Vegas de Diuca 36 5 El Carril o Ruta de Las Flores 1,72 km 120,931\.0 119,232\.5 43 22 22 225,222\.0 32\.6% 2\.89 La Calle 43 Abastecimiento de agua potable 443,265\.0 431,877\.7 6 Varios sectores 443,265\.0 431,877\.7 113 113 0 661,930\.5 28\.3% 2\.53 Saneamiento básico 235,110\.0 230,260\.9 7 Varios sectores 235,110\.0 230,260\.9 108 108 0 815,148\.7 51\.0% 4\.54 TOTAL 1,757,012\.0 1,725,625\.6 (*) Beneficiarios estimados de acuerdo a la población por localidad (**) Beneficiarios estimados de acuerdo al número máximo de beneficiarios con proyectos de infraestructura VAN SOCIAL POR PROYECTO Inversión (año 0) año 1 año 2 año 3 año 4 año 5 año 6 año 7 año 8 año 9 año 10 año 11 año 12 año 13 año 14 Ingresos Incrementales (con oportunidad de negocio) 1,070\.4 1,061\.5 1,062\.0 1,078\.6 1,143\.4 1,238\.6 1,165\.3 1,158\.9 1,164\.6 1,196\.3 1,239\.5 1,154\.9 1,230\.5 2,051\.6 Ingresos Incrementales (sin oportunidad de negocio) 712\.6 716\.1 724\.7 724\.7 724\.7 887\.1 724\.7 724\.7 724\.7 724\.7 724\.7 724\.7 724\.7 1,555\.9 PROYECTO 1 Beneficiarios(con oportunidad de negocio) 25\.5 25\.5 25\.5 25\.5 25\.5 25\.5 25\.5 25\.5 25\.5 25\.5 25\.5 25\.5 25\.5 25\.5 Beneficiarios(sin oportunidad de negocio) 25\.5 25\.5 25\.5 25\.5 25\.5 25\.5 25\.5 25\.5 25\.5 25\.5 25\.5 25\.5 25\.5 25\.5 Flujo caja 1 -145,688\.6 45,467 45,327 45,561 45,986 47,637 54,206 48,195 48,031 48,177 48,986 50,088 47,931 49,859 91,993 VAN SOCIAL (8% , 14 años) 262,850\.4 408,539\.0 PROYECTO 2 Beneficiarios(con oportunidad de negocio) 23 23 23 23 23 23 23 23 23 23 23 23 23 23 Beneficiarios(sin oportunidad de negocio) 0 0 0 0 0 0 0 0 0 0 0 0 0 0 Flujo caja 2 -322,833\.1 24,620 24,414 24,426 24,809 26,298 28,488 26,801 26,654 26,785 27,515 28,509 26,563 28,302 47,188 VAN SOCIAL (8% , 14 años) -100,199\.5 222,633\.5 PROYECTO 3 Beneficiarios(con oportunidad de negocio) 35 35 35 35 35 35 35 35 35 35 35 35 35 35 Beneficiarios(sin oportunidad de negocio) 0 0 0 0 0 0 0 0 0 0 0 0 0 0 Flujo caja 3 -432,586\.6 37,465 37,151 37,170 37,752 40,019 43,352 40,785 40,560 40,760 41,871 43,383 40,422 43,069 71,807 VAN SOCIAL (8% , 14 años) -93,796\.4 338,790\.1 PROYECTO 4 Beneficiarios(con oportunidad de negocio) 18 18 18 18 18 18 18 18 18 18 18 18 18 18 Beneficiarios(sin oportunidad de negocio) 18 18 18 18 18 18 18 18 18 18 18 18 18 18 Flujo caja 4 -43,146\.4 32,095 31,996 32,161 32,460 33,626 38,263 34,020 33,905 34,007 34,578 35,356 33,834 35,194 64,936 VAN SOCIAL (8% , 14 años) 245,234\.1 288,380\.4 PROYECTO 5 Beneficiarios(con oportunidad de negocio) 22 22 22 22 22 22 22 22 22 22 22 22 22 22 Beneficiarios(sin oportunidad de negocio) 22 22 22 22 22 22 22 22 22 22 22 22 22 22 Flujo caja 6 -119,232\.5 38,335 38,217 38,414 38,772 40,165 45,703 40,635 40,497 40,620 41,302 42,231 40,412 42,038 77,563 VAN SOCIAL (8% , 14 años) 225,222\.0 344,454\.4 PROYECTO 6 Beneficiarios(con oportunidad de negocio) 113 113 113 113 113 113 113 113 113 113 113 113 113 113 Beneficiarios(sin oportunidad de negocio) 0 0 0 0 0 0 0 0 0 0 0 0 0 0 Flujo caja 6 -431,877\.7 120,958 119,946 120,006 121,887 129,205 139,964 131,676 130,952 131,596 135,183 140,066 130,507 139,050 231,835 VAN SOCIAL (8% , 14 años) 661,930\.5 1,093,808\.2 PROYECTO 7 Beneficiarios(con oportunidad de negocio) 108 108 108 108 108 108 108 108 108 108 108 108 108 108 Beneficiarios(sin oportunidad de negocio) 0 0 0 0 0 0 0 0 0 0 0 0 0 0 Flujo caja 7 -230,260\.9 115,606 114,638 114,696 116,493 123,488 133,771 125,850 125,158 125,773 129,202 133,868 124,732 132,898 221,577 VAN SOCIAL (8% , 14 años) 815,148\.7 1,045,409\.6 2\. Análisis por subterritorio Nº beneficiarios Beneficiarios con oportunidades de negocio (**) 113 Beneficiarios sin oportunidades de negocio 133 Total beneficiarios Potenciales 246 (**) Beneficiarios estimados de acuerdo al número máximo de beneficiarios con proyectos de infraestructura Evaluación social Sub-territorio CON proyectos de Infraestructura Rural 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 Ingresos Ingresos con oportunidades de negocio por unidad productiva 10,874\.0 10,970\.1 10,844\.8 11,224\.7 11,774\.6 13,040\.0 12,172\.5 12,370\.9 12,469\.7 13,145\.1 13,427\.1 12,710\.3 13,332\.7 22,131\.3 Ingresos sin oportunidades de negocio por unidad productiva 7,558\.4 7,594\.8 7,685\.5 7,685\.5 7,685\.5 9,391\.5 7,685\.5 7,685\.5 7,685\.5 7,685\.5 7,685\.5 7,685\.5 7,685\.5 16,418\.5 Beneficios con oportunidades de negocio 1,228,756\.9 1,239,617\.4 1,225,466\.0 1,268,394\.6 1,330,530\.3 1,473,515\.1 1,375,490\.3 1,397,907\.0 1,409,077\.9 1,485,395\.7 1,517,259\.1 1,436,263\.1 1,506,592\.1 2,500,841\.6 Beneficios sin oportunidades de negocio 1,005,271\.5 1,010,101\.9 1,022,177\.6 1,022,177\.6 1,022,177\.6 1,249,071\.9 1,022,177\.6 1,022,177\.6 1,022,177\.6 1,022,177\.6 1,022,177\.6 1,022,177\.6 1,022,177\.6 2,183,660\.0 Total Beneficios 2,234,028\.5 2,249,719\.3 2,247,643\.6 2,290,572\.3 2,352,707\.9 2,722,586\.9 2,397,667\.9 2,420,084\.6 2,431,255\.6 2,507,573\.3 2,539,436\.7 2,458,440\.7 2,528,769\.7 4,684,501\.6 Egresos Costos de operación por unidad (sin oportunidades de negocio) 3,462\.0 3,584\.9 4,363\.7 3,635\.9 4,388\.6 3,900\.6 4,402\.5 3,623\.6 4,437\.2 3,644\.4 4,437\.2 3,644\.4 4,437\.2 3,644\.4 Costos de operación por unidad(con oportunidades de negocio) 4,300\.3 5,035\.8 5,460\.9 5,379\.5 5,617\.9 5,633\.0 5,809\.9 5,731\.4 6,136\.2 5,886\.1 6,284\.9 6,085\.0 6,281\.4 5,889\.6 Costos con oportunidades de negocio 485,930\.8 569,042\.4 617,077\.0 607,878\.2 634,826\.2 636,528\.8 656,518\.7 647,652\.1 693,390\.3 665,123\.7 710,199\.2 687,608\.6 709,800\.0 665,522\.9 Costos sin oportunidades de negocio 460,440\.4 476,790\.0 580,369\.3 483,568\.7 583,690\.4 518,782\.2 585,535\.4 481,934\.5 590,148\.0 484,702\.1 590,148\.0 484,702\.1 590,148\.0 484,702\.1 Costos de mantención obras (5% inversión) 87,850\.6 87,850\.6 87,850\.6 87,850\.6 87,850\.6 87,850\.6 87,850\.6 87,850\.6 87,850\.6 87,850\.6 87,850\.6 87,850\.6 87,850\.6 87,850\.6 Costos de mejoramiento obras (10% inversión a partir del año 5) 175,701\.2 175,701\.2 175,701\.2 175,701\.2 175,701\.2 175,701\.2 175,701\.2 175,701\.2 175,701\.2 175,701\.2 Total Egresos 1,034,221\.8 1,133,682\.9 1,285,296\.9 1,179,297\.5 1,482,068\.4 1,418,862\.8 1,505,606\.0 1,393,138\.5 1,547,090\.1 1,413,377\.6 1,563,899\.0 1,435,862\.5 1,563,499\.9 1,413,776\.8 Utilidad antes de impuestos 1,199,806\.7 1,116,036\.3 962,346\.7 1,111,274\.8 870,639\.5 1,303,724\.1 892,061\.9 1,026,946\.1 884,165\.5 1,094,195\.7 975,537\.7 1,022,578\.2 965,269\.9 3,270,724\.8 Inversión PIRDT -1,757,012 Inversión privada -1,290,794 1,212 70,133 218,195 94,972 222,906 80,896 227,985 106,400 237,492 92,989 239,413 115,907 239,413 92,989 Inversiones públicas en Fomento Productivo -1,331,096 Flujo de caja para inversión social -4,378,902 1,198,594\.3 1,045,902\.9 744,152\.0 1,016,302\.7 647,733\.8 1,222,827\.8 664,077\.1 920,546\.2 646,673\.2 1,001,206\.5 736,125\.0 906,670\.8 725,857\.2 3,177,735\.7 Indicadores evaluación social Sub-territorio CON proyectos de Infraestructura Rural VAN SOCIAL (8%, 14 años) $ 3,873,400\.69 14,654,405 RENTABILIDAD SOCIAL TIR, 14 años 21% Evaluación social Sub-territorio CON proyectos de Infraestructura Rural SIN PERFILES CON INDICADOR NEGATIVO 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 Ingresos Ingresos con oportunidades de negocio por unidad productiva 10,874\.0 10,970\.1 10,844\.8 11,224\.7 11,774\.6 13,040\.0 12,172\.5 12,370\.9 12,469\.7 13,145\.1 13,427\.1 12,710\.3 13,332\.7 22,131\.3 Ingresos sin oportunidades de negocio por unidad productiva 7,558\.4 7,594\.8 7,685\.5 7,685\.5 7,685\.5 9,391\.5 7,685\.5 7,685\.5 7,685\.5 7,685\.5 7,685\.5 7,685\.5 7,685\.5 16,418\.5 Beneficios con oportunidades de negocio 1,228,756\.9 1,239,617\.4 1,225,466\.0 1,268,394\.6 1,330,530\.3 1,473,515\.1 1,375,490\.3 1,397,907\.0 1,409,077\.9 1,485,395\.7 1,517,259\.1 1,436,263\.1 1,506,592\.1 2,500,841\.6 Beneficios sin oportunidades de negocio 1,005,271\.5 1,010,101\.9 1,022,177\.6 1,022,177\.6 1,022,177\.6 1,249,071\.9 1,022,177\.6 1,022,177\.6 1,022,177\.6 1,022,177\.6 1,022,177\.6 1,022,177\.6 1,022,177\.6 2,183,660\.0 Total Beneficios 2,234,028\.5 2,249,719\.3 2,247,643\.6 2,290,572\.3 2,352,707\.9 2,722,586\.9 2,397,667\.9 2,420,084\.6 2,431,255\.6 2,507,573\.3 2,539,436\.7 2,458,440\.7 2,528,769\.7 4,684,501\.6 Egresos Costos de operación por unidad (sin oportunidades de negocio) 3,462\.0 3,584\.9 4,363\.7 3,635\.9 4,388\.6 3,900\.6 4,402\.5 3,623\.6 4,437\.2 3,644\.4 4,437\.2 3,644\.4 4,437\.2 3,644\.4 Costos de operación por unidad(con oportunidades de negocio) 4,300\.3 5,035\.8 5,460\.9 5,379\.5 5,617\.9 5,633\.0 5,809\.9 5,731\.4 6,136\.2 5,886\.1 6,284\.9 6,085\.0 6,281\.4 5,889\.6 Costos con oportunidades de negocio 485,930\.8 569,042\.4 617,077\.0 607,878\.2 634,826\.2 636,528\.8 656,518\.7 647,652\.1 693,390\.3 665,123\.7 710,199\.2 687,608\.6 709,800\.0 665,522\.9 Costos sin oportunidades de negocio 460,440\.4 476,790\.0 580,369\.3 483,568\.7 583,690\.4 518,782\.2 585,535\.4 481,934\.5 590,148\.0 484,702\.1 590,148\.0 484,702\.1 590,148\.0 484,702\.1 Costos de mantención obras (5% inversión) 87,850\.6 87,850\.6 87,850\.6 87,850\.6 87,850\.6 87,850\.6 87,850\.6 87,850\.6 87,850\.6 87,850\.6 87,850\.6 87,850\.6 87,850\.6 87,850\.6 Costos de mejoramiento obras (10% inversión a partir del año 5) 0\.0 0 0 0 175,701\.2 175,701\.2 175,701\.2 175,701\.2 175,701\.2 175,701\.2 175,701\.2 175,701\.2 175,701\.2 175,701\.2 Total Egresos 1,034,221\.8 1,133,682\.9 1,285,296\.9 1,179,297\.5 1,482,068\.4 1,418,862\.8 1,505,606\.0 1,393,138\.5 1,547,090\.1 1,413,377\.6 1,563,899\.0 1,435,862\.5 1,563,499\.9 1,413,776\.8 Utilidad antes de impuestos 1,199,806\.7 1,116,036\.3 962,346\.7 1,111,274\.8 870,639\.5 1,303,724\.1 892,061\.9 1,026,946\.1 884,165\.5 1,094,195\.7 975,537\.7 1,022,578\.2 965,269\.9 3,270,724\.8 Inversión PIRDT -990,831 Inversión privada -1,290,794 1,212 70,133 218,195 94,972 222,906 80,896 227,985 106,400 237,492 92,989 239,413 115,907 239,413 92,989 Inversiones públicas en Fomento Productivo -1,331,096 Flujo de caja para inversión social -3,612,721 1,198,594\.3 1,045,902\.9 744,152\.0 1,016,302\.7 647,733\.8 1,222,827\.8 664,077\.1 920,546\.2 646,673\.2 1,001,206\.5 736,125\.0 906,670\.8 725,857\.2 3,177,735\.7 Indicadores evaluación social Sub-territorio CON proyectos de Infraestructura Rural VAN SOCIAL (8%, 14 años) $ 4,639,581\.69 14,654,405 766,181 RENTABILIDAD SOCIAL TIR, 14 años 26% Evaluación social Sub-territorio SIN proyectos de Infraestructura Rural 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 Ingresos Ingresos sin oportunidades de negocio por unidad productiva 6,876\.3 6,909\.4 6,991\.9 6,991\.9 6,991\.9 8,542\.8 6,991\.9 6,991\.9 6,991\.9 6,991\.9 6,991\.9 6,991\.9 6,991\.9 14,931\.0 Beneficios sin oportunidades de negocio 1,485,290\.9 1,492,422\.5 1,510,251\.4 1,510,251\.4 1,510,251\.4 1,845,242\.2 1,510,251\.4 1,510,251\.4 1,510,251\.4 1,510,251\.4 1,510,251\.4 1,510,251\.4 1,510,251\.4 3,225,085\.2 Total Beneficios 1,485,290\.9 1,492,422\.5 1,510,251\.4 1,510,251\.4 1,510,251\.4 1,845,242\.2 1,510,251\.4 1,510,251\.4 1,510,251\.4 1,510,251\.4 1,510,251\.4 1,510,251\.4 1,510,251\.4 3,225,085\.2 Egresos Costos de operación (sin oportunidades de negocio) 3,460\.5 3,583\.4 4,362\.2 3,634\.4 4,387\.2 3,899\.2 4,401\.1 3,622\.1 4,435\.7 3,642\.9 4,435\.7 3,642\.9 4,435\.7 3,642\.9 747,467\.4 774,020\.1 942,239\.2 785,029\.0 947,632\.8 842,218\.0 950,629\.2 782,375\.1 958,120\.4 786,869\.8 958,120\.4 786,869\.8 958,120\.4 786,869\.8 Total Egresos 747,467\.4 774,020\.1 942,239\.2 785,029\.0 947,632\.8 842,218\.0 950,629\.2 782,375\.1 958,120\.4 786,869\.8 958,120\.4 786,869\.8 958,120\.4 786,869\.8 Utilidad antes de impuestos 737,823\.5 718,402\.4 568,012\.2 725,222\.4 562,618\.6 1,003,024\.2 559,622\.2 727,876\.2 552,131\.0 723,381\.6 552,131\.0 723,381\.6 552,131\.0 2,438,215\.4 Inversión PIRDT 0 Inversión privada -910,455\.0 369\.0 0\.0 150,637\.1 0\.0 150,637\.1 0\.0 150,637\.1 0\.0 150,637\.1 0\.0 150,637\.1 0\.0 150,637\.1 0\.0 Inversiones públicas en Fomento Productivo 0 Flujo de caja para inversión social -910,455 737,454\.5 718,402\.4 417,375\.2 725,222\.4 411,981\.6 1,003,024\.2 408,985\.1 727,876\.2 401,494\.0 723,381\.6 401,494\.0 723,381\.6 401,494\.0 2,438,215\.4 Indicadores evaluación social Sub-territorio SIN proyectos de Infraestructura Rural 42  Annex 4 Bank Lending and Implementation Support/Supervision Processes (a) Task Team members Names Title Unit Lending Fabio Arjona Consultant LCSEG Philippe J-P\. Durand Program Coordinator AFTEG LCSFP- Ana Ines Fernandez Frank Consultant HIS Estanislao Gacitua-Mario Lead Social Development Specialist LCSSO Aurelio Menendez Sector Manager LCSTR Marta Elena Molares-Halberg Lead Counsel LEGES Pia Peeters Senior Social Development Specialist AFTCS Jaime A\. Roman Consultant QLP - HIS Jennifer J\. Sara Sector Manager EASVS Paul Edwin Sisk Lead Financial Management Specialist SARFM Eloy Eduardo Vidal Consultant TWICT Supervision/ICR Ana Silvia Aguilera Consultant LCSTR Luis Alfonso Alvestegui Consultant LCSTR Justiniano Daniel Jorge Arguindegui Procurement Specialist LCSPT Antonio Leonardo Blasco Sr Financial Management Specialist LCSFM Alvaro J\. Covarrubias Consultant LCSTR Philippe J-P\. Durand Program Coordinator AFTEG Juan Gaviria Sector Leader AFTTR Ana Maria Grofsmacht Procurement Specialist LCSPT Jose Luis Irigoyen Director TWI Andres Mac Gaul Senior Procurement Specialist LCSPT Aurelio Menendez Sector Manager LCSTR Marta Elena Molares- Halberg Lead Counsel LEGES Roberto Munoz Consultant LCSHD Juan Navas-Sabater Lead ICT Policy Specialist TWICT Nicolas Peltier-Thiberge Senior Infrastructure Economist AFTTR Juan D\. Quintero Consultant SASDE Mirtha Pokorny Consultant LCSTR Cecilia Corvalan Senior Transport Economist LCSTR Veronica Raffo Senior Infrastructure Specialist LCSTR Francisco Rodriguez Procurement Specialist LCSPT Alejandro Roger Solanot Sr Financial Management Specialist LCSFM Daniel Tolchinsky Consultant LCSTR Raul Torres Consultant LCSTR Raul Tolmos Environmental Specialist LCSEN Jean-Jacques Verdeaux Senior Procurement Specialist LCSPT Alonso Zarzar Casis Sr Social Scientist LCSSO Jose Vicente Zevallos Sr Social Development Specialist LCSSO Ana Lucia Nieto Financial Management Specialist LCSFM 43 Efrain Jimenez Consultant LCSUW Arturo Muente Kunigami Senior ICT Policy Specialist TWICT (b) Staff Time and Cost Staff Time and Cost (Bank Budget Only) Stage of Project Cycle USD Thousands (including No\. of staff weeks travel and consultant costs) Lending FY03 3\.75 27\.82 FY04 23\.49 177\.96 FY05 16\.13 130\.42 FY06 0\.00 FY07 0\.00 FY08 0\.00 Total: 336\.20 Supervision/ICR FY03 0\.00 FY04 0\.00 FY05 1\.48 11\.51 FY06 10\.85 50\.71 FY07 13\.71 71\.61 FY08 13\.31 119\.99 FY09 22\.64 121\.52 FY10 22\.06 100\.06 FY11 16\.02 99\.06 FY12 12\.51 69\.05 Total: 113\.55 643\.50 44  Annex 5 Beneficiary Survey Results In order to assess the results of the subprojects included in the First Generation of PMDTs, a survey was undertaken for a sample of road and water supply subprojects\. The size of the sample was 22 for roads, and 12 for water\. It is important to note that these PMDTs were developed prior to the approved methodology\. Since the PMDTs do not reflect the methodology, it was agreed that no impact evaluation will be carried out for those subprojects\. In order to assess the results of the portfolio, it was decided to include some surveys in the reports prepared by the regions concerning the closing of First Generation PMDTS\. Questionnaires were prepared jointly by SUBDERE and the Bank\. Surveys were undertaken by UGRs, at the local level\. A summary of the main findings is presented in the following tables\. Summary of Findings from Survey – Road Subprojects Size of the sample (Number of subprojects with completed survey) 22 Type of intervention: Interventions within the sample were mostly road improvements\. Some cases included paving\. Some periodic maintenance activities were also included\. Beneficiaries per project Average: 741 Max: 3,200 Min: 80 Comment: Given the difference in the amount of beneficiaries among regions, it is recommended that a unified criterion for determining this indicator is defined among regional and central level\. Unitary Cost Average: US$86,000/km Length Average: 9\.5 km Max: 28 km Min: 2\.4 km NOTE: The project also included rehabilitation/construction of new bridges\. Even though one bridge was included in the sample, it was not taken into account, in order to have some homogeneity in the data\. Productive Activities: Main activities reported were agriculture, livestock, fishing, commerce and tourism Impacts identified by beneficiaries: Positive • Decrease in travel time • Improved connectivity • Increase in frequency of transport services (example: from 1 daily to 1 every 45 minutes) • Increase in tourism • Products are not damaged by road condition (production can be sold at better prices) Negative • Increase in traffic (and more damage to the road\. In some cases littering was also reported) Maintenance: Roads are either “enroladasâ€? or not\. Under the first classification, roads are under the jurisdiction of Vialidad (and their maintenance is provided through different programs within the institution)\. When roads areâ€? no enroladasâ€? there is no commitment from Vialidad to undertake maintenance activities\. Nevertheless, it was agreed that for project purposes, all rehabilitated/improved roads would be treated as “enroladasâ€?\. 45 Even though the project envisaged the modality of Microenterprises for project maintenance, the concept was not “boughtâ€? by Vialidad\. In the future it could be interesting to visit countries in the area where the ME is currently working (Colombia, Peru for example)\. Summary of Findings from Survey – Water Subprojects Size of the sample (Number of with completed survey) 12 GENERAL DESCRIPTION OF THE SYSTEMS Number of Connections Average: 245 Min: 88 Max: 496 Beneficiaries per project (assuming one family per connection and 5 people 1,225 people per project by family) Average cost US$737,500 (US$3,000/connection) WATER COMMITEES Composition: Average: 6 people (of which 2 are women) Max: 10 people Min: 3 people Women account for one third of the water committees reported in the sample Duration: Water committees are regulated by Law\. They are elected for 2 year 2 years period\. Technical Support: Water Committees are supposed to get technical support from the Unidades Tecnicas in each area\. According to the interviews, the quality of the technical support varies depending on the budget allocation from the DOH to those Unidades Tecnicas\. The support includes fixing tariffs and operational support\. Physical characteristics of the systems: (i) Source of water: wells; (ii) Micrometers: all but one project have micrometers for each connection; (iii) systems work 24 hours per day, 365 days per year (all but one that works for 8 hours per day, 365 days per year) Sanitation System: None of the locations included in the sample had a sanitation system Water Quality 1 or 2 depending on the Number of Operators size of the system Mechanism for water treatment Yes (all the cases) Bacteriological test Average is 3 tests per year Use of Water for Productive Purposes Average: 30% Max: 50% Min 5% Activities reported: agriculture and tourism (restaurants and lodging) Average Cost per Month CHIL$4,200 (US$8\.6/month) The structure of the tariff is fixed by the Unidad Tecnica\. There is usually a fixed cost (between CHIL$1,200 and CHIL$2,500), and then a variable cost depending upon consumption\. Average Income per Connection per Month: CHIL$ 4,626 (US$9\.6/month) Average Expenditure per Connection per Month: CHIL$3,610 (US$7\.5/month) Based on the figures above, all water committees reported having enough funds 46 to undertake maintenance activities Impacts on Quality of Life and Health reported by Beneficiaries • Users’ perception about water quality: good • Beneficiaries reported to have less gastrointestinal diseases • Not all families are benefiting from the system\. If the family was not included in the project, they need to wait a long time before being considered • More time since they do not need to go to look for water Social Impacts reported by Beneficiaries • Having access to water allowed some business to have sanitary permits, opening the door for improving commercialization (even exports) • Increase in production Environmental Impacts reported by Beneficiaries • Users’ perception is that there is no negative environmental impact associated to the project • Users reported no information regarding plans to have a more efficient water consumption structure (this is an opportunity for future operations) 47  Annex 6 Stakeholder Workshop Report and Results A workshop took place between May 14 and 15, 2012 in Santiago in order to work with representatives from UGRs from all regions involved in the program to assess the performance of the project from their perspective\. The following presentation summarizes the views and opinion of the regions with respect the project, its main achievements, problems, and challenges in the future\. In addition to this collective presentation that was prepared during the workshop, each Region presented a brief report, which can be found in the project files\. Introducción Los días 14 y 15 de Mayo se reunieron representantes de SUBDERE, de las UGRs y del Banco Mundial, con el fin de llevar a cabo un taller para conocer las opiniones de las regiones en relación con el PIRDT\. Esta labor se enmarca dentro de las actividades que se han realizado en el marco de la elaboración del informe de cierre y de resultados del proyecto, el cual debe ser presentado al directorio del Banco antes del 30 de Junio de 2012\. JORNADA DE TRABAJO Cada una de las regiones realizó una presentación\. La compilación de las mismas se encuentra en los archivos del Informe de Cierre de Proyecto Proyecto\. El presente documento presenta una síntesis de los aspectos PIRDT – SUBDERE- BANCO MUNDIAL discutidos\. Este documento fue validado con las regiones en la jornada antes mencionada SANTIAGO, MAYO DE 2012 1 2 Generalidades PIRDT una Percepción Regional ¿ QUE ES EL PIRDT ? El PIRDT como instrumento potenciador de las definiciones de Instrumento de inversión de carácter Regional que nace de un las Estrategias Regionales de Desarrollo (ERD 2002-2006), se acuerdo de cooperación entre el estado de Chile y el Banco percibe como: Mundial, firmado en el año 2005\. •Crítico, al reconocer que el modelo metodológico tradicional no  SU OBJETIVO permite realizar inversiones zonas que lo requieren de forma Apoyar a las comunidades rurales pobres, potenciando su urgente\. desarrollo productivo y social en forma sostenible\. Además: • Innovativo, planteando soluciones participativas, territoriales e • Reforzar una visión territorial de desarrollo integrales\. • Apoyar la conexión de todos los instrumentos de planificación • Creativo, recoge e integra diversas experiencias y las proyecta territorial\. para que puedan ser replicadas en lugares de similares • Incorporar la dimensión territorial en los procesos de gestión condiciones\. regional y local\. 3 4 • Fortalecer la coordinación pública-privada 48  El PIRDT en la Agenda Pública PMDT Planes Marco de Desarrollo Territorial La incorporación del PIRDT a la Agenda Pública Regional Producto tangible del PIRDT implica: Entrega a Comunidad, Municipios, Institucionalidad Publica y • Compromiso de las autoridades políticas Gobierno Regional, un Instrumento de Planificación que posee: • Involucramiento de los sectores • Caracterización del Subterritorio, Productiva y del Capital Social • Una Visión construida y validada por comunidad y actores públicos Para su ejecución necesita • Contrastando la caracterización y la visión del subterritorio, se • Una campaña de difusión clara respecto de los productos determinan las brechas existentes\. • Una Cartera de perfiles de proyectos de Infraestructura e ideas de que se quieren lograr Fomento Productivo • Evaluación económica y social, que determina “valorâ€? del subterritorio\. • Una matriz de Marco Lógico y un Plan de Gestión del PMDT, para establecer los controles de la inversión EL PIRDT, SE INSTALA EN EL IMAGINARIO COLECTIVO, COMO UN PROPUESTA A SER APOYADA Y MEJORADA Instrumento que articula, en un espacio territorial determinado, la inversión generada desde el resto de los instrumentos de planificación (PLADECOs, PDTs, ERD) 5 6 PMDT PIRDT – PMDT - RESUMEN Permite  Focalizar Programas de Fomento Productivo, con recursos PIR y FNDR de libre disposición, con instituciones como SERCOTEC y FOSIS\. A modo de corolario  Levantar iniciativas en rubros específicos INDAP (papas, quesos, flores)\.  Orientar programas CORFO, como los (PEL), con información PMDT los municipios realicen los requerimiento pertinentes \. • PIRDT una iniciativa que consolido una metodología denominada PMDT \. Para el Éxito del PMDT • PIRDT Programa, que potencio tema territorial y necesidad de  La elección de la Consultora es primordial asumirlo  La presencia y participación Municipal, es clave • PMDT Instrumento de Planificación no solo para la institución que  La presencia en terreno de la UGR es absolutamente necesaria  disposición de los actores públicos lo realice permite a otros órganos de la institucionalidad publica nutrirse de el, para desarrollar programas u otras iniciativas Conflictos • PMDT, Metodología perfectible, su aplicación práctica definirá las  Agenda Municipal propia mejoras  Indiferencia de las Unidades Técnicas, 7 8 PMDT LOGROS PIRDT • Quizá el logro más importante del programa ha sido crear una nueva Permite cultura para desarrollar proyectos en zonas rurales\. Esto permite llegar a  Focalizar Programas de Fomento Productivo, con recursos PIR y FNDR zonas que antes no podían ser intervenidas, y permite mejorar la gestión de libre disposición, con instituciones como SERCOTEC y FOSIS\. en esos territorios\.  Levantar iniciativas en rubros específicos INDAP (papas, quesos, flores)\.  Orientar programas CORFO, como los (PEL), con información PMDT los • Existencia e inicio de proceso de consolidación de una nueva metodología municipios realicen los requerimiento pertinentes \. de evaluación\. Aun así, se trata de un proceso dinámico, y requerirá ajustes (como los que se han dado entre los PMDTs de segunda y tercera Para el Éxito del PMDT generación)\.  La elección de la Consultora es primordial  La presencia y participación Municipal, es clave • 45 PMDTs realizados a la fecha (tanto de primera como segunda  La presencia en terreno de la UGR es absolutamente necesaria generación), cubriendo 185 subterritorios\.  disposición de los actores públicos • Existencia de una cartera importante en ejecución\. • Conformación de equipos regionales que lideran el programa a nivel local\. Conflictos  Agenda Municipal propia • Empatía y empoderamiento entre equipos (UGR, GORE, Unidades  Indiferencia de las Unidades Técnicas, Técnicas)\. • Articulación con servicios de fomento productivo\. • Generación de redes de trabajo integrados con servicios públicos\. 9 10 DIFICULTADES DEL PIRDT DIFICULTADES DEL PIRDT • Una de las mayores dificultades del programa nace de la naturaleza • Falta de capacidad en las Unidades Técnicas\. Capacidad medida en innovadora del programa\. El cambio de cultura es un proceso, y los términos de personal disponible para llevar a cabo sus tareas en relación diferentes actores han requerido de tiempo para ajustarse a una nueva con el PIRDT, así como calidad del trabajo realizado (ejemplo de manera de hacer las cosas y a sus nuevos roles\. Esto incluye el rol de problemas con el diseño de ciertas vías realizados por la Unidad Técnica MIDEPLAN y la coordinación entre los Servicios Públicos y el programa\. en el Maule que se destruyeron con las primeras lluvias)\. • Un tema que a veces ha sido difícil es el de la definición de los territorios\. • Baja capacidad técnica y de gestión de los equipos municipales\. Si bien se entiende que la decisión ultima es de naturaleza política, resulta • Demoras en procesos administrativos (tanto en lo interno del GORE como importante generar bases para que los mismos puedan ser validados en otras agencias vinculadas)\. técnicamente (para evitar lo que se presento en Los Lagos, donde el • En algunas regiones se ha observado la existencia de pocas territorio no se pude sustentar, y el PMDTs no arrojo cartera)\. La región de organizaciones productivas, así como falta de vigencia de algunas Libertador ha desarrollado una metodología muy interesante para definir organizaciones sociales\. territorios, que ha sido compartida con el resto de las regiones\. • Autonomía de traslado de los profesionales sobre el territorio\. Si bien esto aplica a varias de las regiones, el tema de movilidad es mas critico en • Falta de cabeza sectorial para el tema de saneamiento\. regiones como Aysen o Los Lagos, donde acceder a ciertos lugares • Falta de capacidad instalada en el mercado de las consultoras para realizar requiere de tiempos de viaje de varios días\. PMDTs\. • Estabilidad laboral de los integrantes de las UGRs (contratos, herramientas • Imposición del Banco para usar sus bases de licitación retraso el proceso de trabajo y otros)\. Adicionalmente está el tema de los seguros cuando se de adquisiciones\. 11 12 encuentran en comisión\. 49  LECCIONES COMENTARIOS BANCO MUNDIAL • El que sea un convenio con el Banco Mundial, le entregó tanto al PIRDT como a los PMDT un estatus distinto, frente a la institucionalidad pública por lo que se hace necesario, si se quiere implementar como política publica, el continuar con el Convenio Banco Mundial – Estado Chileno • Mayor acompañamiento a las instituciones relacionadas, por ejemplo al MIDEPLAN en el proceso de elaboración de la metodología • Fortalecer la línea de fomento productivo en la implementación del Programa tanto • Apoyo a las regiones con capacitaciones o transferencias de otras en el nivel nacional como regional metodologías usadas por el Banco para mejorar el programa • Generar como obligatorio que los profesionales de la UGR tengan el curso de • Sería importante poder compartir experiencias del mundo rural con otras elaboración y evaluación de Proyectos del MIDEPLAN comunidades de Latinoamérica y conocer por ejemplo la realidad de los agricultores del Paraguay con la Soya, o en México respecto de sus experiencias de clusters de Palta\. Resulta interesante poder contrastar los resultados del programa a nivel nacional así como también en otros lugares para aprender de sus realidades • El Banco deberá flexibilizar sus requerimientos, confiando en la capacidad de la institucionalidad publica chilena, para desarrollar los distintos 14 procesos que emanan del Programa 16 COMENTARIOS BANCO MUNDIAL • Las misiones del Banco, mas que venir a conocer las acciones, debieran aportar con experiencias de otros convenios o países, que estén utilizando soluciones similares o alternativas • En su defecto, generar pasantías a distintas experiencias que esté desarrollando el Banco Mundial, para que los profesionales chilenos puedan conocer y replicar en sus territorios • Se ha logrado concretar visitas a diversos subterritorios con parte del equipo del Banco Mundial, lo que ha realzado la importancia e las inversiones para los beneficiarios directos de los proyectos 17 50  Annex 7 Summary of Borrower’s ICR and/or Comments on Draft ICR The Borrower prepared a comprehensive report, which can be found in the Project’s file\. A summary is presented in this Annex\. I\.- INTRODUCCIÓN El objetivo del informe, es dar a conocer los principales logros y dificultades que tuvo el Proyecto en sus distintas etapas de implementación, ejecución y desarrollo en cada una de las regiones donde se ha ejecutado, junto con dar a conocer los mecanismos adoptados para poder lograr los objetivos del Proyecto, que es contribuir al uso efectivo y productivo de servicios de infraestructura por comunidades rurales pobres en territorios seleccionados\. 1\.1\. Historia y Origen del Proyecto En los últimos años, Chile ha realizado notables avances en su crecimiento económico, la reducción de la pobreza y un mayor acceso de los pobres a los servicios públicos\. Este proceso también incluyó la expansión de los servicios de infraestructura básica, especialmente en las áreas rurales, asegurando un mínimo nivel de vida, creando condiciones para generar mayores ingresos y salir de la pobreza\. En este contexto, Chile asumió un compromiso en el acceso a servicios de infraestructura rural como medio para combatir la pobreza y la desigualdad\. Este compromiso adoptó distintas formas, y el establecimiento de canales de financiamiento especializados\. El Gobierno de Chile muy interesado en descubrir nuevos criterios para abordar el tema de la provisión de servicios de infraestructura rural el año 2003 comenzó a trabajar con el Banco Mundial en la implementación de un Trabajo Económico y Sectorial (TES) para identificar las áreas en que las estrategias existentes podrían perfeccionarse, en particular, el Ministerio de Hacienda ha trazado un plan de acción para dejar a un lado los actuales enfoques sectoriales centralizados de la toma de decisiones de inversiones para permitir a los Gobiernos Regionales (GORE) priorizar las inversiones dentro de cada asignación sectorial, especialmente en los sectores de infraestructura rural (agua, caminos, electricidad)\. Como complemento del TES, el Ministerio de Hacienda solicitó al Banco Mundial su apoyo para elaborar y financiar un programa de infraestructura multisectorial dirigido específicamente a las regiones y comunidades más pobres del país\. En este contexto, el Gobierno vio al Banco Mundial como una fuente de asesoría estratégica para diseñar nuevos enfoques del desarrollo territorial y la infraestructura rural, teniendo en cuenta su experiencia internacional y su trabajo analítico\. Al mismo tiempo, puesto que el Gobierno busca acuerdos institucionales más apropiados para planificar y proveer servicios de infraestructura rural, el Banco Mundial sirve como un tercero más neutro para ayudar a reunir a un gran número de actores a nivel nacional, regional y local para aumentar la coordinación intersectorial y crear en conjunto una nueva manera de proveer servicios de infraestructura rural dentro de un enfoque territorial\. Por último, el financiamiento otorgado por el Banco Mundial permitió al Gobierno introducir una nueva asignación presupuestaria multisectorial dentro del FNDR destinada específicamente a mejoras de los servicios de infraestructura para los habitantes pobres de las zonas rurales\. 1\.2\. Descripción del Programa de Infraestructura Rural para el Desarrollo Territorial 51 El Convenio de Préstamo contempló que el Banco aportaría para este proyecto la cifra de US$50\.26 millones, el resto de los fondos acordados fueron aportados por el Gobierno de Chile, US$40 millones\. En total los recursos con que el PIRDT contó para su ejecución, sumaba la cantidad total de US$90\.26 millones\. Dentro de este acuerdo se definió que los organismos responsables de la ejecución de proyecto, serian la Subsecretaría de Desarrollo Regional y Administrativo (SUBDERE), y los Gobiernos Regiones de las regiones elegibles para el Proyecto, las que fueron seleccionadas de acuerdo a sus índices de pobreza y ruralidad\. Para esta etapa piloto, se definieron cinco regiones elegibles para la implementación, estas fueron: Coquimbo, Maule, Biobío, Araucanía y Los Lagos (esta última región se divide posteriormente en dos: Los Ríos y Los Lagos)\. La ejecución del Programa pretende establecer una visión territorial para el desarrollo, reforzando y conectando a nivel regional los diversos instrumentos de planificación territorial con los instrumentos de planificación regional (Estrategia Regional de Desarrollo - ERD), local (Plan de Desarrollo Comunal - PLADECO) y sectorial\. Este concepto incorpora la dimensión territorial en los procesos de gestión regional y local y la coordinación pública-pública y pública-privada\. Este enfoque proporciona una instancia para movilizar a una gama variada de organizaciones que representan los intereses de la iniciativa privada y la población local frente a opciones de desarrollo que generen mejores ingresos y bienestar\. 1\.3\. Objetivos Este Programa tiene por alcance la aplicación de nuevas modalidades y alternativas técnicas que permitan acceder a infraestructura a comunidades rurales con diversos grados de concentración poblacional a través de la utilización de enfoques participativos\. La finalidad es contribuir al uso efectivo y productivo de servicios de infraestructura por comunidades rurales pobres en territorios seleccionados\. Adicionalmente, se espera que sea una respuesta a la demanda de inversión de infraestructura en zonas rurales no concentradas, con un estándar de calidad que dé sostenibilidad a la inversión que allí se realiza y sea una base de sustentabilidad para el territorio\. 1\.4\. Componentes Los componentes del Proyecto son los siguientes: • Planificación Territorial Participativa: que comprende la preparación en cada territorio de intervención del Programa, de un Plan Marco de Desarrollo Territorial (PMDT), incluyendo un conjunto de proyectos de infraestructura rural\. • Provisión de Servicios de Infraestructura: que comprende la materialización de las inversiones en obras de infraestructura rural y su posterior operación y mantención, incluyendo la ejecución de programas de fortalecimiento de la capacidad local para la gestión de los servicios de infraestructura\. • Fortalecimiento Institucional: que consiste en introducir mejoras en la capacidad de las agencias de gobierno para proveer servicios de infraestructura basados en un enfoque territorial\. 1\.5\. Estructura de Implementación La ejecución del Proyecto se alojó en la Subsecretaria de Desarrollo Regional y Administrativo (SUBDERE), específicamente de la División de Desarrollo Regional, a través de la Unidad de Gerenciamiento y Desarrollo (UGD), dependiente del Departamento de Gestión de Inversiones 52 Regionales\. Para estos efectos, se contó con la colaboración de otros organismos públicos, entre los que se encontraban el Ministerio de Obras Públicas (MOP) y MIDEPLAN\. El MOP participaría especialmente a través de la Dirección de Obras Hidráulicas y de la Dirección de Vialidad\. Se identificó que los actores involucrados se encuentran en al menos cuatro niveles de gestión, partiendo por el nivel central o nacional, pasando por los niveles regionales y territoriales y llegando a los niveles de las áreas focalizadas de gestión e inversión integrada\. Los principales organismos públicos presentes en este proyecto serían el Ministerio de Obras Públicas (MOP), a través de la Subsecretaría de Obras Públicas, las Dirección Nacional de Obras Hidráulicas y Vialidad; el Ministerio Transportes y Telecomunicaciones, a través de la Subsecretaría de Telecomunicaciones; la Comisión Nacional de Energía (CNE); el Ministerio de Hacienda; el Ministerio de Agricultura y MIDEPLAN\. A nivel regional, se encuentra el Intendente y las dependencias administrativas del Gobierno Regional; las Secretarías Regionales Ministeriales (SEREMI) y Servicios Públicos Regionales\. A nivel territorial aparecen las asociaciones de municipios, las Gobernaciones con sus actuales atribuciones, y a nivel de las áreas focalizadas aparecen los municipios, con los organismos públicos y privados que pertenecen a estas áreas territoriales\. Para cada uno de estos niveles se proponen distintos roles, criterios, orientaciones, políticas y visiones sobre como intervenir para promover el desarrollo rural\. II\.- IMPLEMENTACIÓN 2\.1\. Hitos de Implementación El primer hito del Proyecto corresponde a la firma del Convenio de Acuerdo de Préstamo, que fue firmado entre la República de Chile y el Banco Mundial el día 18 de marzo de 2005\. Adicionalmente, para su implementación en regiones se debieron realizar diferentes Convenios de Trabajo entre SUBDERE y los Gobiernos Regionales de las regiones elegibles para la implementación del Proyecto (Los convenios se firmaron entre Octubre de 2005 y Agosto de 2006 – siendo este ultimo el de la Araucanía)\. Cabe destacar que hoy luego de cumplir con el plazo de vigencia del Convenio de Préstamo, el PIR se encuentra en etapa de expansión, tal es así que con posterioridad a la fecha fijada como término del Convenio de Préstamo, el Proyecto recibió financiamiento con recursos nacionales, para continuar como Provisión de la Subsecretaría, con el objetivo de intensificar la aplicación de la Metodología de Plan Marco de Desarrollo Territorial (que se aborda más adelante), lo que en términos prácticos significa que en el año 2012 el Proyecto se implementará en las regiones de Arica y Parinacota, Tarapacá y Magallanes; el año 2013 se implementará en Antofagasta y Atacama finalizando el 2014 con el ingreso de las regiones de Valparaíso y Metropolitana, abarcando de esta manera todo el país\. Adicionalmente, con el objetivo de facilitar el trabajo conjunto con los sectores de Infraestructura y Fomento Productivo, se firmaron convenios con los diversos ministerios e instituciones con los que el Proyecto debía interactuar para lograr la intervención esperada en los territorios y subterritorios seleccionados (se firmaron Convenios con la Subsecretaría de Telecomunicaciones en el 2007, Subsecretaría de Obras Públicas en el 2007, Subsecretaría de Agricultura en el 2008 y la Corporación Nacional de Desarrollo Indígena en el 2010)\. 53 Tal vez, el hito de mayor relevancia lo representa el trabajo desarrollado en conjunto con MIDEPLAN, futuro Ministerio de Desarrollo Social, que se vio plasmado en el desarrollo de la Metodología de Formulación y Evaluación de Planes Marco de Desarrollo Territorial\. Si bien esta metodología de inversión tuvo su origen al interior del Proyecto, ya que no existía una herramienta apta para intervenir sectores rurales con poblaciones semi concentradas y dispersas, MIDEPLAN hizo suya a tarea y luego de un largo trabajo conjunto, con apoyo de una consultoría externa, en Diciembre de 2010, se publica por primera vez en el portal de MIDEPLAN, la Metodología PMDT, que permite la evaluación de una cartera de iniciativas para zonas rurales no concentradas\. Cabe mencionar que hoy en día, la Metodología de Formulación y Evaluación de Planes Marco de Desarrollo Territorial pertenece a MIDEPLAN, estando disponible en el Sistema Nacional de Inversiones, lo que significa que esta institución es la responsable de capacitar a los distintos organismos que deseen aplicar esta forma de intervención en un territorio determinado\. 2\.2\. Desembolsos Al 31 de Diciembre de 2011, el Proyecto ejecutó la totalidad de los desembolsos comprometidos en el Convenio, faltando sólo reportar por parte de Chile la Contrapartida Local que mantiene saldo\. Esta situación es conocida por el Banco Mundial y de común acuerdo con la UGD, se programó que quede resuelta en el primer semestre de 2012\. 2\.3\. Componentes por región y Nivel Central a) Planes Marco de Desarrollo Territorial\. La elaboración de Planes Marco de Desarrollo Territorial, durante el desarrollo del Proyecto, se puede dividir en dos etapas, antes y después de la aprobación de la Metodología PMDT por parte de MIDEPLAN\. Las primeras experiencias de estudios territoriales fueron realizados con una metodología incipiente, pues en los primeros años no existía Metodología PMDT, para ello se requirió la elaboración de Términos Técnicos de Referencia preliminares que fueron acordados con MIDEPLAN, de modo que permitieran la contratación de PMDTs, con el objetivo de avanzar en el Proyecto, obteniendo de esta manera carteras integradas de Proyectos\. Estos PMDT, se denominaron PMDT de primera generación o PMDT1\. Una vez que se contó con una primera versión de la Metodología de Formulación y Evaluación de PMDT, se comenzó el proceso de elaboración de los Planes, que se denominaron PMDT de segunda generación o PMDT2\. Esta segunda etapa de ejecución de Planes Marco de Desarrollo Territorial, siguió siendo contratada en SUBDERE y la selección de las empresas consultoras también continuaba como un trabajo conjunto entre SUBDERE y los Gobiernos Regionales respectivos, pero se avanzó en que la contraparte técnica correspondía sólo a actores de la región respectiva, por lo que eran aprobados técnicamente por una comisión formada entre el Gobierno Regional y los representantes de MIDEPLAN en la región, sectorialistas de la SERPLAC\. Sin embargo, la responsabilidad final quedaba en SUBDERE, dado que los contratos se firmaban en el Nivel Central\. Sólo en la última etapa de ejecución del Proyecto, luego de una modificación del Manual Operativo, se asignó a los Gobiernos Regionales la responsabilidad de la licitación, contratación, gestión y aprobación de los PMDTs\. CUADRO No 1: Metodología PMDT Características e Implicaciones Las principales características de esta metodología son las siguientes: (i) se trata de una metodología que se aplica 54 sobre un territorio, definido por el Gobierno Regional, en el que existe una actividad productiva, que requiere la implementación de infraestructura y acciones de fomento productivo para desarrollarse; (ii) es una metodología eminentemente participativa, que con la participación de los actores relevantes del territorio, define la visión del territorio e identifica las brechas que impiden el desarrollo del territorio, en términos de las actividades productivas; (iii) una vez identificadas las brechas, la metodología permite identificar a continuación la infraestructura y acciones de fomento productivo que permitirían abordar o eliminar las brechas que impiden el desarrollo de los negocios; (iv) posteriormente se procede a evaluar desde el punto de vista social, la infraestructura identificada en su conjunto; (v) adicionalmente, con esta información, se elabora un programa de inversiones, asociado a la MML del PMDT; y (vi) finalmente, se constituye un pacto territorial en el que participan todos los actores del territorio, autoridades, sectores de infraestructura, de fomento productivo y productores, entre otros\. En función de lo anterior, se puede deducir que el PMDT, plantea una serie de modificaciones, respecto de la forma tradicional como se ha invertido en Chile, entre otras se puede mencionar: (i) La implementación de la Metodología PMDT, rompe con la forma tradicional de identificar infraestructura, pues la identifica desde la demanda y no desde la oferta, a diferencia de otros programas del Estado; (ii) identifica un conjunto de obras y de acciones de fomento productivo, que al ser aplicadas en su conjunto, generarán beneficios superiores a la suma de los beneficios individuales; (iii) la evaluación de la infraestructura y acciones de fomento, se realiza integralmente, a diferencia de la forma tradicional en que se evalúa la infraestructura en Chile; (iv) convoca a diferentes sectores de infraestructura y de fomento productivo a poner su experiencia y recursos en el territorio\. b) Provisión de servicios de Infraestructura El segundo componente corresponde a la Provisión de Servicios de Infraestructura, que consiste en ejecutar las iniciativas identificadas en los PMDT\. Para la ejecución de la cartera PIRDT, los fondos son distribuidos por el Nivel Central desde la Provisión asignada por DIPRES anualmente a SUBDERE\. La distribución de estos recursos se realiza en el mes de diciembre y va respaldada por una cartera de proyectos en situación de arrastre, contratados y licitados\. c) Fortalecimiento Institucional Por último, el componente de Fortalecimiento Institucional está vinculado con el fortalecimiento de las capacidades de gestión tanto para las regiones insertas en el Proyecto como para nivel central\. En este componente se incluyen los convenios con las diferentes instituciones ligadas al desarrollo del Proyecto, los estudios de mejoramiento al programa, las asistencias técnicas a las Unidades Técnicas, talleres de capacitación o de formación de alianzas estratégicas a nivel nacional o regional y para los programas de difusión\. De los estudios a resaltar se citan: (i) la elaboración del “Manual de Soluciones de Saneamiento Sanitario en Zonas Ruralesâ€?, el que es utilizado principalmente por los municipios, así como (ii) “Aplicación, Corrección, Validación y Capacitación en la Metodología Integral de Formulación y Evaluación de Proyectos Identificados en el Plan Marco de Desarrollo Territorialâ€?, que permitió el desarrollo de la Guía Metodológica de Formulación y Evaluación de Planes Marco de Desarrollo Territorial\. 2\.4\. Evaluaciones aplicadas al Proyecto Durante la ejecución del Proyecto, éste fue sometido a tres evaluaciones independientes, llevadas a cabo el año 2006 y el 2007 por la Unidad de Evaluaciones de la División de Políticas y Estudios de la SUBDERE, y la tercera realizada por DIPRES en el año 2008\. Adicionalmente, el Banco Mundial efectuó una evaluación de Medio Término, una vez cumplido dos años y medio de operación\. 55 La conclusión de los primeros tres estudios fue coincidente, ya que todos concluyeron que para el desarrollo del Proyecto, se debía modificar el diseño planteado originalmente así como la Matriz de Marco Lógico de éste (La matriz modificada se encuentra en el informe original, Anexo 4)\. III\.- PROBLEMAS DE IMPLEMENTACIÓN 3\.1\. Identificación y Descripción de Problemas de Implementación Generales Para el caso de la implementación del Proyecto se detectaron las siguientes falencias: (i) ejecución inconsistente con el propósito del Proyecto, ya que se ejecutó inversión sin haber terminado la planificación y sin contar con una metodología adecuada de planificación; (ii) débil posicionamiento del Proyecto en las regiones, junto con señalar que no lograba articularse con la institucionalidad pública; y (iii) deficiente capacidad de gestión de los equipos regionales, junto a la poca presencia del equipo del Nivel Central en las regiones\. Planificación Territorial Participativa\. Las primeras experiencias de estudios territoriales fueron realizadas con una metodología incipiente, pues en los primeros años no existía Metodología PMDT\. Para la aplicación de los PMDT, en los primeros años de implementación de Proyecto, no existía la capacidad técnica dentro de la institucionalidad pública para la aplicación de estos nuevos criterios y conceptos, siendo escasa también la capacidad de contraparte técnica dentro de los Gobiernos Regionales\. Otro factor que afectó el desempeño del proyecto fueron las discusiones en los Gobiernos Regionales, por la selección de los territorios y subterritorios, pues no existía acuerdo entre los actores\. Como ejemplo, en la Región de La Araucanía, el primer PMDT fue contratado en el año 2008\. Con el propósito de subsanar parte de estas deficiencias, se desarrollaron una serie de estudios y consultorías para mejorar la gestión del programa, entre las más destacable de estos estudios o consultorías es la relacionada con la elaboración de la Guía de Formulación y Evaluación de un Plan Marco de Desarrollo Territorial, la que es considerada el gran producto entregado por el PIRDT en estos años de ejecución, ya que esta nueva metodología de inversión permite intervenir zonas rurales de forma integral y participativa en territorios con potencial productivo\. Esta metodología se puede revisar en: http://sni\.ministeriodesarrollosocial\.gob\.cl/documentos/Sectores_2011/Pirdt/guia_pmdt2011\.pdf Cabe destacar que como parte del proceso de optimización de la Guía Metodológica PMDT, ésta fue sometida a una mejora por parte de MIDEPLAN, durante al año 2011, con el propósito de ir subsanando las deficiencias presentes hasta ese momento, una vez finalizado este proceso, MIDEPLAN adoptó esta nueva metodología, permitiendo su aplicación por parte de cualquier Gobierno Regional, además cabe destacar que también se incorporó un cuestionario para definir junto con el desarrollo del PMDT, la captura de una Línea Base estándar del territorio, con esto se espera que la implementación del PMDT sea más eficiente y efectiva\. Provisión de Servicios de Infraestructura Las características de las iniciativas de infraestructura identificadas mediante los PMDT no implican mayores dificultades técnicas en su ejecución, las dificultades se produjeron antes, una vez terminado los Planes Marco de Desarrollo Territorial, tanto en la etapa de pre inversión como de inversión\. Los primeros PMDT generaron gran expectativa en la comunidad, (considerando su enfoque participativo) pues la infraestructura identificada muchas veces corresponde a proyectos que habían y han sido demandados por la comunidad y que su desarrollo ha estado postergado 56 considerando su baja densidad poblacional, por lo que habitualmente al ser presentados al Sistema Nacional de Inversiones (SNI) son y serían calificados de “baja rentabilidadâ€? y no obtendrían RS bajo una metodología tradicional\. Esta expectativa, en las primeras experiencias de los PMDT presentó una dificultad, pues al momento de la participación con los actores locales en el desarrollo de los PMDT, no fueron explicados adecuadamente los ciclos de los proyectos y el tiempo que debe transcurrir entre la identificación de una iniciativa y la posible ejecución de esta, por lo que la comunidad demandaba y esperaba que al momento de terminar el estudio, debían comenzar la ejecución de las obras, pues desconocían la etapa de pre inversión\. Una vez terminado los Planes Marco de Desarrollo Territorial y a fin de desarrollar la etapa de pre inversión de las iniciativas identificadas, se encontró con la dificultad de que los sectores tenían definidas sus carteras de acuerdo al ejercicio presupuestario sectorial (Infraestructura y Fomento)\. Además no tenían el recurso humano necesario para dar cabida a más proyectos, por lo que priorizaban el desarrollo de las iniciativas sectoriales sobre las identificadas en los PMDT, lo que generó un retraso en la ejecución\. Además, el hecho de que el programa presentaba bases y documentos de licitación distintos a los de la normativa nacional, por ende, distintos a los utilizados en forma habitual y visados por el sector y además desconocidos por los profesionales de las instituciones, hacía que éstos fueran renuentes a su utilización, y como el crédito exigía la utilización de éstos, se produce una gran dificultad y como consecuencia retraso en la ejecución de la inversión\. En base a lo anterior se puede señalar que el gran problema en la implementación del Proyecto fue las dificultades para gestionar la cartera de proyectos factibles a ser financiados por el PIRDT\. 3\.2\. Modificaciones al Proyecto Original Como resultado de la evaluación realizada por DIPRES se ajustó la Matriz de Marco Lógico (MML) y la formulación de indicadores y medios de verificación a nivel de propósito de la MML y la componente de fortalecimiento\. Para la propuesta de modificación de la MML, se consideraron las siguientes características como punto de partida: (i) el objetivo del Programa es de desarrollo productivo y no social; (ii) los efectos principales deseados es en las unidades productivas y no en la población en general; (iii) la infraestructura tiene como objetivo principal mejorar el entorno productivo y no dar servicios a la población; (iv) el Programa tiene tres niveles de acción: Nacional, Regional y Local; (v) los efectos o cambios deseados del Programa son principalmente en el nivel local, pero hay acciones y objetivos a lograr en los tres niveles, acorde con los diferentes roles de los agentes ejecutores de los productos del programa en cada uno de estos niveles; (vi) en cada nivel se ejecutan actividades/componentes orientadas a un objetivo que se manifiesta en el nivel siguiente, es decir, las acciones/componentes del nivel nacional (SUBDERE/División de Desarrollo Regional) generan un objetivo (Propósito) que se manifiesta en un cambio en el nivel regional (GORE), cumplido este objetivo el GORE puede desarrollar actividades/componentes que se manifiestan en un cambio en el nivel local (sector productivo local), cumplido este objetivo el nivel local (Unidades Productivas/Núcleo Gestor) puede desarrollar actividades/componentes que generan un cambio en el sector productivo local; (vii) el programa tiene diferentes productos (bienes o servicios) en los tres niveles que tienen procesos de ejecución propios, pero que están estrechamente relacionados; (viii) asociado a la ejecución del Programa se genera un proceso nuevo de gestión territorial que integra la identificación, formulación, evaluación y ejecución de una cartera de inversiones, con foco en el desarrollo de las potencialidades productivas del subterritorio, en el cual participan a diferentes niveles y con responsabilidades distintivas: la comunidad, los productores, el Municipio, Servicios públicos que 57 ofrecen en el subterritorio programas e instrumentos de fomento productivo, Servicios públicos que priorizan y ejecutan infraestructura para prestar servicios públicos en el subterritorio, GORE/CORE, MIDEPLAN/SERPLAC y la SUBDERE/División de Desarrollo Regional\. Adicionalmente, se efectúo una enmienda al Contrato de Préstamo, generada por los atrasos de ejecución y de las altas expectativas que se habrían generado inicialmente\. Como resultado de ello y a fin de acelerar los desembolsos y de dar a la UGD más flexibilidad en financiar proyectos PIRDT con recursos del Banco y de contraparte nacional, se acordó procesar una enmienda al convenio de préstamo que permitiera subir la proporción de gastos a financiar con recursos del préstamo de 50% o 70% hasta 100%, mejorando con ello la ejecución del gasto\. 3\.3\. Temas de Implementación pendientes a resolver Considerando lo expuesto en los puntos anteriores, y el tiempo transcurrido desde la validación de la Metodología PMDT y el comienzo de esta nueva etapa del Programa, se puede mencionar algunos de los nuevos desafíos para la adecuada implementación del Programa: • Avanzar en la consolidación e institucionalización en los distintos servicios y/o actores del Sector Público de la metodología PMDT, con el propósito de generar su participación desde el inicio en conjunto con los Gobiernos Regionales en la utilización del PMDT\. Es especialmente relevante que al momento de efectuar la selección de los territorios donde se aplicará la metodología, participe la sectorialidad pública, para así afianzar su compromiso con la ejecución propia del estudio y de los resultados de éste\. Se adjunta en Anexo el documento “Priorización de Territorios y Selección de Subterritoriosâ€? de la Región del Libertador Bernardo O’Higgins (corresponde a una de las dos regiones no pilotos, ingresadas al programa en el año 2011) que transcribe la experiencia del Equipo UGR y del GORE en el desarrollo de la primera etapa del PMDT\. Esta experiencia corresponde a una iniciativa regional para la coordinación de los sectores de infraestructura y de las instituciones de fomento para la ejecución del programa, pero es necesario avanzar con los actores del Sector Público en los Niveles Centrales\. • Avanzar en la sistematización técnica de la etapa de selección de territorios y subterritorios, pues permitirá aplicar la metodología con mayor asertividad, alejando los factores políticos que podrían surgir en la selección de los subterritorios\. • El Progreso en la sinergia entre los GORE, Gobiernos Locales, Sectores de Infraestructura e Instituciones de Fomento Productivo para la identificación y desarrollo de iniciativas en los territorios bajo una mirada de integración generará gran impacto en la comunidad productiva\. • Los Sectores de Infraestructura, generalmente son servicios planificados y financiados, bajo una toma de decisiones centralizada basada en las asignaciones sectoriales, si bien están avanzando hacia el enfoque territorial, es necesario que el Programa apoye la coordinación a nivel nacional y con los Gobiernos Regionales y actores locales, y así acelerar el ciclo de proyectos para zonas con población dispersa\. • Crear los arreglos institucionales requeridos para la expansión en el uso de la metodología PMDT y su consolidación a nivel nacional, transfiriendo las capacidades técnicas adecuadas para el uso de ésta, hacia los Gobiernos Regionales y locales\. • Avanzar en el diseño y aplicación de los compromisos necesarios que permitan garantizar la adecuada implementación de la metodología y así apoyar la participación de la sectorialidad pública, para facilitar la incorporación del Programa en las regiones faltantes\. 58  • Avanzar en el diseño y aplicación de compromisos sectoriales necesarios que permitan garantizar la sostenibilidad y ejecución de las carteras de proyectos y su respectiva inversión\. • Avanzar en estándares técnicos necesarios para las tipologías de infraestructura en los sectores rurales y de población semi concentrada y/o dispersa, y así llegar con servicios y/o soluciones adecuadas que tengan una mejor relación costo-eficiencia en la inversión y operación\. Un ejemplo es el avance en la elaboración de metodologías de diseño para invertir en sistemas de saneamiento sanitario rural para diferentes realidades rurales, que se desarrolló en el “Manual de Soluciones de Saneamiento Rural, disponible en la página: http://www\.subdere\.cl/documentacion/manual-de-soluciones-de-saneamiento-sanitario- para-zonas-rurales-homsy-0 Sin embargo, existen otras áreas en la que es necesario avanzar\. • Avanzar en incorporación de nuevas tecnologías en las tipologías de infraestructura que apoyen la operación y mantenimiento de las obras\. • Avanzar en el fortalecimiento de los organismos de gestión locales identificados en los PMDT (núcleos gestores, comités de agua potable, asociación de municipios, etc\.), a fin de entregar las capacidades que permitan gestionar la ejecución de las iniciativas identificadas en los PMDT y la sostenibilidad de la infraestructura en su operación\. • Avanzar en modificaciones de la Metodología a fin de que en su momento el PMDT pueda ser actualizado en forma posterior a su ejecución, para validar la pertinencia de intervención de las incitativas identificadas y que aún no se hubiesen realizado\. • Avanzar en modificaciones de la Metodología para otros usos\. IV\.- LOGROS Y APRENDIZAJES Los logros y aprendizajes de mayor relevancia a la fecha, son entre otros: • Desarrollo de una Metodología de planificación y evaluación participativa, con enfoque territorial y productivo, Plan Marco de Desarrollo Territorial (PMDT)\. • Ingreso e innovación en el Sector Público de Chile, con una Metodología que analiza y genera una cartera de proyectos analizados de manera integral y con una visión territorial\. • Desarrollo de carteras de proyectos en sectores rurales, con población semi concentrada y dispersa, donde normalmente los proyectos serían calificados de “baja rentabilidadâ€? y no obtendrían RS en el SNI\. • Ejecución de fase piloto del programa en 6 regiones y en el año 2012 se desarrollará en 11 de las 15 existentes\. • El PMDT forma parte de las metodologías que el Ministerio de Desarrollo Social, pone a disposición para la evaluación de iniciativas de inversión del Sector Público a nivel nacional\. • Progresos en la sinergia entre los GORE, Gobiernos Locales, Sectores de Infraestructura e Instituciones de Fomento Productivo para la identificación y desarrollo de iniciativas en los territorios\. • Diseño de un programa que opera por demanda desde el nivel local\. • Desarrollo de un modelo de gestión que permite coordinar diferentes inversores y acelerar el ciclo de proyectos para zonas con población rural dispersa (identificación, formulación, evaluación)\. • Elaboración de metodologías de diseño para invertir en sistemas de saneamiento sanitario rural para diferentes realidades rurales\. 4\.1\. Planificación Territorial Participativa 59 Esta componente es considerada primordial en el desarrollo del proyecto y a la vez altamente exitosa frente a los objetivos del Programa, pues durante el transcurso del proyecto ha permitido incorporar y/o afianzar el enfoque territorial y apoyar la incorporación en el Sector Público de Chile, de una Metodología que identifica, evalúa y genera una cartera de proyectos analizados de manera integral y con una visión territorial\. 4\.2\. Provisión de Servicios de Infraestructura Finalmente, como se ha mencionado una de las grandes dificultades de la ejecución de las iniciativas es el tiempo que transcurre entre el termino del PMDT y la ejecución de las obras identificadas, para avanzar se propone y se propicia adelantar etapas de pre inversión y en algunos casos inversión de las iniciativas “evidentesâ€? en forma paralela a la ejecución del PMDT\. Adicionalmente, es necesario reforzar el recurso humano de las Unidades Técnicas, contratando asistencias técnicas, para el desarrollo de las iniciativas identificadas en los PMDT\. 4\.3\. Fomento Productivo Con respecto a las iniciativas de Fomento Productivo se avanzó en incorporar a los beneficiarios PIR en los programas de cada institución, o bien capacitarlos y fortalecerlos para que tuvieran cabida en las postulaciones de la institución respectiva\. Una dificultad expresada por los GORE es que el programa sólo apoyó la pre inversión en esta tipología y es de su interés la posibilidad de incorporar la compra de activos\. 4\.4\. Cartera PMDT La tipología de infraestructura que presenta mayor avance es la tipología de conectividad caminera (Anexo 8), pues gran cantidad de los proyectos identificados en esta tipología, no presenta mayores dificultades técnicas y la solución de avanzar con asistencias técnicas ha sido exitosa, pues se considera en el contrato del profesional, todos los equipos, herramientas y requerimientos que le permita desarrollar el proyecto para su ejecución\. Además las etapas de un proyecto de conectividad caminera y los tiempos de éstas, son menores al de las otras tipologías apoyadas por el programa, pudiendo ser desarrollada habitualmente en menos de un año\. En la tipología de infraestructura de agua potable y alcantarillado sanitario se ha avanzado en los proyectos de ampliación, reposición y en las etapas de factibilidad y pre factibilidad, como estudios hidrogeológicos, sondajes, pozos, etc\. Es decir, se ha avanzado de acuerdo a los requerimientos propios de los proyectos de esta tipología\. Las políticas y enfoques sectoriales a la infraestructura rural, afectó mayormente en el área de telecomunicaciones (Subsecretaría de Telecomunicaciones - SUBTEL) y las economías de escala en el área de la electrificación\. Durante los últimos años, la coordinación con SUBTEL ha cambiado y se puede mencionar como un logro y una experiencia exitosa\. Por otro lado, parece importante mencionar, que el año 2009 y por petición de los Gobiernos Regionales se incorporó a través de una Enmienda al Contrato de Préstamo (Anexo 3), la tipología de conectividad en obras portuarias\. 4\.5\. Fortalecimiento institucional Se requiere avanzar en el diseño y aplicación de los compromisos sectoriales necesarios que permitan garantizar la sostenibilidad y ejecución de las carteras de proyectos y su respectiva inversión\. Otra propuesta también considerada en la próxima componente es modificar la metodología PMDT a fin de que considere entre sus productos no sólo el perfil en los proyectos más relevante de infraestructura, si no su diseño\. V\.- BANCO MUNDIAL Y EQUIPO DE SUPERVISIÓN 5\.1\. Equipos de Supervisión 60 Durante el primer año de ejecución del Proyecto, en Octubre de 2005, se efectuó una Misión de Supervisión, momento en que se produce el reemplazo del primer Gerente del Proyecto\. Durante el año 2006, se realizaron dos Misiones de Supervisión, en Junio y Diciembre, fecha esta última en que el Coordinador del Proyecto por parte de SUBDERE, había sido reemplazado, a partir de Noviembre de 2006\. Por último, en al final del período de ejecución del Proyecto, en la Misión de Supervisión de Diciembre de 2010, ingresa el último Gerente de Proyecto, que acompaña el Proyecto hasta la fecha\. En las Misiones de Supervisión, los Gerentes del Proyecto, por parte del Banco Mundial, asistían con un equipo de especialistas en las áreas en que el Proyecto interviene\. 5\.2\. Grado de compenetración del Proyecto Los tres Gerentes del Proyecto, por parte del Banco Mundial demostraron desde el momento en que asumieron sus cargos un gran conocimiento de los detalles que involucra el Proyecto, así como de la institucionalidad de SUBDERE y la sectorialidad pública\. Aunque, por razones obvias, en los momentos en que se producían cambios políticos o de autoridades en el país, debían adquirir la sensibilidad necesaria, para abordar a las nuevas autoridades o visiones de las nuevas autoridades, cuestión en que demostraron gran experiencia y versatilidad para afrontar las situaciones nuevas\. En este sentido, aunque se comprende que la dinámica del Banco genere que los equipos de supervisión del Banco se modifiquen en el transcurso del desarrollo del mismo, pareciera deseable que algunos profesionales permanezcan en el tiempo, pues mantienen la historia del mismo, pues no basta la lectura de las Ayudas Memoria para rescatar la historia del proyecto\. En lo que se refiere, a los especialistas del Banco que acompañaron a las Misiones, su compenetración con el Proyecto se puede calificar de buena, aunque en varias oportunidades se debió explicar el proyecto a especialistas que comenzaban en el Proyecto, destacando que luego de ello todos demostraron un conocimiento acabado del mismo\. También en el caso de los especialistas, en general al inicio de sus labores, algunos demostraron desconocimiento respecto de la sectorialidad pública, cuestión que se repetía en sus áreas específicas, lo que muestra falta de preparación de los mismos, con anterioridad a las Misiones\. 5\.3\. Desempeño En primer término, se puede mencionar que las Misiones de Supervisión en general se realizaban dos veces al año, incluyendo visitas de campo y reuniones con la sectorialidad pública relacionada con el Proyecto\. La frecuencia de las Misiones de Supervisión es calificada como adecuada y la calidad y aporte de las mismas se evalúa como de buen nivel y necesario para el desarrollo y éxito del Proyecto\. El desempeño de los Gerentes del Proyecto, se puede evaluar como de alto nivel, por cuanto la profundidad del seguimiento que efectuaron ayudó al desarrollo del proyecto, mostrando continuamente disponibilidad de apoyo a la UGD y a los equipos regionales, así como proactividad para abordar las dificultades que se presentaron\. Una especial mención, se debe realizar respecto de las normativas que el Banco Mundial impone a los Convenios de Préstamo, en lo que respecta a las reglamentaciones, exigencias o salvaguardas propias del Banco, por cuanto el cumplimiento de dichas restricciones, en la 61 mayoría de los casos estaba sobre el desempeño del Proyecto, pese a que en algunas ocasiones la continuidad del Proyecto estuvo en riesgo\. Aunque es posible modificar el Contrato de Préstamo, ello requiere de un período importante de tiempo y una importante carga administrativa\. En tal sentido, falta entregar alguna prerrogativa que les permita a los Gerentes de Proyecto, abordar con mayor facilidad algunos problemas que se presenten, no contemplados originalmente en el Contrato de Préstamo, que no involucre los costos mencionados\. VI\.- CONCLUSIONES 6\.1\. Introducción Se ha mostrado que pese a los logros obtenidos, el Proyecto se encuentra en una etapa de expansión y consolidación, que requiere una serie de acciones adicionales para estar consolidado\. 6\.2\. Avances del Proyecto • Ejecución del Programa, como piloto, en seis regiones del País en las que se aplicó la metodología PMDT\. En el año 2012 se ha programado que sea implementado en 11 regiones y se proyecta que en el 2014 se desarrolle en todas las regiones del país\. • Desarrollo de una Metodología de planificación y evaluación participativa, con enfoque territorial y productivo, denominada Plan Marco de Desarrollo Territorial (PMDT), cuyo resultado es una cartera de proyectos analizados de manera integral\. • La metodología PMDT, forma parte de las metodologías que MIDEPLAN pone a disposición del Sector Público, para la evaluación de iniciativas de inversión\. • Desarrollo de una cartera viabilizada de proyectos en sectores rurales, con población semi concentrada y dispersa, donde normalmente los proyectos serían calificados de “baja rentabilidadâ€? y no obtendrían RS en el SNI\. • Existen varios casos exitosos de intervención en territorios, algunos de ellos se describen en el Anexo 9\. 6\.3\. Ventajas de intensificar la aplicación de la Metodología PMDT Se puede afirmar, que existe una serie ventajas al aplicar la metodología PMDT, que hacen deseable intensificar su uso, estas ventajas se describen a continuación: • Contribuye al proceso de descentralización iniciado en el país\. Desde su origen, los territorios identificados para desarrollar los PMDTs se determinan, seleccionan y se implementan desde las regiones\. Proceso, en el cual, los Gobiernos Regionales se involucran e interactúan con los agentes locales de la región, como municipios y comunidades rurales potenciales para participar en el programa\. • Optimiza la intervención pública en territorios al aplicar una visión territorial y no sectorial\. Evita que se dupliquen esfuerzos públicos\. • Reorienta como instrumento, a otros sectores o servicios a nuevos usuarios potenciales\. El programa representa un buen instrumento de intervención en comunidades rurales, en dónde otros servicios u organismos no llegan o no abordan la problemática existente\. Por tal razón, abre una nueva cartera de usuarios potenciales para ser considerados dentro de los lineamientos de cada entidad, en el corto o mediano plazo (MOP, Fosis, Sercotec, ONG, etc\.)\. • Contribuye al arraigo o sentido de pertenencia de las comunidades rurales intervenidas, particularmente por la forma de intervención del programa en dichos territorios seleccionados, incidiendo en una mejoría de la calidad de vida de la población beneficiaria, fundamentado por un desarrollo de su entorno local\. 62  • Contribuye a disminuir la migración de la población rural a centros urbanos\. Lo anterior, producto del mejoramiento del entorno y el desarrollo de nuevas oportunidades de capacitación y laboral\. • Contribuye como elemento de cohesión en las comunidades rurales intervenidas\. El programa desde su génesis involucra a la población para su organización, fomentando lazos sociales orientados a un emprendimiento y desarrollo comunitario\. • Contribuye como elemento de formación y orientador a nuevas tecnologías\. Para la implementación del programa existe la necesidad de coordinarse con otras entidades para capacitar e instruir a la población en el conocimiento y uso de nuevas tecnologías, mercados, líneas de administración, etc\. • Contribuye como instrumento de difusión y comunicación de las localidades intervenidas en zonas extremas\. Por las características de intervención del programa, permite mejorar la comunicación a la comunidad en zonas extremas\. 6\.4\. Visión de futuro del uso de la Metodología PMDT En función de los avances conseguidos y las ventajas que se detectan de la aplicación de la Metodología PMDT, es posible establecer una Visión de Futuro del proyecto, que permite definir el rumbo futuro de las acciones del Proyecto\. Como se ha expresado, más allá del Programa de Infraestructura Rural para el Desarrollo Territorial - PIR, lo relevante es la aplicación de la Metodología de Plan Marco de Desarrollo Territorial – PMDT, que permite efectuar la planificación de un territorio y evaluar un conjunto de iniciativas de infraestructura y acciones de fomento productivo, que eliminarán las brechas que evitan que las actividades económicas presentes en el territorio se desarrollen\. Desde el punto de vista de la Planificación, el PMDT permite coordinar todos los instrumentos de planificación de un territorio, lo que optimiza la coordinación de la inversión pública\. En consideración a los avances del Proyecto y a las ventajas que se han detectado de la aplicación de un PMDT, es posible definir una acción deseable futura, que se enumera a continuación: • Ejecutar las acciones para que en el mediano/largo plazo, tanto la inversión sectorial como del FNDR, que surja de un PMDT aumente crecientemente\. • Ejecutar las acciones para que en el mediano/largo plazo, toda la inversión pública en el sector rural surja de la aplicación de un PMDT\. • Ejecutar las acciones para que en el mediano/largo plazo, se pueda extender la aplicación de la metodología PMDT, a otros instrumentos del FNDR, Municipios y Sectores\. • Ejecutar las acciones para que en el mediano/largo plazo, se pueda modificar la metodología PMDT, para que sea aplicable en otros ámbitos, tales como educación, salud, temas sociales o tan específicos como territorios indígenas o localidad aisladas\. • Ejecutar las acciones para que en el mediano/largo plazo, la aplicación de Metodología más que una Provisión, sea una Política Pública\. 6\.5\. Desafíos Programa de Infraestructura Rural para el Desarrollo Territorial Para comprender la distancia entre la situación actual y la situación deseada, es necesario recordar que el Sector Público en Chile, históricamente ha desarrollado proyectos individuales que no se analizan en relación a otras iniciativas, ni a la intervención de otros sectores, adicionalmente no consideran una visión territorial ni participativa\. Esta forma de intervención está arraigada en el formulador, en toda la sectorialidad, en el evaluador MIDEPLAN y en la autoridad\. Para 63 modificar esto, no basta que el Programa haya ejecutado con arreglo a la Metodología un 2,5% del presupuesto del FNDR, luego de seis años de operación\. Por otro lado, se debe reconocer que se ha invertido mucho tiempo en desarrollar una metodología, que si bien está disponible para todo el país, sólo se aplica en los Gobiernos Regionales en que el Proyecto se ha instalado y con equipos humanos destinados a ello\. Para avanzar en la Visión, es necesario efectuar un conjunto de tareas y acciones que se resumen a continuación\. • La metodología se encuentra en etapa de expansión, dado que MIDEPLAN ha efectuado capacitaciones vía video-conferencias y presenciales en las regiones en las que el Proyecto opera\. Sin embargo, aun las Unidades Técnicas posen poco conocimiento sobre su lógica y/o aplicación por lo que la coordinación que se produce para la ejecución final de las obras es lenta, por tanto se debe intensificar la capacitación\. • La Metodología, debe mostrar su fortaleza y se debe ir ajustando y/o mejorando en la medida de las necesidades regionales, de manera de consolidarla a nivel nacional\. La fortaleza de la misma sólo se podrá verificar en la medida del uso extensivo de ella\. • Para la expansión y/o consolidación de la metodología, se deberán transferir capacidades técnicas adecuadas para su correcta aplicación a los gobiernos regionales y a la sectorialidad pública regional y nacional\. • Se debe institucionalizar la metodología en el sector público, para facilitar la intervención en sectores rurales con población semi concentrada y dispersa, de este modo se podrían generar políticas de intervención en zonas rurales con mayor eficacia y de mejor calidad\. Localidades aisladas y territorios indígenas\. • Está pendiente la vinculación presupuestaria, de los pactos territoriales que se obtienen de la aplicación de la Metodología, con la sectorialidad de infraestructura y de fomento productivo que deben intervenir\. • Se debe institucionalizar la sinergia entre los Gobiernos Regionales, Gobiernos Locales, Sectores de Infraestructura e Instituciones de Fomento Productivo en los territorios, para la identificación, el desarrollo y ejecución de las iniciativas identificadas\. • Se debe, en el corto/mediano plazo modificar la metodología de manera que se pueda aplicar a localidades aisladas y a territorios indígenas\. • Se debe, en el mediano plazo generar condiciones para que las municipalidades puedan aplicar la metodología\. Para que ello sea posible, se debe procurar que estas instituciones tengan las suficientes capacidades tanto técnicas como financieras para lograr una correcta aplicación de esta metodología\. • Si bien el proyecto ha sido exitoso, se está en una fase frágil en la cual se requiere de apoyo para: (i) consolidación; (ii) expansión e (iii) institucionalización\. 64  Annex 8 Comments of Cofinanciers and Other Partners/Stakeholders 65  Annex 9 List of Supporting Documents The World Bank, Project Appraisal Document on a proposed Loan in the amount of US$50\.26 million to the Republic of Chile for an Infrastructure for Territorial Development Project, November 19, 2004\. Report No 30463 The World Bank\. Loan Agreement (Infrastructure for Territorial Development Project) between the Republic of Chile and International Development Association, November 19, 2004\. Loan Number 7269-CL SUBDERE\. Informe de Cierre del PIR\. Informe País\. Abril 2012 (Final Version) “Evaluacion Social y Ambiental Independiente del Programa de Infraestructura rural para el Desarrollo Territorial, PIRDT – Informe Finalâ€?\. KRISOL y CAPABLANCA Ltds, Febrero 2012 “Informe de Cierre PMDT-1 Territorio Borde Costero Norte – Region de Coquimboâ€?\. Diciembre 2011 “Informe de Cierre PMDT-1 Territorio Corredor del Limarí – Region de Coquimboâ€?\. Diciembre 2011 “Informe de Cierre PMDT-1 Territorio Cuenca del Choapa – Region de Coquimboâ€?\. Diciembre 2011 “Informe de Cierre PMDT-1 Territorio Valle Interior – Region de Coquimboâ€?\. Diciembre 2011 “Informe Experiencias Exitosas Borde Costero Nrte – Region de Coquimboâ€?\. Febrero 2011 “Informe de Cierre – Territorio Cuenca del Mataquito – Plan Marco de Desarrollo Territorial PMDT 1 Generaciónâ€?\. UGR de Maule, Enero 2012 “Informe de Cierre – Territorio Talca Poniente – Plan Marco de Desarrollo Territorial PMDT 1 Generaciónâ€?\. UGR de Maule, Enero 2012 “Informe de Cierre – Territorio Embalse Ancoa – Plan Marco de Desarrollo Territorial PMDT 1 Generaciónâ€?\. UGR de Maule, Enero 2012 “Informe de Cierre – PMDT CONAF – Plan Marco de Desarrollo Territorial PMDT 1 Generaciónâ€?\. UGR de Maule, Enero 2012 “Informe de Cierre – Plan Marco de Desarrollo Territorial Borde Costero Sur Pacífico Surâ€?\. Región de Los Lagos, Enero 2012 “Informe de Cierre – Plan Marco de Desarrollo Territorial Palena 2â€?\. Región de Los Lagos, Enero 2012 “Informe de Cierre – Plan Marco de Desarrollo Territorial Chiloéâ€?\. Región de Los Lagos, Enero 2012 66 “Plan Marco de Desarrollo Territorial PMDT – Territorio Pencopolitano – Subterritorio los Cerezosâ€?\. Region Bio Bio, Marzo 2012 “Plan Marco de Desarrollo Territorial PMDT – Subterritorio Quiebrafrenosâ€?\. Region Bio Bio, Marzo 2012 “Plan Marco de Desarrollo Territorial PMDT – Subterritorio Santa Rosaâ€?\. Region Bio Bio, Marzo 2012 “Plan Marco de Desarrollo Territorial PMDT – Subterritorio Secano Transicionâ€?\. Region Bio Bio, Marzo 2012 “Plan Marco de Desarrollo Territorial PMDT – Subterritorio Tanilvoroâ€?\. Region Bio Bio, Marzo 2012 “Plan Marco de Desarrollo Territorial PMDT – Subterritorio Guanilihue Batucoâ€?\. Region Bio Bio, Marzo 2012 “Plan Marco de Desarrollo Territorial PMDT – Subterritorio Las Canoasâ€?\. Region Bio Bio, Marzo 2012 “Plan Marco de Desarrollo Territorial PMDT – Subterritorio Peralillo Tinajónâ€?\. Region Bio Bio, Marzo 2012 “Plan Marco de Desarrollo Territorial PMDT – Subterritorio Rinconadaâ€?\. Region Bio Bio, Marzo 2012 “Plan Marco de Desarrollo Territorial PMDT – Subterritorio Trancoyan Minas de Leuqueâ€?\. Region Bio Bio, Marzo 2012 67

REVIEW

P005521

Document of The World Bank FOR OFFICIAL USE ONLY Report No: 31531 IMPLEMENTATION COMPLETION REPORT (SCL-42890 SCL-42891) ON A LOAN IN THE AMOUNT OF US$ 10\.00 MILLION AND FF 59\.00 MILLION TO THE MOROCCO FOR A WATER RESOURCES MANAGEMENT PROJECT MAY 11, 2005 Water, Environment, Social and Rural Development Department Middle East and North Africa Region This document has a restricted distribution and may be used by recipients only in the performance of their official duties\. Its contents may not otherwise be disclosed without World Bank authorization\.  CURRENCY EQUIVALENTS (Exchange Rate Effective January 4, 2005) Currency Unit = Moroccan Dirham (DH) DH 1\.00 = US$ 0\.12 US$ 1\.00 = DH 8\.4 FISCAL YEAR January 1 December 31 ABBREVIATIONS AND ACRONYMS AGR Administration du Génie Rural / Department of Rural Works CCT Comité de Coordination Technique / Technical Coordination Com DELM Direction de l'épidémiologie et de lutte contre les maladies Department of Epidemiology and Diseases Control DGH Direction Générale de l'Hydraulique / Directorate General of Hydraulics DMN Direction de la Météorologie Nationale / Department of National Meteorology ERR Economic Rate of Return FAO Food and Agriculture Organization of the United Nations GOM Government of Morocco MATEE Ministère de l'Aménagement du Territoire, de l'Eau et de l'Environnement Ministry of Territorial Activities, Water and Environment M&E Monitoring and Evaluation MoA Ministry of Agriculture MoF Ministry of Finance and Privatization MoI Ministry of Interior MoIC Ministry of Industry and Commerce MoPHMinistry of Public Health MoPW Ministry of Public Works MTR Mid-Term Review ONE Office National de l'Electricité / National Electricity Office ONEP Office National de l'Eau Potable / National Potable Water Office ORMVA Office Régional de Mise en Valeur Agricole Regional Agricultural Development Authority RBA River Basin Agency SAR Staff Appraisal Report SEEau Secrétariat d'État pour l'Eau / State Secretariat for Water SEEN Services des Expérimentations, Essaies et de la Normalisation / Experimentation, Trials and Standards Unit UCP Unité de Coordination du Projet / Project Coordination Unit WRMP Water Resources Management Project Vice President: Christiaan J\. Poortman Country Director: Theodore O\. Ahlers Sector Manager: Vijay Jagannathan Task Team Leader/Task Manager: Adel Bichara  MOROCCO WATER RESOURCES MANAGEMENT PROJECT CONTENTS Page No\. 1\. Project Data 1 2\. Principal Performance Ratings 1 3\. Assessment of Development Objective and Design, and of Quality at Entry 2 4\. Achievement of Objective and Outputs 4 5\. Major Factors Affecting Implementation and Outcome 11 6\. Sustainability 12 7\. Bank and Borrower Performance 13 8\. Lessons Learned 14 9\. Partner Comments 15 10\. Additional Information 15 Annex 1\. Key Performance Indicators/Log Frame Matrix 16 Annex 2\. Project Costs and Financing 17 Annex 3\. Economic Costs and Benefits 19 Annex 4\. Bank Inputs 23 Annex 5\. Ratings for Achievement of Objectives/Outputs of Components 26 Annex 6\. Ratings of Bank and Borrower Performance 27 Annex 7\. List of Supporting Documents 28 Annex 8\. Borrower's Evaluation Report 31  Project ID: P005521 Project Name: MA-WATER RESOURCES MGMT\. Team Leader: Adel F\. Bichara TL Unit: MNSRE ICR Type: Core ICR Report Date: May 11, 2005 1\. Project Data Name: MA-WATER RESOURCES MGMT\. L/C/TF Number: SCL-42890; SCL-42891 Country/Department: MOROCCO Region: Middle East and North Africa Region Sector/subsector: Water supply (64%); Central government administration (16%); Agricultural extension and research (12%); Sub-national government administration (4%); Flood protection (4%) Theme: Rural services and infrastructure (P); Environmental policies and institutions (P); Pollution management and environmental health (P); Water resource management (P); Other human development (S) KEY DATES Original Revised/Actual PCD: 09/14/1994 Effective: 01/05/1999 Appraisal: 04/04/1996 MTR: 01/31/2001 05/04/2001 Approval: 02/26/1998 Closing: 06/30/2002 12/31/2004 Borrower/Implementing Agency: GOVT OF MOROCCO/MINISTRIES OF PUBLIC WORKS & AGRICULTURE Other Partners: STAFF Current At Appraisal Vice President: Christiaan J\. Poortman Kemal Dervis Country Director: Theodore O\. Ahlers Christian Delvoie Sector Manager: Vijay Jagannathan Mark D\. Wilson Team Leader at ICR: Adel F\. Bichara Adel F\. Bichara ICR Primary Author: Adel F\. Bichara; J-M\. Bisson (FAO/CP) 2\. Principal Performance Ratings (HS=Highly Satisfactory, S=Satisfactory, U=Unsatisfactory, HL=Highly Likely, L=Likely, UN=Unlikely, HUN=Highly Unlikely, HU=Highly Unsatisfactory, H=High, SU=Substantial, M=Modest, N=Negligible) Outcome: S Sustainability: L Institutional Development Impact: M Bank Performance: S Borrower Performance: S QAG (if available) ICR Quality at Entry: S Project at Risk at Any Time:  3\. Assessment of Development Objective and Design, and of Quality at Entry 3\.1 Original Objective: The main objective of the Water Resources Management Project (WRMP) was "to assist the Government in promoting a comprehensive water management system which is economically efficient, equitable and environmentally sustainable"\. Specifically, the project aimed at: (a) supporting the establishment of an institutional framework for integrated water resources management and the creation of a River Basin Agency in the Oum-er-R'bia basin; (b) improving the Government's capacity for water resources planning and management; (c) improving water use efficiency; (d) increasing the effectiveness of existing hydraulic infrastructure; and (e) introducing water pollution control measures\. Despite noticeable achievements in the water sector, at the beginning of the 1990's Morocco was facing some serious challenges, mainly: (a) decline in the available water resources and the degradation of water quality; (b) low levels of potable water provision for rural populations; (c) low irrigation efficiency; (d) inadequate maintenance of existing infrastructure; and (e) weak institutional capacity\. During the 90's extensive technical and analytical work was carried out by the Government of Morocco (GOM) and the Bank\. The most important outputs produced have been the Water Sector Review (1995) and the Water Law (1995)\. The Government subsequently asked the Bank to assist in implementing the recommendations of the above work and as a result, the WRMP was formulated as the first project aimed at providing a model for demonstrating the beneficial effects of integrated water resources management in river basins\. The project's objectives were clear and focused on priorities for improving water resources management in Morocco's Oum-er-R'bia basin\. These objectives were consistent with the Bank's Country Assistance Strategy (CAS) at the time and MENA's Water Strategy, as well as with the recommendations of the Water Sector Review\. However, in retrospect, the main objective appears now to be somewhat overly ambitious given the final limited scale of the project's components and costs (US$25\.6 million over four years)\. This is mainly due to the fact that at preparation the project's total costs were very much higher and were later reduced (several components were dropped) to the present appraisal estimate of US$25 million (see Section 3\.5) without scaling down the initial ambitious objective\. Despite that, all the project's physical components were straightforward and within the technical and administrative capability of the all the implementing agencies involved\. 3\.2 Revised Objective: The original project objectives were maintained throughout the life of the project\. 3\.3 Original Components: The project, as designed in the SAR, was composed of the following three main components: A\. Policy Reforms and Institutional Development (US$3\.3 million)\. This component includes: (a) Development of a National Water Master Plan defining the short, medium and long-term investments at the national and river basin level over the period 2000-2020\. (b) Development of a water pricing study for bulk water, including the impact of various scenarios on water use efficiency and the financial viability of water users such as the National Potable Water Office ( ONEP) and the National Electricity Office (ONE)\. - 2 -  (c) Establishment of the Oum-er-R'bia River Basin Agency (RBA) mainly through the provision of legal and technical assistance as well as the procurement of equipment\. B\. Capacity-Building (US$16\.1 million)\. This component is aimed at strengthening the Government's capabilities in four critical areas: (b) Water resources planning by strengthening the ex-Directorate General of Hydraulics (DGH) of the ex-Ministry of Public Works (MoPW) for planning as well as for the Monitoring and Evaluation (M&E) of water resources development, allocation and quality control by the provision of technical assistance and training, the preparation of a national plan for flood control, and the preparation of a national plan to control water pollution\. (b) Water resources allocation through the installation of a comprehensive real time water management system in the Oum-er-R'bia basin, including automatic flow metering and computerized decision support systems, and the installation of some 12 new meteorological stations\. (c) Water conservation in irrigation by carrying out a priority program of applied research for water conservation in irrigation in the three ORMVAs (Office Régional de Mise en Valeur Agricole) of Doukkala, Tadla and Souss Massa and the SEEN (Experimentation, Trials and Standards Unit) of the Ministry of Agriculture (MoA) , focused on improved irrigation techniques and salinity/nitrates control measures\. (d) Control of waterborne diseases through support of the Ministry of Public Health (MoPH) program for controlling waterborne diseases in the Oum-er-Rbia basin\. C\. Investments in Water Mobilization (US$6\.2 million)\. This component includes investments selected on the basis of their contribution to enhancing water resources management: (a) Rehabilitation of the upstream face of the Nakhla dam to stop the leakages and corresponding water losses\. (b) Artificial recharge of the Souss aquifer and study of the Triffa Plain aquifer to mobilize additional groundwater, mainly for irrigation\. (c) Preparation of a national water quality improvement plan to improve water quality in the Oum-er-R'bia river\. These components were directly relevant to the project's objectives and the civil works to be carried out ((a) and (b) of C) were indeed appropriate priorities for improving water resources mobilization in the Oum-er-R'bia basin\. 3\.4 Revised Components: To better follow up on the various project components/sub-components and to better distinguish between the respective implementing agencies tasks (MoPW - including the DMN, MoA, and MoPH), the implementing agencies and the Bank informally reorganized the project's main components (from three at appraisal, they were increased to five during the supervision mission of April 2000 all that without dropping any project's sub-component) as follows: (a) water resources planning; (b) establishment of an RBA; (c) optimization of irrigation efficiency; (d) control of waterborne diseases; and (e) investments in water mobilization\. Furthermore, a number of changes were undertaken or suggested during the mid-term review mission of May 2001: (a) project implementation would be extended to six years; (b) additions were made to some project components: technical assistance, training and equipment to the RBA; strengthening of the - 3 -  DGH and more equipment and materiels for the AGR/SEEN for carrying out applied research and demonstrations with the three ORMVA; and (c) unit costs as well as physical and price contingencies were adjusted\. Even with these additions, which in no way changed the overall project's objectives, the project's total cost was reduced from US$25\.6 million to US$21\.0 million, mainly because of savings primarily in terms of consultancy services and because of the favorable currency fluctuations between the DH, the US$ and the French Franc (the IBRD loan was initially composed of US$10 million and FF 59 million)\. Further reduction in project's costs and cancellation of Loan proceeds were made for the same reasons\. 3\.5 Quality at Entry: As already indicated, the project addressed the right priorities and its specific objectives were clear although the main objective was overly ambitious especially after the reduction in project size\. The appraisal team correctly identified the initial difficulties associated with carrying out the institutional reforms envisaged under the project\. The project was prepared by the FAO/CP in 1994 on the basis of the ongoing Water Sector Review undertaken by the Bank\. A Bank pre-appraisal mission took place in 1995 and, at the request of GOM, reduced the project size from about US$200 million suggested during the preparation phase to about US$90 million (for example: the Dachr El Oued Dam component was removed; later this dam was constructed based on the studies financed by the Bank through a Japanese PHRD Grant and with the help of Arab financial institutions)\. Once more, at GOM request, the project size was reduced to US$ 25\.6 million at appraisal (the effluent treatment plant component was cancelled as GOM preferred obtaining grants rather than loans for this type of operation)\. The Bank using its own preparation budget as well as the PHRD Grant, was able to undertake a large number of useful studies related to water resources management which very much helped in shaping the Government and the Bank strategic orientations for the water sector, finding different sources for financing some of the original components which were later cancelled and defining the various project's components and ensuring that they were ready for implementation\. Despite the fact that the GOM was totally and strongly committed to the project's objectives especially during project's preparation and during the first years of project's implementation, the Bank underestimated the procedural complexities associated with the establishment of an RBA (large numbers of decrees and arrêtés - public orders- to process through the national administrative, political and legislative systems)\. Also, the two key ministries (the Ministry of Interior (MoI) and the Ministry of Industry and Commerce (MoIC)), their approval being essential to the enactment of some of the necessary decrees and arrêtés, were not sufficiently involved during project formulation\. Concerning the overall implementation capacity of the Borrower, the Staff Appraisal Report (SAR) had recognized that the depth of the policy and institutional reforms envisaged under the project represented a substantial challenge for the Government\. For all the preceding reasons, project quality at entry is only deemed as "satisfactory"\. 4\. Achievement of Objective and Outputs 4\.1 Outcome/achievement of objective: On the whole, the achievement of the project's specific objectives (establishing an institutional framework for integrated water resources management and the creation of a River Basin Agency in the Oum-er-R'bia basin; improving Government's capacity for water resources planning; improving water use - 4 -  efficiency; increasing effectiveness of existing hydraulic infrastructure; introducing water pollution control measures) is considered satisfactory\. The key elements of an institutional framework for integrated water resources management are in place, namely: a national water master plan, a national water quality protection plan, a national flood protection plan and the recommendations of a study for water pricing (Section 4\.2)\. Moreover, the technical assistance, training, equipment and materials provided to the ex- DGH (now SEEau) have clearly improved the Directorate's capacity to plan and to manage the use of water resources, as well as to start implementing the water pollution control measures identified in the national water quality protection plan\. Furthermore, a RBA has been set up in the Oum-er-Rbia although the legal status of its staff is still not yet finalized and it does not yet have all the necessary legal and financial tools to fulfill its obligations mandated by the 1995 Water Law\. Nevertheless, most of the procedural work for removing these shortcomings is now complete and the RBA should be fully operational in 2005\. Concerning the irrigation efficiency, trials and demonstrations carried out under the project, mainly in surface, sprinkling and trickle irrigation techniques, have resulted in improved technical packages\. These packages have already resulted in a substantial number of farmers (over 4,500 ha in the three ORMVAs of Doukkala, Tadla and Souss-Massa) increasing their yields and reducing their production costs\. In addition, the effectiveness of existing hydraulic infrastructure was increased through the partial rehabilitation of the Nakhla dam (resulting in pumping cost savings estimated at around DH 700,000 per year) and the recharge of the Souss aquifer (which will result in additional five million m³ of water available for irrigation ­ section 4\.3)\. Furthermore, project support to the control of waterborne diseases in the Oum-er-Rbia basin has strengthened the structures of the DELM in six provinces covering the basin\. Since the MoPH did not request a specific budget for the project in the first years of implementation from the Ministry of Finance and Privatization (MoF), the corresponding activities started only in 2001 and it is therefore too early to see concrete evidence of reduction in the incidence of waterborne diseases\. Nevertheless, the surveillance coverage of control stations and problematic sites in the Oum-er-R'bia has substantially increased, as well as the percentage of sites covered through biological control (Annex 1)\. 4\.2 Outputs by components: Water resources planning (After the re-organization of components and the Mid-Term Review US$11\.57 million or 57 % of project costs; at closing US$ 6\.78 or 37% of the final costs)\. ICR Rating: Satisfactory\. This component, implemented by the ex-DGH (currently SEEau) consisted of : (a) development of a national water master plan, a national water quality protection plan, a national flood protection plan and a pricing study for bulk water; and (b) provision of technical assistance, training, equipment and materials to the DGH\. The preparation of the national water master plan included: (a) preparation of a detailed inventory of the information available on water resources; (b) setting up a database; (c) carrying out detailed studies related to water resources planning; (d) making recommendations for improving the institutional context; and (e) presenting a national master plan\. The consensus is that the recent prioritization of public investments over the long term, resulting already from the analytical work carried out, has allowed GOM to make substantial savings in terms of public finance by postponing to a later date (or possibly canceling) the construction of costly infrastructure deemed uneconomical at present (i\.e, Doukkala Irrigation Phase II)\. Moreover, all this analytical work led to the updating and strengthening of the information and database on water resources\. The preparation of the national water quality protection plan included a diagnosis of the quality of - 5 -  water resources, an analysis of sources of pollution and their impact on water quality, and the preparation of a water quality protection plan for the Oum-er-Rbia basin, as well as for the country in general\. All those steps have been completed and the computer model developed for the Oum-er-Rbia in the context of this exercise has been extremely useful for formulating remedial measures against pollution\. This computer model is now being replicated for two other basins: Loukkos and Moulouya\. Also, as a result of the project, a new budget line of DH 60 million per year has been included in the 2005 budget (which may double in 2006) for flood control and effluent treatment in the various river basins of Morocco\. Similar to the national water plan, the analytical work in this case has also led to the updating and enrichment of the information and data available\. The preparation of the national flood protection plan included the formulation of a typology of floods, a study of the vulnerable sites as well as prevention measures to be adopted for each site, and a study on the institutional context and the preparation of a detailed action plan\. All those steps have been completed and the resulting action plan combines physical realization with institutional measures such as the formulation of a number of decrees dealing with the organizational and legal aspects of flood protection\. The Government has already started implementing parts of the action plan which should result in a more rational and cost effective-use of public money\. The completed study on bulk water pricing included an analysis of the tariff system, an evaluation of the fees paid for bulk water and the formulation of a methodology for assessing the cost of bulk water\. This study clearly demonstrates that the potential revenues in terms of fees to be collected by the river basin agencies for water extraction by users cannot compensate for expenses related to the numerous responsibilities entrusted to them by the Water Law\. This result confirms the necessity for Government to finance some of the responsibilities entrusted to the agency (i\.e\. O&M of dams and main canals, domestic waste treatment, etc\.)\. In 1999, the provision of technical assistance and training, as well as equipment and materials to the DGH, has been contracted to the FAO\. All of the technical assistance (more than 30 operations) and training (more than 10 programs, mainly in water resources planning and management) have been completed\. Moreover a large number of computer and field equipment, as well as 29 vehicles, have been delivered to the DGH and the six other newly established river basin agencies using the proceeds of the Loan\. In total, 21 studies have been completed and one (modeling of the Triffa aquifer) is to be completed in 2005\. Most of these studies included several phases, with a number of reports due at the end of each phase (draft, intermediate and final)\. Given the wide scope of several studies, a number of ministries and organizations were involved\. Establishment of an RBA (After the re-organization of components and the Mid-Term Review US$1\.14 million or 7 % of project costs; at closing US$ 4\.25 or 24% of the final costs)\. ICR Rating: Satisfactory\. This component provided technical assistance and equipment to the agency for: (a) setting up its management and information system - MIS; (b) installing a hydrological measuring system and a network of 12 meteorological stations; (c) equipping the laboratory for water analysis; and (d) preparing a communication plan\. All of these actions have been carried out except for a part of the hydrological measuring system for real time data transmission (data measuring was planned to be transmitted by telecommunication, but the DGH realized that such a system would be too costly to operate for the time being\. In agreement with the Bank, the "real time" transmission of data was cancelled and replaced by the purchase of additional equipment, mainly water levels and rainfall gauges, to strengthen the current nationwide hydrological measuring network)\. - 6 -  Although the MIS is substantially completed and tested, it is not yet fully operational mainly because of the delay in staff training, originally planned for 2004 but now scheduled for 2005\. In addition, the human resources management module is not fully operational because the legal status of the Agency's staff (from working for the ex-Department of Hydraulic Resources of the MoPW to working for a public entity - Établissement public à caractère administratif) has not yet been finalized\. The RBA was created by decree in 1998, before loan signature, its Director nominated in February 1999 and its executive Board members appointed in 2001\. To date, the two most important decrees related to water extraction (irrigation, electricity, potable water, and industry) and to water pollution have been published\. The publication of these two decrees was followed by the enactment of a number of arrêtés stating the course of action to be followed for each specific situation\. In the case of the decree for water extraction, three main arrêtés have been published, dealing, respectively, with the collection of fees for electricity (through the ONE), irrigation (through the ORMVAs), and potable water (through the ONEP)\. The arrêté related to the collection of fees for industrial water use is still under preparation, as well as arrêtés complementing the decree for water pollution\. All those are expected to be finalized in 2005\. Meanwhile, a large number of minor decrees (20) and arrêtés (30) have already been published\. At present, the agency's main sources of funds come from budgetary allocations for staff and payment of fees from the ONE (paid since 2002) and ORMVAs (started in 2005), as the relevant arrêtés are published and the collection methods have been agreed with these two entities\. Under the circumstances, the agency does not yet have enough revenues to fulfill its mandate: the provision of financial assistance to the local governments (collectivités locales), ORMVAs, industrial complexes, etc\., to carry out water and sanitation improvement works and optimum multi-year budget planning is not always easy, especially in the light of Government delays in allocating yearly subsidies to cover expenditures directly related to the Agency former duties as Regional Departments of Hydraulics (i\.e\., O&M of infrastructure)\. Nevertheless, Government is currently finalizing the protocols for such subsidies\. Meanwhile, the Oum-er-R'bia agency already carried out a number of studies related to industrial waste treatment in 1994\. These studies should certainly lead to concrete financial assistance in 2005\. - 7 -  Optimization of water use efficiency in irrigation (After the re-organization of components and the Mid-Term Review US$3\.00 million or 14 % of project costs; at closing US$ 2\.55 or 14% of the final costs)\. ICR Rating: Satisfactory\. This component, implemented by the ORMVAs and the Experimentation, Trials and Standards Unit (SEEN) of the Department of Rural Works (AGR), consisted in development of: (a) experimental stations, field trials and demonstrations, as well as farmers and ORMVA staff training in Doukkala, Tadla and Souss-Massa; (b) environmental irrigation monitoring in these three ORMVAs; and (c) a national study on modern private irrigation\. All these actions have been completed\. More than 2,800 days of training and study tours were delivered to AGR's field staff as well as to farmers\. Equipment for the demonstrations (including 2,500 tubular siphons) were procured and six land planners were retained for land levelling activities\. Some 144 trials (covering more than 580 ha) were carried out in stations and fields on the following topics: crop water requirements, localized irrigation, improved surface irrigation techniques and sprinkler irrigation\. There is clear evidence that a substantial number of farmers have adopted the recommended technical packages\. Nevertheless, the overall beneficial impact was somewhat limited due to the lack of adequate means (staff and transportation required by the extension services)\. Fortunately, the upcoming externally-financed applied research project (in Tadla, with the support of the International Centre for Agricultural Research in Dry Areas) should be able to capitalize on the trials' results\. Concerning environmental monitoring, a system was implemented in the Doukkala and Tadla for assessing water and soil qualities\. This has helped identify the locations and causes of degradation as well as the remedial measures to be taken\. The AGR now intends to replicate this system in five other irrigated areas outside the project zone\. The national study on private irrigation, carried out by the AGR, included an assessment of the situation, potentialities and performances, an identification of possible options for development and the preparation of an action plan\. Finally, the project has provided technical equipment and consumables to the SEEN, as well as staff training\. Under the project, more than 400 irrigation equipment trial certificates have been delivered by the SEEN (now required for Government subsidy eligibility under certain types of irrigation) and almost 45,000 soil and water analysis tests have been conducted for private individuals, mainly farmers\. Control of waterborne diseases (After the re-organization of components and the Mid-Term Review US$ 1\.13 million or 5 % of project costs; at closing US$ 0\.50 or 3% of the final costs)\. ICR Rating: Moderately Satisfactory\. This component, implemented by the DELM, is meant to reinforce DELM's ongoing National Surveillance and Waterborne Diseases Control Program\. It consisted in strengthening the structure and staff of the DELM in the Oum-er-Rbia basin, covering six provinces: Khouribga, Azilal, Beni Mellal, Khénifra, El Kelaa and Settat, and educating the populations in good hygiene practices and in waterborne disease control\. The implementation of these actions only started in 2001 due to initial budgetary constraints (see Section 4\.1)\. A regional laboratory in Marrakech was built and equipped in 2004\. The construction of a second one, planned for Beni Mellal, will only start in January 2005 after project closing because the initially contracted firm withdrew and a new call for tenders had to be launched\. Additional equipment was also provided to five provincial laboratories\. Moreover, various equipment for mobile laboratories and pesticide handling, as well as computer equipment, were procured\. One vehicle was also provided to the MoPH's in each of the six provinces concerned\. Unfortunately, the awareness campaigns (using external technical assistance) planned under the project have not taken place due to lack of DELM funding for the required technical assistance\. Budget restrictions also prevented planned technical assistance for the stratification of risk areas for waterborne diseases to be undertaken\. Nevertheless, MoPH staff conducted awareness activities using the equipment and vehicles provided by the project and were able to initiate the stratification of risk areas independently\. - 8 -  The planned staff training was not carried out in time because the contract with the Institut national de l'hygiène and Faculté de médecine de Rabat could not be finalized due to some legal problems\. Instead, a direct arrangement with the ONEP was agreed upon and training (which will not be financed by the Bank loan) started in 2005\. Investments in water mobilization (After the re-organization of components and the Mid-Term Review US$ 4\.20 million or 20 % of project costs; at closing US$ 3\.92 or 2% of the final costs)\. ICR Rating: Satisfactory\. These investments included : (a) the rehabilitation of Nakhla dam; (b) the artificial recharge of the Souss aquifer; and (c) a geophysical study for the Triffa Plain aquifer\. Concerning Nakhla dam, the SAR based itself on preliminary studies, and planned the rehabilitation of the upstream concrete face of the dam\. However, detailed studies financed by the project determined that the water losses were primarily emanating from the foundations and not from the upstream face of the dam\. Consequently, it was attempted to reduce the losses by injecting the foundations\. An evaluation of the works completed in 2002, undertaken by an international expert in 2003, determined that: (a) injections have reduced the losses; (b) to better assess dam performance, a monitoring system should be implemented prior to any further rehabilitation; (c) deeper foundation injections should be performed; and (c) the dam's concrete face would eventually have to be rehabilitated\. Because of their long implementation period, these additional interventions will have to be carried out after project closing by the SEEau (work have already started for item (b))\. The artificial recharge of the Souss aquifer included the construction of a new infiltration weir as well as the rehabilitation of five existing weirs\. The study of the Triffa Plain aquifer included a synthesis of the existing data, 60 km of seismic profiling and interpretation, and the preparation of a final report\. The synthesis has been carried out and one deep drilling operation was undertaken\. Given the incomplete data provided by this deep well, the SEEau, with the Bank's agreement, decided to execute three more reconnaissance wells in 2004\. Finally, the modeling of the aquifer was initiated in 2004 and is expected to be complete by August 2005\. 4\.3 Net Present Value/Economic rate of return: At appraisal, the Economic Rates of Return (ERRs) and the Net Present Values (NPVs) were calculated for three investments: (i) the recharge of the Souss aquifer; (ii) the rehabilitation of the Nakhla dam; and (iii) the setting up of a real-time information system in the Oum-er-R'bia basin\. These investments represented 43% of the project's total cost and their respective ERR ranged from 120% in the case of the Nakhla dam to 43% for the Souss aquifer and 38% for the real-time information system\. The ERRs and NPVs were recalculated for Souss and Nakhla as well as for the strengthening of the actual nationwide water measuring network which replaced the real-time information system (see hereafter)\. Working assumptions for the calculations are given in the economic analysis presented in Annex 3\. The analysis is based on actual data on the project's investment/recurrent costs and projections concerning the benefits (calculated using data provided by the implementing agencies)\. A\. Recharge of the Souss aquifer\. The recharge consisted of the construction of a new infiltration sill as well as the rehabilitation of five existing ones\. Based on an economic pre-evaluation of the recharge conducted in January 2002, it was estimated that about 7\.8 million m³ per year will injected into the water table and as a result an additional 6\.3 million m³ will become available for irrigation\. Assuming an irrigation efficiency of 80%, five millions m³ per year could then be used for additional crop production\. Based on the information available at the ORMVA of Souss, it is estimated that the yearly total benefits would be DH 12\.9 million which do not include possible savings in pumping costs if the water table is allowed to rise\. The ERR is estimated at 49% over 20 years with a NPV, at the opportunity capital - 9 -  cost of 10%, of DH 48,597 (US$ 5,460 of 2004) ­ see Annex 3\. The recalculated rate is slightly higher than the 43% in the SAR\. A 20% shortfall in the projected benefits would still yield a rate of 44%\. B\. Rehabilitation of the Nakhla dam\. At appraisal, the reconstruction of the upstream concrete face of the dam was envisaged\. However, it was later concluded that the most of the water losses originated at the foundation level\. It was therefore decided to reduce the losses through injections to the foundation\. The losses are estimated at more than four million m³ each year (see Table 2 of the economic analysis)\. However, only part of this water (between 20% and 35% over the last years) needs to be pumped yearly (by the Office national de l'eau potable) depending on the climatic conditions\. It is estimated that the savings in pumping costs is of the order of DH 700,000 per year and the ERR would then be at 8% over 20 years\. This rate is low because the rehabilitation works were only a small first phase of a more elaborate works\. The rate is also much lower than at appraisal not only due to the change in approach (injections as opposed to reconstruction), but also because the partial works carried out will not postpone the construction of the Amsa dam as assumed at appraisal\. Finally, the foundations injection work has certainly enhanced the dam safety however this was not quantified and did not enter into the ERR calculations\. C\. Strengthening of the actual nationwide water measuring network\. Measuring was planned to be "in real time" through telecommunication\. However, after further studies and in agreement with the Bank, this approach was replaced by the procurement of additional equipment (mainly water level and rainfall gauges) to strengthen the existing national network with a view of water saving especially during drought periods\. It is estimated that the investments made under the project will allow the saving of half an irrigation water turn over 10 turns (5%) in one year (assumed to be drought) out of four actual years\. Some 26\.25 million m³ of water would then be saved each year (see Table 3 of the economic analysis)\. The yearly total benefits would be of DH 52 million and the ERR is estimated at 113% over 20 years with a NPV of DH 243,690 (US$ 27,381 of 2004)\. For comparison, the ERR calculated in the SAR was 38% based on the setup of real-time water management including automatic flow metering and computerized decision support systems\. The fact that the calculated rate is substantially higher than in the SAR supports the assumption that strengthening the network is more economical (low operating costs)\. A 20% shortfall in the projected benefits would still yield a very robust ERR of 99%\. In summary, the three activities for which an ERR was calculated represent 24% of the project's total cost ­ as opposed to 43% in the SAR ­ and their combined ERR (not calculated in the SAR) is of 79% over 20 years with a NPV of DH 291,768 (US$ 32,783 of 2004)\. A 20% shortfall in the overall benefits would still yield a rate of 69%\. 4\.4 Financial rate of return: No financial rate of return was calculated at appraisal\. However, in the case of the trials and demonstrations carried out for surface and drip irrigation under the project, the data recently provided by the ORMVAs of Doukkala, Tadla and Souss suggest potential increases in net profit margins by irrigators ­ with the improved techniques demonstrated under the project ­ of the order of 25% to 150%, depending on the types of techniques used (mainly drip irrigation or surface irrigation (Robta) with better ground leveling/surfacing and sometimes use of tubular siphons)\. 4\.5 Institutional development impact: To date, the project has had a moderate institutional development impact\. However, this should - 10 -  rapidly improve in the coming of years once the RBA is fully operational\. The establishment of an RBA in the Oum-er-Rbia basin (and the six other RBAs in Morocco) was the most important achievement from an institutional point of view\. The principle of having fully integrated management of the water resources in the Oum-er-Rbia, through a basin agency, is now widely accepted\. At this stage, the remaining problems associated with the enactment of decrees and arrêtés are mainly related to fee collection methods and delivery of the expected financial assistance (aides), especially for pollution control\. Those fees were initially viewed by some ministries, particularly MoA and MoI, as an additional tax on water users\. It is now recognized that to ensure reliability and sustainability, the delivered water has to be paid for, polluters need to pay for the pollution they generate and that, in any event, agency revenues must be reinvested in the community to promote environmentally sound water uses\. The project has implemented key institutional elements for integrated water resources management, mainly: a national water plan, a national water quality protection plan, a national flood protection plan and the recommendations of a water pricing study\. Benefits are already apparent from these outputs (section 4\.2), however, it is still too early to judge the subsequent use that the Government will make of the plans and studies, and, consequently, their ultimate usefulness\. Finally, training of the RBA and SEEau staff has been carried out using project funds, with the assistance of the French Basin Agency Adour-Garonne and the French Ministry of Environment\. It is important to note that the European Union has recently decided to allocate funds (reportedly DH 150 million) for strengthening the river basin agencies in Morocco, some of which should be allocated to the Oum-er-Rbia RBA\. 5\. Major Factors Affecting Implementation and Outcome 5\.1 Factors outside the control of government or implementing agency: The factors beyond Government or implementing agency control were: delays in completion of studies by several consultants and the insufficient initial data on Nakhla dam prior to appraisal\. However, these two factors were dealt with during the course of the project as previously described in Section 4\. 5\.2 Factors generally subject to government control: During the first years of project implementation, general budgetary restrictions delayed the preparation of some studies as well as the start of the activities on waterborne diseases control\. In 2003, the MoPW was transformed into the MATEE and the DGH became the SEEau\. Project coordination became somewhat inefficient because the Project Coordinator was transferred to the MATEEand was never replaced (Section 7\.6)\. In this respect, the Government should have ensured proper coordination mechanisms and financing for the project\. Furthermore, the collaboration between a number of ministries, such as the MoPW, MoA, MoI and MoIC for the enactment of decrees and arrêtés was not always as proactive as it should have been\. The most senior Government authorities should have intervened to ensure the necessary collaboration on the part of all the ministries involved\. 5\.3 Factors generally subject to implementing agency control: - 11 -  The MoPW selected only one person (coordinator) to staff the UCP ­ see Section 7\.6\. This coordinator joined the newly created MATEE and was never officially replaced\. As a result, project coordination between several entities, DGH, DMN, ORMVAs, SEEN and DELM, was somewhat weak during the last two years of project's implementation\. 5\.4 Costs and financing: The Bank loan was composed of US$10 million and FF 59 million (to become 8\.99 million in 2002), and the loan was declared effective in January 1999\. There were three loan amount cancellations: FF 13 million in 2001 (equivalent to 1\.98 million) after the mid-term review; 1\.5 million in 2002; and 1\.5 million late in 2004 (the three equivalent to 4\.98 million)\. At appraisal, the project implementation was estimated to take four years\. The project was extended twice by a total of two and a half years and closed in December 2004\. The main reasons for the cancellations were due to cost savings from studies and equipment, as well as favorable currency fluctuations, particularly given the delays in works carried out between the DH, and US$\. The project extensions were motivated by the additional time required by implementing agencies to fully implement some time-consuming activities which had already started but were behind schedule\. The second extension was agreed by the Bank provided certain conditions were met, including that the last arrêté necessary for the payment of fees for potable water and the decree for water discharges be published before December 2003\. As of May 1, 2005, the US$ 10 million was totally disbursed plus 3\.40 million, thus making the total disbursement from the Bank Loan at US$ 14\.46 million (equivalent) or 72% of the original loan (Annex 2) or 97% of the final Loan\. The final estimate of the total project costs is equivalent to US$ 18\.00 million or 70% of the appraisal estimate (Annex 2)\. The Government's contribution, estimated at a total of US$ 3\.65 million, represents 68% of the initial appraisal estimate, in line with the Bank's contribution\. 6\. Sustainability 6\.1 Rationale for sustainability rating: Project sustainability is rated as "likely"\. The Oum-er-Rbia RBA has been formally set up and the remaining administrative and financial issues will most likely be resolved before the end of 2005\. It is therefore expected that the RBA would become self financing through water and pollution charges\. The principle of having fully integrated management for the water resources in the Oum-er-Rbia, through a basin agency, is now widely accepted by all the relevant ministries\. The new regulatory and institutional framework and policy reforms have laid the foundation for a sustainable water resources management by providing the basis for efficient water resources allocation, by protecting against water pollution and floods and by ensuring stakeholders participation\. The relevant authorities in MATEE consider the national water plan, the national water quality protection plan and the national flood protection plan as extremely useful methodological tools and there is evidence which confirms that\. Finally, concerning the investments in water mobilization, the Government firmly intends to independently finance the additional works recommended for the rehabilitation of the Nakhla dam\. In the case of this dam, as well as for the Souss aquifer, funds for regular infrastructure maintenance are already part of the yearly MATEE budget\. 6\.2 Transition arrangement to regular operations: - 12 -  Each implementing agency (MATEE, MoA and MoPH) will carry out activities undertaken by the project\. All of these activities are part of their respective work programs and no special measures are necessary for the transition to regular operations, other than assurances (already given in the course of the last supervision missions) that the ongoing works will be completed as planned after project closing\. 7\. Bank and Borrower Performance Bank 7\.1 Lending: Moderately Satisfactory\. The Bank was responsive to the country's urgent needs in terms of sector work\. In this respect, the Bank helped the Government obtain a Japanese grant (PHRD) for sector work and FAO/CP resources were used for the WRMP's preparation\. However, as previously mentioned, insufficient analytical work has been done to adjust the project design between preparation and appraisal, and not enough ownership-building was achieved with all the stakeholders (ex\.MoI, MoIC)\. 7\.2 Supervision: Satisfactory\. The Bank supervision missions have more than compensated for appraisal shortcomings by adjusting project components promptly and efficiently\. The launch mission was held in 1998, months ahead of loan signature in October 1998\. The supervision missions were carried out regularly, with proper staff continuity and skill mix\. The main constraints were identified in a timely fashion and issues were raised competently at the appropriate levels\. Issues affecting the full legislative framework for the RBA were addressed during the second supervision mission in November 1998\. The deficiencies in project coordination between implementing agencies (section 7\.6) were raised repeatedly by the missions and the need to efficiently use the coordination committee set up under the project was emphasized\. Failure on the part of the MoF to budget funds for the waterborne diseases control component was noted several times and the risk of component cancellation was clearly raised\. Explicit performance indicators were not defined in the SAR but, nevertheless, Bank supervision missions, in collaboration with the implementing agencies, developed a set of key indicators (Annex 1) on the basis of the elements already available in the SAR\. Unfortunately, there was little that the missions could do to accelerate the overall pace of the various institutional reforms planned under the project\. Even the condition attached to the second loan extension, that the last arrêté necessary for the payment of dues for potable water and the decree for water discharges be published before December 2003, could not be fully met\. Finally, a formal restructuring of the project (due to the re-organization of the project's components and sub-components and to the cancellation of some of the Loan Proceeds) was not warranted as the specific project's objectives and all the projects components were not changed during the course of the project\. 7\.3 Overall Bank performance: Based on the above considerations, the overall Bank performance is considered satisfactory\. Borrower 7\.4 Preparation: Satisfactory\. Government participation during project preparation was very constructive\. Both the - 13 -  Minister of the MoPW and the Director of DGH were supportive and directly involved in project preparation and appraisal\. The ministry provided an impressive amount of human resources and time in carrying out the sector work as well as project preparation\. 7\.5 Government implementation performance: Moderately Satisfactory\. The Government's performance at implementation was highlighted by the transformation of the MoPW into the MATEE in 2003, and by the consequent conversion of the DGH into the SEEau\. Project implementation was difficult because of the number of implementing agencies (five in total) involved and their respective departments\. Moreover, the general budgetary restrictions experienced, particularly during the early years of the project, caused implementation delays\. As indicated earlier, beyond the issue of weak project coordination, the Government should have been more attentive to ensuring proper coordination between the ministries to guarantee timely project financing\. 7\.6 Implementing Agency: Satisfactory\. The project's implementing agencies were the MoPW (comprising the DGH, DMN, RBA), MoA and MoPH\. The RBA is theoretically autonomous (Établissement public à caractère administratif), but is still under the supervision and financial dependence of the MATEE\. The SAR specified that a technical coordination committee was to be created as well a UCP\. This committee was indeed created and held its first meeting in April 1998, before loan signature\. A coordination unit was also set up but composed only of a project coordinator, whereas the SAR planned for three assistants (technical, administrative and accounting, those functions were subsequently provided by the regular staff of the DGH )\. Until the creation of the MATEE in 2003, the committee was operational although informal coordination meetings between representatives of the agencies (initiated by the coordinator) were the norm\. The coordinator was reassigned when the MATEE was created and the committee and unit became almost inactive at that time\. Nevertheless, progress reports were produced except for an 18-month period after the creation of the new ministry\. Despite these shortcomings, the implementing agencies executed their respective components with competence and professionalism\. Finally, even without formal coordination mechanisms after 2003, the SEEau was able to monitor all project activities and collaborate productively with the supervision missions\. 7\.7 Overall Borrower performance: Overall Borrower performance is rated satisfactory\. 8\. Lessons Learned The main key lessons learned are: l Project coordination with a large number of implementing agencies and directorates requires well established and efficient mechanisms\. These mechanisms, including in most cases a steering committee and a fully fledged project coordination unit, should be set up before project start and given a clear mandate and terms of references\. l Policy reforms and capacity building (institutional engineering) require much preparatory work and close supervision, especially in the case of creating new institutions\. This is an area where the Government's commitment is absolutely necessary and should be secured beforehand\.In this context, - 14 -  the role of the Bank should be a provider of high quality technical assistance to move forward the required institutional reform agenda\. l A project requiring new legislation takes longer than expected to implement\. Therefore project's design should try to minimize the need for legislation or get it passed before implementation to the extent possible\. If that is not possible, the implementation plan and the objectives should be adjusted in order to recognize the likely delays\. l A project with strong emphasis on institutional development, policy reforms and strategic national studies is extremely difficult to implement\. Therefore, it should not include too many of such components and should be simplified as much as possible\. l Participation of all stakeholders in the project design is important\. The ministries/agencies/people who will participate in the project implementation should be involved in the analysis of issues and provide inputs for project design\. This is a key to promote ownership of project activities and gain support for project interventions\. l A strong M&E unit should be set up at project start, not only to look at the physical and financial aspects of the project, but also to monitor its impact and sustainability\. Moreover, sound performance indicators, essential to measuring the project's impact, should be carefully selected at the start of the project implementation\.In the absence of indicators at the preparation/appraisal phases, it is difficult to demonstrate thereafter the project's results\. l When large numbers of extensive studies are planned, the mechanisms and procedures for reviewing/monitoring the activities and validating the outputs should be kept as simple and as efficient as possible, particularly if several partners/ministries are concerned\. l Fixing conditions, whether for loan negotiation, agreement or extension, should be approached with caution and only after ensuring that all the elements are in place for making the required outcomes possible\. l Overseas training using Loan proceeds is practically impossible, therefore at the preparation/appraisal phases alternative sources for such project component, if deemed absolutely important, should be sought\. l Providing technical assistance and training to the implementing agencies through a contract with an international agency such as FAO, to be signed at the onset of the project, is a good and efficient way to ensure that those two components are implemented\. 9\. Partner Comments (a) Borrower/implementing agency: (b) Cofinanciers: (c) Other partners (NGOs/private sector): 10\. Additional Information - 15 -  Annex 1\. Key Performance Indicators/Log Frame Matrix Outcome / Impact Indicators: 1 Indicator/Matrix Projected in last PSR Actual/Latest Estimate Water Planning and Mobilization - Savings in pumping costs at the Nakhla NA 700 yearly dam (DH `000) - Additional water available with recharge of 5 yearly 5 yearly Souss aquifer (Mm3) Irrigated Agriculture - Number of hectares covered NA 4\.500 1/ Health - Coverage of control stations (%) 100 94 - Coverage of problematic sites (%) 60 57 - Percentage of sites covered with biological 50 75 control - Bacteriological control level according to 50 37 norms (%) in urban distribution networks - Coverage of collective water points (%) 50 60 NA = Non-available\. 1/ Does not take into account the final level of adoption by farmers due to lack of data\. Output Indicators: 1 Indicator/Matrix Projected in last PSR Actual/Latest Estimate Water Planning and Mobilization - Number of studies ongoing (completed) 13 1(21) - Number of CW contracts ongoing 4 6(45 (completed) - Number of decrees published 13 21 - Number of public orders published 30 32 - Number of training days NA 4979 - Technical assistance (person /months) 50 62 (FAO) - Number of infiltration sills constructed 1 (5) 1(5) (rehabilitated) - Number of meteorological stations\. 12 12 Irrigated Agriculture - Number of station trials (and hectares) NA 14 (24) - Number of trials in farmers' fields (and NA 130 (556) hectares) - Number of training sessions (and study NA 47 (140) tours) - Number of studies ongoing (completed) 4 (5) - Number of training days NA 2873 - Number of analyses and trials carried out N 45\.000 et 400 Health - Number of training sessions NA 0 - Number of laboratories constructed 2 1 - Number of laboratories equipped\. 2 7 1End of project - 16 -  Annex 2\. Project Costs and Financing Project Cost by Component (in US$ million equivalent) Appraisal Actual/Latest Percentage of Estimate Estimate Appraisal Component US$ million US$ million A\. Water resources planning 14\.70 6\.78 46\.1 B\. Establishment of RBA 1\.05 4\.25 404\.76 C\. Optimization of water use in irrigation 3\.15 2\.55 80\.9 D\. Control of waterborne diseases 1\.06 0\.50 47\.2 E\. Investments in water mobilization E\.1\.Rehabilitation of Nakla Dam 1\.80 0\.43 23\.9 E\.2\. Recharge of Souss aquifer 2\.16 1\.54 71\.3 E\.3\. Study of Triffa aquifer 1\.67 1\.95 116\.8 Total Baseline Cost 25\.59 18\.00 Total Project Costs 25\.59 18\.00 Total Financing Required 25\.59 18\.00 Project Costs by Procurement Arrangements (Appraisal Estimate) (US$ million equivalent) 1 Procurement Method Expenditure Category ICB NCB 2 N\.B\.F\. Total Cost Other 1\. Works 1\.80 3\.40 0\.00 0\.00 5\.20 (1\.40) (2\.70) (0\.00) (0\.00) (4\.10) 2\. Goods 6\.00 2\.60 1\.00 0\.00 9\.60 (4\.80) (2\.00) (0\.80) (0\.00) (7\.60) 3\. Services 0\.00 10\.40 0\.00 10\.40 () (0\.00) (8\.30) (0\.00) (8\.30) 4\. Recurrent Costs 0\.00 0\.00 0\.00 0\.40 0\.40 (0\.00) (0\.00) (0\.00) (0\.00) (0\.00) Total 7\.80 6\.00 11\.40 0\.40 25\.60 (6\.20) (4\.70) (9\.10) (0\.00) (20\.00) Project Costs by Procurement Arrangements (Actual/Latest Estimate) (US$ million equivalent) 1 Procurement Method Expenditure Category ICB NCB 2 N\.B\.F\. Total Cost Other 1\. Works 0\.00 3\.10 0\.17 0\.00 3\.27 (0\.00) (2\.49) (0\.01) (0\.00) (2\.50) 2\. Goods 2\.73 3\.63 0\.64 0\.00 7\.00 (2\.26) (2\.88) (0\.45) (0\.00) (5\.59) 3\. Services 7\.70 0\.00 7\.70 () () (6\.37) (0\.00) (6\.37) 4\. Recurrent Costs - 17 -  0\.00 0\.00 0\.00 0\.03 0\.03 (0\.00) (0\.00) (0\.00) (0\.00) (0\.00) Total 2\.73 6\.73 8\.51 0\.03 18\.00 (2\.26) (5\.37) (6\.83) (0\.00) (14\.46) 1/Figures in parenthesis are the amounts to be financed by the Bank Loan\. All costs include contingencies\. 2/Includes civil works and goods to be procured through national shopping, consulting services, services of contracted staff of the project management office, training, technical assistance services, and incremental operating costs related to (i) managing the project, and (ii) re-lending project funds to local government units\. Project Financing by Component (in US$ million equivalent) Percentage of Appraisal Component Appraisal Estimate Actual/Latest Estimate Bank Govt\. CoF\. Bank Govt\. CoF\. Bank Govt\. CoF\. A\. Water Res\. planning 11\.54 2\.88 0\.00 5\.52 1\.36 0\.00 47\.8 47\.2 0\.0 B\. Establish RBA 0\.86 0\.48 0\.00 3\.54 0\.71 0\.00 411\.6 147\.9 0\.0 C\. Opt\. of water use 2\.46 0\.68 0\.00 1\.87 0\.68 0\.00 76\.0 100\.0 0\.0 D\. Control of diseases 0\.83 0\.23 0\.00 0\.37 0\.14 0\.00 44\.6 60\.9 0\.0 E\. Investments in water mobilization E\.1 Rehab\. Nakhla 1\.45 0\.35 0\.00 0\.34 0\.09 0\.00 23\.4 25\.7 0\.0 E\.2 Recharge Souss 1\.75 0\.41 0\.00 1\.23 0\.31 0\.00 70\.3 75\.6 0\.0 E\.3 Study of Triffa 1\.35 0\.32 0\.00 1\.58 0\.36 0\.00 117\.0 112\.5 0\.0 Grand Total 20\.24 5\.35 0\.00 14\.46 3\.65 0\.00 71\.4 68\.2 0\.0 - 18 -  Annex 3\. Economic Costs and Benefits Background At appraisal\. In the SAR of January 1998, the project's economic justification was based on improved efficiency in water use/management following the adoption of proposed policy and institutional reforms ­ including the setting up of a River Basin Agency ­ as well as capacity building for implementing public investment programs in the water sector\. Furthermore, quantified benefits were estimated from the physical achievements aimed at improving the effectiveness of water mobilization\. It was indicated in the report that the main benefits of such projects are essentially in terms of institutional strengthening and therefore difficult to quantify\. Consequently, an Economic Rate of Return (ERR) and Net Present Value (NPV) were calculated for three investments only: (i) rehabilitation of the Nakhla dam; (ii) recharge of the Souss aquifer; and (iii) setting up a real-time information system in the Oum-er-R'bia basin\. These investments represented 43% of the project's total cost and their ERR ranged from 120% in the case of the Nakhla dam to 43% for the Souss aquifer and 38% for the real-time information system\. Present situation\. Capacity building ­ particularly the setting up of the RBA ­ has taken a more important (strategic) role in the project than foreseen at appraisal\. The physical realization (essentially civil works) at project completion were less in magnitude than planned at appraisal ­ see section 4\.2 of ICR main text\. Concerning the Nakhla dam, the reconstruction of the upstream concrete face was envisaged at appraisal\. However, further studies established that the water leakages were primarily due to the foundations and it was therefore decided to reduce losses through injections to the foundations\. A 2003 evaluation of the completed works concluded that the injections had the effect of partially reducing losses and that more injections would be executed at a later stage after additional investigations\. These additional interventions will have to be carried out beyond the project's closing date under Government financing\. In the case of the recharge of the Souss aquifer, out of the three types of works initially planned, two (rehabilitation of five sills and the construction of a new one) were initiated under the project\. The third: construction of a sill via Oued Sghir was abandoned because of land tenure problems and unexpectedly high construction costs\. Finally, the setting up of a real-time water management system has been dropped due to the high expected operating costs, and a strengthening of the actual nationwide water measuring network was financed instead\. Project Benefits The benefits for the five project components can be summarized as follows: Water resources planning\. The preparation of a national water master plan,a national water quality protection plan, a national flood protection plan and a study for water pricing of bulk water; as well as the provision of technical assistance, training, equipment and materials to the DGH will allow for more efficient field interventions by the Ministère de l'aménagement du territoire, de l'eau et de l'environnement\. However, these benefits in terms of institutional strengthening are extremely difficult to quantify\. Establishment of a River Basin Agency in Oum-er-Rbia\. The main benefits of this component are also in terms of institutional strengthening and therefore extremely difficult to - 19 -  quantify\. Furthermore, the strengthening of some 200 hydrological and meteorological stations ­ over a larger area than planned at appraisal but not in real time ­ will allow for a more efficient management of the dams covered\. Improving water use efficiency in irrigation\. The reinforcement of the capacities of the three Office Régional de Mise en Valeur Agricole ORMVA (Tadla, Doukkala and Souss-Massa) and their carrying out of the trials/demonstrations of improved technical packages for irrigation, as well as the training of staff and farmers, will result in the adoption of those improved techniques by a number of farmers\. The benefits of those techniques, in terms of additional crop production at lower costs, could be quantifiable after few years of implementation\. Those trials/demonstrations were carried out mainly in Tadla and Doukkala, and the techniques promoted were related to drip irrigation as well as to surface irrigation (Robta) with better ground leveling/surfacing and the use of tubular siphons\. However, at present, the possible benefits in terms of additional irrigated production and net profits are not yet sufficiently tangible to warrant a full economic analysis\. Despite the fact that substantial number of farmers have already adopted the trials' results, the overall beneficial impact is still limited due the somewhat still weak extension services\. The current project did not deal with improving the extension services as this was already tackled , at a large scale, in other earlier Bank financed projects\. Fortunately, the upcoming externally-financed applied research projects, such as the one in Tadla with the International Centre for Agricultural Research in Dry Areas, will be able to capitalize on these results and make the present project's investments worthwhile in the medium and long term\. In addition, the completion of studies related to the environmental impact and to the "modern" irrigation, as well as the reinforcement of the SEEN, will allow for targeted and more efficient field interventions by the relevant public services; the benefits are however difficult to quantify, at least in the short term\. Control of waterborne diseases\. The partial reinforcement of the structures of the DELM in charge of controlling waterborne diseases in the Oum-er-R'bia basin should reduce the incidence of the diseases over time\. But it is too early yet to see any concrete evidence of such reduction ­ particularly since the component's implementation was two years late ­ and the provincial data available now are too weak to make reliable projections\. Investments in water mobilization\. The « artificial » recharge of the Souss' water table will result in more water supply for the irrigators and perhaps also savings in pumping costs depending on the location\. Furthermore, the « partial » rehabilitation of the Nakhla dam would save a part of the actual overall costs of pumping the seepage water back into the dam reservoir\. The rehabilitation works will also better « secure » the dam against possible structural damages, but this type of benefit is much more difficult to quantify\. Economic Analysis For the purpose of the present economic analysis, ERRs and NPVs have been recalculated for: o the recharge of the Souss aquifer; o the rehabilitation of the Nakhla dam; and o the strengthening of the actual nationwide water measuring network\. In all cases, financial prices/costs were used as sufficient approximations of their - 20 -  corresponding economic values in Morocco (same approach as in SAR)\. Also, no shadow pricing of the currency is necessary; there is no parallel (unofficial) market for the DH in the country\. Value added taxes applied to studies and supplies (20%), as well as civil works (14%), were deducted from the project costs for the purpose of calculating the ERR\. The respective benefits for each of the activities aforementioned are calculated as follows: A\. Recharge of the Souss aquifer\. As part of project execution, an economic pre-evaluation of the recharge was conducted by consultants in January 2002\. With the construction of one sill and the rehabilitation of five others, it is estimated that 7\.8 millions m³ per year will be injected into the water table and that, therefore, an additional 6\.3 millions m³ (81%) would become available downstream for irrigation (see Table 1 of the supporting documents)\. Assuming an irrigation efficiency of 80%, the pre-evaluation document concluded that five millions m³ per year could be used for additional crop production (using a somewhat different set of assumptions, the SAR arrives at the same result)\. The information available in the ORMVAs indicates that the average water use for irrigation is of the order of 12,000 m³ per ha, which would allow the irrigation of an additional 423 ha each year\. On the basis of an average net benefit of 30,621 DH per ha (see Table 1), the yearly total benefits due to the recharge of the Souss aquifer would then be DH 12\.9 million\. These are equivalent to DH 2\.5 per m³ (slightly less than the DH 3 used in the SAR) and do not include possible savings in pumping costs if the water table is allowed to rise\. Table 4 shows the calculation of the ERR which is estimated at 49% over 20 years with a NPV at the opportunity capital cost of 10% of DH 48,597 (US$ 5,460 of 2004)\. The recalculated rate is slightly higher than the 43% in the SAR\. A 20% shortfall in the projected benefits would still yield a rate of 44%\. B\. Rehabilitation of the Nakhla dam\. The main role of the dam is to supply the city of Tetouan and its neighborhood with drinkable water, along with other sources of supply such as the Smir dam and the Maritil aquifer\. The water losses are estimated at more than four million m³ each year (see Table 2)\. However, only part of this water (between 20% and 35% over the last years) needs to be pumped by the ONEP depending on the climatic conditions\. As only part of the rehabilitation works has been carried out, therefore, only part of the leakages has been stopped\. For illustrative purposes, the average price charged by ONEP for delivering potable water in Tetouan is DH 6\.55 per m³ (see Secteur de l'eau et de l'assainissement, Note de politique sectorielle, September 2004)\. Assuming that the Office's true delivery cost is around DH 5 per m³ and that 10% of this is saved due to the rehabilitation of the dam (injections already executed), DH 0\.5 per m³ could be credited as a project benefit\. Using an annual average volume pumped of 1\.4 million m³ over the last three full years available (September 2001 ­ August 2003), the project benefit would then be of DH 700,000 per year\. Table 4 of the supporting documents shows the calculation of the ERR is estimated at 8% over 20 years\. The recalculated rate is much lower than at appraisal because of the change in approach ­ injections (partial rehabilitation) as opposed to reconstruction of the concrete face (full rehabilitation)\. Furthermore, it was argued in the economic analysis at appraisal that the rehabilitation of the dam would allow the postponement of the construction of the Amsa dam, therefore saving public money for now\. But, there are three objections to this: i) there are several sources of water for serving the city of Tetouan, not only the Nakla dam; (ii) the construction of the Amsa dam is scheduled, in any event, for beyond 2020 - 21 -  (estimated at 790 millions of DH in 1992); and (iii) the rehabilitation of the Nakla was partial only\. C\. Strengthening of the actual nationwide water measuring network\. Table 3 of the supporting documents shows the areas covered by the hydrological and meteorological stations which have been strengthened\. As a result, more information (and of higher quality) would become available to the SEEau, which should result in a more efficient water management\. In the SAR, assuming a real-time information system, two types of benefits were claimed: (i) savings in irrigation water losses due to delays in transmitting instructions for dam operations; and (ii) better and timely information to irrigators about water availability, allowing for more efficient water use\. However, strengthening stations nationwide instead, would primarily save water in periods of drought\. The Moroccan authorities estimate that the investments made under the project will allow the saving of about half an irrigation water turn over 10 turns (5%) in one year (assumed to be drought) out of four actual years\. On the basis of these assumptions, 26\.25 million m³ of water would be saved each year\. Using an average of DH 2 per m³ as an estimate of the potential benefits in irrigation ­ somewhat less than the DH 2\.5 estimated for Souss since the irrigators are less progressive ­ the yearly total benefits due to the strengthening of the network would be of DH 52\.5 million\. Table 4 shows the calculation of the ERR which is estimated at 113% over 20 years with a NPV of DH 243,690 (US$ 27,381 of 2004)\. For comparison, the SAR also estimated an average benefit of DH 2 per m³ albeit over a smaller area since the intention was initially to cover the Oum-er-R'bia basin only\. It is mainly because of the very high operating costs of such systems that the project opted instead for the procurement of equipment (mainly water level and rainfall gauges) to strengthen the present national network\. The fact that the calculated rate is substantially higher than at appraisal (38% in the SAR) supports the assumption that the strengthening of the existing network is more economical in terms of operation\. A 20% shortfall in the projected benefits would still yield a very robust ERR of 99%\. Summary: The three activities for which an ERR was calculated represent 24% of the project's total cost (43% in SAR) and their combined ERR (not calculated in SAR) is of 79% over 20 years with a NPV of DH 291,768 (US$ 32,783 of 2004)\. A 20% shortfall in the overall benefits would still yield a rate of 69%\. - 22 -  Annex 4\. Bank Inputs (a) Missions: Stage of Project Cycle No\. of Persons and Specialty Performance Rating (e\.g\. 2 Economists, 1 FMS, etc\.) Implementation Development Month/Year Count Specialty Progress Objective Identification/Preparation 07/01/1994 7 ECONOMIST (2); AGRONOMIST (1); POLLUTION SPEC\. (1); HYDRO-GEOLOGIST (1); DAM SPEC\. (1); IRRIGATION ENG\. (1) 11/01/1995 1 ECONOMIST (1) Appraisal/Negotiation 03/01/1995 7 ECONOMIST (2); SANITATION SPEC\. (1); RIVER BASIN SPEC\. (1); REMOTE SENSING SPEC\. (1); AGRONOMIST (1); IRRIGATION ENG\. (1) Appraisal: 7 ECONOMIST (1); COUNSEL 05/01/1996 (1); ENVIRONMENTAL SPEC\. (1); HYDRAULIC WORKS SPEC\. (1); PROJECT ANALYST (1); RIVER BASIN SPEC\. (1); IRRIGATION ENG\. (1) Post-Appraisal: 1 IRRIGATION ENG\. (1) 10/01/1996 Post- Appraisal: 1 IRRIGATION ENG\. (1) 05/01/1997 Negotiations: 3 IRRIGATION ENG\. (2); 11/01/1997 COUNSEL (1) Supervision 05/08/98 3 TEAM LEADER (1); CIVIL S S ENG\. (1); PROCUREMENT SPEC\. (1) 11/04/1998 5 TEAM LEADER (1); CIVIL S S ENG\. (1); FINANCIAL MANAG\. SPEC\. (2); RIVER BASIN SPEC\. (1) 10/13/1999 3 TEAM LEADER (1); S S FINANCIAL MANAG\. SPEC\. (1); RIVER BASIN SPEC\. (1) 12/04/2000 5 TEAM LEADER (1); HS S FINANCIAL MANAG\. SPEC\. (1); CIVIL ENG\. (1); RIVER BASIN SPEC\. (1); PROCUREMENT SPEC\. (1) 12/04/2000 3 TEAM LEADER (1); S S - 23 -  FINANCIAL MANAG\. SPEC\. (1); SECTOR MANAGER (1) 05/04/2001 (MTR) 6 TEAM LEADER (1); S S FINANCIAL MANAG\. SPEC\. (1); OPERATIONAL OFFICER (1); IRRIGATION ENG\. (1); RIVER BASIN SPEC\. (2) 01/24/2002 7 TEAM LEADER (1); S S FINANCIAL MANAG\. SPEC\. (1); IRRIGATION/AGRICULTURE SPEC\. (1); WATER RESOURCES SPEC\. (1); RIVER BASIN MANAG\. SPEC\. (1); WATER TREATMENT SPEC\. (1); COMMUNICATION SPEC\. (1) 10/03/2002 5 TEAM LEADER (1); S S IRRIGATION ENG\. (1); FINANCIAL MANAG\. SPEC\. (1); WATER RESOURCES SPEC\. (1); RIVER BASIN SPEC\. (1) 04/16/03 5 TEAM LEADER (1); S S FINANCIAL MANAG\. SPEC\. (1); RIVER BASIN SPEC\. (1); IRRIGATION ENG\. (2) 11/12/2003 3 TEAM LEADER (1); S S FINANCIAL MANAG\. SPEC\. (1); RIVER BASIN SPEC\. (1) 06/08/2004 5 TEAM LEADER (1); S S FINANCIAL MANAG\. SPEC\. (1); RIVER BASIN SPEC\. (1); IRRIGATION ENGINEER (1); AGRIC\. ECONOMIST (1) ICR 12/15/2004 5 TEAM LEADER (1); S S FINANCIAL MANAG\. SPEC\. (1); RIVER BASIN SPEC\. (1); WATER RESOURCES SPEC\. (1); AGRIC\. ECONOMIST (1) - 24 -  (b) Staff: Stage of Project Cycle Actual/Latest Estimate No\. Staff weeks US$ ('000) Identification/Preparation 25 100,000 Appraisal/Negotiation 65 250,000 Supervision 110 450,000 ICR 12 50,000 Total 212 850,000 - 25 -  Annex 5\. Ratings for Achievement of Objectives/Outputs of Components (H=High, SU=Substantial, M=Modest, N=Negligible, NA=Not Applicable) Rating Macro policies H SU M N NA Sector Policies H SU M N NA Physical H SU M N NA Financial H SU M N NA Institutional Development H SU M N NA Environmental H SU M N NA Social Poverty Reduction H SU M N NA Gender H SU M N NA Other (Please specify) H SU M N NA Private sector development H SU M N NA Public sector management H SU M N NA Other (Please specify) H SU M N NA - 26 -  Annex 6\. Ratings of Bank and Borrower Performance (HS=Highly Satisfactory, S=Satisfactory, U=Unsatisfactory, HU=Highly Unsatisfactory) 6\.1 Bank performance Rating Lending HS S U HU Supervision HS S U HU Overall HS S U HU 6\.2 Borrower performance Rating Preparation HS S U HU Government implementation performance HS S U HU Implementation agency performance HS S U HU Overall HS S U HU - 27 -  Annex 7\. List of Supporting Documents Table 1 Recharge of the Souss Aquifer millions de m³ Eau injectée dans % à Eau Rendement Eau la nappe déduire mobilisable technique disponible Réhabilitation de 5 seuils et aménagement en aval de 2\.8 25% 2\.1 80% 1\.68 dispositifs de division des écoulements Dérivation d'une partie des eaux de l'oued Talekjount dans 5\.0 15% 4\.25 80% 3\.4 l'oued Talemt Total 7\.8 6\.35 5\.08 Marge nette sur production en 2004 dans la zone de l'aquifer (DH/ha), y compris amortissement: Luzerne 11088 Clementine 19195 Tomate 76897 Dans ces conditions, un ha consomme en général 12,000 m³ d'eau\. Moyenne pondérée par l'assolement: Les 5\.08 millions d'eau disponible avec la recharge de l'aquifer de 30621 Souss permettent donc d'irriguer 423 ha de plus\. Source: Étude des dispositifs de recharge artificielle de la nappe du Souss, Évaluation économique et environnementale (Mission 3), DGH, janvier 2002, et l'ORMVA de Souss\. Table 2 Rehabilitation of the Nakhla Dam Pompage à l'aval du barrage de Nakhla Réhabilitation Période Sept2000-Août2001 Sept2001-Août2002 Sept2002-Août2003 Sept2003-Avril2004 Volume de fuite 4\.30 4\.10 7\.00 3\.30 Volume pompé 0\.96 1\.40 1\.90 0\.73 % pompé 22\.3% 34\.1% 27\.1% 22\.1% Source: L'ONEP - 28 -  Table 3 Strengthening of the Nationwide Water Measuring Network Nombre de stations Pluie Niveau d'eau Piézométrie 95 54 51 Millions de m³ Périmètre Complexe/barrage Besoins en mars-août Économie 1/ Basse Moulouya Mohamed V - Hassan II 316 16 Gharb Idriss 1er - Allal El Fassi - Al Wahda 452 23 Beht El Kansera 183 9 Doukkala Al Massaira 316 16 Beni Moussa Bin El Ouisdane 361 18 Tessaout Moulay Youssef 109 5 Haouz Hassan 1er - Sidi Driss 126 6 N'Fis Lalla Takerkoust 45 2 Ziz Hassa Addakhil 65 3 Draa Mansour Eddahbi 135 7 Total 105 26\.25 2/ 1/ Économie possible de 5% soit un demi-tour sur 10 tours d'eau\. 2/ Il est supposé que cette économie se matérialize une année sur quatre, en période de sécheresse\. - 29 -  Tableau 4 Cashflow du Projet 1999 2000 2001 2002 2003 2004 2005 2006 - 2020 en DH courants en DH de 2004 Recharge de Souss (milliers de DH) Coûts d'investissement avec projet (milliers de DH, hors taxes) 2891 560 1118 9045 Coûts d'entretien (5%) 145 173 228 681 681 Volume d'eau disponible pour irrigation (millions de m³) 4 5 Nombre d'ha additionnels irrigables 360 423 Revenus nets (additionnels) possibles (milliers de DH) 11018 12963 Cashflow avant correction en DH constants 0 -2891 -705 -1291 -9273 10338 12282 Cashflow en DH de 2004 0 -3218 -782 -1414 -9273 10338 12282 Taux de rentabilité économique: 49% Net Present Value: 48,597 N\.B\.: Ceci n'inclut pas les réductions possibles dans les coûts de pompage si le niveau d'eau arrête de baisser\. Les coûts incluent les investissements à financer jusqu'en février 2005\. Réhabilitation de Nakhla Épargne en frais de pompage (milliers de DH 1/) 300 700 700 700 Coûts d'investissement avec projet (milliers de DH, hors taxes) 149 3173 289 Coûts d'entretien (5%) 7 166 181 181 181 181 Cashflow avant correction en DH constants -149 -3180 -455 119 519 519 519 Cashflow en DH de 2004 -164 -3540 -505 131 519 519 519 Taux de rentabilité économique: 8% Net Present Value: - 519 1/ Voir analyse économique Renforcement du réseau national de mesure hydrologique Volume d'eau disponible, mainly for irrigation (millions de m3) 13\.1 26\.3 26\.3 Revenus nets (additionnels) possibles (milliers de DH) 26260 52500 52500 Coûts d'investissement avec projet (milliers de DH, hors taxes) 1084 1294 561 4552 15251 Coûts d'entretien (10%) 108 238 294 749 2274 2274 Cashflow avant correction en DH constants -1084 -1403 -798 -4846 10260 50226 50226 Cashflow en DH de 2004 -1199 -1561 -886 -5310 10260 50226 50226 Taux de rentabilité économique: 113% Net Present Value: 243,690 Cashflow combiné en DH de 2004 (Souss-Nakhla-Réseau) -1364 -8319 -2174 -6593 1506 61083 63027 Taux de rentabilité économique: 79% Net Present Value: 291,768 - 30 -  Additional Annex 8\. Borrower's Evaluation Report Le Projet de Gestion des Ressources en Eau a pour objectif de promouvoir la gestion intégrée des ressources en eau au Maroc telle que définie par la Loi sur l'Eau 10-1995 pour assurer à long terme l'équilibre de l'offre et de la demande en eau, en combinant la prise en compte des aspects quantitatifs et qualitatifs dans un cadre d'efficacité économique et d'équité sociale\. Le Projet de Gestion des Ressources en Eau doit contribuer à atteindre cet objectif, à travers notamment l'appui à l'établissement de l'Agence de Bassin Hydraulique de l'Oum Er-Rbia, le renforcement de la capacité de plusieurs organismes publics intervenant dans le secteur de l'eau et l'investissement dans la mobilisation de l'eau\. Le Projet comporte cinq composantes : Appui à la planification de l'eau ; Appui à la mise en place de l'Agence de Bassin Hydraulique de l'Oum Er-Rbia ; Appui à la valorisation de l'eau d'irrigation ; Appui à la lutte contre les maladies hydriques ; Appui aux investissements physiques : exécuté par la DGH, comprenant les 3 opérations prioritaires : étude de la nappe profonde des Triffa, réalimentation de la nappe du Souss et réhabilitation du barrage de Nakhla\. Le projet requiert d'importantes mesures institutionnelles pour sa mise en oeuvre, incluant : l'approbation de décrets réglementant les redevances sur le prélèvement d'eau brute et le déversement d'eau polluée, pour permettre à l'ADB d'obtenir les ressources financières soutenant ses programmes d'investissement ; La préparation du plan national de protection contre les inondations, Le renforcement de la Direction Générale de l'Hydraulique\. Un important programme d'études à caractère national a été réalisé dans le cadre du projet\. Ces études concernent : Plan National de l'Eau : Cette importante étude vise l'élaboration d'une stratégie à long et moyen terme de développement des ressources en eau à l'échelle nationale\. Elle comporte 5 missions: (i) analyse et synthèse des connaissances sur les ressources en eau; (ii) élaboration d'une base de données; (iii) études relatives à la planification des ressources en eau; (iv) options et recommandations pour la consolidation du contexte institutionnel; et (v) proposition pour le choix du plan national\. L'étude constitue la base pour l'établissement du PNE à présenter au prochain Conseil Supérieur de l'Eau et du Climat\. Etude de Tarification de l'Eau Brute : Cette étude comprend 3 missions: (i) diagnostic des systèmes - 31 -  tarifaires; (ii) évaluation des redevances d'eau brute; et (iii) établissement d'une méthodologie d'évaluation du coût de l'eau brute\. Cette étude a montré que les recettes potentielles des redevances de prélèvement au taux actuel fixé, ne permettent pas d'équilibrer les charges relatives aux nombreuses missions confiées aux agences de bassin\. De même, l'étude a montré que les recettes potentielles des redevances de déversement sont sans aucune commune mesure avec les besoins en investissement pour la dépollution\. Ces résultats confirment la nécessité d'une intervention de l'Etat pour la prise en charge de certaines missions confiées par la loi sur l'eau aux agences de bassin\. Plan National de Protection de la Qualité des Ressources en Eau : Cette étude comprend 4 missions : (i) diagnostic de la qualité des ressources en eau, (ii) évaluation des flux de pollution et de leur impact sur la qualité des ressources en eau, (iii) élaboration du plan national de protection de la qualité des ressources en eau et (iv) élaboration du plan de protection de la qualité de l'eau dans la région Oum-er-Rbia\. Le modèle informatique développé dans cette étude pour l'ensemble des bassins et affiné pour le bassin de l'Oum-er-Rbia, constitue un outil très utile pour l'aide à la décision pour l'optimisation des plans d'action de lutte contre la pollution\. Ce modèle a été complété par un autre modèle financier permettant de calculer les redevances d'assainissement et de déversement dans le bassin de l'Oum-er-Rbia\. Plan National de Lutte contre les Inondations : Cette étude comprend 3 missions: (i) typologie des inondations, étude des sites vulnérables et définition des mesures de prévention et des priorités d'aménagement, (ii) étude du cadre institutionnel et (iii) établissement d'un plan d'action\. Cette importante étude a abouti à la formulation d'orientations et d'un plan d'action pour la prévention et la lutte contre les inondations\. Ce plan comporte des actions structurelles de construction d'ouvrages de protection et de mesures non structurelles, principalement d'ordre juridique et institutionnel, pour la prévention\. Le Gouvernement a déjà commencé la mise en oeuvre de ce plan d'action\. Ainsi, le MATEE, en partenariat avec le Ministère de l'Intérieur, a lancé la construction de nombreux ouvrages de protection des sites les plus vulnérables et les agences de bassin ont lancé des études détaillées des sites à risque\. Renforcement de la DGH : Les actions réalisées dans ce cadre concernent la fourniture d'assistance technique et la formation du personnel (convention passée avec la FAO) et l'acquisition des équipements informatiques\. La réalisation du plan national de l'eau, de l'étude de tarification de l'eau brute, du plan national de protection de la qualité de l'eau et du plan directeur de protection contre les inondations, constitueront des outils méthodologiques précieux qui permettront à l'Administration d'oeuvrer plus efficacement dans le secteur de l'eau\. b- Appui à la mise en place de l'Agence de Bassin Hydraulique de l'Oum Er-Rbia : exécuté par la DGH et l'ADB et comprenant notamment : la mise en place du système d'information de gestion et d'organisation comptable; l'équipement du laboratoire d'analyses de l'eau; l'installation d'un réseau automatique de mesures hydrologiques ; et l'exécution d'un plan de communication\. Cette composante comporte deux sous composantes : la mise en place d'un système de gestion en temps réel des ressources en eau dans le bassin de l'Oum Er Rbia à travers l'installation et l'équipement des stations de mesure et de transmission automatique des données hydrologiques, la mise en place de l'Agence de Bassin Hydraulique de l'Oum Er-Rbia\. Cette sous composante comprend notamment : - 32 -  - la mise en place d'un système d'information et de gestion ; - la conduite d'actions de communication et de sensibilisation du public ; - l'acquisition des équipements pour le laboratoire de qualité de l'eau de l'agence, - l'acquisition des stations météorologiques automatiques\. Les opérations réalisées dans le cadre de cette composante concernent (i) l'équipement du laboratoire d'analyse de la qualité de l'eau de l'Agence (ii) la mise en place son système d'information de gestion (iii) la sensibilisation du public du rôle de l'Agence (vi) l'acquisition et l'installation des équipements de télémesure hydrologique (v) l'installation d'un réseau de 12 stations météorologiques automatiques\. Etude et Assistance Technique pour la Mise en Place du Système de Télémesure Hydrologique (TMH) dans les bassins Oum-er-Rbia et Nfis : Cette sous-composante avait pour objet de concevoir le système de TMH, de préparer les termes de référence pour l'acquisition des équipements et d'accompagner la DGH pour le choix, l'installation et l'exploitation de ces équipements\. Cependant la consistance du système de télémesure ayant été revue par la DGH, en raison des coûts de fonctionnement et d'exploitation élevés du système envisagé au départ, notamment la composante transmission, la DGH a décidé en accord avec la Banque d'annuler cette composante et de la remplacer par une autre composante qui consiste en l'achat d'équipement variés tels que : des capteurs de niveau d'eau, des pluviomètres et des unités mobiles pour le renforcement des mesures des ressources en eau au niveau national\. Stations Météorologiques (DMN) : Cette composante concernait initialement l'équipement de 12 sites dans le bassin de l'Oum er Rbia avec des stations automatiques avec équipement de transmission des données, l'installation d'un système de concentration national et régional avec logiciels d'application et d'un serveur central avec logiciels, ainsi que la formation du personnel et l'assistance technique\. c- Appui à la valorisation de l'eau d'irrigation : exécuté par l'AGR et les ORMVA des Doukkala, du Souss-Massa et du Tadla, et comprenant : des essais d'irrigation sur le terrain ; la mise en place du suivi environnemental de l'irrigation ; et une étude de l'irrigation privée moderne\. Ainsi, cette composante a pour objectif le soutien d'un programme de recherche appliquée sur la conservation de l'eau dans l'irrigation, dans les régions de l'Oum Er Rbia et du Souss-Massa\. Ce programme comporte : L'acquisition des équipements pour réaliser les essais de démonstration et pour renforcer les laboratoires ; l'étude des difficultés de l'irrigation moderne privée en vue d'identifier les besoins prioritaires dans la recherche agricole et en matière d'amélioration des technologies de l'irrigation ; la mise en place du suivi environnemental de l'irrigation Les activités relatives à cette composante sont réparties en quatre sous composantes : (a) l'amélioration de l'efficience de l'irrigation; (b) le suivi de l'impact environnemental de l'irrigation; (c) l'étude du secteur de l'irrigation moderne privée; et (d) le renforcement des moyens du SEEN\. L'amélioration de l'efficience de l'irrigation: Celle-ci comprenait une série d'actions de renforcement des moyens des ORMVA, de recherches appliquées en station d'expérimentation, de démonstration et de vulgarisation chez les agriculteurs et de formation et voyages d'étude au profit des cadres et techniciens des - 33 -  ORMVAs et des agriculteurs\. Ces actions, localisées dans les trois périmètres irrigués du Tadla, des Doukkala et du Souss-Massa, ont été conduites par les ORMVA respectifs sous la coordination et l'assistance du SEEN\. Les résultats de cette sous-composante sont satisfaisants: (i) les moyens des unités concernés des trois ORMVA, notamment les laboratoires eau-sol ont été renforcés en matériel technique et scientifique et consommables; (ii) les essais de démonstration en stations et chez les agriculteurs (besoins en eau des cultures, conversion à l'irrigation localisée ; technologies améliorées de l'irrigation de surface et de l'irrigation par aspersion ) soulèvent un intérêt croissant de ces derniers\. Des résultats intéressants concernant l'économie d'eau, l'amélioration du rendement et de la qualité des produits, mais aussi dans le cas de l'irrigation par aspersion un meilleur accès à la parcelle et une diminution des litiges ont été démontrés et un nombre croissant d'agriculteurs adopte la technologie présentée\. On estime que ces techniques améliorés ont déjà été appliquées sur environ 5\.500 ha dans les trois ORMVA; (iii) les voyages d'étude organisés au profit des agriculteurs dans d'autres grandes régions du Maroc ont également encouragé l'adoption des techniques d'irrigation améliorées; et (iv) six entreprises privées (surfaçage/nivellement) au Tadla et 7 associations d'irriguants au Doukkala ont été conventionnées\. A ce jour environ 4\.000 ha ont bénéficié de nivellement ou de surfaçage\. Le suivi de l'impact environnemental de l'irrigation : Les trois études prévues dans le cadre de la sous composante sont achevées\. Il s'agit: a) des deux études lancées par le SEEN pour dresser le plan de suivi de la qualité des eaux et des sols dans les périmètre du Tadla et des Doukkala; et b) de l'étude similaire conduite par l'ORMVA des Doukkala pour le Haut Service\. Le suivi continu de la qualité des eaux et des sols est actuellement assuré par les 2 ORMVA\. Etude du secteur de l'irrigation moderne privée : Cette étude composée de 4 missions est exécutée par l'AGR par l'intermédiaire du SEG pour estimer l'importance, la configuration, la performance et les problèmes du secteur\. La dernière phase de cette étude est en cours de finalisation\. Renforcement des moyens du SEEN : Les laboratoires du SEEN (laboratoire eau-sol et laboratoire d'essais du matériel d'irrigation et de drainage) ont été équipés de matériel technique et scientifique; une partie du réseau de stations météorologiques a été réhabilité; et du matériel informatique a été acquis dans le cadre du projet\. L'impact de cette composante, dont plus de 90% concerne le renforcement les laboratoires d'essais, s'annonce prometteur sachant que deux arrêtés concernant les conditions d'octroi de subventions pour l'irrigation de complément et l'irrigation localisée, publiés en janvier 2002, prévoient la nécessité de joindre aux dossiers de demande de subventions, les bulletins d'essais des performances hydrauliques du matériel utilisé par le SEEN\. Depuis janvier 2002, 400 essais hydrauliques et 13\.000 analyses ont été réalisées par le SEEN\. d- Appui à la lutte contre les maladies hydriques : exécuté par la DELM dans le bassin de l'Oum-er-Rbia et comprenant notamment : le renforcement des moyens de la DELM et l'intensification des mesures préventives et curatives contre la malaria, bilharziose, typhoïde et dysenterie\. La composante a pour objectif le soutien du programme du Ministère de la Santé visant à contrôler les maladies hydriques dans le bassin de l'Oum Er Rbia comprenant la construction de laboratoires, la fourniture des équipements et la formation\. Cette composante soutient le programme de surveillance et de contrôle des maladies hydriques de la Direction de l'Epidémiologie et de la Lutte contre les Maladies (DELM) du Ministère de la Santé dans le bassin de l'Oum Er Rbia\. Elle comprend les actions suivantes: (a) la construction et l'équipement de deux laboratoires régionaux de diagnostic épidémiologique et d'hygiène du milieu et l'équipement de cinq laboratoires provinciaux existants; (b) le renforcement des moyens de contrôle des eaux de boisson et de lutte contre les vecteurs de maladies ; (c) l'information, l'éducation et la sensibilisation sur les pratiques - 34 -  d'hygiène et de prévention, particulièrement en milieu rural et (d) la formation du personnel de terrain\. e- Appui aux investissements physiques : exécuté par la DGH, comprenant les 3 opérations prioritaires : étude de la nappe profonde des Triffa, réalimentation de la nappe du Souss et réhabilitation du barrage de Nakhla\. Cette composante comprend les opérations suivantes : la réhabilitation du barrage de Nakhla ; l'étude des aquifères, comprenant notamment la réalisation des forages de reconnaissance, l'étude de l'aquifère des Triffa et l'étude de l'aménagement pour la recharge de la nappe du Souss\. Travaux de Réhabilitation du Barrage de Nakhla : Les travaux de réhabilitation définis en 1999 comprenaient deux lots: (i) Lot 1 : Construction d'un masque étanche sur la face amont de la digue en terre, dans le but d'en renforcer l'étanchéité; et (ii) Lot 2 : Traitement par injections de la fondation de l'ouvrage\. La DGH et le Consultant confirment que l'hypothèse de départ attribuant, en grande partie, les fuites d'eau à l'absence de masque amont du barrage n'est pas tout à fait exacte et qu'il faudrait orienter tous les travaux d'étanchéité vers la fondation du barrage et non vers le masque, ce qui a été fait et les travaux du Lot 2 sont actuellement terminés, tandis que ceux du Lot 1 ont été annulés\. Vu l'importance de ces hypothèses, un expert a été recruté pour revoir les résultats\. Ces principales conclusions et recommandations ont été les suivantes: a) la procédure d'injection réalisée a permis d'atteindre une meilleure étanchéité des fondations gauche et droite du barrage ; b) la continuation du traitement des fondations du barrage dans la partie la plus profonde est nécessaire; c) l'installation de dispositifs d'auscultation pour le suivi des écoulements d'eau est à entreprendre ; et d) le traitement du masque amont devrait être réalisé\. Etudes des Nappes Profondes des Triffa et de Moulouya : L'étude géophysique avait pour objectif d'orienter l'exécution des travaux de forage dans la nappe profonde des Triffa\. Elle comprenait 3 missions: (i) synthèse des données existantes; (ii) réalisation de 60 km de profils sismiques et (iii) interprétation et élaboration du rapport final\. Cette étude est maintenant terminée\. Les travaux du premier forage profond sont également achevés\. Au vu des résultats infructueux de ce premier forage, la DGH a décidé de ne pas réaliser de nouveaux forages profonds et, à la place et avec l'accord de la Banque, a lancé 3 opérations de forages de reconnaissance et d'exploitation dans différentes provinces du bassin de la Moulouya et une étude relatif à la modélisation de la Nappe de Triffa\. Dispositifs de la Recharge Artificielle de la Nappe du Souss : Cette étude a pour objet de réaliser les études de conception (mission I), d'Avant Projet Définitif (mission II) et d'évaluation économique et environnementale (mission III) des dispositifs de recharge de la nappe du Souss\. Les options d'aménagements ont été arrêtées dans le cadre de la mission III de cette étude\. Les travaux topographiques nécessaires à l'élaboration des plans d'exécution des aménagements ont aussi été achevés\. Les travaux d'aménagements proprement dits ont été scindés en deux lots : a) Lot 1 concerne la construction d'un nouveau seuil et b) Lot 2 concerne la réhabilitation de 5 seuils\. - 35 -  - 36 -

REVIEW

P062932

 ICRR 12655 Report Number : ICRR12655 IEG ICR Review Independent Evaluation Group 1\. Project Data: Date Posted : 06/27/2007 PROJ ID : P062932 Appraisal Actual Project Name : Health Reform US$M ): Project Costs (US$M): 239\.3 231\.8 Program (first Phase: Mother And Child Insuranceand Decentralization Of Health Services) Country : Peru Loan /Credit (US$M): Loan/ US$M ): 80\.0 27\.0 Sector Board : HE US$M): Cofinancing (US$M): 95\.0 28\.0 Sector (s): Health (97%) Central government administration (3%) Theme (s): Other communicable diseases (25% - P) Child health (25% - P) Participation and civic engagement (24% - P) Decentralization (13% - S) Population and reproductive health (13% - S) L/C Number : L4527 Board Approval Date : 12/16/1999 Partners involved : IDB, DFID, OPEC Closing Date : 12/31/2003 06/30/2006 FUND Evaluator : Panel Reviewer : Group Manager : Group : Denise A\. Vaillancourt Roy Gilbert Alain A\. Barbu IEGSG 2\. Project Objectives and Components: a\. Objectives: The medium -term goals of Peru ’s 10-10 -year Health Reform Program (2000-2010) are to: (a) improve maternal and child health; and (b) help reduce morbidity and deaths of the poor from communicable diseases and inadequate environmental conditions\. These goals will be achieved through increasing the access of the poor to, and improving the quality and efficiency of, health systems in Peru \. This 10-year Program was to be supported by a series of three Adaptable Program Loans (APLs)\. The first APL in the series , the subject of this ICR review, was to provide financing for Phase I of the Program (FY2000-2004) with an IBRD loan of US$80 million\. It aimed to contribute to the above medium -term Program goals by increasing the access of the poor to better quality health programs and services \. The focus of Phase I was on empowering the poor, strengthening the demand side, while improving the quality of the supply side of health programs and services\. At the operational level, this objective translated into the following subgoals : (a) reducing the economic barriers to utilization of health services , primarily through the implementation of Seguro Materno Infantil (SMI) (mother and child health insurance ); (b) enhancing the decentralization of the health system through: (i) increased participation of communities (through the community-managed health facilities – CLAS), municipalities and local health entities in planning, management and monitoring of health programs and services; and (ii) redefining the role of the Ministry of Health (MoH) including streamlining its mother, child and environmental health programs; and (c) adapting investments to local health problems, particularly to cultural aspects of health promotion and service utilization, and addressing communicable diseases and environmental health problems \. Subsequent phases of the APL envisaged the following support : Phase II (FY-2004-2007, to be supported by an IBRD loan of US$ 50 million equivalent) was intended to support the continuation/adjustment of Phase I reforms and to tackle the issues of health insurance, health manpower, and autonomy of hospitals\. Phase II (FY2007-2010, to be supported by an IBRD loan of US$ 50 million equivalent) was intended to consolidate the lessons from the previous two phases and to support public hospital reforms, continued strengthening of health care networks; unification of health insurance schemes, and chronic diseases \. b\.Were the project objectives/key associated outcome targets revised during implementation? No c\. Components (or Key Conditions in the case of DPLs, as appropriate): (with estimated costs, including contingencies, and actual costs) 1\. Strengthening Health Demand (US$149 149 \.0 million or 62 percent of total estimated cost; US$ US$ 149\. 149 \.0 million or 64 149\. percent of total actual cost ): Implementation of the Maternal and Child Insurance (SMI) to benefit the low income mothers and children, especially from the poorest rural areas of Peru \. The loan was to finance: (i) the reimbursements for services provided by eligible health facilities under the SMI in the project areas; (ii) SMI administration at the central level (MoH) and at the local level (DISAs); and (iii) monitoring and evaluation of SMI implementation\. 2\. Strengthening Decentralization, Policy Development and Institutional Modernization US$ 22\. 22 \.8 million or 10 (US$22 percent of total estimated cost; US$ 22\. 22 \.8 million or 10 percent of total actual cost ): (a) technical assistance for decentralization , including (i) support for Community-Managed Health Facilities (CLAS) expansion and empowerment of communities (facilitation of democratic election processes; strengthening of CLAS management and of community capabilities to implement and monitor local health plans ); and (ii) strengthening capacity of municipalities and Regional Health Boards -- DISAs (formulation and implementation of regional health plans, elaboration of investment proposals and strengthening of municipalities ’ role in PHC administration); (b) reorientation of the role of MoH and public/private health providers , including improvement of normative role, streamlining of mother and child health programs, strengthening strategic planning and budgetary process; streamlining of environmental health programs; and development of studies, workshops and action plans related to second generation reforms (payment mechanisms and contracting of services between MoH and Social Security (ESSALUD) facilities, public/private insurance schemes articulation, health manpower skills mix and incentives for better focus on poverty); and (c) monitoring and evaluation: conversion of MoH’s information system as a M&E instrument that will track the distributional effects of health programs and services \. 3\. Improving the Quality of Health Programs and Services (US$49 49 \.0 million or 21 percent of total estimated cost; US$ 49\. US$49 US$ 49 million or 21 percent of total actual cost ): financing of subprojects in support of the regional /local health plans addressing the health priorities of the regional departments in four general areas : support for SMI (see component 1); nutrition; prevention and treatment of prevalent communicable diseases in the local area; and environmental health\. 4\. Project Coordination (US$8 US$ 8\.0 million or 3 percent of total estimated costs; US$ 8\.0 million or 3 percent of total actual costs ): partial financing of the operating costs of the Project Coordination Unit, PCU \. The bulk of the APL’s first phase was supposed to finance the implementation of SMI (see component 1) and its corollary investment requirements in 10 geographic areas in 10 departments (Puno, Apurimac, Cajamarca, Cuzco, Lambayeque, Piura, Tumbes, La Libertad, Madre de Dios, Lima Norte and Lima Sur ), with planned Inter-American Development Bank (IDB) financing to provide similar support in 17 other departments\. Technical assistance under component 2 was to benefit the national level and municipalities, local health departments and communities participating in the CLAS expansion \. Changes to components: During project restructuring (2003) the number of departments in the project area was reduced, but the definition of the project area after restructuring is not clear \. (On page 6 the ICR notes that the number of regions in the project area was reduced from 10 to 3, including four DISAs [Regional Health Boards]\. On page 8 it is noted that the project's geographical scope was reduced to 8 regions)\. During project implementation, the maternal and child insurance (SMI), which was to be strengthened under the project, was transformed into the Integrated Health Insurance (SIS), which the project continued to support in its new form \. Other changes due to restructuring included : the revision of the logframe to include five monitoring indicators to explain changes in maternal and peri -natal mortality; improved targeting of SIS to two poorest quintiles and a strategy to reduce linguistic and cultural barriers to access; consolidation of supply -side Components B and C and the targeting of maternal and peri -natal mortality instead of a broader set of diseases and environmental conditions that affect child health \. In addition, the financing of reimbursements for each child and mother covered by the SIS was assumed by the Government under the project (instead of the Bank loan); and the investment component, originally designed as a demand -driven fund for communities, was amended to support a system of investment planning based on technical criteria developed by the World Health Organization (WHO) and to support complex referral systems \. d\. Comments on Project Cost, Financing, Borrower Contribution, and Dates: Comments on Project Cost, Financing, Borrower Contribution, and Dates Total actual cost was 97 percent of the original estimate\. The Bank and the IDB each financed only one third of their respective original loan amounts \. This is due to Government’s decision to assume responsibility for financing the reimbursements for utilization of maternal and child health services under the insurance scheme (disbursement against results described in Section 3), which made up a substantial part of projects and was originally slated for Bank and IDB financing\. As a result, the Government financed almost three times its original financing commitment \. OPEC did not provide financing as originally planned \. The project closed on June 30, 2006, two and one half years after the original closing date of December 31, 2003\. The extension of the closing date was attributable to the very slow start and sluggish implementation through 2003, due to political changes, unsatisfactory physical and financial implementation progress, the fusion of two insurance schemes into one, turnover in PCU staff and decentralization challenges\. 3\. Relevance of Objectives & Design: Overall relevance is substantial\. Relevance of Objectives \. The latter were supportive of 1997 CAS, which aimed to reduce poverty and improve Peru’s human capital base\. Medium-term sector reforms to be supported by the APL included : reconfiguration of the health system, promotion of integration of public and private services within a decentralized context, and reallocation of health expenditures to basic health care for the poor \. The project is also consistent with World Bank ’s Strategy in the HNP sector (1997), aiming to: (i) improve the HNP outcomes of the Peruvian poor; (ii) enhance the performance of health care systems; and (iii) secure sustainable health care financing \. The project is an operational follow -up to recommendations of the health sector report entitled, “Peru: Improving Health Care of the Poorâ€? (Report No\. 18549-PE) as well as Ministry of Health’s analytical work on the reforms needed in the health sector \. The PDO continues to be relevant in present -day Peru\. The new December 2006 Country Partnership Strategy notes the large acceleration in the rate of reduction of the infant mortality rate and proposes to sustain these gains \. It states that the emphasis must be to continue improving results by improving quality and sustaining gains in coverage\. Relevance of Design \. The proposed project is closely linked to the health policy conditionalities in the SAL under preparation\. The complementarity of the SAL and APL instruments and the utilization of the ESW results constituted a unique process for providing immediate and medium -term assistance to health sector reforms \. The SAL also served to elicit Ministry of Finance ’s increased focus on social sector reform, presenting an opportunity for MoH \. The choice of the APL was appropriate in that it accommodated both the flexibility and the incremental, medium -term perspective required for successful sector reform \. Another feature of the design was its simultaneous strengthening of demand for services (through the SIS) and supply of services (through health investments)\. The original design of the project was innovative in its inclusion of a component that would disburse against results, reimbursing the government a certain amount for each child and mother who utilized health services covered by the SIS \. However, the project design (a) was complex and included too many health -related issues to tackle at once; and (b) did not take into sufficient consideration the potential difficulties that MoH would have in obtaining information systems and human technical support for effective management of the intended reform process \. The restructuring of the project in 2003 and its focus on maternal and peri -natal services was helpful in reducing project scope and complexity to more realistic levels\. 4\. Achievement of Objectives (Efficacy): Overall efficacy is substantial\. (a) Reducing the economic barriers to utilization of health services : substantially achieved\. The percent of pregnant women with four or more prenatal visits in the project area increased from 32 in 2000 to 57 in 2006, surpassing the 2003 target of 51, and increasing (by 78 percent) at a much faster rate than national averages ( an increase of 26 percent, from 60 percent in 2000 to 76 in 2006)\. The percent of deliveries attended by skilled health personnel increased in the project area by 84 percent from 28 in 2000 to 51 in 2005, surpassing the 2003 target of a 33 percent increase, and increasing at a faster rate than the national average, which increased from 55 percent to 71 percent\. The percentage of children between 18 and 29 months vaccinated with DPT3 increased from 78 percent to 87 percent, but fell short of the 95 percent target\. DPT3 was replaced by a more complex vaccine so that its coverage at the regional level was reduced in the last few years \. (The Pentavalent, which includes DPT 3, Hepatitis B and Haemophilus Influenzae type b vaccines ) is more powerful but is more demanding in its application and logistics\.)  28\.1 million beneficiaries receive care in the primary facilities of MoH annually, exceeding the 2003 target of 17 million\. The percent of deliveries attended institutionally by the Integrated Health Insurance (SIS) (which replaced the SMI – maternal-child insurance) increased 73 percent nationwide (from 38 percent to 65 percent); and, in the project area, it increased by 224 percent from 19 to 60 percent\. The percent of deliveries financed by SIS in the two poorest quintiles of the population in the project area increased by 27 percent from 44 to 56 percent\. The percent of newborn children covered by the SIS weighed within the first 24 hours of birth increased from 73 to 83 percent nationwide and, for the project area, increased from 64 to 74 percent , but fell short of the (nationwide and project area) target of 95 percent\. The SIS was implemented nationally in 2002, ahead of the target of 2003\. (b) Enhancing the decentralization of the health system and strengthening MoH : substantially achieved\. All DISAs regularly sign annual Management Agreements with the MoH, reflecting commitments with respect to regional health priorities and indicators with quantitative goals for the period \. One third of primary care clinics were administered by CLAS, which has strengthened the quality of services \. CLAS have been shown to have greater productivity per employee, long hours of operation, higher levels of patient satisfaction and greater levels of community participation \. CLAS employees have been given the status of civil servants due to a change in labor legislation and care will need to be given not to lose the quality and efficiency gains achieved through the “non-publicâ€? spirit of the CLAS\. Fragmentation of the formerly “verticalâ€? programs was reduced in part, through restructuring of care into age-based groups and the establishment of the Integral Health Model \. In addition, the budget was integrated for all programs\. However, the information systems still need to be unified through an integrated MoH monitoring system\. An assessment of project results was completed by Government to produce lessons and recommendations for the formulation of Phase 2, which have been incorporated into the new design \. This included an analysis of the incidence of health policies\. (c) adapting investments to cultural aspects of health promotion and service utilization : substantially achieved (with a caveat) A Participation and Social Communication Strategy and an Indigenous People Plan were derived from a social assessment to detect and address relevant cultural patterns of users and health providers and gaps impeding the improvement and use of health services \. While the intercultural strategy was designed only during the implementation phase and launched from mid -2004, the ICR notes that it has contributed significantly to improved utilization\. The strategy has facilitated a better balance between the supply and demand sides of health services investments, highlighting the need to go beyond the provision of services by ensuring the effective and equitable use of these services \. Over and above positive trends in service utilization and outcomes among the poor and among rural and disadvantaged rural populations documented in the ICR, the tracking of output and outcome indicators of indigenous populations would have provided added insight on the project's performance\. Health outcomes: Nationwide infant mortality fell from a 2000 baseline 43 deaths per 1000 live births to 22\.3 in June 2006, surpassing the 2003 target of 29\.2\. Likewise infant mortality in the project area fell from 48 to 28\.3 in 2006, surpassing the 2003 target of 34\.4\. While infant mortality is the result of many factors, it is plausible to attribute this achievement in part to project investments in stimulating both the demand for services as well as its supply \. The Borrower in its comments notes as well other investments in maternal and child health (European Union, Care, IDB and others)\. 5\. Efficiency (not applicable to DPLs): Gains in efficiency were achieved through good targeting and increased coverage of the SIS (mothers and children in poorest income quintiles)\. The project incited greater demand for and utilization of services (generated by SIS) and achieved higher levels of productivity in previously underutilized facilities \. SIS contributed to significant improvements in the targeting of public health expenditure \. SIS improves the distribution of expenditures of other MoH facilities\. By financing the co-payment allowing the poor entry to a hospital, it directs the subsidy to the facility to the poor beneficiary\. Also the mother and child components of SIS have a relatively small cost (5 percent of public health expenditure or 0\.07 percent of GDP), and this increase has been easily absorbed in the budget \. Investment expenditures in 2005 were only 0\.5 percent of public health expenditures and their recurrent cost implications are also minimal\. The ICR refers to a benefit analysis of all the large social programs in Peru (carried out by RECURSO) which found SIS to be the most efficiently targeted program in health, noting that this program has a "concentration coefficient" of -0\.08, compared with a "concentration coefficient" of 0\.21 for expenditures in MoH hospitals \. However, the meaning of this indicator is not explained \. ERR )/Financial Rate of Return (FRR) a\. If available, enter the Economic Rate of Return (ERR) FRR ) at appraisal and the re- re -estimated value at evaluation :  Rate Available? Point Value Coverage/Scope* Appraisal % % ICR estimate % % * Refers to percent of total project cost for which ERR/FRR was calculated\. 6\. Outcome: PDOs were substantially relevant and were achieved with substantial efficiency \. a\. Outcome Rating : Satisfactory 7\. Rationale for Risk to Development Outcome Rating: SIS is strongly supported by the current government and recognized as a valuable service by the population \. Government's strong political and financial support for maternal and child health services will be underpinned by continued Bank support through Phase 2 of the APL and a DPL\. a\. Risk to Development Outcome Rating : Negligible to Low 8\. Assessment of Bank Performance: Quality at entry was good thanks to sound analytic work and a strong dialogue with government \. Frequency of supervision missions was adequate and they were carried out by technically competent teams who were proactive during periods of major political turmoil and significant staff turnover \. at -Entry :Satisfactory a\. Ensuring Quality -at- b\. Quality of Supervision :Satisfactory c\. Overall Bank Performance :Satisfactory 9\. Assessment of Borrower Performance: Borrower and PCU performance were sound overall, despite political turmoil and staff turnover \. The project was prepared simultaneously with the IDB -financed project\. The Borrower's team was well qualified and made up of members who were familiar with IDB and Bank procedures and it was well coordinated by the Ministry of Health \. Weighting the highly unsatisfactory performance of the Government up to 2003 (strongly linked to the political turmoil and resultant uncertainty about health policy and roles and responsibilities ) with the decisive and productive performance since November 2003, overall Government performance during project implementation is satisfactory\. a\. Government Performance :Satisfactory b\. Implementing Agency Performance :Satisfactory c\. Overall Borrower Performance :Satisfactory 10\. M&E Design, Implementation, & Utilization: Design \. Monitoring\. A M&E subcomponent was designed to measure the intermediate and final outcomes of the project, under the responsibility of the PCU \. Coverage of health interventions were to be measured by administrative data generated by the existing information system, which was to be strengthened with project support \. Annual coverage surveys were also planned to complement administrative data, by strengthening the social sector module of households\. MoH (responsible for administrative data ) and the National Statistics Institute (responsible for the household surveys) were expected to sign an agreement satisfactory to the Bank to carry out a revised social sector module\. Evaluation\. Two Demographic and Health Surveys (a baseline in 2000 and an second one in 2003) were planned to measure progress in health conditions, including infant and maternal mortality \. The National Statistics Institute was responsible for implementation\. Annual ex-post evaluations of random samples of concluded subprojects and beneficiary assessments were planned to evaluate investment subprojects, including physical audits of a sample of evaluated projects\. To measure subproject impact, a baseline and control group were to be established during the first year of implementation\. With the assistance of DFID, a participatory monitoring and evaluation approach (PM&E) was also planned to complement other M&E activities and to foster fuller involvement of local stakeholders in the assessment of project activities \. Implementation \. While the launch was slow, towards the end of 2003, the project developed a monitoring system, based on MINSA information systems that allowed timely reporting of key project indicators in the eight DISAs and nationally for SIS indicators\. The DHS became a continuous exercise (Continuous National Survey) starting in 2004, under the responsibility of the National Statistics Institute \. The project also implemented a training program on monitoring and evaluation in the eight DISAs to develop local capacity in monitoring maternal and child health indicators\. Utilization \. The system was regularly used by Project staff to ensure that investments were targeted to critical areas within these jurisdictions\. In addition, the system contributed significantly to monitor SIS targeting to the poorer quintiles\. The Borrower, in its comments, noted that the project ’s M&E system influenced significantly the decision -making process in the project area \. A particular attribute of the system was the fact that it used existing administrative systems to calculate indicators \. Unfortunately, at the central level, this system was not valued as much as it was in the regions\. The main reason for this is the large number of existing monitoring systems at the central level \. Under the follow-on project the Government is requesting support for the unification of the various administrative systems in order to develop a solid M&E system at the MoH level \. a\. M&E Quality Rating : Substantial 11\. Other Issues (Safeguards, Fiduciary, Unintended Positive and Negative Impacts): 12\. 12\. Ratings : ICR IEG Review Reason for Disagreement /Comments Outcome : Satisfactory Satisfactory Risk to Development Negligible to Low Negligible to Low While IEG agrees with this overall Outcome : rating, an important caveat would be the challenge of sustaining the good performance of the CLAS, given that staff have now been given civil servant status\. The original premise of CLAS was that public sector performance and accountability would improve with the involvement of the non-public sector, providing a counterforce to the public sector\. Bank Performance : Satisfactory Satisfactory Borrower Performance : Satisfactory Satisfactory Quality of ICR : Satisfactory NOTES: NOTES - When insufficient information is provided by the Bank for IEG to arrive at a clear rating, IEG will downgrade the relevant ratings as warranted beginning July 1, 2006\. - The "Reason for Disagreement/Comments" column could cross-reference other sections of the ICR Review, as appropriate \. 13\. Lessons: Political volatility can have a detrimental effect on project implementation and impact \. Frequent changes of political appointees often result in changes in priorities that lead to confusion in project teams and delay in project implementation\. Use of a variety of lending and non -lending instruments can enhance dialogue and the implementation of critical sector reform\.  The use of a clear evidence -based causality model can strongly enhance the achievement of project development objectives\. Strategies to document and address cultural barriers to health services access are vital for improving overall access to care when beneficiaries belong to diverse indigenous groups \. 14\. Assessment Recommended? Yes No Why? It would be interesting to study various aspects of what appears to be good practice for sector reform, including: focusing on both supply and demand at the same time; a logframe that includes indicators that link investments with outcomes; refined targeting of mothers and children in poorest two income quintiles; good synergies in the use of Bank instruments (health and non-health lending and ESW)\. 15\. Comments on Quality of ICR: The ICR is well organized and well written, making good use of available data and substantiating the ratings and lessons well\. There were only two points on which more clarity would have been beneficial : (1) The definition of the project area after project restructuring is not clear (Section 2\.b)\. (2) On page 19 the CLAS are noted to have been very successful in improving the quality and efficiency of services and patient satisfaction\. Their strength, indicated elsewhere in the ICR, is that the CLAS are made up of civil society actors and communities that keep a check on service delivery on behalf of the people \. Yet the ICR notes that Government has changed the labor legislation, giving CLAS employees the status of civil servants \. The ICR provides no assessment of the implications of this decision which run contrary to the original spirit of the CLAS reform (role of civil society and communities as a complement to, and check on, public sector services )\. a\.Quality of ICR Rating : Satisfactory

REVIEW

P004372

 Transport improvement project Report No: ; Type: Report/Evaluation Memorandum ; Country: Papua New Guinea; Region: East Asia And Pacific; Sector: Other Transportation; Major Sector: Transportation; ProjectID: P004372 Papua New Guinea: Transport Improvement Project (Loan 2742- PNG) The Implementation Completion Report (ICR) on the Papua New Guinea Transport Improvement Project (Loan 2742-PNG, approved in FY86) was prepared jointly by the Infrastructure Operations Division of the Asia and Pacific Region and the Borrower\. The loan, for US$45\.5 million, was approved on July 22, 1986, and closed on December 31, 1994, three years behind schedule\. US$2\.68 million was canceled due to misprocurement\. The project's objectives were to: (a) improve land transport and reduce vehicle operating costs; (b) enhance air transport and safety; (c) improve efficiency of road maintenance; and (d) strengthen sector institutions\. The project included: (i) the reconstruction of 80 km of national roads and regraveling of another 500 km; (ii) the rehabilitation of about 50 bridges; (iii) the improvement of runways, taxiways and aprons at 16 airports and replacement of navigational aids at 14 airports; (iv) the procurement of equipment and materials for road maintenance; and (v) technical assistance, studies, and training for sector institutions\. The project's physical objectives were achieved only partially\. A section of the national roads was not reconstructed due to persistent security problems, disputes over right-of-way issues and cost overruns\. Delays, causing cost overruns, were occasioned by design revisions, disagreements about design standards, deficient project supervision by consultants, and a shortage of counterpart funds and human resources\. Road regraveling targets were exceeded but bridge rehabilitation fell 20 percent short\. Safety and physical air-side improvements at the airports were completed at 14 airports\. Procurement of equipment and materials for maintenance was reduced because most of the maintenance was executed by contractors\. Institutional objectives were only partially achieved as studies were completed but training and technical assistance were curtailed due to lack of funds and counterpart staff\. The economic rate of return (ERR) for the road reconstruction component--ranging from 13 to 28 percent at appraisal--was reestimated at 5 to 16 percent in the ICR; the lower value for the reconstruction of the national road, representing about half of the loan amount, was due to cost overruns\. The ERR of the largely successful components for bridges, airports and technical assistance was not calculated\. The Operations Evaluation Department rates project outcome as marginally unsatisfactory, institutional development as moderate and sustainability as uncertain\. Bank performance is rated as satisfactory; the project was undertaken under very difficult circumstances and a more active Bank involvement during preparation would have been beneficial\. These ratings are consistent with those in the ICR\. A key lesson from the project is the critical importance of a correct assessment of institutional risk (particularly of the capacity of the implementing agency) as an integral part of project appraisal\. The ICR is of satisfactory quality\. It provides a thorough account of the project's physical and institutional achievements as well as shortfalls in relation to its original objectives\. No audit is planned\.

REVIEW

P000968

 ICRR 12825 Report Number : ICRR12825 IEG ICR Review Independent Evaluation Group 1\. Project Data: Date Posted : 02/27/2008 PROJ ID : P000968 Appraisal Actual Project Name : Agricultural Services Project Costs (US$M): US$M ): 123\.7 88\.9 Subsector Investment Project Country : Ghana Loan/ US$M): Loan /Credit (US$M): 67\.0 78\.8 Sector Board : RDV Cofinancing (US$M ): US$M): 42\.6 0\.0 Sector (s): Agricultural extension and research (63%) Central government administration (14%) Sub-national government administration (13%) Other social services (10%) Theme (s): Administrative and civil service reform (29% - P) Decentralization (29% - P) Technology diffusion (14% - S) Rural policies and institutions (14% - S) Rural services and infrastructure (14% - S) L/C Number : C3405 Board Approval Date : 08/01/2000 Partners involved : Closing Date : 10/31/2003 04/30/2007 Evaluator : Panel Reviewer : Group Manager : Group : Keith Robert A\. Oblitas Kris Hallberg Alain A\. Barbu IEGSG 2\. Project Objectives and Components: a\. Objectives: The Agricultural Services Subsector Investment Project (AgSSIP) was the first phase of a program to : Increase the growth of agricultural productivity and incomes as the driving force for reducing rural poverty, improving food security and providing the basis for accelerated growth in the overall economy in an environmentally sustainable manner (PAD)\. Within this long-term goal, the project's specific objectives (summarized from the PAD) were: 1\. Policy and institutional reforms to strengthen Government's capacity (in agricultural development)\. 2\. Promoting decentralization by strengthening : (a) regional and district governments in planning and implementing agricultural development; and (b) central ministries and agencies in agricultural policy -making,  planning, monitoring, evaluation, technical back -stopping and regulation\. 3\. Promoting cost-effective, demand-driven agricultural extension systems to generate and disseminate improved technologies (on a contracting and/or cost-sharing basis)\. 4\. Strengthening the capacity of farmers -based organizations (FBOs) in priority setting and decision making, and in enhancement of their role in input distribution, credit, processing and output marketing \. NB: The Overall Development Objective (DO) as expressed in the PAD, DCA and ICR, has similar content between the three documents, but slightly different wording \. The PAD wording is presented above \. Sub-objectives are explicitly laid out in the PAD, but not in the DCA which, after the overall DO, presents the project by components \. The PAD's sub-objectives are taken here as they more effectively express the intent of the project expressed elsewhere in the PAD\. (At appraisal there should have been greater consistency between the PAD and the DCA \. Also, the ICR, which does not specifically present the project's sub -objectives, should have followed the PAD \. The PAD and DCA should be the documents considered in stating the objectives for evaluating a project (unless DOs are formally revised during project implementation, in which case both the original and revised project objectives are taken into consideration )\. In this case, the PAD statement of objectives are used, for the reasons given above \.) b\.Were the project objectives/key associated outcome targets revised during implementation? No c\. Components (or Key Conditions in the case of DPLs, as appropriate): A\. Technology Generation and Diffusion (Estimated costs at appraisal (base costs) $68\.3 million; Actual costs $42\.7 million): Strengthening the national agricultural extension and research systems \. For research, by: (i) improving research management; (ii) establishing a competitive research grants scheme and research user contributions; (iii) funding priority research programs; and, (iv) strengthening research information systems, infrastructure, and human capacity \. For extension: (i) supporting decentralization of extension activities to the districts; (ii) empowering beneficiaries to participate in research priority setting; (iii) strengthening linkages with research; (iv) establishment of an Extension Services Development Fund to promote pluralism, including contracting to the private sector, of extension services; (v) mainstreaming gender, equity and environmental issues in extension services; and (vi) supporting the national HIV/AIDS program\. B\. Reform and Strengthening of MOFA and District Assemblies (Estimated costs at appraisal (base costs) $24\.9 million; Actual costs $14\.9 million): Facilitating the transfer of responsibility for agricultural development activities to district level extension agents through restructuring, strengthening and developing staff skills of the Ministry of Food and Agriculture (MOFA) to provide technical back -stopping and training of district agricultural extension staff \. MOFA policy and regulatory capacity would also be upgraded \. C\. Development of Farmer -Based Organizations ((Estimated costs at appraisal (base costs) $9\.9 million; Actual costs $14\.7 million): Enhancing capacity of FBOs to be involved in agricultural policy making and in providing services to farmers through: developing policies and legislation; promoting and strengthening grass -roots FBOs and supporting agencies; transforming and strengthening a cooperative college to become a College of FBOs; and establishing an FBO Development Fund to provide matching grants to FBOs to help them address constraints such as inadequate access to inputs, extension, credit, marketing and weak management capacity \. D\. Strengthening Agricultural Education and Training ((Estimated costs at appraisal (base costs) $4\.6 million; Actual costs $6\.5 million): Strengthening the training capacity of agricultural colleges through : (i) review and revision of curricula; (ii) inclusion of the private sector, FBOs and NGOs on the boards of the colleges to ensure relevance of subject matter and skill development; (iii) training and recruitment of teaching staff; and (iv) upgrading infrastructure and equipment\. d\. Comments on Project Cost, Financing, Borrower Contribution, and Dates: At appraisal it was anticipated that a number of donors, including the African Development Bank, CIDA, DANIDA, DFID(UK), the EU and IFAD would come forward with parallel funding aggregating to some $ 42\.6 million\. In actuality, none of these sources formally joined the project \. However, several donors provided separate funding of the Government AgSSIP program, notably CIDA which financed Canadian $ 49\.2 million\. The increase in the dollar amount of IDA financing was due to the depreciation of the US$ versus the SDR, The Credit was extended three times, aggregating to a 3 1/2 year extension of the closing date and a project duration of 6 1/2 years, more than twice the 3 year project period planned at appraisal \. The main reasons for the delays were: (i) an unrealistic implementation period assumed at appraisal; (ii) inefficient financial management and procurement; (iii) delays caused by government reviews after changes in government administrations; and (iv) the new decentralized financing system resulting in cost centers throughout the country \. 3\. Relevance of Objectives & Design: Relevance was Modest overall because of the project's overly complex design and unrealistic time schedule \.  Relevance of Objectives : Substantial \. At the time of project preparation, agriculture accounted for 60 percent of employment, 40 percent of GDP and nearly 50 percent of export earnings \. While agricultural growth was a respectable 3-4 percent per annum, higher agricultural growth was needed both to reduce poverty (which was 52 percent in rural areas), and to raise GDP growth\. Accordingly, the FY00 CAS highlighted agricultural growth as a major objective, which was also articulated in Government strategy documents such as its "Accelerated Agricultural Growth and Development Strategy\." The main means to achieve higher agricultural growth was considered to be technologically driven increases in factor productivity \. A project focused on agricultural extension and research fitted the Government/Bank strategy and was a logical choice \. The FY07 CAS continues to emphasize agricultural growth, with technological change as a key thrust to achieve this \. Relevance of Design : Modest \. Taken individually, each of the project's four specific objectives had substantial relevance: (i) a variety of policy and institutional reforms were needed to create a better enabling environment for agricultural growth; (ii) both central and district level personnel needed strengthening and realignment of functions to provide decentralized services more directly responsive to farmer needs; (iii) district extension and research staff needed training, equipment and supporting infrastructure, and the private sector could play an increased role in provision of services; and (iv) the FBOs were generally weak yet could be strengthened to take a larger role in marketing, input supply and other functions \. The choice of an APL made good sense given that the challenge would evidently be a long-term one, requiring the Bank's continuous yet adaptive engagement \. The problem, however, and as candidly expressed in the ICR, was in the degree of complexity of each of the project components, the compounded challenge of then putting these complex components together, and a lack of realism in the assumed time period for project implementation \. Each project component, particularly Component A aiming for comprehensive improvement in national agricultural support services, was already ambitious \. For instance, the project included fisheries management, HIV /AIDS awareness, development of a natural disaster early warning system etc\., and yet further initiatives were introduced after MTR, such as rehabilitation of irrigation schemes\. It is questionable whether activities such as these were essential core actions for upgrading the agricultural extension/research system\. Also, policy and institutional reforms were combined with AgSSIP's investments\. Finally, it was assumed that the project's ambitious objectives would be achieved in three years - in the event it took 6 1/2 years, as at least partly to be expected for a first operation covering challenging new ground \. The Mid-Term Review in June 2004 was held seven months after the original project closing date \. 4\. Achievement of Objectives (Efficacy): Modest overall\. The overarching objective of AgSSIP was to increase agricultural productivity, and this needs to be the primary yardstick for assessing the project's achievement \. The target by completion of the project was a 10 percent increase in national average crop yields \. The actual average yield increase was 5\.3 percent, and not all of this may be attributable to the project's impact \. There were achievements against the 4 sub-objectives (most monitorable indicators were met), but the project's overall impact on productivity was not substantial \. Specific Objective 1: Modest achievement\. Progress was made with some studies and legislation : a National Extension Policy was prepared, Cooperative and NGO Bills were drafted, and a Fisheries Act passed \. However, little progress was made with other needed legislation or policies - for instance, the Quarantine and Seeds Bills were not revised and an Agricultural Education Policy has not been adopted \. Most importantly, the intended comprehensive institutional review of MOFA, which would have informed the decentralization strategy, was not done \. Specific Objective 2: Substantial achievement\. The ICR reports that MOFA staff received substantial training in the new skill areas anticipated when decentralization is fully implemented \. Ten districts piloted decentralized planning and budgeting\. Agricultural education policy was reviewed and curricula of agricultural colleges were revised\. The infrastructure of the colleges was upgraded, though work was not complete at project closure \. Specific Objective 3: Substantial achievement when considered as a start to the agSSIP program to upgrade, decentralize and link the extension -research system\. A competitive grants scheme for agricultural research was established and 193 research subprojects were implemented, generating nearly 70 new technologies\. Ten Research-Extension Linkages Committees were established \. Agricultural Extension Development Funds were formed in 8 districts and the contracting of extension to NGOs and the private sector was piloted, reaching over 8,000 farmers\. On the other hand, the ICR reports (Annex 2) that, other than research under the project's competitive grants, the concept of demand -driven research is not yet integrated in the research community as a whole \. Specific Objective 4: Substantial achievement\. A Farmer-Based Organizations Development Fund was established, and a Board of Trustees appointed to manage the fund \. 326 FBOs received grants, and the ICR reports that 85 percent of the subprojects financed were "satisfactory" (evaluation basis not described )\. Government's ICR comments favorably on the FBO sub -projects - "FBO benefited from value addition to their produce, and that increased incomes\." 5\. Efficiency (not applicable to DPLs): Substantial \. No ERR was calculated at appraisal or ICR stage, the rationale for this being that the project was supporting a national program and it would be difficult to separate project impacts from other variables \. However, a "break-even" analysis at appraisal estimated that if the difference between the "with-project" and "without-project" annual growth rates in agricultural yields over the project period exceeded just 0\.15 percent per annum, the project would be economically viable\. Actual agricultural growth over the four year period 2001 to 2005 (the bulk of the project period) was 5\.5 percent (about 1\.3 percent per annum) compared to a pre-project growth over the four year period 1996 to 2000 of 3\.9 percent (about 0\.9 percent per annum)\. Approximately the same result was obtained from an analysis excluding the high growth cocoa sector \. While these increments are small, and are likely to be influenced by other factors as well, they are above the gains required to make the project economically viable \. This assessment is consistent with an econometric analysis in the 2007 CEM, which estimated that some 60 percent of agricultural productivity growth during the project period was due to increases in agricultural factor productivity \. ERR )/Financial Rate of Return (FRR) a\. If available, enter the Economic Rate of Return (ERR) FRR ) at appraisal and the re-estimated value at evaluation : re- Rate Available? Point Value Coverage/Scope* Appraisal No ICR estimate No * Refers to percent of total project cost for which ERR/FRR was calculated\. 6\. Outcome: Moderately Satisfactory \. AgSSIP was overly complex and implementation took much longer than planned \. AgSSIP is likely to have been economically viable, but the gain in average agricultural yields of only 5 percent is quite modest\. Yet growth in agricultural productivity is the central purpose of AgSSIP \. Nevertheless, a base of experience and initial institutional change has been established for the follow -on phases of the APL, and growth in agricultural productivity may be accelerated as the decentralized extension services become fully functional \. a\. Outcome Rating : Moderately Satisfactory 7\. Rationale for Risk to Development Outcome Rating: Moderate \. The AgSSIP has set out to mainstream activities into the existing government institutional structures \. The 2nd and 3rd phases of the APL will provide continued support to enable institutions to further improve \. With such continuity, agricultural productivity can be expected to grow further as experience is gained with the new agricultural extension and research systems, and farmers and the private sector exploit the new opportunities available to them \. However, environmental degradation is a potential problem, and needs increased attention (section 11)\. a\. Risk to Development Outcome Rating : Moderate 8\. Assessment of Bank Performance: Moderately Satisfactory overall\. Quality at Entry : Unsatisfactory \. The Bank recognized the critical need to increase agricultural productivity, and that this required a long-term drive best suited for financing under an APL \. However, the project was far too complex, and implementation difficulties were compounded by a highly unrealistic assumed implementation period\. Further, despite a very high Bank Budget expenditure during project preparation ($1\.3 million), the project was not ready for implementation; an Implementation Manual had to be prepared during project execution, and the Bank overestimated the capacity of MOFA to implement the project \. Quality of Supervision : Moderately Satisfactory \. Supervision was initially poor\. The Bank was slow to acknowledge and address the constraints delaying implementation, and it was not until the July 2003 Project Status Report (3 years after Board presentation, and with only about 10% of the Credit disbursed), that Implementation Progress was rated Unsatisfactory \. Supervision improved markedly from Mid Term Review \. A close policy and institutional dialogue was developed with Government, and implementation problems were addressed proactively, facilitated by decentralization of task management to the Accra office \. Most of the project's achievements were in the last two years of implementation \. The Moderately Satisfactory rating for the Bank's overall performance is because of the significantly improved supervision in the second part of the project, which enabled the turnaround in the project's implementation\. at -Entry :Unsatisfactory a\. Ensuring Quality -at- b\. Quality of Supervision :Moderately Satisfactory c\. Overall Bank Performance :Moderately Satisfactory  9\. Assessment of Borrower Performance: Government Performance : Moderately Unsatisfactory \. Government was diligent in preparing the project, but a new Government showed less commitment when implementation began \. Approval was not provided for a number of policies and proposed legislation \. Subsequent to the MTR, commitment improved \. Implementing Agency Performance : Moderately Satisfactory \. There was initial confusion with how project management would be mainstreamed into MOFA, and there was poor communication between government departments and an only part-time project director\. But in the second half of the project, performance improved, enabling the significant pick -up in project implementation\. a\. Government Performance :Moderately Unsatisfactory b\. Implementing Agency Performance :Moderately Satisfactory c\. Overall Borrower Performance :Moderately Satisfactory 10\. M&E Design, Implementation, & Utilization: M&E Design \. The envisaged M&E system was too complicated \. Some 50 performance indicators and triggers for AgSSIP II were established, and data collection involved all district offices, but with inadequate guidance on data needed and methodology\. A baseline survey was intended but not done \. M&E Implementation \. The quality and relevance of M&E progressively improved over the project period, in particular after the MTR\. A more structured framework for M&E was established, reporting guidelines prepared and discussed at field levels, and M&E training provided to relevant field staff \. Baseline data was collected, and a Beneficiary Survey done at project completion \. M&E usage \. Usage of M&E progressed in parallel with the improvements in implementation of M&E \. A particularly strong effort was made in the last year of the project to integrate M&E with the informational needs of management, including data needs for assessing impact \. After a weak start, the M&E system is functioning and, while further improvements may be needed, appears to provide a much better base for M&E in the remainder of the AgSSIP APL\. Given that the M&E has had to be developed for the agricultural extension system nationally, this is a creditable achievement for AgSSIP's first phase \. a\. M&E Quality Rating : Substantial 11\. Other Issues (Safeguards, Fiduciary, Unintended Positive and Negative Impacts): The ICR reports that there were no fiduciary issues, and financial reports were generally on time \. Audit reports were not qualified\. Under the project,an impressive number of guides on integrated pest management were produced and distributed to extension staff, researchers and farmers \. The expansion in cropped area in recent years, often to marginal lands, and ongoing and prospective changes in cropping patterns, rotations and crop husbandry pose environmental risks\. These might include degradation of soil structure, erosion, and contamination of land and water from pesticides and fertilizers\. Environmental management merits an increasing focus under the remaining AgSSIP program\. 12\. 12\. Ratings : ICR IEG Review Reason for Disagreement /Comments Outcome : Moderately Moderately Satisfactory Satisfactory Risk to Development Moderate Moderate Outcome : Bank Performance : Moderately Moderately While Quality ar Entry and initial Satisfactory Satisfactory Supervision were weak, Supervision performance improved markedly from Mid-Term-Review, enabling significantly improved project performance\. Borrower Performance : Moderately Moderately  Satisfactory Satisfactory Quality of ICR : Satisfactory NOTES: NOTES - When insufficient information is provided by the Bank for IEG to arrive at a clear rating, IEG will downgrade the relevant ratings as warranted beginning July 1, 2006\. - The "Reason for Disagreement/Comments" column could cross-reference other sections of the ICR Review, as appropriate \. 13\. Lessons: 1\. Investment projects should be designed simply, without too many components, and with only a limited and manageable number of institutional and policy reforms \. AgSSIP combined in one operation a challenging investment program in agricultural extension and research with extensive institutional and policy reforms \. The extension/research program was itself highly complex and could have been stripped down to core activities and the essential institiutional changes required to carry them out \. Adding major institutional and policy reforms under the same project was over -burdensome\. If needed, a separate project could have supported such broader reforms \. 2\. Project time -frames should be realistic relative to what the project intends to do and the amount of learning required to do it \. The need for a major extension (doubling) of the project period was predictable given the project's complexity and MOFA's limited capacity in project management and procurement \. 3\. Mainstreaming of project management may require a planned process of capacity building and transition rather than assuming complete transfer without phasing \. Activities such as procurement, budgeting and accounting require training of staff as a prerequisite \. 4\. Where a sector has the interest of multiple donors, a coordination plan and mechanism for interaction should be considered \. Although the originally intended cofinancing of the project by other donors did not take place, a number were involved with the AgSSIP program, and collaboration between them and with the Bank was good\. This was helped by organizing Joint Implementation Support missions \. The ICR recommends that specific mechanisms for collaboration, including process mechanisms, procedures and leadership arrangements, should be drawn up and agreed between donors involved \. 14\. Assessment Recommended? Yes No Why? As part of the learning process for phases II and III of the AgSSIP APL, and possibly as part of a comparative assessment of agricultural support services projects in other countries \. 15\. Comments on Quality of ICR: Satisfactory overall: A particular virtue is the ICR's candid discussion of the project's strengths and weaknesses, persuasively leading to the lessons from the project experience \. There are three main areas where improvement would have been possible : The discussion of project achievements should have been framed primarily around AgSSIP's overall objective and four specific DOs\. The overarching objective to enhance productivity is well recognized in the ICR, but the sub-objectives are not listed\. Instead, discussion is focused on the Monitorable Indicators alone, rather than using the MIs to inform a more objectives -based discussion of the project's outcome \. The report is variable in the degree to which numbers, facts and statements on quantitative and qualitative impact are provided\. As example, research is well covered in this respect; information is provided on the number of competitive grants, the type of research sponsored and the institutions involved, and there are statements regarding how many were satisfactory (more detail on how "satisfaction" was assessed and by whom would have been helpful)\. But, by contrast, the degree to which MOFA personnel were trained and how such training enhanced MOFA's capacity, and the nature and impact of training at district levels has minimal assessment \. Even the number of staff trained is not provided \. Section 3\.4 of the ICR assesses project outcome pre and post MTR weighting each period by the relative size of disbursements, as per OPCS guidelines for a restructured project\. However, the project was not formally restructured (the PDOs were not changed and approved by the Board ), hence this methodology should not have been applied\. a\.Quality of ICR Rating : Satisfactory

REVIEW

P010530

 ICRR 12102 Report Number : ICRR12102 ICR Review Operations Evaluation Department 1\. Project Data: Date Posted : 06/20/2005 PROJ ID : P010530 Appraisal Actual Project Name : Irrig Sector Devt Project Costs 103\.02 90\.86 US$M ) (US$M) Country : Nepal Loan /Credit (US$M) Loan/ US$M ) 79\.77 69 Sector (s): Board: RDV - Irrigation and Cofinancing drainage (79%), Central US$M ) (US$M) CIDA: 0\.8 government administration FAO: 1\.1 (18%), Renewable energy (1%), Other social services (1%), Water supply (1%) L/C Number : C3009 Board Approval 98 FY ) (FY) Partners involved : CIDA, FAO Closing Date 06/30/2002 06/30/2004 Prepared by : Reviewed by : Group Manager : Group : Keith Robert A\. Roy Gilbert Alain A\. Barbu OEDSG Oblitas 2\. Project Objectives and Components a\. Objectives Objective I : Improve Water Resources Management to assist the Government in planning and utilizing its water resources in a harmonized, effective and sustainable manner; and Objective II : Irrigation Improvemen t and Development to increase productivity and sustainability of irrigation systems\. b\. Components (i) Developing a Comprehensive Water Resources Strategy and Water Policy : including: (a) preparation of a National Water Resources Development Plan; (b) preparing an Environmental Management Plan; (c) reviews of Subsidy Policy and Operations and Maintenance; and (d) establishment of a National Water Planning Unit \. Planned (as at Appraisal) Costs: US$1\.4 million, actual costs US$0\.5 million\. (ii) Irrigation Sector Improvement and Development on 59,600 ha; involving farmer organizations and system turnover to water user associations on 36,500 ha,15,100 ha of rehabilitation of the formerly Bank financed Sunsari Morang project, and 8,000 ha of upgrading of tubewell irrigation systems \. The component would be implemented in selected districts of the three western and eastern regions \. Design was based on the successful pilot experience in the Irrigation Line of Credit Project \. Planned costs: US$83\.6 million, actual costs US$73\.9\. (iii) Institutional Strengthening of the implementing agencies and community based organizations involved with the project, through provision of consultancies, training and equipment \. Planned costs: US$18\.0, actual costs US$16\.5\. c\. Comments on Project Cost, Financing and Dates Actual project costs were below the appraisal estimate because of the depreciation of the Nepali Rupee \. At Mid Term Review, US$8\.0 million of the Credit was cancelled\. CIDA provided additional funding of about US$ 0\.8 million for development of the Water Resources Strategy, and FAO provided US$ 1\.1 million for on-farm water management demonstrations\. The project had a 2 year extension, partly because of delays in districts affected by the Maoist insurgency\. 3\. Achievement of Relevant Objectives: Objective I : Improve Water Resources Management : Substantially Achieved \. The Project Appraisal Document and ICR express achievement of this Objective in terms of completing the preparation of a number of reports and policy statements\. This is also reflected in Project Component (i), and in the monitorable indicators \. Achievement in the terms defined is substantial \. The National Water Resources Strategy, National Water Plan, Environmental Management Plan, Irrigation Policy and Irrigation Regulations have been completed, and a water planning unit has been established\. These studies and the increased capacity of government will significantly enhance Nepal's policy base and capacity for water resources management \. Less satisfactory is the outcome of the Operations and Maintenance and Subsidy Studies \. The studies were completed, but cost recovery and operations and maintenance at tertiary levels for the public irrigation scheme (Sunsari Morang) have only marginally improved\. Collection of irrigation fees on Sunsari Morang increased, but reportedly are still only about 35% of the fees due\. Objective II : Irrigation Improvement and Development to Increase Productivity and Sustainability of Irrigation Schemes : Partially Achieved \. Two of the 3 monitorable indicators have been significantly exceeded : the irrigated area rehabilitated was 70,000 ha, 17% more than the 59,600 ha targeted at appraisal\. Cropping intensity increased by between 30 - 90%, as against the target of 40-50%\. For the 3rd indicator - yield increases of 20% - the ICR describes a "modest" increase in yields of 33% and 27% for paddy and wheat respectively, the two major crops, but does not provide absolute yield amounts \. Assuming these percentages reflect measured actual yields, the increases exceeded the project's monitorable indicators, but were lower than the appraisal targets of 55 and 67% respectively\. Overall, the project's productivity objectives were achieved, but as discussed in Section 5, Sustainability is questionable\. 4\. Significant Outcomes/Impacts: Nepal's water strategy and planning base was improved through the studies implemented under the project \. In particular, the water resources strategy and national water plan provide a good foundation for future decisions and investments in the water sector \. Institutional capacity was also improved through establishment of a national water planning unit\. Increased productivity achieved under the project had an important impact on household incomes and welfare \. Based on the increases in cropping intensity and likely ranges for yield increases, agricultural incomes increased by over 50%\. About a million persons or 190,000 households are reported to have benefitted from the project\. Poverty alleviation was substantial as some 70% of the households have holdings of less than 1\.0 ha\. 5\. Significant Shortcomings (including non-compliance with safeguard policies): The following shortcomings would need to be overcome if project investments are to be sustainable : (i) Water user associations not taking full responsibilities for their irrigation systems; (ii) operations and maintenance lower than needs; and, (iii) revenues insufficient to cover operations and maintenance costs \. The project was a combination of what were originally envisaged as two projects : (i) a sector-wide irrigation improvement project; and (ii) continuation of the Sunsari Morang investment program (at that time it was only possible to advance one project to the Board )\. The decision to include Sunsari Morang added further complexity to the irrigation improvement program\. This was already difficult in its objectives, with substantial institutional content and sector wide studies \. Dedicated attention only to the irrigation improvement program would have been better\. 6\. Ratings : ICR OED Review Reason for Disagreement /Comments Outcome : Satisfactory Moderately Satisfactory [The ICR's current 4-point scale does not allow for a "moderately sat\." rating] Both of the Project Objectives were substantially achieved, but with shortcomings\. In particular, water charges are below the levels required for adequate maintenance, which puts sustainability, and ultimately outcome, at risk\. Institutional Dev \.: Modest Modest Sustainability : Unlikely Unlikely Bank Performance : Satisfactory Satisfactory Borrower Perf \.: Satisfactory Satisfactory Quality of ICR : Satisfactory NOTE ICR rating values flagged with ' * ' don't comply with OP/BP 13\.55, but are listed for completeness\. NOTE: 7\. Lessons of Broad Applicability: Agricultural extension improvement should parallel irrigation improvements : Agricultural extension activities, including on-farm water management, were not included in the project \. It was expected that the Bank financed Agricultural Research and Extension Project, prepared in parallel with the irrigation project, would provide these services\. The extension project was unsuccessful and the extension services were not forthcoming \. This failure was exogenous to the Irrigation Sector Project, and thus is not part of this evaluation \. But the ICR highlights that this gap diminished yield increases\. Parallel improvements in stakeholder participation and financing need to accompany infrastructure improvements : Performance in such "software" areas as stakeholder participation, irrigation management turnover, upgraded maintenance and cost recovery were project weaknesses \. More focused attention to these areas, within a clear action program agreed with, and "owned" by, the stakeholders, would have improved sustainability \. 8\. Assessment Recommended? Yes No Why? As part of a cluster PPAR of this project, the Agricultural Research and Extension Project and comparisons with the earlier Irrigation Line of Credit and Sunsari Morang II projects \. 9\. Comments on Quality of ICR: Satisfactory overall: The ICR provides a good description of the project's design and implementation and discusses issues candidly\. A commentary on the quality of the studies under Objective I, and of follow -up actions by Government, would have been helpful for better assessing their outcome \. Also, data on yields, cropping intensity, operations and maintenance and cost recovery is infrequent and sometimes inconsistent \. The ICR task team has advised that the relevant data is limited \. In such a case, the data limitations should be specifically commented on, and at least a qualitative discussion provided in the absence of the data \.

REVIEW

P005433

 ICRR 10323 Report Number : ICRR10323 ICR Review Operations Evaluation Department 1\. Project Data : OEDID : OEDID: L3283 Project ID : P005433 Project Name : Port Sector Project Country : Morocco Sector : Ports & Waterways L/C Number : L3283 Partners involved : African Development Bank Prepared by : Hernan Levy, OEDST Reviewed by : Patrick Grasso, OEDPK Group Manager : Gregory Ingram Date Posted : 06/29/1999 2\. Project Objectives, Financing, Costs and Components : Objectives i) Improve operational performance of Morocco's ports ii) improve cost recovery and strengthen economic viability iii) improve port planning and coordination, particularly as regards promotion of foreign trade Components a) physical investments at the port of Casablanca (containers), Tangiers (roll-on roll-off), Jorf Lasfar (coal) and Agadir (grain handling) b) improvements in transit cargo documentation and procedures c) preparation of investment program for port terminals under the Office for Port Management (ODEP) and for breakwaters, dredging, harbor master functions under the Ports Directorate (DP) d) institutional development for ODEP and for DP e) consulting services relating to dredging, information systems, cost accounting, port master plan f) training Costs $282\.0 million at appraisal; $166\.3 million actual Financing IBRD: $112\.5 million (two loans, one to the government and one to ODEP totaled US$ 132\.0 million\. $19\.5 million were canceled)\. Government and port agency: $53\.8 million\. The two IBRD loans were approved in FY91 and closed on June 30, 1998, 2 years behind schedule\. (Cofinancing by the AfDB was expected to be US$5\.9 million\. The ICR does not report the actual amount ) 3\. Achievement of Relevant Objectives : The physical investments at the ports were completed on time and below cost, and are fully operational, although rehabilitation at Tangier under the DP was sharply reduced and is now being completed under a project financed by the European Investment Bank (EIB)\. Container tonnage in Casablanca increased by more than 50 percent between 1990 and 1997, reaching 1\.4 tons that year\. At the same time, container handling performance increased dramatically from a low 130 boxes per ship per day in 1989 to 396 in 1998\. The new ODEP facility (ro-ro) at Tangiers has allowed more than doubling the international truck traffic (TIR) during the 8-year period, reaching over 1\.2 million tons in 1997\. The ICR's economic analysis is limited to the Casablanca container terminal, the project's largest investment\. Its economic return is estimated at 18 percent versus 19 percent at appraisal\. At appraisal, the return on the whole investment program was about 25 percent\. Cost recovery was substantially increased \. The National Port Master plan was updated, and several environmental studies were carried out, including a study of sediment dumping sites \. ODEP is gradually increasing the role of the private sector in its operations \. The Jorf Lasfar coal facility has been concessioned to private operators and its equipment sold\. 4\. Significant Achievements : The biggest achievement has been the improvement in ODEP's financial performance \. Thanks to increases in tariffs, higher traffic and overall better management, during 1990 -1997 : operating income grew more than 4-fold (to DH 400 million); the working ratio improved from 63% to 56%; the operating ratio from 90% to 76%; and, the rate of return on net fixed assets increased from 3\.74% to 13\.35%\. As a result, ODEP no longer receives government subsidies\. 5\. Significant Shortcomings : Trade facilitation objectives were not met, as ODEP is yet to set up an electronic data interchange (EDI) and get port users, ship owners and freight forwarders to connect to this network \. A system (called VTS) to improve security of navigation through Gibraltar Straits, despite a two -year extension, was not completed due to weak management by the Directorate of Merchant Marine (DMM), procurement problems and bad weather that hampered installation of an antenna \. 6\. Ratings : ICR OED Review Reason for Disagreement /Comments Outcome : Satisfactory Satisfactory Institutional Dev \.: Substantial Substantial Sustainability : Likely Likely Bank Performance : Highly Satisfactory Satisfactory The project's performance indicators were poor, and, as a result, it is almost impossible to judge the extent to which improvement in operational performance, a key project objective, was achieved \. Borrower Perf \.: Highly Satisfactory Satisfactory Similar comment applies\. Further, two components were not completed, and the project was closed two years behind schedule\. Quality of ICR : Satisfactory 7\. Lessons of Broad Applicability : - A parastatal port agency (ODEP), having a strong involvement of users in its Board of Directors can achieve major improvements in its managerial and financial performance, and such presence substantially enhances the political feasibility of tariff increases\. - As noted in the ICR, trade facilitation is a complex matter that requires for reforms to be successful full ownership and endorsement of objectives and means by key players (finance ministry, customs, and private sector ) early during project preparation\. 8\. Audit Recommended? Yes No Why? The significant improvement in financial performance and the privatization process are of interest beyond the project itself\. 9\. Comments on Quality of ICR : The ICR is barely satisfactory \. While it covers most aspects well and contains good economic and financial analysis, the report has several shortcomings \. The cost table contains no breakdown of actual costs, and it does so only for the allocation of IBRD funding\. This prevents a direct comparison between the SAR and actual results \. The ICR does not include an Aide-Memoire of the ICR mission, a standard requirement \. The table on performance indicators is sketchy and ambiguous, as it does not show the year to which the indicators apply, nor the individual ports; further, the information is not directly comparable with that of the SAR \.

REVIEW

P068968

 Document of The World Bank Report No: ICR 1928 IMPLEMENTATION COMPLETION AND RESULTS REPORT (IBRD-3630) ON A CREDIT IN THE AMOUNT OF SDR 62 MILLION TO THE PLURINATIONAL STATE OF BOLIVIA FOR THE ROAD REHABILITATION AND MAINTENANCE PROJECT December 20, 2011 Sustainable Development Department Country Management Unit – LCC6C Latin America and Caribbean Region  CURRENCY EQUIVALENTS (Exchange Rate Effective June 30, 2011) Currency Unit = Bolivianos 1\.00 Boliviano= US$ 0\.014 US$1\.00 = 7\.01 Bolivianos FISCAL YEAR [January 1 – December 31] ABBREVIATIONS AND ACRONYMS ABC Administradora Boliviana de Carreteras (National Road Agency) ADT Average Daily Traffic AIS Accident Information System ARI Acuerdo de Reforma Institucional (Institutional Reform Agreement) CAF Corporación Andina de Fomento (Andean Development Corporation) CAS Country Assistance Strategy CDF Comprehensive Development Framework CNCV Cuenta Nacional de Conservación Vial (Road Maintenance National Account) FMR Financial Monitoring Reports GDP Gross Domestic Product GOB Government of Bolivia HDM Highway Design and Maintenance Standards Model IDA International Development Association IDB Inter-American Development Bank IERR Internal Economic Rate of Return IRI International (Road) Roughness Index ISRR Implementation Status and Results Report MOPSV Ministerio de Obras Públicas, Servicios y Vivienda NDF Nordic Development Fund NPV Net Present Value NRSC National Road safety Council PCU Project Coordination Unit PDN Plan de Desarrollo Nacional (National Development Plan) PDO Project development Objective PRSP Poverty Reduction Strategy Paper SDR Special Drawing Rights SEDCAM Servicio Departamental de Caminos (Departmental Road Agency) SEPCAM Servicio Prefectural de Caminos (Prefectural Road Agency) SNC Servicio Nacional de Caminos (National Road Agency) VMT Vice Ministry of Transport ii Vice President: Pamela Cox Country Director: Susan Goldmark Sector Manager: Aurelio Menendez Project Team Leader: Gylfi Palsson ICR Team Leader: Gylfi Palsson/Gerard Liautaud iii  BOLIVIA Road Rehabilitation and Maintenance Project CONTENTS Data Sheet A\. Basic Information B\. Key Dates C\. Ratings Summary D\. Sector and Theme Codes E\. Bank Staff F\. Results Framework Analysis G\. Ratings of Project Performance in ISRs H\. Restructuring I\. Disbursement Graph 1\. Project Context, Development Objectives and Design \. 1 2\. Key Factors Affecting Implementation and Outcomes \. 7 3\. Assessment of Outcomes \. 13 5\. Assessment of Bank and Borrower Performance \. 21 6\. Lessons Learned\. 22 7\. Comments on Issues Raised by Borrower/Implementing Agencies/Partners\. 23 Annex 1\. Project Costs and Financing \. 24 Annex 2\. Outputs by Component\. 25 Annex 3\. Economic and Financial Analysis \. 27 Annex 4\. Bank Lending and Implementation Support/Supervision Processes\. 29 Annex 5\. Summary of Borrower's ICR and/or Comments on Draft ICR \. 31 Annex 6\. List of Supporting Documents \. 32 MAP iv A\. Basic Information Road Rehabilitation Country: Bolivia Project Name: and Maintenance Project Project ID: P068968 L/C/TF Number(s): IDA-36300,IDA-3630A ICR Date: 10/05/2011 ICR Type: Core ICR REPUBLIC OF Lending Instrument: SIL Borrower: BOLIVIA Original Total XDR 62\.00M Disbursed Amount: XDR 52\.90M Commitment: Revised Amount: XDR 55\.95M Environmental Category: B Implementing Agencies: Administradora Boliviana de Carreteras - ABC Cofinanciers and Other External Partners: B\. Key Dates Revised / Actual Process Date Process Original Date Date(s) Concept Review: 07/14/2000 Effectiveness: 11/21/2002 11/21/2002 12/20/2007 Appraisal: 01/14/2002 Restructuring(s): 12/18/2008 12/22/2009 Approval: 04/16/2002 Mid-term Review: 01/30/2006 06/19/2006 Closing: 12/31/2007 06/30/2011 C\. Ratings Summary C\.1 Performance Rating by ICR Outcomes: Moderately Satisfactory Risk to Development Outcome: Moderate Bank Performance: Satisfactory Borrower Performance: Moderately Satisfactory C\.2 Detailed Ratings of Bank and Borrower Performance (by ICR) Bank Ratings Borrower Ratings Quality at Entry: Moderately Satisfactory Government: Moderately Satisfactory Implementing Quality of Supervision: Satisfactory Moderately Satisfactory Agency/Agencies: Overall Bank Overall Borrower Satisfactory Moderately Satisfactory Performance: Performance: v C\.3 Quality at Entry and Implementation Performance Indicators Implementation QAG Assessments Indicators Rating Performance (if any) Potential Problem Project Quality at Entry Yes None at any time (Yes/No): (QEA): Problem Project at any Quality of Yes None time (Yes/No): Supervision (QSA): DO rating before Moderately Closing/Inactive status: Satisfactory D\. Sector and Theme Codes Original Actual Sector Code (as % of total Bank financing) Central government administration 3 3 Roads and highways 97 97 Theme Code (as % of total Bank financing) Infrastructure services for private sector development 40 40 Other public sector governance 20 20 Public expenditure, financial management and 20 20 procurement Rural services and infrastructure 20 20 E\. Bank Staff Positions At ICR At Approval Vice President: Pamela Cox David de Ferranti Country Director: Susan G\. Goldmark Isabel M\. Guerrero Sector Manager: Aurelio Menendez Danny M\. Leipziger Project Team Leader: Gylfi Palsson Aurelio Menendez ICR Team Leader: Gylfi Palsson ICR Primary Author: Gerard L\. Liautaud F\. Results Framework Analysis Project Development Objectives (from Project Appraisal Document) The project development objective is to improve road transitability and accessibility through the rehabilitation of key segments of the national and secondary road networks and the strengthening of the country's capacity to manage road assets\. At a broader level, the project seeks to preserve economic development along key road links of the national vi network and facilitate the social and economic integration of the regions and communities in the area of influence of those links\. Revised Project Development Objectives (as approved by original approving authority) (a) PDO Indicator(s) Original Target Formally Actual Value Values (from Revised Achieved at Indicator Baseline Value approval Target Completion or documents) Values Target Years Passanger transport tariffs per person reduced by 15% from La Pa to Oruro and Indicator 1 : by 10% from Santa Cruz to yacuiba at project completion 13\.05 Bolivianos 15\.32 Bolivianos 15 Bolivianos (La Paz - (La Paz - Oruro (La Paz - Oruro Value Oruro quantitative or 50 Bolivianos 37 Bolivianos Qualitative) 120 Bolivianos (Santa (Santa Cruz - (Santa Cruz - Cruz - Yacuiba) Yacuiba) Yacuiba) Date achieved 04/01/2002 01/01/2008 06/30/2011 Comments (incl\. % achievement) (b) Intermediate Outcome Indicator(s) Original Target Actual Value Formally Values (from Achieved at Indicator Baseline Value Revised approval Completion or Target Values documents) Target Years 90% of the national road network is appropriately maintained with micro- Indicator 1 : enterprises and/or maintenance contracts Value 74% routinely maintained (quantitative in 2002 (i\.e\. 8,762 km of 90% 100% or Qualitative) a total of 11,818 km) Date achieved 04/01/2002 01/01/2008 06/30/2011 Comments (incl\. % achievement) vii G\. Ratings of Project Performance in ISRs Actual Date ISR No\. DO IP Disbursements Archived (USD millions) 1 05/15/2002 Satisfactory Satisfactory 0\.00 2 10/17/2002 Satisfactory Satisfactory 0\.00 3 05/28/2003 Satisfactory Satisfactory 5\.02 4 11/13/2003 Satisfactory Satisfactory 8\.81 5 05/25/2004 Satisfactory Satisfactory 19\.66 6 11/29/2004 Satisfactory Satisfactory 23\.73 7 04/29/2005 Satisfactory Satisfactory 29\.85 8 06/30/2005 Satisfactory Satisfactory 32\.37 9 12/16/2005 Satisfactory Satisfactory 39\.88 Moderately Moderately 10 06/30/2006 45\.90 Unsatisfactory Unsatisfactory Moderately Moderately 11 12/13/2006 48\.82 Unsatisfactory Unsatisfactory Moderately Moderately 12 06/26/2007 53\.18 Unsatisfactory Unsatisfactory 13 11/27/2007 Moderately Satisfactory Moderately Satisfactory 55\.33 14 01/22/2008 Moderately Satisfactory Moderately Satisfactory 56\.04 15 04/28/2008 Moderately Satisfactory Moderately Satisfactory 56\.75 Moderately Moderately 16 12/15/2008 59\.69 Unsatisfactory Unsatisfactory 17 04/09/2009 Moderately Satisfactory Moderately Satisfactory 59\.85 18 10/12/2009 Moderately Satisfactory Moderately Satisfactory 61\.56 Moderately 19 04/23/2010 Moderately Satisfactory 67\.04 Unsatisfactory Moderately 20 05/04/2010 Moderately Satisfactory 67\.04 Unsatisfactory 21 12/23/2010 Moderately Satisfactory Moderately Satisfactory 73\.46 22 06/25/2011 Moderately Satisfactory Moderately Satisfactory 74\.68 H\. Restructuring (if any) ISR Ratings at Amount Board Restructuring Disbursed at Restructuring Reason for Restructuring & Approved Restructuring Date(s) Key Changes Made PDO Change DO IP in USD millions 12/20/2007 MS MS 55\.33 12/18/2008 MS MS 59\.69 12/22/2009 MS MU 61\.70 viii I\. Disbursement Profile ix 1\. Project Context, Development Objectives and Design 1\.1 Context at Appraisal Over the five-year period that preceded the appraisal of this project, between 1997 and 2002, Bolivia’s macroeconomic environment had significantly deteriorated with a total GDP growth of only 2\.5 percent, far less than the population growth during the same period\. The economic difficulties were, in large part, due to external and domestic shocks, combined with unsustainable levels of public spending and stagnant government tax revenues\. On the external front, the international capital market turmoil after the Russian crisis of 1998 led to scarce private external financing for Bolivia and its trading partners, while the 1999 Brazilian devaluation and the 2001 Argentine devaluation, with the ensuing crises, lowered the competitiveness of and demand for Bolivian exports\. On the internal front, a series of domestic factors such as the coca eradication program, uncertain presidential elections and outbursts of social unrest adversely affected the economy and further aggravated an already difficult situation\. Table 1 shows the evolution of GDP growth, total revenue, total expenditure and overall fiscal balance during the period 1998-2002\. Table 1 Bolivia Economic Indicators 1997-2002 Variables Avg\.1990-96 1997 1998 1999 2000 2001 2002 GDP US$ billion 6 7\.8 8\.5 8\.3 8\.2 8\.1 8 Population, million 7 7\.8 8 8\.2 8\.4 8\.6 8\.8 GDP/Inhab, US$ 857 1,000 1,063 1,012 976 942 909 GDP Growth rate % 4\.3 5 8\.97 -2\.4 -1\.22 -1\.23 -1\.25 Total Tax revenues % of GDP 23\.4 24 25\.1 25\.8 25\.6 25\.5 24\.8 Total Public Expenditures, % 27\.3 27\.3 29\.7 29\.7 29\.3 32\.4 33\.7 of GDP Overall Balance % of GDP -3\.9 -3\.3 -4\.6 -4\.6 -3\.8 -6\.9 -8\.9 Despite the difficult economic conditions, improving the road transport network was always perceived by the Government of Bolivia as the key bottleneck to help local producers become more competitive and to open market opportunities for the rural regions\. For the past several years, roads had been the central focus of the government’s investment program, which on average had spent nearly a third of its investment budget on the road sector\. However, with a territory of one million square kilometers and a small population base of about 8 million, large distances between cities, low traffic levels, high transport costs constituted the key features of the Bolivian road network\. Road coverage, measured by the density of the road network, was the lowest in the region: about 55km/1,000 km2 compared to a regional average of 116km/1,000 km2; furthermore, only 7 percent of the network was paved compared to a regional average of about 20 percent\. In addition, Bolivia faced other challenges including a very high traffic accident rate and severe internal inefficiencies and institutional bottlenecks, for example: (i) the bulk of the road investment program was centered around new constructions and paving programs that were not supported by adequate economic analyses and prioritization policies, while routine maintenance activities were severely underfunded; (ii) lack of transparent and competitive procurement processes; (iii) an unsuccessful decentralization initiative that transferred, in 1995, the entire road network to newly created “Prefecturasâ€? (decentralized departmental units of the central government) lacking technical capacity to adequately address the proper upkeep of the national 1 network, which resulted in 1998-99 in a reverse course of actions for re-centralization that placed responsibility for road coverage under all three levels of government, as shown in Table 2\. Table 2 Bolivia Road Network in 2001 Category Jurisdiction Paved Gravel Earth Total Km % km % km % km % National or Primary SNC 3,795 32% 4,861 41% 3,202 27% 11,858 20% Departmental or SEPCAMs 93 1% 4,830 52% 4,366 47% 9,289 16% Secondary Municipal or Tertiary Munipalities 0 0% 6,925 18% 31,050 82% 37,975 64% Total 3,888 7% 16,616 28% 38,618 65% 59,122 100% In terms of road surface condition, reliable data, based on objective roughness measurements, were not available\. The project appraisal document describes the riding quality of the national network in 2000 as follows: about 11 percent in good condition, 54 percent in regular condition and 35 percent in poor condition\. However, not only those ratings were based on a visual and subjective appreciation, they did not differentiate between the paved and unpaved portions of the network, making future comparisons difficult\. Prior to project preparation, the Government of Bolivia prepared a Comprehensive Development Framework (CDF) and a Poverty Reduction Strategy Paper (PRSP) that were supported by three main pillars: opportunity, equity and institutionality\. Under the “opportunityâ€? pillar, the government’s plan was to preserve and expand roads to help spur market creation opportunities\. Under the “institutionalityâ€? pillar, the key actions focused on the reform of public sector institutions, and in particular the road sector agencies, aiming to instill efficiency and transparent practices in their actions and programs\. The Bank’s Country Assistance Strategy (CAS) discussed by the Board on June 16, 1998 had the main objective to support the poverty reduction effort of the Government by helping to improve the physical infrastructure of Bolivia, with particular emphasis on upgrading the condition of the road network and the capacity of the public sector to manage it, while allowing for the participation of the private sector to the maximum possible extent\. For that reason, the CAS gave high priority to the financing of this second Road Rehabilitation and Maintenance Project, a follow up to a previous loan that was granted in 1999 for the restoration of a crucial link of the primary network, the Abapo-Camiri Highway\. 1\.2 Original Project Development Objectives (PDO) and Key Indicators The project development objective was to improve road transitability and accessibility, through the rehabilitation of key segments of the national and secondary road networks and the strengthening of the country’s capacity to manage its road assets\. At a broader level, the project sought to preserve economic development along key road links of the national network and facilitate the social and economic integration of the 2 regions and communities in the area of influence of those links\. More specific project development objectives were: (a) to arrest the premature deterioration and the increased maintenance costs of key links of the national road network and to support the implementation of a sustainable mechanism for the proper maintenance of the national road network; (b) to consolidate the revamping of the institutional framework by making the national road agency results-oriented and improving the efficiency and transparency of contractual practices; (c) to pilot coordinating mechanisms that can help strengthen the institutional capacity of the Prefecturas to manage the secondary road networks under their jurisdiction; and (d) to initiate the development of a road safety initiative in order to reduce the comparatively- high accident rate that plagued Bolivia highways, affecting, in particular, travelers with lower income levels\. The key performance indicators of the project are given in Tables 3\.1, 3\.2 and 3\.3 Table 3\.1 Outcome Indicators for the Sector-Related CAS Goal Sector-Related CAS Goal Sector Outcome Indicators Base Line Improve transport inter-connections Freight transport tariffs per ton from La Paz US$ 36 across Bolivian regions, facilitating their to Oruro and from Boyuibe to Yacuiba integration into the country’s economic reduced by 15% at constant value, at project and local activities completion Passenger transport tariffs per person reduced 15 Bolivianos (between La Paz and by 15% from La Paz to Oruro and by 10%, Oruro) from Santa Cruz to Yacuiba, at project 120 Bolivianos ( between Santa Cruz completion and Yacuiba) Number of Bus trips per day increased by 400 bus/day (between Paracamaya 16% by the end of the third year between and Caracollo); Paracamaya and Caracollo and between 60 bus/day (between Villamontes Villamontes and Yacuiba, and by 28% by and Yacuiba) project end Table 3\.2 Outcome Indicators for the Project Development Objectives Project Development Objectives Key Outcome performance Indicator Base Line Improve transitability and accessibility Number of freight transport units (trucks) 450 trucks between Calamarca and through the rehabilitation of key between Calamarca and Oruro and between Oriro; segments of the national and secondary Boyuibe and Yacuiba increased by 18% at 300 trucks between Boyuibe and road network, and third year of project and by 28% by project Yacuiba end Percentage of national road network in good 19% condition increased to 30% at project mid- term and to 40% at project completion Strengthen the country’s capacity to Timely preparation and public dissemination No annual report manage its road assets of an annual report on operational and financial performance of CNCV Network-based road maintenance plans and No network-based plans budgets at 4 participating Prefecturas (SEPCAMs) developed and implemented (with indication of maintenance activities costs and productivities) 100% of SNC’s managerial and technical N/A staff appointed on the basis of managerial and technical merits and appropriate budgeting of salaries by project mid-term and through project end Legal framework as established by Law 2064 N/A and Supreme Decree 2636 upheld through project end\. 3 Table 3\.3 Output Indicators from each project Component Component Output Indicators Base Line Rehabilitation of priority segments of 353 km rehabilitated 0 km the national road network, Eligible sections of the secondary 200 km rehabilitated 0 km network rehabilitated Strengthen management capacity in 90% of the national road network is 74% routinely maintained in 2002 (i\.e\., supervision, maintenance and road appropriately maintained with micro- 8762 km of a total of 11,818 km) safety and improved inter-- enterprises and/or maintenance contracts institutional coordination with Procedures and systems for N/A Prefecturas implementation of transparent and efficient procurement, contract, and financial management implementation at the SNC by project mid-term and through project end Quality control management systems N/A Maintenance of road network carried installed at the SNC by project mid-term, out with appropriate contractual allowing compliance with timetable of arrangement with private contractors Procurement Plan and micro-enterprises and properly 80% of counterpart disbursements (from N/A funded Prefecturas) for donor-financed road projects made effective within three months of request 80% of periodic and routine maintenance N/A needs covered with sustained resources (from road users’ charges) 80% of routine maintenance of the N/A national road network appropriately carried out with microenterprises and/or maintenance contracts and achieving planned maintenance targets by project end Accident information systems developed N/A and operational in the Department of La Paz and Santa Cruz with appropriate external linkages to key stakeholders by project end Options for institutional framework for N/A road safety developed on preferred institutional structure made, by project end 1\.3 Revised PDO (as approved by original approving authority) and Key Indicators, and reasons/justification The original Project Development Objectives and Key Indicators were not revised during project implementation\. 1\.4 Main Beneficiaries The primary target group of beneficiaries was the long distance transport services and users between the main population centers and the export markets at the end points of the rehabilitated and resurfaced road segments\. Also, the project was expected to benefit the population of the local communities along the area of influence of those segments through their better integration to social and economic activities, while the support to the funding of the Road Maintenance Account (CNCV), intended for providing sustainable maintenance financing for roads, would further help reduce overall transport costs for all populations\. 4 1\.5 Original Components The project included the following five components: Component 1: Rehabilitation of about 353 km priority segments of the national road network (US$ 36\.4 million)\. This component would finance the rehabilitation of two critical links of the primary paved network: 165 km of the Calamarca-San Pedro section located on National Route 1, a main corridor for export and import that connects the four regions of the country and links La Paz to Oruro; and 188 km of the Boyuibe- Yacuiba section located on National Route 9, linking Santa Cruz to the borders with Argentina and Paraguay, and providing continuity to the Abapo-Camiri highway whose rehabilitation was financed under the previous Credit (3235-BO)\. Restoring the structural integrity and riding quality of those severely damaged and heavily trafficked portions of the primary network would help reduce road users costs while allowing total traffic and commercial vehicles to continue increasing at a sustainable rate, thus facilitating the development of productive activities in their areas of influence\. The works would essentially consist in the repair of all damaged areas, including the reconstruction of the most severely deteriorated pavement sections and shoulders, followed by the application of an asphalt concrete overlay of about 5 cm\. thickness, with adequate horizontal marking and vertical signs\. Component 2: Pilot of rehabilitation of about 200 km of secondary roads (US$ 5\.7 million)\. This component would be implemented in four selected Departments: La Paz, Oruro, Chuquisaca, and Tarija\. Works would consist essentially in restoring the drainage system along key segments that link to main economic corridors network, including the construction of small to medium-size bridges, followed by the re-gravelling of the surface course, at an estimated maximum cost of about US$ 25,000/km\. The works would not only help increase the benefits accrued from the rehabilitation of segments belonging to the primary network, thus facilitating transport from low-income communities, but also serve as an incentive for the Prefecturas to engage into adequate road management practices under SNC supervision and guidance\. Component 3: Road maintenance and Resurfacing Program on the national road network (US$ 211\.8 million)\. This component sought to expand and rationalize the practice of routine and periodic maintenance over the primary road network, by financing a portion of the costs incurred in the periodic maintenance sub-component, while the funding of routine maintenance activities would be absorbed by the resources of the CNCV\. A tentative program of about 600 km/year of periodic maintenance over the 5- year implementation period of the project was initially contemplated at appraisal, at a total estimated cost of about US$ 108 million (about US$ 36,000/km), of which US$ 34\.3 million would be financed by the Credit\. Resurfacing works would comprise surface- dressing and/or thin asphalt concrete overlays on sections belonging to the paved portions of the primary network, or re-gravelling and drainage system restoration on sections belonging to the unpaved portion of that network\. The implementation of that component was expected to have a decisive impact on the riding quality of the national network, helping to increase the percent of road in good condition from about 19% at project start to a projected 41% at project end\. 5 Component 4: Technical Assistance (US$ 28\.3 million)\. Under this component, the project aimed to finance technical assistance activities (consultant’s assignments, equipment, and training) in the following key areas: (a) A Road safety initiative aimed at: (i) developing an institutional framework that would permit the proper management of road traffic safety issues such as the creation of an entity such as a National Road Safety Council (NRSC); (ii) establishing an Accident Information System (AIS), concentrating initially in the two Departments that are most severely affected by road accidents, namely: La Paz and Santa Cruz; and, (iii) carrying out a systematic auditing of new and/or existing roads to assess their vulnerability to accidents and recommend appropriate mitigating measures; (b) Pre-investment studies, aimed to support, through the procurement of specialized Consulting firms, the preparation of engineering studies for the rehabilitation and periodic maintenance programs, as well as for the pilot to be undertaken by the SEPCAMs (Prefectural Road Agencies); (c) Supervision of the rehabilitation and resurfacing works, including the pilot sub- component,, through the procurement of consulting services; and, (d) Technical and financial audits, related to the use of the CNCV resources, the pilot program of rehabilitation of secondary roads, the accounts of the SNC and ultimately the impact assessment of the implementation of the project\. Component 5\. Road Sector Management and Institution Building (US$ 1\.8 million)\. The activities financed under this component focused on three key areas: Maintenance programming; including the training in the use of the Highway Development and Maintenance Model (HDM) to help better plan, design and prioritize multi-year maintenance programs for the road network, as well as the carrying out of network condition and traffic surveys (including the procurement of specialized equipment); Procurement and contract management, through the development of adequate information systems, training and acquisition of appropriate equipment; and; Contract maintenance, to support the analyses, monitoring of and comparison between the current modalities of unit-price maintenance contracts while exploring the possibility of using performance-based systems, as well as the strengthening of the coordination between SNC and Vice Ministry of Transport in what relates to overall planning and definition of road investments\. 1\.6 Revised Components On December 10, 2007, the Bank agreed to revise project description to incorporate a new Category for emergency rehabilitation works located in the Beni region, due to severe flooding that affected, in February 2007, the transitability and structural integrity of four unpaved road sections of the primary network, totaling about 181 km (raising of embankments, spot re-graveling, and improvement in the drainage 6 system)\. Since such works fall within the broad category of road rehabilitation that the project originally intended to finance, the development objective of the project remained unchanged\. 1\.7 Other significant changes In order to finance the above-mentioned emergency works, Schedule 1 of the Credit agreement was amended on the same date, by reallocating funds among categories of disbursement, essentially from the uncommitted contingencies funds\. In addition, the closing date of the credit was extended for two years, from December 31, 2007 to December 31, 2009, in order to provide more time for the execution of the additional emergency rehabilitation works\. In December 2009, and at the request of the Borrower, the Bank granted a second extension of the closing date for an additional eighteen months, to June 30, 2011, in order to allow for more successful project implementation and greater achievement of development objectives\. Other changes included: (i) variations in the exchange rate between SDR and US$ that increased the total amount of the Credit, in dollar terms assigned to the project, from about US$ 89\.4 million to US$ 98\.3million; (ii) the target of kilometers of national roads to be rehabilitated changed from 353 km to 533 km (to account for the 180 km of emergency works) and (iii) amendment to the Credit Agreement to allow ABC to become the implementing agency of the project, in replacement of the liquidated former SNC (See section 2\.2); and finally, (iv) the cancellation of uncommitted funds, towards the end of the project, for an amount of SDR 6\.05 million (US$ 9\.6 million)\. 2\. Key Factors Affecting Implementation and Outcomes 2\.1 Project Preparation, Design and Quality at Entry By and large, project preparation, design and quality at entry was satisfactory\. In retrospect, however, many of the measures intended to mitigate some of the identified risks, proved, in the end, to be insufficient or ineffective: 1\. The project focused on helping to resolve the main issues and challenges confronted by the road sector at the time, namely: the poor condition of the national road network, the lack of a sustainable mechanism for the financing of road maintenance, and the weak institutional capacity of the national and departmental road agencies\. On the first front, it was expected that the rehabilitation and resurfacing of key segments of the national road network complemented by adequate routine maintenance activities would help improve the condition of that network, while contributing to lower road users costs\. Such expectation was ultimately met\. On the second front, the financial support provided in Component 3 towards establishing and financing a maintenance account would (and did) help build a platform on which a more sustainable financing mechanism could be based\. On the third front, the pilot of rehabilitation for the secondary road network, as well as the broader technical assistance and institutional strengthening components of the project, would help overhaul the national and departmental road agencies, and bring about reforms in 7  the management of the road assets in Bolivia\. In the end, the pilot component did not meet appraisal expectations\. In addition, during project preparation, the concerns of the communities located in the areas of influence of the rehabilitation works were addressed by hiring a specialized consultant to carry out a social assessment of those communities, and to hear their voices regarding the works that would be undertaken\. Indeed, no social issue was raised during project implementation\. Also, the project addressed the critical issue of road safety by initiating the definition and establishment of an adequate institutional framework, but unfortunately, the road safety issue was only partially resolved\. 2\. The project sought to incorporate in its design the lessons learned from previous Bank-financed operations, namely: (i) a longer-than-normal project implementation period, due to frequent reshuffling and high turnover of managerial staff within the project executing agencies; (ii) an unlikelihood of success for institutional reforms (even when supported by laws), unless strategies and concepts are internalized and given sufficient time to materialize; (iii) a lack of commitment and enforcement capacity of the central government to implement a sustainable financing mechanism for maintenance, and (iv) a weak financial and execution capacity of local contractors, associated with deficient management and internal control capacity of the SNC\. The project design sought to address the first lesson by delaying appraisal until the necessary institutional reforms in the civil service were well underway, but in retrospect that proved to be insufficient\. To address the second lesson, the preparation of the strategic development plan was undertaken in collaboration with a wide spectrum of affected stakeholders with the aim of achieving proper internalization of concepts\. Finally, the third and fourth series of problems would be mitigated successfully by financially supporting the performance of the CNCV and by enhancing the quality of sub- project design, bidding documents, and works supervision\. 3\. A range of risks were identified during project preparation for which mitigation measures were considered, in particular: (i) the risk of an uneven commitment to institutional reforms would be mitigated by implemented key reform steps prior to project approval and by establishing conditions and remedies in the Credit agreement to ensure continuation of the reforms; (ii) the risk of decreasing government interest in supporting the road maintenance national account would be mitigated by advancing key elements focusing on technical assistance to strengthen the management capacity of the SNC; (iii) the risk of unfavorable weather conditions would be mitigated by allowing for normal rainy seasons in engineering design, execution timetable and contractual arrangements for works; (iv) the risk of protracted release of counterpart funds would be mitigated by aligning pace of investments with reasonable budgetary appropriations; (v) the risk of delays in contracts awards would be minimized by agreeing on a suitable procurement plan and by closely monitoring tendering processes to ensure compliance with Bank’s guidelines; and (vi) the risk of lack of interest in pursuing inter-institutional coordination initiatives between the SNC and the Prefecturas would be mitigated by building proper incentives through co- financing arrangements and technical partnership and support with the Prefecturas or other entities such as the National Transit Police\. In the end, 8  however, these sensibly formulated mitigation measures would not suffice, as explained in Section 2 below\. 4\. Finally, project design was fully aligned with the main pillars of the CAS, as discussed by the Board in June 1998, and consistent with the Country Development Framework and Poverty Reduction Strategy elaborated by the Government in May 1999, and March 2001 respectively\. 2\.2 Implementation A number of factors severely constrained project implementation\. Factors outside the control of government: ï‚ Social and civil disturbances, including road blockades, strikes and demonstrations that swept the nation, particularly from 2003 to 2006\. During that period, between 400 and 700 socio-political conflicts were recorded\. Such disturbances had a negative slow-down effect on the execution of the project, causing, furthermore, lengthy suspension in the supply of diesel fuel in the country; ï‚ Changes in world market and prices, between 2003 and 2007, notably for crude oil and its by-products (diesel, asphalt, lubricating oils) that caused delays in the execution of the overlays and a dramatic increase in the cost of works items that use asphalt products; ï‚ Unforeseen extraordinary weather conditions, such as the exceptional rainfalls and extensive flooding that affected particularly the Beni region, in the aftermath of El Nino phenomenon, early 2007, demanding the re-direction of the implementing agency’s efforts to attend, under emergency response, the most vulnerable roads; ï‚ Poor performance of local contractors, in particular those in charge of the relatively straightforward periodic maintenance sub-projects, due to their lack of equipment, liquid assets, financial capacity and internal organization\. Factors subject to government control: ï‚ The highly politicized institutional restructuring process of the implementing agency (SNC) following the change-over of the administration in 2006\. The process hindered decision-making and resulted in, at least, one-and-a-half year of project inactivity\. Indeed, soon after the new administration took office in January 2006, the intention to liquidate the SNC was announced, and through the promulgation of Law 3507 and the enactment of four regulatory decrees in October-November 2006, the new Road Agency, the Administradora Boliviana de Carreteras (ABC) was created\. Because of the cumbersome part of that institutional transformation process, the project remained practically idle until June 2007; ï‚ The lower-than-expected level of counterpart funds assigned to the Road Maintenance National Account (CNCV), with insufficient contributions recovered from the fuel taxes or from tolls\. As a result, the scope and implementation of the periodic maintenance of the national highway system was severely affected\. 9 Factors subject to the control of the implementation agency: ï‚ Weak institutional capacity of the national road agency (both SNC and ABC) that translated into: (i) poor financial management of the works contracts, including delays in payments to contractors; (ii) lack of procurement staffing and management capacity that caused delays in bidding and awarding contracts, with frequently late requests for Bank’s no-objections; (iii) inadequate monitoring and evaluation of the road network condition and traffic volumes; (iv) inefficient oversight of Consultants, both at the design and supervision stage, that caused a considerable quantity of project modifications and variation orders, during contracts execution; and (v) inadequacy and quality of staffing as well as high rotation and turnover both at the national and departmental level, that hindered the coordination between the respective agencies, and prevented proper implementation of the technical support that had to be provided by the national road agency to the SEPCAMs\. 2\.3 Monitoring and Evaluation (M&E) Design, Implementation and Utilization 2\.3\.1 M&E Design\. At appraisal, it was contemplated that progress achieved in project implementation would be monitored and evaluated through annual reviews that would focus on: ï‚ Advances in the institutional reforms and reorganization of the SNC; ï‚ Compliance with the project implementation schedule; ï‚ Level and composition of the resources allocated to CNCV; and ï‚ Degree of achievement against the project performance indicators\. While progress achieved under the institutional component could be monitored through some discrete but adequate indicators, and compliance with project implementation schedule and financial needs could be checked against easily measurable lengths or unit costs of road rehabilitated, resurfaced and maintained, (as well as the amount and distribution of resources assigned to CNCV), some other indicators, including their collection methods, to monitor progress towards the Project Development Objectives, lacked precise definition\. For example, the PDO key outcome indicator for the transitability of the national road network was expressed in terms of “percent of roads in good conditionâ€? without defining exactly the meaning of “good conditionâ€? and without discriminating between the paved and unpaved portions of that network\. It is understood that the determination of SNC would be relied on\. Likewise, another key performance indicator intended to measure the improvement in the transitability and accessibility of the two segments to be rehabilitated was expressed in terms of “an increase in the daily volume of trucks and busesâ€? using those links, presuming the then annual surveys and reports being undertaken, but without clear definition of duration, location and period of the traffic surveys\. Also, the sector-related outcome indicator intended to measure the improvement in transport interconnection across Bolivian regions was expressed in terms of “freight and passenger tariffs per ton or per passengerâ€? without a clear description of the methodology to be used to estimate those tariffs, and omitting that such tariffs are not solely dependent on road surface condition but also on external factors that are beyond the control of the project, such as the 10 volatility or increase in world market prices, including fuel, diesel and vehicle spare parts\. 2\.3\.2 M&E Implementation and Utilization\. During project implementation, and particularly during Bank’s supervision missions, progress achieved under the institutional component (and related covenants) could be measured and were reported in the Aide- memoires\. However, despite frequent reminders from Bank’s missions and the availability of financial resources to that effect, the national road agency failed to systematically carry out annual road network condition surveys, impeding the proper monitoring of the improvements in the riding quality of the pavements resulting from the rehabilitation and resurfacing works carried out\. The only reliable road surface condition surveys were carried out, for the first time, in 2008, over 50 percent of the length of the paved primary network, and at the very end of the project, in 2010, by an international consulting firm who made an objective inventory of the condition of the entire national road network\. Likewise, albeit to a smaller extent, traffic data that had been systematically collected between 1991 and 2003 were interrupted in 2004 and 2005, as well as between 2007 and 2009\. For the earlier period, these interruptions in regular data collection are likely a result of the social-political upheaval at the time, while institutional transition from SNC to ABC may be the cause of the latter\. 2\.4 Safeguard and Fiduciary Compliance 2\.4\.1 Procurement During project preparation, in 2000-2001, a procurement assessment of the national road agency vetted SNC as a high-risk institution\. Such assessment was not based on any major procurement issues that had taken place in the past, but essentially because of the very slow rate of implementation in the preparation of bidding documents, evaluation of proposals, and award of contracts, generally due to frequent staff reshuffling and their lack of expertise\. Following the execution in 2002 of an action plan designed to enhance the procurement function at the SNC, including intensive training and hiring of competent personnel, the procurement capacity of the institution had somewhat improved and was considered acceptable, at loan effectiveness, allowing to proceed with project implementation\. However, throughout project execution and despite the assistance provided locally by the Bank’s Country Office unit, procurement management capacity remained weak and was consistently rated, at best, as moderately satisfactory, in the ISRs filed between 2004 and 2011\. Indeed, the positive outcome of the action plan and training program that were implemented between 2002 and 2004 fell victim of the highly politicized institutional restructuring process of the implementing agency that followed the change- over of the administration at the beginning of 2006, bringing about generalized activity slowdown in project execution for nearly two years, as well as the laying-off of staff previously trained\. 11 2\.4\.2 Financial Management At appraisal, an assessment of the financial management capacity of the SNC was carried out and concluded that it satisfied the Bank’s minimum requirements\. Moreover, in November 2002, the establishment of a computerized financial management system fulfilled one of the conditions for project effectiveness\. Throughout project execution, the financial management capacity of the national road agency was consistently rated as moderately satisfactory, with some shortcomings, including late payments to contractors, and untimely submission of periodic financial reports and annual audit reports\. 2\.4\.3 Environmental and Social Aspects Since the project would finance the rehabilitation and/or resurfacing of roads within their existing right-of way, including the overall routine maintenance of the national network, no direct environmental negative impacts or displacement of populations were expected\. Nonetheless, during appraisal and throughout project implementation, the national road agency carried out adequate screening analysis of all sub-projects financed under the Credit Agreement to ensure compliance with Bank’s guidelines\. Those screenings were based on an environmental Manual that was prepared especially to that effect, including for the use of contractors executing the works\. In addition, social assessment studies were also carried out for the key rehabilitation sub- projects, indicating ample acceptance of such works by the communities located in their areas of influence\. Throughout project implementation, supervision reports mentioned no significant safeguard policies or fiduciary issues, and the rating for compliance with Bank’s policies in that regard was always satisfactory\. 2\.5 Post-completion Operation/Next Phase Following up the completion of this project, the Bank would continue to provide support to GOB through a subsequent loan for another rehabilitation project involving a key segment of the national primary network: the upgrading and paving of the 114 km- long San Buenaventura-Ixiamas road\. In addition to the physical component the project design foresees a sustained institutional strengthening of ABC, including extensive training in contract, procurement and financial management during the project implementation period (2011-2016)\. On the other hand, recent past budgetary resources allocated to ABC for road maintenance and rehabilitation (budget execution doubled from US$ 115 million in 2002, to US$ 238 million, in 2008) suggest that the sustained up-keep of the primary road network should not be problematic\. Indeed, the rolling 5-year program of investments for 2011-2015 allow for a total annual budget of about US$ 500 million that would be used to: (i) increase by 40% the length of the paved network (i\.e\., upgrade some 1,800 km to paved roads, using low-cost paving technologies); (ii) rehabilitate and/or resurface about 2000 to 3000 km of existing paved roads; (iii) routinely maintain the entire primary road network, including patching of all potholes and improving the horizontal markings and vertical signs over nearly 7,500 km; and (iv) grade and re-gravel the unpaved portion of the national road system\. 12  It may be argued that the project and the Bank’s ongoing involvement in the sector at least contributed towards better understanding of the importance of the upkeep of the road network\. 3\. Assessment of Outcomes 3\.1 Relevance of Objectives, Design and Implementation The objectives, design and implementation of the project are still of high relevance and consistent with the country’s current development priorities and with the Bank’s latest Interim Strategy Note presented to the Board in June 2009, and applicable to the 2010 and 2011 fiscal years\. Indeed, among the strategies proposed by the National Development Plan (PDN) approved by the GOB in June 2006, features a strategy for road development and maintenance that seeks the physical integration of the country in support of the productive sector, as well as provisions for pursuing the strengthening of democratic institutions and reducing poverty\. Also, one of the pillars of the Bank’s Interim Strategy Note is to promote productive development and support to production by continuing to improve transport infrastructure, notably roads\. 3\.2 Achievement of Project Development Objectives The broad and ultimate goal of the project, at sector level, was to improve transport inter-connections across Bolivian regions, facilitating their integration into the country’s economic and social activities\. To achieve that goal, the two most important project development objectives were: (i) to improve transitability and accessibility through the rehabilitation and/or resurfacing of key segments of the national road network; and (ii) to strengthen the country’s capacity to manage its road assets\. 3\.2\.1 Improvement in road network condition On the first front, it was anticipated that the transitability or riding quality of the primary network would be improved by: (i) rehabilitating, selectively, about 353 km of the paved primary network; (ii) resurfacing about 3,000 km of the total primary network (including unpaved roads); and (iii) carrying out a sustained routine maintenance program throughout the project execution period, covering at least 80 percent of the totality of the primary road network\. The rehabilitation program on two key roads of the primary paved network - as identified during appraisal - was successfully executed over a total length of 353 km, albeit with some less-than-optimal results regarding the surface quality for one of the roads (from Boyuibe to Yacuiba)\. The resurfacing program only achieved about 44 percent of its original target, because of a number of factors that affected its implementation, namely: lack of counterpart funds, internal inefficiencies of local contractors, large quantities of variation orders due to modifications made to the original designs, and substantial increase in the cost of asphalt as of 2005-06\. At closing, about 384 km of the primary paved network had been resurfaced and about 947 km of the primary unpaved network had been re-graveled with the drainage systems substantially improved\. By contrast, the performance of the routine maintenance program largely 13 exceeded expectations\. Indeed, considering that over the period of project execution, the length of the primary network had increased from about 11,858 km to about 16,000 km (due to transfers from the Prefecturas to the national road agency), at closing, and compared to the 80 percent appraisal target (representing about 8,000 km), 100 percent of the primary road network, i\.e\., about 16,000 km had been properly maintained\. The impact of the rehabilitation, resurfacing, and maintenance programs on the surface condition of the primary network has been positive, although a strict comparison between the appraisal target and the degree of achievement at closing is difficult to make\. Indeed, the original target was to increase the percentage of the primary road network in good condition from 19 percent to 40 percent\. But, those numbers included both the paved and unpaved portions of the network\. In addition, the appreciation of “good conditionâ€? at appraisal was based on somewhat ill-defined visual and subjective surveys\. During project execution, only two objective surveys based on roughness measurements were made on the paved portion of the national network: the first one was carried out in 2008 by ABC Planning Department over about 2,000 km of the primary paved network (i\.e\., about 50 percent of the total) and showed that the percentage of roads in good condition with an International Roughness Index (IRI) of less than 4 m/km was in the order of 59 percent, at the time, while the percentage in poor condition was only in the order of 5\.5 percent\. The more recent comprehensive survey carried out in 2010 by an international consulting firm on the totality of the paved portion of the national network (about 5\.500 km) showed that the proportion of paved roads in good condition (i\.e\., with IRI<4 m/km) was in the order of 84 percent\. It must be emphasized, however, that the dramatic improvement achieved in the riding quality of the paved primary network is not due only to the rehabilitation and resurfacing works undertaken and financed under the Bank’s Credit, but also to other restoration operations carried out and financed with local and/or other donors funds, and to the aggressive upgrading and paving programs implemented by the Road Agency over the last 5 to 6 years\. Indeed, the length of the primary paved network has increased from about 3,500 km to nearly 5,500 km between 2002 and 2011 (representing an average rate of paving of about 250 km/year)\. The condition of the unpaved portion of that network is still uncertain and its assessment remains to be made\. 3\.2\.2 Impact on Transport Costs and Commercial Traffic Volumes As shown in Table 4, the improvement achieved in the transitability of the national road network translated ultimately into a dramatic increase in freight and bus traffic along the two main links that were rehabilitated, helping to achieve one of the overarching goal of the project and of the CAS\. Regarding the reduction in freight and passenger transport tariffs, mixed results were obtained\. This evaluation finds that this outcome is due to an untested choice of indicators, the value of which was impacted by the unforeseen volatility and increase in the price of fuel and lubricating oil (as well as in vehicle spare parts, such as tires), that occurred since the appraisal\. 14  Table 4 Comparing base-line, target and achieved values for outcome indicators Indicators Link Base-line (Nov\. Target at mid- Target at Achieved at Achieved at 2002) term closing (Dec\. mid-term (Dec\. closing (June (Dec\.2005) 2007) 2006) 2011) Freight La Paz-Oruro 36 US$/ton N/A 31 US$/ton 27\.4 US$/ton 44\.2 US$/ton transport tariffs (15% (24% (23% increase) reduction) reduction_ Boyuibe-Yacuiba 36 US$/ton N/A 31 US$/ton 18\.6 US$/ton 33\.7 US$/ton (15% (48% (6% reduction) reduction) reduction) Passengers La Paz-Oruro 15 Bolivianos N/A 13 Bs (15% 13\.05 Bs (13% 15\.3 Bolivianos transport tariffs reduction) reduction) (2% increase) Santa Cruz- 120 Bolivianos N/A 109 Bs (10% 50 Bs (58% 37\.2 Bolivianos Yacuiba reduction) reduction) (69% reduction) Number of Patacamaya- 400/day 464/day (16% 512/day (28% 453/day (13% 867/day (117% bus/day Caracollo increase) increase) increase) increase) Villamontes- 60/day 70/day (16% 77/day (28% 197/day (228% 370/day (516% Yacuiba increase) increase) increase) increase) Number of Calamarca-Oruro 450/day 522/day (16% 576/day (28% 516/day (15% 983/day (118% trucks/day increase) increase) increase) increase) Boyuibe-Yacuiba 300/day 348/day (16% 384/day (28% 401/day (34% 476/day (59% increase) increase) increase) increase) All in all, the results indicate a positive trend in achieving the target values, particularly when inflation is taken account of\. 3\.2\.3 Strengthening of country’s capacity to manage road assets Given the ambitious scope of the institutional strengthening component of the project and the challenging times that it faced during its execution, including the restructuring of the national highway agency at the end of 2006, and the severe flooding that immediately followed and affected the country early 2007, the strengthening of institutions came out far from meeting its original expectations\. As summarized below, there are some areas in which progress achieved was substantial, while in many others progress was modest or insignificant\. The milestone achievement of the project was the management of the routine maintenance of the national road network, and in particular the development of performance-based contracts with micro-enterprises\. Despite the difficulties arising from the lack of counterpart funds, and the gradual expansion of the national network from 10,000 km at appraisal to 16,000 km at closing, the routine maintenance activities have been adequately carried out throughout project execution\. Some 50 unit-price contracts covering individual lengths of about 300 km are currently in the hands of small to medium-size firms that attend the recurrent maintenance of the pavements (pothole patching, crack sealing, grading of unpaved roads etc), while some 486 micro-enterprises under the supervision of ABC regional engineers are taking care of miscellaneous activities, such as bush clearing and the cleaning of culverts and other drainage system features\. By contrast, the pilot rehabilitation of about 200 km of roads on the secondary network and the objective of an effective collaboration between the SNC/ABC and the four selected Prefecturas towards developing and implementing network-based road maintenance plans, came out well below expectations\. Although formal agreements to 15 that effect were signed between the national and departmental road agencies, little progress in implementation ensued\. In Oruro, only two bridges were constructed while a contract for the rehabilitation of a 15 km-long gravel road only achieved a 20 percent progress rate, at project completion, because of the Contractor’s frail financial capacity\. Likewise, in Chuquisaca, a contract signed in 2010 for the improvement of an 87 km- long unpaved road, could not be materialized, due to the Contractor’s weak execution capacity\. In the Prefectura of La Paz no civil works were undertaken\. However, with the assistance of the Bank, a multi-year program of interventions for the mostly unpaved road network was established using the HDM model\. In addition, the procurement, with Bank’s financial assistance, of an important stock of equipment to strengthen the capacity of the SEPCAM to carry out project design and supervision as well as network surveys was substantially completed towards the end of the project (acquisition of laboratory equipment, vehicles and road survey equipment)\. In the Department of Tarija, no progress was achieved\. The Road Safety Initiative that aimed to reduce accident rates in Bolivia started well during the 2002-2006 period, but was dismantled soon after the new administration took office at the end of 2006\. It was reinvigorated between 2007 and 2010, thanks to a technical assistance provided by the Nordic Development Fund\. Within the framework of the creation of a National Road Safety Strategy, a Supreme Decree (No\. 29293), promulgated in 2007, approved the National Road Safety Plan and helped create the Inter-institutional Council of Road Safety\. Also, a Manual on traffic control including road horizontal marking and vertical signs was developed in 2008 with the financial assistance of CAF\. However, in the end, the project fell short of achieving the development and implementation of an Accident Information System in the Departments of La Paz and Santa Cruz, because of the poor performance of the Consultant assigned to the task\. Currently, ABC is considering the possibility of implementing a series of actions identified by the Bank, including further training, and the inclusion in the traffic control Manual of a special chapter on road safety audits\. Overall, and regarding the strengthening of the national road agency’s capacity in planning, contract management, procurement and financial management, as well as works supervision, the project helped achieve some progress through the technical assistance sub-component, including: ï‚ The acquisition of two sets of roughness measurement equipment, and a falling weight deflectometer to measure pavement surface and structural strength; ï‚ The carrying out, in 2010, of the first comprehensive primary road network inventory with objective measurements of pavement strength and surface defects (including roughness), as well as traffic surveys, with the financial assistance of the Nordic Development Fund; and on the basis of which a multi-year program of road investments (paving, rehabilitation and maintenance), using the HDM model could be carried out; ï‚ The provision of further training in procurement and financial management, as well as the technical assistance to supervise the rehabilitation and resurfacing works on the national network, throughout the project execution period\. 16  It is also worth mentioning that with a view to diversify its road asset management modalities, ABC - with the assistance of the Inter-American Development Bank - has launched an important study on the execution of performance-based type of contracts for the rehabilitation and maintenance of about 500 km of the national primary paved network, the first phase of which is currently being implemented\. Finally, regarding the objective of adopting adequate policies on staff recruitment and salaries, the process that had been completed with some success during the last few years of existence of the SNC and which had been put in place by project appraisal, fell through in 2010, with ABC\. The agenda for reform in staff salaries and incentives met stern opposition from the Ministry of Finance of the administration that took over in 2006\. In addition, since the creation of ABC, managerial positions have been reshuffled a number of times: For example the General Director has changed four times between 2006 and 2010, and the Head of the Road Maintenance Department has changed six times\. 3\.3 Efficiency 3\.3\.1 Comparison between the Unit Costs of Rehabilitation and Maintenance at appraisal and at closing Table 5 shows a comparison between the unit costs estimated at appraisal and those finally achieved for the main sub-components of works financed under the project\. As can be seen, apart from the rehabilitation of the two important links of primary paved network that costs less than expected at appraisal (because of few variation orders due to design modifications and to a period of implementation that preceded the dramatic increase in the cost of asphalt as of 2005-2006), the other sub-components and particularly the resurfacing of the primary paved network suffered an important increase in cost\. Such overruns were due: (i) to significant variation orders and increases in the quantities of items of works, resulting from modifications to the original designs, and (ii) to the surge in the cost of asphalt during a protracted execution period of the works, from 2004 to 2011\. Indeed, a number of periodic overlay contracts whose original execution period was about 6 to 8 months (between 2004 and 2005), were only completed in 2009- 2011, i\.e\., some 5 to 7 years after contract signing\. On balance, the increase in the unit cost of the physical sub-components of the project relative to the original contract values amounts to about 29 percent\. In the following two tables, the final unit cost of asphalt concrete overlays and the cost of supervision as a percentage of the total cost of works is shown\. 17  Table 5\. Final Unit Costs compared to Appraisal and Original Contract values Appraisal Original Works Length (km) Execution Period Estimate Contract Final Cost Variation Relative to: Original Planned Actual Planned Actual US$/km US$/km US$/km Appraisal contract Rehabilitation Paved Roads 353 353 2003-2005 2004-2005 103,088 69,967 82,855 -19\.6% 18\.4% Rehabilitation Unpaved (Beni) 0 181 2007-2008 2007-2010 40,997 54,027 54,027 31\.8% 0\.0% Periodic Paved Roads 133\.5 2003-2005 2004-2006 36,000 51,671 60,725 68\.7% 17\.5% Periodic Unpaved Roads 3,000 947 2003-2005 2004-2006 36,000 11,145 11,129 -69\.1% -0\.1% Periodic Paved Roads 250\.5 2003-2005 2004-2011 36,000 68,278 125,259 247\.9% 83\.5% Total 3,353 1,865 2003-2005 2004-2011 49,185 37,011 47,747 -2\.9% 29\.0% Routine Maintenance (per year) 10,600 13,900 2002-2007 2002-2011 1,960 2,165 10\.5% N\.B\. Values in italic derived from the PAD (that did not discriminate between the unit costs of resurfacing with gravel and/or with asphalt concrete) The "appraisal" figure indicated for Beni Emergency corresponds to estimate at project preparation towards end of 2006 and beginning of 2007 Table 6\. Final Unit Costs Table 7\. Supervision Cost of Asphalt concrete Overlay Thickness of Unit Cost Overlay cm US$/km US$ 2 46,394 Works Superv\. % Superv\. 3 68,212 Cala-Oru 15,310,351 1,004,886 7% 4 90,030 Boy\.-Yacu\. 13,937,588 1,684,627 12% 5 118,848 Beni 1,583,447 226,375 14% 6 133,666 Beni 3,262,297 343,942 11% 8 177,302 Beni 5,140,574 341,926 7% 10 220,938 N\.B\. Carpet alone # 70% of total 3\.3\.2 Ex-post Economic Evaluation An ex-post economic evaluation was carried out using the HDM model for the two main links rehabilitated under the first component of the project (Calamarca-Oruro and Botuibe-Yacuiba) and for a representative sample of the periodic maintenance (asphalt concrete overlays/resurfacing) executed over the paved portion of the primary network\. The following table shows the comparison between the appraisal estimates and the ex-post estimates\. Table 8\. Comparing economic evaluation results between appraisal and actual Component IERR % at appraisal IERR % at completion Rehabilitation 27% 56% Overlay Resurfacing >30% 47% The higher rate of return obtained ex-post for the rehabilitation component is due to a combination of three factors: (i) the lower final cost of the works as compared to appraisal; (ii) the increase in traffic volumes that occurred since the appraisal; and (iii) the 20 year analysis period taken in the ex-post evaluation, compared to the 10-year period taken ex-ante (that failed to capture all the benefits of the project)\. A comparison for the periodic maintenance sub-component is difficult to make because the appraisal figure for the rate of return is not explicit (above 30%)\. However, the ex-post analysis confirmed that despite the increase in the cost of the overlays and because of an increase in traffic volumes since the appraisal, the average internal economic rate of return for that sub-component remains high, standing at 47%\. Further details are given in Annex 4\. 18 3\.4 Justification of Overall Outcome Rating Rating: Moderately satisfactory The overall outcome of the project is rated moderately satisfactory for the following reasons: (i) the successful rehabilitation and resurfacing of key segments representing nearly 20 percent of the primary paved national network, helped improve significantly the riding quality of the network, while commercial traffic volumes have increased along the main corridors of the country, enabling to achieve the main development objective of the project, in terms of improved transitability, accessibility and transport interconnections; (ii) the operation yielded ex-post economic returns much higher than the opportunity cost of capital; and (iii) some progress in institutional strengthening has been achieved, particularly in the institutionalization of the routine maintenance of the primary road network, a practice that now seems to be firmly entrenched in the country\. However, adverse economic and political conditions (leading in the mid-term of project implementation to the dismantling of what by then was a reformed SNC and the creation of a new entity), frail institutions (both at national and departmental levels), insufficient government commitment to provide counterpart funds, and natural disasters constrained implementation and attainment of the major development objective to strengthen the country’s capacity to manage its road assets\. 3\.5 Overarching Themes, Other Outcomes and Impacts (a) Poverty Impacts, Gender Aspects, and Social Development Solid international evidence shows that investment in infrastructure is an impor- tant determinant of economic growth, and helps reduce inequality and fosters develop- ment of small to medium-size enterprises, which in turn plays a critical role in job crea- tion and poverty reduction\. This project was a success in that regard, since it was key in promoting the development of small firms and micro-enterprises for the execution of rou- tine maintenance\. Some 530 such enterprises are currently involved in those activities on the national road network, creating more than 4000 direct jobs every year, (with monthly incomes ranging from US$200 to 800), while generating, according to ABC, some 23,000 indirect employment opportunities in the rural areas\. (b)InstitutionalChange/Strengthening One of the most important milestones of the project is the successful design and implementation of the routine maintenance sub-component and particularly the development of the labor-intensive, performance-based micro-enterprises type of contracts, supervised by ABC regional districts\. At the beginning of the project, there were only 3 micro-enterprises interested and contracted, employing about 27 members\. By the end of the project, the number of micro-enterprises soared to a record figure of about 486, attending nearly 15,000 km of the primary network and employing the services of about 3,420 members, about 250 or 7 percent are women\. Each contract involves about 30 km of roads and activities are mainly focused on the clearing of bushes and the cleaning of drainage structures, all under the supervision of ABC regional districts engineers\. More recently, some of those enterprises have been trained and are now capable of executing works in the areas of road safety (pavement horizontal 19 marking), drainage systems, environmental improvement features and bridge repairs\. Both the system of unit-price contracts with small to medium firms and the performance- based micro-enterprises contract are now well institutionalized and firmly established in Bolivia\. (c) Other Unintended Outcomes and Impacts (positive or negative) N/A 3\.6 Summary of Findings of Beneficiary Survey and/or Stakeholder Workshops N/A 4\. Assessment of Risk to Development Outcome Rating: Moderate At the time of this evaluation, the risk that development outcomes will not be maintained is rated moderate for the following reasons: (i) civil works for road rehabilitation and resurfacing constituted almost 95% of the total financial scope of the project, and economic re-evaluations show that for the sections of roads that have been improved, the project has achieved, so far, an acceptable level of net benefits; (ii) with the routine maintenance policy that was implemented during the project and is now firmly entrenched in the country, sustainability is not at risk, as the rehabilitated and resurfaced segments of the project will probably be adequately maintained in the near to medium future; (iii) government’s commitment to financially support the national road agency seems strong, as evidenced by the dramatic increase in budgetary resources assigned to that entity over the last 10 years (the annual budget increased from about US$ 115 million to about 350 million, i\.e\., at an annual rate of about 20 percent), while the next 5-year plan allows for an annual budget ranging between US$ 450 and 550 million; (iv) Bank’s presence in the road sector will continue throughout the implementation of the recently approved National Roads and Airport Infrastructure Project (approved on May, 5 2011), thus helping to advance the institutional strengthening of the road agency; and (v) the sustained application of the HDM model ensures that road projects are now selected and prioritized on the basis of their economic viability\. However, and despite those optimistic outlooks, sustainability may be at risk if the government pursues and applies the policies that it has recently embraced, including: (i) the empowerment of ABC’s regional offices, by transferring to them the responsibility for design, supervision, and contract management of road programs, while there is no evidence that regional capacities currently exist; (ii) the re-activation of a force-account unit to substitute private firms in breach of their contracts; and (iii) the reduction in earmarked funding from the gas/petrol taxes for routine maintenance (CNCV Account)\. 20 5\. Assessment of Bank and Borrower Performance 5\.1 Bank Performance (a) Bank Performance in Ensuring Quality at Entry Rating: Moderately Satisfactory On balance, the Bank performed relatively well its responsibilities in regard to project design and quality at entry\. Preparation and appraisal were thorough and responsive to the country’s needs and some of the project risks were correctly diagnosed\. Nevertheless, and although steps towards sector reform started already during project preparation, the institution building was very ambitious and the Bank could not have foreseen the political developments in the country in 2005-06 that led to a major restructuring of the national road agency\. Also, the Bank did not stress enough the need for the setting-up of an efficient project management and coordinating unit and for comprehensive road inventory and objective pavement surface surveys\. Finally, the choice of some important project performance indicators was either deficient (for example, the bundling of paved and unpaved roads for surface condition assessment and appreciation) or not fully appropriate (such as transport tariffs), as those were predicated on the assumption that the riding quality of the network is the single most important or unique factor that impacts the value of such tariffs\. (b) Quality of Supervision Rating: Satisfactory The Bank performed well its supervision responsibility from project effectiveness to completion\. Supervision missions were regular and timely, and became more intense and frequent between 2005 and 2010 when the project was at risk, focusing on implementation problems and their solutions\. The Bank displayed flexibility in granting two extensions of the closing date and in keeping the project open for a long time, thus allowing it to have tangible physical achievements to its credit\. Also, the Bank showed intense engagement with the administration when it confronted the highly sensitive reform of the road agency, in particular with the swift deployment of a consultant with ample experience in the restructuring of road sector entities\. Immediately after, the Bank manifested again its support in restructuring the Credit agreement to include an additional emergency sub-component to counteract the impact of the natural disaster that hit the country, early 2007\. Finally, to the Bank’s credit, the training and the application of the HDM model was well received by the Borrower, and in particular the assistance provided in developing the multi-year program of road maintenance for the Prefecture of La Paz\. (c) Justification of Rating for Overall Bank Performance For the reasons given above, the rating for overall Bank performance is Satisfactory\. 5\.2 Borrower Performance (a) Government Performance Rating: Moderately unsatisfactory The government had a clear concept of its development objectives in the highway sector and of the assistance expected from the Bank\. However, it failed to recognize the limitations of its capacity to adequately implement the project and underestimated the 21 complexity of institution building\. Furthermore, and despite several instances when the Bank missions called the Borrower’s attention to the problem, adequate local funding needed to carry out the periodic maintenance component remained an intractable problem throughout project implementation\. (b) Implementing Agency or Agencies Performance Rating: Moderately satisfactory Throughout project execution and because of persistent changes in staff within the implementing agency, the managerial effectiveness in Bolivia’s highway administration has been relatively weak\. Less-than-optimal technical, procurement and financial management capacity has been at the root of the excessive variation orders and delays that plagued the execution of civil works contracts\. Monitoring of critical indicators such as pavement surface condition lagged behind and prevented a proper evaluation of the extent to which some key development objectives were being achieved\. Nevertheless, the executing agency is to be commended for the success that the routine maintenance sub-component has enjoyed during the course of the project\. (c) Justification of Rating for Overall Borrower Performance Rating: Moderately satisfactory This rating is justified, based on the above-mentioned Borrower’s shortcomings\. 6\. Lessons Learned ï‚ The main lesson learnt from the implementation of the project stems from the experience with institution building which was one of the principal problem area of the operation, having as its object the improved management and staffing of the national and departmental highway agencies\. The difficulties encountered tend to suggest that, re- gardless of how well intentioned, institution building cannot be effected as an enclave undertaking in one Ministry, in isolation from the general country context\. Future projects should make sure that institution building is conceived as a progressive undertak- ing, the accomplishment of key elements being made a condition for Loan effectiveness, and that an efficient project management and coordinating unit is set up early in the life of the project\. ï‚ The lack of availability of counterpart local funds was a recurrent problem in project implementation\. Although this problem is a common denominator in a broad sec- tion of Bank projects, Bank’s participation and cost sharing percentages on key compo- nents, such as periodic maintenance, should be increased in order to ensure that the lack of matching funds does not affect the implementation of those critical elements\. ï‚ In hindsight, the project was conceived to move at once on perhaps too large a front\. Indeed, the prospects for the project were predicated on an optimistic outlook of institutional stability within the government and the highway agency\. The unfolding of events did not bear out those optimistic predictions\. In such a case, it would have been preferable to focus on progressively attainable objectives, more in line with SNC/ABC absorptive capacities\. ï‚ When selecting indicators to assess project performance, care should be exer- cised to ensure that such indicators are not dependent on factors that are beyond the pow- 22 er of the project to control\. The choice of freight or passenger transport tariffs as key per- formance indicators to measure the improvement of transport inter-connections across Bolivian regions, without more detailing such as comparative changes in prices, proved to be inadequate and not fully reliable as such tariffs depended not only on the condition and riding quality of the network but also on factors such as world market prices, includ- ing the cost of vehicles and their spare parts as well as the cost of fuel and lubricating oils\. The increase of those costs during project implementation counteracted the benefits obtained from the improvement in the condition of the network and caused, in few cases, the final targets expected for the tariffs not to be met\. ï‚ The objective of achieving coordination between the national and the departmen- tal road agencies, including technical assistance from the former via-a-vis the latter, was too optimistic, even though it included only four Prefecturas\. Indeed, experience from other Bank-financed highway projects in the Region (in Brazil and Argentina, for exam- ple) shows that when capacity is weak in one or both levels of government and because of the existence of a certain degree of antagonism between them, the policy of having separate and direct loans can help accomplish better results and greater achievement of project development objectives\. ï‚ On a more positive note, this project has also shown that the promotion and de- velopment of performance-based micro-enterprises contracts for road maintenance can be achieved and materialized in an environment where there is a low-cost and available la- bor force, and when it is supported by adequate funding arrangements and proper incen- tive mechanisms (such as training)\. 7\. Comments on Issues Raised by Borrower/Implementing Agencies/Partners (a) Borrower/implementing agencies The Borrow did not raise any issues nor provide any comments on the ICR\. (b) Co-financiers (c) Other partners and stakeholders 23 Annex 1\. Project Costs and Financing (a) Project Cost by Component (in USD Million equivalent) Actual/Latest Appraisal Estimate Variation relative Components Estimate (USD (USD millions) to Appraisal millions) 1\.Rehabilitation works on key segments of the national 36\.4 42\.5 +16\.7% network 1\.1 Paved network 31\.6 1\.2 Unpaved network 10\.9 2\. Pilot program of rehabilitation on secondary 5\.7 2\.45 -57\.0% road network 3\. Road Maintenance national account and resurfacing 211\.84 393\.1 +85\.5% program 4\. Technical Assistance 28\.25 10\.2 -64% 4\.1 Road safety Initiative 1\.35 4\.2 Pre-investment studies 5\.06 4\.3 Supervision of works 19\.53 4\.4 Audits 1\.74 4\.5 Impact assessment 0\.57 5\. Institutional strengthening 1\.82 2\.8 +56% 5\.1 Consolidation of 1\.41 institutional reforms 5\.3 Develop information 0\.18 management system 5\.5 Provision of training 0\.23 TOTAL 284\.0 451\.0 +59% N\.B\.  The large final amount for Component 3, compared to appraisal estimate, is due to the fact that it incorporates the expenditures incurred for routine maintenance between 2008 and 2011 (beyond the original closing date) and financed with local funds for an amount of about US$ 332 million\. By contrast, actual periodic maintenance costs incurred amounted to about US$ 61 million (for about 1,330 km) compared to an appraisal estimate of US$ 108 million (for 3,000 km) (b) Financing Appraisal Actual/Latest Variation Type of Estimate Estimate Source of Funds relative to Cofinancing (USD (USD appraisal millions) millions) Borrower 207 364 +75\.4% International Bank for Reconstruction 89\.3(98\.3)* 88 -10% and Development * 24 Annex 2\. Outputs by Component Table 2\.1 Outputs by Component Component Output Indicators Base Line Achieved at Closing Rehabilitation of priority 353 km rehabilitated 0 km 353 km rehabilitated segments of the national paved road network Eligible sections of the 200 km rehabilitated 0 km Only 2 bridges completed secondary network rehabilitated Strengthen management 90% of the national road network 74% routinely maintained in 100% of 16,000 km capacity in supervision, is appropriately maintained with 2002 (i\.e\., 8762 km of a total appropriately maintained maintenance and road safety micro-enterprises and/or of 11,818 km) and improved inter-institutional maintenance contracts coordination with Prefecturas Procedures and systems for N/A Substantially achieved at implementation of transparent SNC, with some moderate and efficient procurement, shortfalls\. Partly achieved contract, and financial with ABC management implementation at the SNC by project mid-term and Maintenance of road network through project end carried out with appropriate Quality control management N/A Substantially achieved contractual arrangement with systems installed at the SNC by with SNC\. Certification private contractors and micro- project mid-term, allowing ISO 9001 in progress enterprises and properly funded compliance with timetable of Procurement Plan 80% of counterpart disbursements N/A Partially achieved: (from Prefecturas) for donor- disbursements made financed road projects made within 4 to 6 months effective within three months of request 80% of periodic and routine N/A Partially achieved: maintenance needs covered with Routine maintenance fully sustained resources (from road funded but Periodic users’ charges) maintenance needs only partially covered 80% of routine maintenance of N/A 100% of the national road the national road network network appropriately appropriately carried out with carried out with micro- microentreprises and/or enterprises and unit-price maintenance contracts and maintenance contracts achieving planned maintenance targets by project end Accident information systems N/A No accident information developed and operational in the system developed and Department of La Paz and Santa operational yet\. Cruz with appropriate external linkages to key stakeholders by project end Options for institutional N/A Through Supreme Decree framework for road safey 29293 enacted in 2007 a developed on preferred National Plan for Road institutional structure made, by Safety was approved and project end an Inter-institutional Council for Road Safety was created\. 25 Table 2\.2 Outcome Indicators related to Sector and CAS Goal Sector-Related CAS Sector Outcome Base Line (Nov\.2002) Achieved at Mid- Achieved at Goal Indicators term (Dec\.2006) Closing (June 2011) Improve transport inter- Freight transport tariffs per US$ 36 US$/ton 27\.4: from La 44\.2 US$/ton from La connections across ton from la Paz to Oruro and Paz to Oruro (24% Paz to Oruro Bolivian regions, from Boyuibe to Yacuiba reduction); facilitating their reduced by 15% at constant US$18\.6 from Boyuibe 33\.7 US$/ton from integration into the value, at project completion to Yacuiba (48% Boyuibe to Yacuiba country’s economic and reduction) local activities Passenger transport tariffs per 15 Bolivianos (from La Paz 13\.05 Bolivianos from 15\.32 Bolivianos from person reduced by 15% from and Oruro) La Paz to Oruro (13% La Paz to Oruro La Paz to Oruro and by 10%, 120 Bolivianos (from Santa reduction) 37 Bovianos from from Santa Cruz to Yacuiba, Cruz and Yacuiba) 50 Bolivianos from Santa Cruz to Yacuiba at project completion Santa Cruz to Yacuiba (58% reduction) Number of Bus trips per day 400 bus/day (between 453 bus/day between 867 bus/day in 2010 increased by 16% by the end Paracamaya and Caracollo); Paramaya and Caracollo compared to final of the third year between 60 bus/day (between (13% increase) target of 512 bus/day Paracamaya and Caracollo Villamontes and Yacuiba) 197 bus/day between 370 bus/day in 2010 and between Villamontes and Boyuibe and Yacuiba compared to final Yacuiba, and by 28% by (228% increase) target of 77 bus/day project end Table 2\.3 Outcome Indicators for the Project Development Objective Project Development Key Outcome Base Line (Nov\. 2002) Achieved at Mid- Achieved at Objective performance Indicator term (Dec\.2006) Closing (June 2011) Improve transitability and Number of freight transport 450 trucks/day between 516 trucks/day 983 trucks/day accessibility through the units (trucks) between Calamarca and Oriro; between Calamarca in 2010 rehabilitation of key Calamarca and Oruro and and Oruro (15% compared to segments of the national between Boyuibe and 300 trucks/day between increase) final target of and secondary road Yacuiba increased by 18% Boyuibe and Yacuiba 401 trucks/day 576 trucks/day network, and at third year of project and between Boyuibe 476 trucks/day by 28% by project end and Yacuiba (34% in 2010 increase) compared to final target of 384 trucks/day Percentage of national road 19% in good condition 44% in good 84% in good network in good condition condition (visual condition with increased to 30% at project survey)\. 59% in IRI< 4 m/km, mid-term and to 40% at good condition based on project completion based on IRI roughness measurements in measurements 2008 carried out in 2010 Strengthen the country;s Timely preparation and No annual report Annual reports Annual Reports capacity to manage its public dissemination of an published in 2002- published road assets annual report on operational 2003-2004-2005 between 2002 and financial performance and 2010 of CNCV Network-based road No network-based plans Partially achieved Partially maintenance plans and with Prefecturas of achieved with budgets at 4 participating La Paz and Oruro Prefectura of La Prefecturas (SEPCAMs) Paz developed and implemented (with indication of maintenance activities costs and productivities) 100% of SNC’s managerial N/A Substantially Substantially and technical staff appointed achieved for the achieved for the on the basis of managerial SNC, but failed to SNC, but failed and technical merits and be achieved, so far, to be achieved, appropriate budgeting of with ABC so far, with ABC salaries by project mid-term and through project end Legal framework as N/A New legal New legal established by Law 2064 framework: SNC framework: and Supreme Decree 2636 dissolved and ABC SNC dissolved upheld through project end\. created and ABC created 26 Annex 3\. Economic and Financial Analysis Main Assumptions An ex-post economic evaluation was carried out using the HDM Model (Version 3) both for the rehabilitation and the resurfacing components of the project\. For the rehabilitation component, the analysis concerned the two key segments Calamarca-Oruro and Boyuibe-Yacuiba\. For the resurfacing component, a representative sample was selected (about 30% of the total length resurfaced with asphalt concrete)\. The main assumptions and input data used in the Model were as follows: ï‚ Period of analysis: 20 years\. ï‚ Discount rate: 12%\. ï‚ Future growth of traffic: 4% per annum\. ï‚ First year of analysis: actual year when rehabilitation and/or resurfacing was completed\. ï‚ First year capital investment: final actual cost of rehabilitation and/or resurfacing; ï‚ Initial traffic volume: actual ADT measured at year of completion of works\. ï‚ Rehabilitation/Resurfacing solutions: actual thickness of overlays, as executed\. ï‚ Vehicle fleet data costs: Actual and more recent values (See table below)\. ï‚ Operation unit costs of strategies: Actual more recent values (see table below)\. ï‚ The “without projectâ€? or base strategy: consists in carrying out routine maintenance, including the patching of all potholes, and reconstructing the pavement when the roughness reaches a value of IRI of 8 m/km\. ï‚ The “with projectâ€? strategy: consists of carrying out the actual overlays as executed and to apply a second overlay of 5 cm when the roughness reaches a value of IRI of 6 m/km\. Vehicle Fleet Data Basic Characteristics Cars Pick-up Bus Light truck Medium Heavy truck Articulated truck Gross vehicle weight (t) 1\.5 2\.8 17 5 15\.5 19\.7 42\.7 ESAL factor per vehicle 0 0 3\.9 0\.2 2\.7 4\.8 5\.3 Number of axles 2 2 2 2 2 3 4 Number of Tires 4 4 6 4 6 6 18 Number of passengers 3 3 35 1 1 1 1 Vehicle Utilization Service life (yrs) 15 15 15 15 15 15 11 Hours driven per year 500 750 1000 1200 1280 1280 1280 Km driven per year 30000 45000 55000 48000 60000 64000 64000 Depreciation Code 2 2 2 2 2 2 2 Utilization Code 1 3 3 3 3 3 3 Annual Interest rate % 12 12 12 12 12 12 12 Economic Unit Cost New vehicle price (US$) 21000 26040 10768 30000 44924 73802 110000 3 New Tire price (US$) 86 249 178 249 321 357 357 Maintenance labor 2\.05 2\.05 2\.05 2\.05 2\.05 2\.05 2\.05 (US$/hr) Crew Cost (US$/crew-hr) 1\.8 1\.8 1\.8 2\.7 3\.1 3\.1 3\.1 Passenger time (US$/pa- 1\.45 1\.45 0\.64 0 0 0 0 hr) 27 Cargo time (US$/veh-hr) 0 0 0 0 0\.07 0\.07 0\.07 Gas/Petrol (US$/lt) 0\.45 Diesel price (US$/lt) 0\.45 Lubricants price (US$/lt) 3 Operation Unit Costs Operation Unpaved Roads Grading (US$/km) 109 95 Spot regraveling (US$/cu\.m) 25 21 Gravel resurfacing (US$/cu\.m) 20 17 Unpaved routine maintenance 1,960 1,700 (US$/km/yr) Paved Roads Patching (US$/sq\.m) 30 26 Resealing (US$/sq\.m) 3\.5 3 Overlay 5 cm (US$/sq\.m) 18 16 Reconstruction (US$/sq\.m) 20 17\.7 Paved routine maintenance 2,350 2,040 (US$/km/yr) Construction (Thousands US$/km) 500 375 Results of the Economic Evaluation The following Table summarizes the results of the evaluation\. As can be seen, the ex-post economic returns are high and generally exceed the values estimated at appraisal\. Component Rehabilitation Resurfacing Road section Calamarca- Boyuibe- Rio Seco- Yamparez- Tiquina- San Isidro- Oruro Yacuiba Huarina Sucre-Tambo Copacabana Epinoza Length, km 172 181 58 29 40 41 Final Cost 15\.5 15\.4 5\.6 3 4\.3 3\.6 US$M ADT ex-post 1,436 939 2,815 638 408 800 IERR % 81\.3 32 80\.2 28\.3 13\.7 45\.7 NPV, US$M 24\.6 11\.8 13\.7 14\.8 15\.5 11\.8 Weighted IERR 56% 47% Total NPV, 31\.8 14\.7 US$M Appraisal IERR 27% > 30% % 28 Annex 4\. Bank Lending and Implementation Support/Supervision Processes (a) Task Team members Responsibility/ Names Title Unit Specialty Lending Supervision/ICR Rodrigo Archondo-Callao Sr Highway Engineer ECSS5 Stephen Jeremy Brushett Lead Transport Specialist LCSTR Miriam Cespedes Program Assistant LCSPT Cecilia Claudia Corvalan Senior Transport Economist LCSTR Vickram Cuttaree Senior Infrastructure Economis ECSS5 Hernan Fernandez Consultant LCSTR Ordonez Maria Lucy Giraldo Senior Procurement Specialist LCSPT Jose Luis Irigoyen Director TWI Alvaro Larrea Senior Procurement Specialist LCSPT Gerard L\. Liautaud Consultant LCSTR Lourdes Consuelo Linares Sr Financial Management Specia LCSFM Ruth Llanos Social Development and Civil S LCSSO Hector Miguel Mansilla Consultant LCSTR Aurelio Menendez Sector Manager LCSTR Samuel Jose Murillo Consultant LCSTR Gylfi Palsson Lead Transport Specialist LCSTR Daniel O\. Pulido Sabogal Junior Professional Associate LCSTR Alejandro Marcos Tapia Energy Spec\. LCSEG Raul Tolmos Environmental Spec\. LCSEN Marco Antonio Zambrano Consultant AFTEG Chavez Alonso Zarzar Casis Sr Social Scientist LCSSO Licette Moncayo Program Assistant LCSTR 29 (b) Staff Time and Cost Staff Time and Cost (Bank Budget Only) Stage of Project Cycle USD Thousands (including No\. of staff weeks travel and consultant costs) Lending FY00 7 41\.49 FY01 20 142\.74 FY02 21 116\.07 FY03 3 0\.05 FY04 0\.00 FY05 0\.00 FY06 0\.00 FY07 0\.00 FY08 0\.00 Total: 51 300\.35 Supervision/ICR FY00 0\.00 FY01 0\.07 FY02 8\.90 FY03 17 74\.82 FY04 20 71\.61 FY05 20 52\.93 FY06 28 81\.86 FY07 36 152\.56 FY08 33 169\.60 FY09 29 145\.17 FY10 20 127\.11 FY11 21 114\.64 FY12 2 31\.61 Total: 226 1030\.80 30 Annex 5\. Summary of Borrower's ICR and/or Comments on Draft ICR The Borrow did not prepare its own ICR nor provide comments on this ICR\. 31 Annex 6\. List of Supporting Documents Central (IRIS)\. Monthly and Semi-Annual Progress Reports\. 2003-2010 Servicio Nacional de Caminos\. Gerencia de Planificación y Desarrollo Tecnológico\. Es- tadística Vial 1999-2003\. Servicio Nacional de Caminos\. Memoria de Gestión 2004-2005 Servicio Nacional de Caminos\. Memoria de Gestión 2006 Administradora Boliviana de Carreteras\. Memoria Institucional Gestión 2007-08-09 The World Bank\. Project Appraisal Document on a Proposed Credit in the Amount of SDR 62 million (US$ 77 million equivalent) to the Republic of Bolivia for the Road Re- habilitation and Maintenance Project March 15, 2002\. report no\. 23625-BO The World Bank\. Development Credit Agreement (Road rehabilitation and Maintenance Project) between Republic of Bolivia and International Development Association\. April 23, 2002 Credit Number 3630-BO\. The World Bank\. Aide Memoires of Supervision Missions\. January 2000- May 2011 The World Bank\. Implementation Status and Results Reports 18 documents May 2002- May 2011 Administradora Boliviana de Carreteras\. Estudio de Impacto Sept\.2011 Louis Berger and J\. Tosticarelli: Inventario Vial de la Red Fundamental\. 2010 32  IBRD 31797R 68° 66° 64° 62° 60° 10° BOLIVIA 10° BRAZIL un á R OA D R E H A B I L I TAT I O N A N D Ab R\. Guajará MAINTENANCE PROJECT Mirim KEY ENGINEERING COMPONENTS Nacebe Riberalta REHABILITATION WORKS ON NATIONAL NETWORK Cobija P A N D O R\. Ma PREFECTURES PARTICIPATING IN PILOT OF REHABILITATION Porvenir mo Conquista OF SECONDARY ROADS 12° ré 12° PERIODIC MAINTENANCE PROGRAM (FIRST YEAR) s Blanca Flor io D ata de re R\. Y R\. Ité nez ad MAIN ROADS M R\. oG Pto\. Heath PERU ua po ré MAIN RAILROADS Z San Joaquín ni NATIONAL CAPITAL Be L\. Rogaguado R\. Magdalena Madidi B E N I ADMINISTRATIVE CAPITAL R\. Baures A L\. San (Seat of the Gvt\.) L\. Rogagua 14° Luís Ixiamas DEPARTMENT CAPITALS 14° R\. P MAIN TOWNS R\. I ton Rurrenabaque DEPARTMENT BOUNDARIES ama Apolo Trinidad s INTERNATIONAL BOUNDARIES Ma To mo Charazani A Cuzco BRAZIL ré Puerto Acosta Lake R\. Escoma Caranavi Mamoré 16° Sa e Titicaca ar Concepción L San nM 16° Río ap igu Ignacio To Ch Huarina R\. Yapacani San Javier LA PAZ el R\. San Matías Brasília To G ra z R\. Matarani Pa R\. nd San Rafael La Ya e Pto\. Villarroel Guaqui Viacha Inquisivi Villa Tunari pa c S A N T A COCHABAMBA Puerto Banegas an R\. Corocoro i R\. Paraguay Patacamaya Desaguadero Cochabamba Epizana Montero Pozo Tigre Santa Cruz Ipias Charaña Mataral San José Oruro Sto\. Corazón 18° Roboré Tambo Quemado Aiquile Abapó C R U Z ORURO Puerto Cabezas Quijarro L\. Poopo SUCRE Tarabuco L\. Coipasa To Mutún Pisige Santos Potosí Río Mulato Monteagudo 20° 20° Uyuni Camiri PA R A G U AY Salt Pan Uyuni CHUQUISACA Boyuíbe To Asunción P O T O S Ã? Cotagaita F’tin Villazón and Paranaguá Atocha R\. El Puente Pilc om ay To Chiguana Tarija 60° o Antofagasta Tupiza TA RI JA Balcarce Yacuiba B R A Z I L Padcaya 22° Porto Velho Rio 22° PERU Branco Area of map R\. Ber LIMA CHILE To Salta To Cusco me Embarcación jo Ica Trinidad Arequipa BOLIVIA Cuiaba Cochabamba LA ARGENTINA South Arica PAZ Santa Cruz SUCRE Pacific Ocean PARAGUAY This map was produced by the Map Design Unit of The World Bank\. 24° 24° The boundaries, colors, denominations and any other information 0 50 100 150 200 250 Antofagasta shown on this map do not imply, on the part of The World Bank Group, any judgment on the legal status of any territory, or any KILOMETERS San Miguel ASUNCIÓN endorsement or acceptance of such boundaries\. CHILE de Tucuman Resistencia 68° 66° 64° 62° ARGENTINA Porto Alegre NOVEMBER 2011

REVIEW

P060270

Documentof The World Bank Report No\. 27454 IMPLEMENTATIONCOMPLETIONNOTE ON A CREDIT IN THE AMOUNT OF SDR 2\.20 MILLION (PORTION OF CREDIT2475-CHA)* ANDA CREDIT IN THE AMOUNT OF SDR 1\.63MILLION (PORTIONOF CREDIT3271-CHA)* TO THE PEOPLE'S REPUBLIC OF CHINA FOR A XINJIANGUYGHUR (ALTAI)SNOWDISASTERRECOVERY COMPONENT AND XINJIANGUYGHUR (TACHENG) SNOWDISASTERRECOVERY COMPONENT November 30,2003 Rural DevelopmentandNatural ResourcesSector Unit East Asia and Pacific Region * Reference should also be made to the primary ICRs for Credit 2475 - China - Zhejiang Multicities Development Project (Report No\. 23946-CHA) and Credit 3271 - China - Enterprise ReformProject (forthcoming)\.This implementationcompletionnote is prepared in connectionwith the investments undertaken with those portion of Credit 2475 and Credit 3271, which arose following the reallocation of credit proceeds from the original projects to the Xinjiang Uyghur (Altai and Tacheng) Snow Disaster Recovery Components, supported by the International Development Association as an emergency operation\. For the purpose of this ICR the Xinjiang Uyghur SnowDisaster Recovery Componentsare considered a project\.  CURRENCYEQUIVALENTS (ExchangeRate Effective September2003) CurrencyUnit = Renminbi (RMB) Yuan (Y) Y1\.0 = US$0\.12 US$l\.O = Y8\.27 FISCAL YEAR January 1to December 31 ABBREVIATIONSAND ACRONYMS AHB Animal HusbandryBureau FB Financial Bureau ha hectare IDA InternationalDevelopment Association M&E Monitoringand Evaluation mu Chinese squaremeasure (15 mu = 1ha) PLG Project Leading Group PMO Project ManagementOffice PMM ProcurementManagementManual QMR QuarterlyManagementReport sqm squaremeter SA SpecialAccount SDR SpecialDrawingRights SOE Statementof Expenditures TOR Terms of Reference TA TechnicalAssistance XUAR XinjiangUyghur Autonomous Region Vice President: Jemal-ud-dinKassum, EAPVP CountryDirector: Yukon Huang, EACCF SectorDirector: Mark D\. Wilson, EASRD Task Team Leader/TaskManager: Achim Fock, EASRD  CHINA - XINJIANGUYGHUR (ALTAI) SNOW DISASTER RECOVERY COMPONENT AND XINJIANGUYGHUR (TACHENG) SNOWDISASTER RECOVERY COMPONENT \. CONTENTS Page No\. 1\.Project Data 1 2\. Principal Performance Ratings 1 3\. Assessmentof Development Objective and Design, and of Quality at Entry 2 4\. Achievement of Objective and Outputs 4 5\. Major Factors Affecting Implementation and Outcome 6 6\. Sustainability 7 7\. Bank and Borrower Performance 7 8\. Lessons Learned 9 9\. Partner Comments 10 Annex 1\.Key Performance IndicatordLog Frame Matrix 11 Annex 2\. Project Costs and Financing 13 Annex 3\. Economic Costs and Benefits 20 Annex 4\. Bank Inputs 20 Annex 5\. Ratings for Achievement of Objectives/Outputs of Components 21 Annex 6\. Ratings of Bank and Borrower Performance 21 Annex 7\. List of SupportingDocuments 21 Annex 8\. Borrower's Implementation CompletionNotes 22 Annex 9\. Photographs 32   Project ID: PO60270 and PO03473 Project Name: XINJIANG UYGHUR (ALTAI AND TACHENG) SNOW DISASTER RECOVERY TeamLeader: Achim Fock TL Unit: EASRD ICR Type: Core ICR Report Date: November 30, 2003 1\. Project Data Name: XINJIANG UYGHUR Credit Number: IDA-2475 AND IDA-3271 (ALTAI AND TACHENG) SNOW DISASTER RECOVERY Country/Department: CHINA Region: East Asia and Pacific Region Sector/subsector: AL- Livestock KEY DATES (Related to the new component) Original RevisedActual PCD: -- Efective: 09/24/200I 09/24/2001 Appraisal: 04/06/2001 MTR: -- -- Approval: II/I6/2001 Closing: 05/3U2003 05731/2003 Borrower/implementing Agency: PRC /XlJAR FB, AHB, Altai Prefecture FB, AHB and Tacheng Prefecture FB, AHB Other Partners: - - STAFF Current At Appraisal VicePresident: Jemal-ud-din Kassum Jemal-ud-din Kassum Country Manager: Yukon Huang Yukon Huang Sector Manager: Mark D\. Wilson Mark D\. Wilson TeamLeader at ICR: Achim Fock Achim Fock ICR Primary Author: Achim Fock Achim Fock 2\. Principal PerformanceRatings (HS=Highly Satisfactory, S=Satisfactory, U=Unsatisfactory, HL=Highly Likely, L=Likely, UN=Unlikely, HW=Highly Unlikely, HU=Highly Unsatisfactory, H=High, SU=Substantial, M=Modest, N=Negligible) Outcome: S Sustainability: HL Institutional Development impact: S Bank Performance: S Borrower Performance: S QAG (if available) ICR Quality at Entry: S Project at Risk at Any Time: -- 1  3\. Assessment of Development Objective and Design, and of Quality at Entry During the winter of 2000/2001,Xinjiang had a seriesof snow disastersleading to snow depths of 0\.5-lm in the plains and 1-2 m in the mountains, The snow cover lasted over four months\. The temperature reached lows of minus 37 degrees Celsius (minus 35 degrees Fahrenheit)\. The areas also suffered from gale force winds\. The snow, the cold, and the wind caused immense damage\. Over 300 thousand herdsmen suffered, over 30 thousand animals died, about 5 million animals were hurt, 10 thousand animal sheds were destroyed or badly damaged, and 7-8 thousand houses were destroyed or damaged\. 3\.1 Original Objective: The objective of the project was to assist the Borrower in restoring social and economic infrastructurecritical to the lives of herders devastated by this unusually severe snowstorm in hard hit areas of Altai Prefecture and Tacheng Prefecture of Xinjiang Uyghur Autonomous Region (XUAR), and in enhancingand strengtheningthe disasterresponse capacityof the affectedherders\. This objective reflected Bank policy for emergency recovery assistance, i\.e\. to restore assets and production levels in the disrupted economy through the financing of investment and productive activities,rather than relief or consumption\. By targeting the project towards a very poor part of the society in remote pastoral areas it contributedto four of the five major themes of the 1997Bank's Country Assistance Strategy CAS for China (infrastructure;human development including poverty alleviation; agriculture and rural development; and, environmental protection) and two out of the three major themes of the 2003 CAS (addressing the needs of the poorer and disadvantaged people in lagging regions; and, facilitatingan environmentallysustainabledevelopmentprocess)\. Finally, the project was responsive to the Borrower's need in a situation of a natural disaster that seriously dislocated the local economy and called for a quick response\. In line with best practice for emergency operation,the project objectivewas clear andrealistic\. 3\.2 Revised Objective: The original objectiveof the project remainedunchanged\. 3\.3 Original Components: The livelihood of the herder families in Altai Prefecture and Tacheng Prefecture of XUAR is almost always entirely dependent on livestock (sheep, goats, cattle, horses, camels, and other livestock)\. With large numbers of animals dying, the livelihood of these families was severely impacted\.The ability to rebuild this livelihoodand protect it more efficiently from future disasters largely depended on animal housing and feeding\.Therefore,the key emphasis of the project was to assist herders in rebuilding damaged or destroyed sheds and establishing a reliable winter fodder base\. In addition, a component on technical assistance and project management was designed in order to contribute to an improved management of the livestock and grassland resources in the region, and to ensure effective pro; ect management, including evaluation and monitoring\. The project had the followingcomponents: (1) Restoration and Rehabilitation of Livestock Sheds (Altai: US $1\.83 million - 42\.7 percent of total: Tacheng: US $1\.59 million - 49\.7 percent of total)\. This component addressed one of the two most critical needs of the beneficiary population by financing investments for housing of their animals\. It was planned that about US $ 3\.42 million would be invested in the rehabilitationof about 212,500 sqm of sheds (2,125 units), restoration of 150,000 sqm of sheds (1,498 units), pasture rehabilitation of about 60,000 mu (4,000 ha), and pasture improvement of 110,000 mu (over 7,000 ha)\. The project planned to promote the improved "greenhouse" design permitting greater retention of heat\. For all beneficiaries investing into the reconstruction of sheds technical 2  training was made compulsory in order to improve the economically and environmentally sustainableuse of these major investments for the herders\. (2) Housing Restoration (Altai: US $0\.56 million - 13\.2% of total:)\. Restoration of houses was planned for Altai Prefecture where a considerable number of families suffered severe house damages or even the total collapse of their houses and where grant fund sources from the Governmentor donations were insufficient\.The average size of a house planned under the project was 80 square meters\. Assuming average costs of houses between RMB 11,400 for mud-brick construction and RMB 14,700for fired-brickconstructionthe restoration of about 300 houses was planned under the project\. (3) Pasture Rehabilitation (Altai: US $1\.70 million - 39\.6% of total: Tacheng: US $1\.54 million- 48\.1% of total))\. This component addressed the other of the two most critical needs of the beneficiary population: improved winter forage security\. The componentplan included 62,750 mu (Altai: 38,900 mu; Tacheng: 23,850 mu) of sown (artificial) pasture, a 110,400 mu (Altai: 7,000 mu; Tacheng: 103,400 mu) of grassland rehabilitation activity, and the provision of forage handling equipment including small tractors, and forage storage facilities (including 1,668 silage pits)\. Technical training was also made compulsory under this component in order to improve the economicallyand environmentallysustainableuse of the investments\. (4): Technical Assistance (TA) and Project Management (Altai: US $0\.19 million - 4\.5% of total: Tacheng: US $0\.07million - 2\.2% of total)\. This component included (i) a Grassland ManagementReview TA to re-assess the prevailing risk mitigation measures for preventing future losses, and to develop the framework for a more sustainable grassland management; (ii) a TA activity for Independent Monitoring and Evaluation of the impact of the project based on four performance indicators (measuring livestock performance, increased winter forage, beneficiary satisfaction, and equitability of beneficiary selection); and (iii) Project Management with responsibilities given to Project Leading Groups (PLGs) and Project Management Offices (PMOS) locatedin Animal HusbandryBureaus (AHB)\. The componentswere clearly linked to the objectives\.Moreover,by targeting the poorer part of the affected herder population, the project ensured the objectives were achieved\. The individual components were well designed, complementing each other, and with detailed and practical standards and complementingtraining for the efficient and sustainableuse of the investments\.The project took into account important lessons of previous Bank-financed emergency recovery projects such as (i) paying attention to project preparation and simplicity of design: (ii) flexible procurement methods, (iii) disaster-resilient reconstruction standards: and (iv) participation by beneficiaries\. Lastly, the simple design of the project took into account the capacity of the implementing agencies, the extremely difficult natural conditions, and the need for expedient implementationrequired for an emergencyrecovery operation\. 3\.4Revised Project: The design of the project remained unchanged throughout the implementationperiod\. Only small reallocations of the various componentsoccurred reflecting adjustments to demand and availability of additional funds due to an appreciationof the SDR against the RMB\. 3\.5Quality at Entry: Quality at Entry is rated satisfactory because: (i) project objectives were in line with Borrower's priority, the Bank's CAS for China, and the Bank's policies for emergency operations; (ii) timely and quite accurate assessment of the disaster and the situation under which a project would be implemented; (iii) the project's strong emphasis on targeting of assistance to the poorest and the most needy; (iv) a realistic time schedule to meet the project objectives, which also included mitigation measures to strengthen the area's resilience to natural hazards; and (v) the project's 3  design, adequately addressing Bank's safeguard policies, in particular the issues of indigenous people and the environment\. 4\. Achievement of Objective and Outputs 4\.1 Outcome/achievementof objective: The project's objectives and outcomes were substantially achieved\. Critical social and economic infrastructure of about 3,950 herder families in Altai Prefectureand about 1,670herder families in Tacheng Prefecture has been restored with a total of about 26,800 people in total benefiting\. The disasterresponse capacityof the affectedherdershas been improved substantially\. One of the principal reasons for the heavy ruminant livestocklosses from the snow disasterwas the poor quality and design of livestock sheds, which failed to provide livestockwith adequate shelter during the severe weather conditions\.The rehabilitated and reconstructedsheds greatly reduce risk of losses from future snow disasters\. In addition, sheds with the improved "greenhouse" design provide a warmer housing environmentduring the winter season with advantages such as reduced neonatal mortality, increased lambkid growth rates and improved fertility\.Moreover, shed feeding can be better controlled providing improved nutrition\. Where livestock is housed and fed inside sheds during the winter season, winter grazing is reduced, resulting in less grazing on dormant winter and early spring grassesand improvedgrowth and recovery of grass cover\. The project also greatly enhanced winter forage security by providing herders with alternative sources of forage, mainly in the form of sown (artificial) pasture, a small grassland rehabilitation activity, and the provision of forage handling equipment including small tractors, and forage storage facilities\. These investments provide a secure source of good quality feed throughout the winter season\. The TA and training provided under the project considerably strengthenedthe achievementsof the project outcomes\. For many herders the training provided was the first formal technical training they ever received\. The training has contributedconsiderablyto a solid constructionquality, and to economically efficient and environmentally sustainable investments\. The TA provided under the project provided the opportunity to re-assess the prevailing risk mitigation measures to prevent future losses, and to develop more sustainable grassland management\. A considerable number of officials and herders benefited from the TA activity\. Experiences from Bank supervision missions as well as the household survey data of the M&E activity indicates that the project largely targeted the poorer part of the herder population which had suffered substantial losses from the snow disaster\. Beneficiaries were highly appreciative of the project\. Livestockproduction and therefore livelihoodof the beneficiarypopulation was greatly improved through the project investments in terms of an higher income level and because they enjoy greater resilienceto future disasters\. 4\.2 Outputs by Components: (1) Restoration and Rehabilitation of Livestock Sheds (US $3\.64 million actual; Altai: US $2\.04 million, Tacheng: US $1\.60 million)\. The component is rated satisfactory\. A total of 246,000 sqm of sheds (2,711 units) was rehabilitated, 187,000 sqm of sheds (1,660 units) was restored\. The component exceeded appraisal targets for restoration and rehabilitation of sheds\. Overall,constructionqualitywas high both for repairs and rebuilding\. (2) Housing Restoration (US $0\.66 million actual; Altai only)\. The project is rated satisfactory\. A total of 354 houses have been reconstructed which exceeded appraisal targets by 18 percent\. House construction was of generally high quality with beneficiaries often putting substantial extra efforts in the constructionof their houses\. 4  (3) Pasture Rehabilitation (US $3\.22 million actual; Altai: US $1\.60 million, Tacheng: US $1\.60 million)\. The component is rated satisfactory\. About 57,200 mu (Altai: 30,900 mu, Tacheng: 26,300 mu) of artificialpasture (91% of appraisal plan), generally alfalfa, in a number of cases with a nurse crop of barley, wheat or rape, have been established\. In general, the quality of artificialpasture has been high\. The success was due to seeds of very high quality, the availability of water, and the technical knowledge of the beneficiaries,which was partly transferred under the project\. Sometimes in parallel with investments into artificial pasture, the project supported the building of 1,589 silage pits for improved fodder storage (Altai: 530, Tacheng: l,059), which is about 95% of appraisal plan in terms of number and 76% in terms of volume capacity\. Of the investment made, about US $0\.75 million (US $613,000 for Altai and US $133,000 for Tacheng) was used for purchasing of tractors and forage equipment for improved forage processing\. These investments were of high quality and are well used, with many neighbors often sharing the equipment\. In addition, a smaller sub-component of pasture rehabilitation, mainly in Tacheng Prefecture,was implementedon about 108,900mu (99% of appraisal plan)\. (4) Technical Assistance and Project Management (US $0\.20 million actual; Altai: US $0\.14 million, Tacheng: US $0\.06 million)\. The project is rated satisfactory\. Firstly, two rounds of quality TA in grassland management were successfully conducted by a team consisting of an internationaland a national consultant\. Secondly, in connectionwith the major investmentsunder the project (shed reconstruction, pasture rehabilitation)beneficiary households received technical training\. A total of 9,900 person days (Altai 5,200; Tacheng 4,700) of training were provided, generallyin 2 to 3 day programs\. This is a substantial success,given that hardly any of the trainees had any formal technical trainingbefore\. Thirdly, the project supportedan independentmonitoring and evaluation\. A local consultant team went to the project areas in spring of 2002 and spring of 2003 to assess the project impact, mainly through household interviews\. Due to methodological problems of the survey, the consultant report does not measure the impact of the project in a representative manner as envisaged by the project design\. For an assessment of project managementplease see Section 7 below\. 4\.3Net Present Value/Economicrate of return: Since this was an emergency operation, no calculations of net present value or economic rate of return was carried out\. However, simplifiedcalculations demonstratethat the economicbenefits for the herders and the overall economic benefits of the project are highly positive\. For example, the internal financial rate of return of new shed construction would be offset by a 15% increase in lambhad survival\. Increase in neonatal survival in greenhouse sheds has been reported to be well beyond this level\. The establishment of artificial pasture cost about RMB 200 per mu with flood irrigationwould bejustified by only about one cubicmeters of incrementaldried alfalfa hay per mu and year (opportunitycosts about RMB 50\.) The yield can easily be more than two cubic meters per year\. The economic impact of the project is particularly positive because it supports investments without which the continued production by the beneficiaries would in many cases be severelyreduced andnon-sustainable,if not impossible\. 4\.4 Financial rate of return: Not Applicable(see Section4\.3) 4\.5 Institutional development impact: The institutional impact of the project is positive\. Given the emergency nature of the project, the main focus was on rehabilitation of social and physical infrastructure rather than institutional development\.Nevertheless, the project had considerableinstitutional development impact in some areas\. Most importantly, the project substantially increased the capacity of the Government agencies involved in project preparation and implementation,in particular the AHBs at all levels\. 5  This was the firsttime that the TachengAHB was exposedto a foreign-fundedproject\. At all levels the AHB successfully adopted the various design aspects and requirements of the project\. Besides becoming familiar in the Bank's financial and procurement methods, the AHB increased its capacity in a number of areas,including:(i) thorough targetingof public services,in this case to the poorer and most needy part of the herder population; (ii) standard definition,implementation,and efficient supervision of high-qualityworks and goods dispersed over a huge project area; and (iii) familiarization with computer and other modern office equipment\. The response to any future disasterhas been increasedthrough the implementationof thisproject\. 5\. Major Factors AffectingImplementation and Outcome 5\.1 Factors outside the control of government or implementing agency: While the harsh climatic and geographical conditionsposed a serious challenge to implementation, no major unforeseen factorsaffected the project outcome\. 5\.2Factors generally subject to government control: The Government'spolicies as well as its support to the project had an overall favorable affect on project implementation and outcome\. However, one factor affecting the project negatively was a substantial delay in the availability of counterpart funds\. This led to delayed implementation as well as greater financial pressure on beneficiaries and the local private economy in general (suppliers/ contractors)\. 5\.3 Factors generally subject to implementingagency control: The performance of the implementing agencies was overall satisfactory\. A slow start of project implementation was partly caused by initial difficulties of the implementing agencies with the unfamiliarrequirements of the project\. However, a strong leadership and a few committed key staff in PMOSat all levels combinedwith exemplarysupport from the Regional Finance Bureau ensured a strong project implementation capacity and contributed to successful implementation of the project\. 5\.4 Costs nndjnancing: The end-of-projectcosts for both components are slightlyhigher (4% and 2% respectivelyfor Altai and Tacheng) than the appraisal estimates,mainly due to additional tasks undertaken permitted by the appreciation of SDR against USD and RMB\. The project costs for most project activities exceeded the appraisal plan ranging from 1% to 38% for Altai and 3% to 22% for Tacheng, although, the project costs for some activities were lower than appraisal estimate\. Annex 2a presents a detailed project cost by component, project activity and a comparison of actuaVlatest estimate vs\. appraisalestimate\. Overall project financing is satisfactoryin both Altai and Tacheng with adequate fundingprovided from expanded financing sources\.The financingsources include IDA (66%),Regional government (12%), prefecture government (7%), county government (8%) and beneficiary (7%)\. In Altai, county governmentbecame an expanded financing source upon project effectivenessand provided about 6% of the total financing required for the prefecture\. However, one financing source in Tacheng failed to fulfill its full commitment\. In addition, not all counterpart funds were provided on a timely basis\. Annex 2c presents a detailed financing estimate by source,project activity and a comparisonof actualAatestestimatevs\. appraisal estimate\. 6  6\. Sustainability 6\.1Rationalefor sustainability rating: Project sustainability is highly likely\. The project design paid considerable attention to high implementation standards and these standardswere generally met and often exceeded\. Both, in the case of shed rehabilitation and reconstruction as well as in the case of winter fodder production, these good implementation standardswill ensure the continued use of investments for many years to come\. The economic benefits of the investments are estimated to be substantial given that in many cases the activitiesimplementedunder the project are an essential condition for the recovery of subsistence and income of the beneficiary family\. The training provided beneficiaries with substantial knowledge to use and maintain their investments\. While the environmental sustainability in many of the grasslands areas is fragile, the project investments contribute to an improvement of this sustainability by reducing the winter and spring grazing pressure on the grasslands\. 6\.2 Transition arrangement to regular operations: The individual household-based sub-projects go into regular operation once they are built\. The households own the constructionsbuilt and forage equipmentpurchased under the project, and they have rights over a minimum of 30 years for the use of the land where fodder production has been established\. These households have the strong incentive to use and maintain the investments\. The Government (AHB) will provide support to the herder families, including through additional training\. Moreover, the Government (FB with help from AHB) ensures the recovery of the loan proceeds from the beneficiaries\.The finalizationof a fully computerizeddatabase will make these tasks more efficient\.The PMOShave been re-integratedinto the general structure of their agencies at the end of the project, and the staff will use the experiencegained for futureactivities\. 7\. Bank and Borrower Performance Bank 7\.1Lending: Bank's performance during project identification, preparation, and appraisal is rated satisfactory\. The Bank's input in terms of staffing, shll-mix and time allocation was adequate given the relatively simple structure of the project\. The Bank was proactive in identifying the financial resources available from other World Bank financedprojects and the Bank team provided adequate and timely preparation support to the Borrower\. Appraisal was done quickly but thoroughly and paid adequate attention to the Bank's fiduciary and safeguard responsibility\. The whole process from identificationto appraisal was very rapid in accordance with the emergency response nature of the project\. Project design was in line with overall Bank and CAS objectives, adequate to achieve these objectives, and sufficiently simple given constraints in the capacity of the implementingagencies\. 7\.2 Supervision: The Bank's performance in project supervision is rated satisfactory, Size and frequency of the supervision missions as well as their staff composition were adequate given the size and nature of the project, and staff continuity was contained\. The task team identified and addressed implementationissues in an active and constructivemanner, and follow-upaction was successfulin solving problems\. Cooperation between Bank and Borrower was close and advice by the Bank team highly valued by the implementing agencies\. While the project would have benefited from more intense supervision by the Bank team in the beginning, other factors outside Bank control were far more important\. 7  7\.3 OverallBankperformance: Overall Bank performance is rated satisfactory\. The Bank responded in a timely manner to the emergency recovery needs of the Borrower\. Project design was in line with objectives; borrower supportwas strong,and project appraisaland supervision sound\. Borrower 7\.4Preparation: Governmentperformance is rated satisfactory\.The Governmentresponded quickly after the project identification\.In a short period of time, it prepared the project according to the agreed framework and presented sufficient quality information to appraise the project in June of 2001\. The Government also worked very early with the herders to start implementingproject activities in the first constructionperiod\. However, at the same time, some delays, most notably the availabilityof counterpart funds and the strengthening of project management, lead to a relatively late effectiveness of the project and, under retroactive financing,relatively modest implementationin the first constructionperiod\. 7\.5 Governmentimplementationperformance: The Government implementation performance is rated satisfactory\. While the availability of counterpart funds as well as the strengthening of project management capacity was delayed, the considerable commitment given to the project resulted in the full resolution of these issues\. This strong Government commitmentwas key to the project success\. 7\.6Implementing Agency: The institutionalarrangements for project preparation have proved adequate to bring the project to a successful conclusion within the planned time-frame\. The PMO in the AHB started from a very difficult initial situationcharacterizedby the need to respond to a natural disasterin remotepastoral areas, low standards of office equipment and insufficient transportation, and inexperience of dealing with the requirements of a project financed by an international agency\. However, strong key staff in PMOS at all levels, particularly at prefecture level, were committed and received training, in particular by the Regional Finance Bureau and through a study tour to the Inner Mongolia SnowstormEmergencyRehabilitationProject\. The intensive study tour organizedby the regional PMO with participants from both prefecture PMOSand county PMOSto a parallel project in Inner Mongolia Autonomous Region resulted in a great improvement in overall project implementation\. This ensured that the implementing agencies acquired necessary slulls and strongly improved their capacity so that the project could be completed with satisfactory quality and within the set time-frame\. In summary,the performance of the implementingagenciesexcelled considerably,and is rated satisfactoryoverall\. 7\.7Overall Borrowerperformance: The overall Borrower performance is rated satisfactory\. The Government and the implementing agencies have been consistently committed to the project\. Overall performance excelled after initial shortcomingand was the key to the overall successof the project\. 8  8\. Lessons Learned The project has demonstrated the feasibility and substantial benefits of fast-track Bank-financed emergency rehabilitation projects even under extreme climatic and geographical conditions\. The project's approach can be utilized for similar emergency for the herder population of remote areas\. Important factorsof project success were: 0 Thorough proiect preparation and simplicity in desim\. Despite the time pressure during project preparation and appraisal,a lot of attention was paid to design details includingbreakdown of costs and procurement down to county level\. Even more importantly, the scope of the project was well focused, and preparation avoided the inclusion of too many or too sophisticated components, The selection of the components centered around the life of the herder communities, i\.e\., the reconstruction of the basic services and support to their livelihood\. This helped make the project relevant to them and increased their commitment and responsiveness\.This emphasize on a sufficiently simple designpaid off\. The project objectives and its design as originallyproved to be realistic and the project was implemented with satisfactory quality and as planned within the eighteen-month timeframe despite the natural conditions and initially limited implementation capacity\. 0 Ouick response\. The operation showed that rapid and effective decisions by both the Bank and the Borrower can make a significant positive impact in improving the lives of lower-income Communities,especially in emergency situations\.While some time was lost at the beginning of the project and many herders would have benefited even more from an earlier response, the project achieved its objectives because it was fully implemented in the second construction season after a relatively mild winter of 2001/2002\. Strong\.management structure\. In emergency reconstruction programs, early availability of funds or authorization, together with competent business procedures and record keeping are essential to address the disaster repairs in a timely manner\. Procurement procedures have to take into account the emergency nature of the project and be implemented by well-trained staff\. Dedicatedhigh-level governmentmanagementand close interactionbetween Provincial,Prefecture and County-levelmanagementteams is essentialto achieve success\. Formalizing targeting of beneficiaries\. Assisting individual households in their recovery from an emergency situation requires considerable attention to a well thought-through targeting of the limited resources\. First, this requires that the criteria for selection of householdsbe measurable and simple enough to be applied given the time-pressure of an emergency project and limited capacity available\. This aspect was achieved by the project\. Second,it requires a selectionprocess that is a priori defined and transparent\. A clearer design and better institutionalization of such selection process during preparation would have avoided some delays and mistakes made during the early stagesof the project\. Well-targeted training of project management and beneficiaries\. Due to its emergency response nature, the project focused on reconstruction of physical and social infrastructure\. However, a crucialpart of the successtowards this aim was the trainingprovided under the project\. First, training of project management staff was essential to build the capacity for project implementation and, in hindsight, should have been provided even more intensely at the earliest stages of the project\. Second, the training provided to beneficiary households, though varying in quality, was very satisfactory\.For the vast majority of the trainees this was the first time that they received technical training\. It was well received, contributed to an improved construction and sustainability of the investments made, and opened the eyes of many herders beyond these investments to more comprehensive aspects of livestock and grassland management\. The AHB is 9  expected to build on this training, and the credibilitythey gained through it for transferring further knowledgeto the herder population\. 0 Supervision and Monitoring\. A strong emphasis on input and output monitoring, reporting, and supervision contributed to a quality implementation of the project\. The transfer of this managementapproacheswill servethe implementingagencieswell in many future activities\. 9\. Partner Comments Borrower/implementing agency: The ICR drafted by the World Bank is a comprehensive one that reflects the reality\. We basically do not have any objectionsto the document\. Our general comment about the project is as follows: The project is an emergency assistance project\. From project preparation, appraisal and design to implementation,the World Bank has adopted timely action plans that correspond to local realities\. Project preparation and appraisal were quick and accurate; project design was simple and concise; project procurement methods were flexible and easy to use; and project implementation was fast and efficient\. During the process of implementation,the World Bank has also responded to project demand and local actual conditions and made timely adjustmentsto someproject activitiesand investment\. The project has always put an emphasison providing support to herders hard hit by the disaster who needed urgent help\. It has also required active participation by project beneficiaries\. Project Manager and officers came to visit project areas on many occasions to provide supervision and guidance and help resolve, in a timely manner, the problems and difficultiesthat came up during the process of implementation\. All these have made it possible for all project activities to be completed on schedule and for two most important issues facing the herders hit by the disaster to be resolved, namely, restoration and reconstruction of damaged and collapsed animal sheds, and improvement of fodder and feed supplyduring the springand winter seasons\. We all believe that the project was a successful emergency assistance project and it was warmly received by the governments at various levels,the cadres and the farmers andherders\. Training and technical assistanceactivitiesunder the project were also successful\. The farmersand herders from minority ethnic groups who live in remote and disadvantagedareas received, for the first time, technical assistance and professional training by well-known Chinese and international experts\. They gained practical knowledge and technique and benefited tremendously fkom the project\. At the same time, the staff of the PMOSat various levels and other personnel involved in the project in the ten counties (cities) learned about the advanced and scientific project management techniques and experiences of the World Bank, thus laying a sound foundation for future implementation of World Bank as well as domestic projects\. However, due to our lack of experience with World Bank projects, as well as other inadequacies such as understaffing,poor office conditionsand shortageof funds, there were problems during the project preparation and implementation period\. The problems included delay of project process, slow progress regarding procurement and disbursement, and late supply of counter-part funds\. Thankfully, with the help of World Bank officials and experts, we managed to overcome those difficulties and solved the problems in time so that the project was implemented smoothly and according to the plan\. We hereby would like to thank the World Bank and the project manager and officers\. Project Management Office,Xinjiang LivestockBureau 10  Annex 1\. Key Performance Indicators/LogFrame Matrix Annex 1a\. Outcome/ImpactIndicators Outcome at End of Proiect Project Activity Indicator Means of Verification Altai Tacheng - W/O Project With Project W/O Project With Project A\. Improved Weaning To be 98% survival 99\.9% 96% survival Increased to livestock rate of determined at rate for sheep survival rate rate\. 98%\. 8-10 days production sheep and end of the and 125% for for sheep and earlier of efficiency\. \a goats lambing season\. goat\. 130%for weaning period housed in Divide number goat\. in average\. greenhouse of lambskids sheds\. weaned by total breeding females in flock\. Survey 10% project households with sheds\. B\. Improved Available Total tonnage of 9 ton of 15 ton of 45,000ton of Increased winter forage winter hay and silage forage stored forage stored forage and storage by security\. \b forage at available at end for each for each 15,000ton of 10,000ton of onset of of grazing household in household in silage for hay and 20,000 winter season\. Survey average\. average\. of animals\. 160,000head ton of silage\. season\. 10%of project households\. C\. Project Beneficiary Survey report of Very No Very satisfied Management response to 10%ofproject satisfied\. knowledge with project Effectiveness, project households per about implementation interventio project county\. procedures of and quality, Implementation 1\. World Bank appreciated effectiveness\.\c supported strict project project\. management: Project PMO Yes Some Only those gelection\. D\.Beneficiary :redits Beneficiary ineligible eligible argeted to selection report\. households households hose with Selection selected\. selectedwho need yeatest \.argeted to those loan urgently with ieed\. n the lower 213 per capita income ncome bracket\. below RMB 2000\. increased lamblkid survival due to better shed environment\. \b Measures increased winter forage reserves from increased hay production, artificial pasture production, and silageproduction\. \c Includes response rapidity; and suitability and sustainability of project inputs\. 11  Annex lb\. Output Indicators Altai Prefecture I TachenrrPrefecture I Indicators Unit I 4ppraisa ,ctual/Latest % of Appraisal Actualhtest % of Zstimater Estimate Appraisal Estimates Estimate Appraisal 4\.Rehabilitationand Restoration of Animal Sheds 1\. Rehabilitation of Sheds mz 121,021 135,236 112% 91,500 111,040 121% 2\. Rehabilitation of Sheds No 1,21c 1,437 119% 915 1,274 139% 3\. Restoration of Sheds m2 74,80C 118,732 159% 75,000 68,592 91% 4\. Restoration of Sheds No 74E 915 122% 750 745 99% 3\. Pasture Rehabilitation 1\. Artificial Pasture mu 38,90C 30,925 79% 23,850 26,268 110% 2\. Artificial Pasture a No 868 620 71% 477 816 171% 3\. Pasture Improvement mu 7,000 7,000 100% 103,400 101,938 99% 4\. Pasture Improvement No 140 140 100% 517 680 132% 5\. Silage Pit m3 18,960 4,770 25% 31,080 33,283 107% 6\. SilagePit No 632 :\.Restoration 530 84% 1,036 1,059 102% of Housing 1\. Reconstruction of Housing (new) No 300 354 118% 2\. Reconstruction of Housing (new) mz 26,246 29,913 114% )\. Technical Assistance and Project Management I \. Technical Assistance xson daq 30 35 117% 30 48 160% I \. Trainingto beneficiaries :rson daq 2,398 4,927 205% 8,340 4,574 55% 3\. Training to PMO staff xson da) 250 120 86% :\.Beneficiaries I\. Beneficiary Households No\. 1,670 !\. Beneficiary Population person 7,830 12  Annex 2\. Project Costs and Financing Annex 2a Project Cost by Component (in US $ thousand equivalent)\a Project Component \a The totals may not match due to rounding\. 13  Annex 2b-1\. Project Costs by Procurement Arrangements for Altai Prefecture (in US $ thousand equivalent)\a Total 391 1,647 2,045 79 119 4,281 (294) (1,082) (1,344) (79) - (2,799) 14  \a The totals may not match due to rounding\. \b Figures in parentheses represent the amounts financed by the IDA credit\. \c NBF denotes non-Bank financing\. 15  Annex 2b-2\. Project Costs by Procurement Arrangements for Tacheng Prefecture (in US $ thousand equivalent)\a \a The totals may not match due to rounding\. \b Figures in parentheses represent the amounts financedby the IDA credit\. \c NBF denotes non-Bank financing\. 16  \a The totals may not match due to rounding\. \b Figures m parentheses representthe amounts financed by the IDA credit\. \c NBF denotes non-Bank financing\. 17  Annex 2c-1\. Project Financing by Component for Altai Prefecture (in US $ thousand equivalent) Project Component \. Regional Prefecture 'refecture County IDA Government Government Government overnment Beneficiaries Total A\. Rehabilitation and Restoration of Animal Shed 1,202 208 208 2081 208 1,826 1\.Rehabilitation of Shed 4851 485 841 84 841 84 84 I 737 2\. Restoration of Shed 718 124 124 124 1,089 \a The totals may not match due to rounding\. I \. Artificial Pastu 2\. Pasture Imurovernent 21 61 21 3\. Animal Forage Processing and Storage 3531 83I 211 141 211 491 C\. Restoration of Housing 4361 961 601 341 351 661 D\. Technical Assistance and Project Management 30\.6 75 0 37 142 TOTAL PROJECTCOSTS 2,971 468 459 282 202 4,443 18  Annex 2c-2\. Project Financing by Component for Tacheng Prefecture (in US $ thousand equivalent) Project Component 2\. Pasture lmprovement 2891 52 1 52I 52) 444 3\. Animal Forage Processingand Storage 2651 41 41 41 387 C\. Restoration of Housing D\. Technical Assistance and Project Management 22 16 16 16 69 TOTAL PROJECT COSTS 2,074 377 377 377 3,205 1 Artificial Pasture 2\. Pasture Improvement 306 55 10 44 56 471 3\.Animal Forage Processing and Storage 284 41 11 31 50 416 C\. Restoration of Housing I)\.Technical Assistance and Project Management 26 9 3 24 62 TOTAL PROJECT COSTS 2,135 377 69 336 362 3,278 19  Annex 3\. Economic Costs and Benefits not applicable Annex 4\. Bank Inputs (a) Missions: Stageof Project Cycle No\. o Persons and Specialty Performar e Ratinn MontWYear Count Specialty Implementation Development Progress Objective IdentificatiodPreparation 05/01 AE, OP AppraisaVNegotiation 06101 AE, OP, LS, E, FS, PS Supervision 04/02 AE, OP, LS S 06/02 AE, OP S 10102 AE, OP, LS S ICR 03/03 AE, OP S AE =AgriculturalEconomist LS =Livestock pecialist E =Economist OP =Operationsofficer FS Financial Specialist = PS ProcurementSpecialist = Stage of ProjectCycle ActualILatest Estimate No\. staff weeks us $(`OOO) IdentificatiodPreDaration 5 11\.6 AppraisalINegotiation 16 32\.8 Supervision 23 54\.8 ICR 5 12\.5 Total 50 111\.7 20  Annex 5\. Ratings for Achievement of Objectives/Outputs of Components (H=High,SU=Substantial,M=Modest,N=Negligible, NA=Not Applicable) Rating 0Macropolicies O H oSU O M O N o N A Sector Policies O H oSU O M O N o N A [XI Physical O H *SU O M O N o N A KI Financial O H *SU O M O N o N A El Institutional Development O H *SU O M O N o N A Kl Environmental O H oSU * M O N o N A Social [XI Poverv Reduction O H *SU O M O N o N A 0Gender O H oSU O M O N o N A Other (Please specifi) O H oSU O M O N o N A 0Privatesectordevelopment O H oSU O M O N o N A 13 Public sector management O H oSU O M O N o N A 13 Other (Please specifi) O H oSU O M O N o N A Annex 6\. Ratings of Bank and Borrower Performance (HS=Highly Satisfactory, S=Satisfactory, U=Unsatisfactory,HU=Highly Unsatisfactory) 6\.1Bank performance Rating [E3 Lending oHS *S o U o HU Kl Supervision oHS OS o U o HU Kl Overall oHS *S o U o HU 6\.2Borrower performance Rating KI Preparation oHS *S o U o HU iXI Government implementation performance oHS OS o U o HU El Implementation agencyperformance oHS *S o U o HU [XI Overall oHS *S o U o HU Annex 7\. List of Supporting Documents Aide-Memoire of the ICR mission QuarterlyManagementReports ConsultantReports for M&E Activity ConsultantReports for GrasslandManagementActivity Borrower'sICR Regional PMO, Altai Prefecture,and Tacheng Prefecture 21  Annex 8\. Borrower'sImplementationCompletion Notes 8\.a\. Altai Prefecture Implementation Completion Note 1\. Introduction Project Background, During the period of October 2000 to the beginning of 2001, Xinjiang Altai Prefecture had a serious snow disasters of one in more than 60 years frequency\.The average snow depth in plain areas was 0\.5-lm, and it was 1-2m in mountainous areas\. The period with snow cover was as long as 5 months\. The continuous low temperature was the first during the past 50 years\. Critical disasters made the immense damage to the animal husbandry of Arleta prefecture and to the herdsmen's yield, living as well\. There were 155 thousand herdsmen sufferers, 2\.122 thousand frozen people, 2\.952 million damaged animals, 12\.3 thousand various kinds of dead animals, 2\.248 animal sheds and 3\.35 thousandherdsmen'houses fallen in the disastersarea, which caused a direct economic loss at 90\.067 million\. In order to assist herdsmen sufferersin regaining their husbandry manufacture as early as possible and strengthen their ability to protect them from the natural disasters, supported by senior departments,Arleta prefecture gained the emergency aid funds from the World Bank and enforced rehabilitation & rebuilding projects in Altai City, Qinghe County,Fuyun County,Jimunai County and Habahe County\. Targeting\. The aim of the project is to help herdsmen sufferers who are accordant with the aid terms of the World Bank and observe agreements relate to the project, help them normalize their production, and help them with their living order and improve herdsmen' fundamental facilities as early as possible, so as to increase their ability of withstanding the natural disasters\. The targets of the project are to rebuild 300 new houses for herdsmen and 244 animal sheds, maintain 1437 animal sheds, construct 38\.9 thousand artificial grasslands, improve 7,OOOmu of grasslands, build 632 silages,purchase 238 pieces of machinery and equipmentand train 2,398people\. Project Investments\. The total investment funds of the project is 33\.5661 million Yuan, at a loan of 20\.7555 million Yuan from the World Bank among it; domestic fund is 9\.1068 million Yuan which includes government fund: 6\.5351 million Yuan and herdsmen self-raise fund: 2\.5717 million Yuan\. Funds arrangement: invest 5\.467 million Yuan to rebuild 354 houses for herdsmen; invest 1\.07million Yuan to rebuild 915 new animal sheds; invest 6\.173 million Yuan to maintain 1437 animal sheds; 8\.9634 million Yuan to construct 30925mu artificial grasslands; 235\.1 thousand Yuan to build 530silages;266 thousand Yuan to purchase 48 machineries\. 2\. Project Implementation The project was approved in spring in 2001 and the implementationwas launched out on 25* July 2001\. The chief achievements in 2001 were: had rehabilitated animal sheds; had completed the upgrading of animal sheds and constructionof most of the silages\. The chief achievement in 2002 was that: rebuilt houses for herdsmen; rebuilt animal sheds and artificial grasslands; improved grasslands,part of silagesand machinerypurchasing\. Reconstruction of Housing for Herdsmen\. The herdsmen' houses in Habahe county, Fuyun county, Qinghe county started building on 5~ Jun\. 2002 and completed in Nov\. 2001, it passed through the check from checking & accepting team because it's technique and quality were up to standard\. Invest 5\.467 million Yuan to build 354 herdsmen' houses and it's total size was 26,246 square meter\. Animal Sheds Rehabilitation and Reconstruction\. Shedsrehabilitationproject started on 25" Jun\. 2001 and finished at the end of the year, it took self-manage engineering formula in its progress\. The actuate investment was 6\.173 million Yuan which was to be used to finish repairing 1437 animal sheds, repairing size was 135,236square meter\. Sheds rebuilding project started in 5* Jun\. 2002 and has finished completelynow, it has been checked and accepted\. The project invests 1\.07 22  million Yuan and which is to be applied to finish rebuilding 915 animals sheds, construction size was 118,732squaremeter\. Grasslands Construction\. Silages,artificialgrasslands and grasslands improvementall were going on with self-manage engineering formula\. Silages project started in Jun\. 2001 and finished completely in Nov\. 2002, invested 1\.429 million Yuan for 530 silages\. Artificial grasslands and grasslands improvement projects started to construct in April 2002 and completed in Oct\. 2002, invested 8\.963 million Yuan to complete 309250mu grasslands (51250mu sprinting grasslands among it); invested 235\.1 thousand Yuan to improve 7000 mu grasslands; the total investment funds of the projectswere 9\.1981million Yuan\. Technical Assistance and Project Administration, In March 2002, a speech hold by prairie specialists Dan Miller (American) and Cui HenXin (Chinese) in Urumqi, the topic of the speech was adventurous administrationof the west prairie area of China, adventurous administration of " the husbandry area and shift herding "; whole members from all ranks of the project offices attended the speech\.In September2002, two specialists,Dan\.Miller and Cui HenXin, made an on- the-spot investigationand directionin Arletaprefecture\. In order to carry out the project smoothly,leading teams and project administrationbranches were established in counties (cities)\. There were three subsidiary work groups in county project administration branches: financial group, purchasing group and file group\. Since the project ha been established, in accordance with the requirements of the World Bank, directed by senior project leading office, the project leading team and administrationoffice developed their work in aspects of programmer design, organization & administration, superintendent & inspection, engineering superintendent and technical training\. The organization was operating well so that assures the aim of the project had completed smoothly\. In order to develop project work better, in accordance with the requirements of the World Bank, the project officesin each county and Arleta prefecture ever sent staff to attend the project training three times, they also went to Inner Mongolia for investigation and studying which organized by municipal project office\. The project office equipped with the computer, scanner, photocopier and other modern office equipments\. Project Adjustment\. In order to make the implementationof the projectbe in keeping with the real circumstance of each county (city), the World Bank Office of Arleta prefecture handed over a report to the World Bank in April 2002, in which they asked to adjustprojects and statereasons\. In May 2002, they received the reply from the World Bank, adjusted "the silages project" in Jimunai county to "sprinting grasslands project", changed Arleta shi and Qinghe county' "processing facility" into "rebuilding animal sheds project", adjusted "artificial grasslands project" in Fuyun county to "herdsmenhousing and rebuilding shedsprojects"\. Procurement for the Project\. In April 2002, the World Bank Inspecting Group inspected the circumstanceof 2001'engineeringconstructionof snow disastersproject, all of the project counties started to collect quotations for bids on small-scale constructions (rebuilding of the herdsmen houses, animal'ssheds)and goods purchasing\. All of the enquirieswere answered at the beginning of May\. Bidding Evaluation Team was setup and all of the quotations were evaluated\. 25 May and 4* June 2002, the World Bank approved the first contract of Jimunai for sprinklers and the first contract of Altai municipal for rebuilding the animal sheds, prefecture PMO checked all of the project counties' contracts, a total of 19 contracts were signed on small scale construction and goods procurement\. And then the project implementationwas started\. During the period of June to the July 2002,the Arleta prefecture project office purchased some office equipments:5 computers, 6 photocopiers, 6 scannersand 1portable computer\. 23  Project Payment\. In order to enhance the fund administration,accordingto requirements fromthe World Bank & the project administrationregulations,special account for WB loan and counterpart fund account were opened at prefecture and each of the project counties\. At the end of Nov\.2002, the accumulative total investment made was 33\.5661 million Yuan, the accumulative total available funds were 29\.8623 million Yuan in which 20\.7555 million Yuan was WB loan, and 6\.5351 million Yuan was counterpart fund from province, prefecture and county\. And 2\.5717 million Yuan was herdsmen labor investment\. The accumulated payment was 25\.4068 million, including herdsmen labor account 3\.4657 million Yuan, small-scale construction 18\.8071 million Yuan, 99\.9thousand Yuan was spent on project managementand office facility\. The prefecture PMO applied for reimbursement from the World Bank four times and got 2\.07555 millionback that reached 86\.4% of the World Bank investmentplan\. Project supervision & assessment\. According to the requirements from the World Bank, "project administration regulations" was made in Arleta prefecture\. In the process of carrying out the project, people from municipal project office and prefecture project office had gone down to project counties (city) to inspect and to supervise\. project staff also made strict inspection, supervision and checking at work\. As for inspection, we adopted regular method and mixed with irregular method, inspected major areas thoroughly, and inspect scattered project sites by random way\. And this played an important role in project supervision\. All the data collected during the inspectionwere filed to guaranteea smoothproject implementation\. 3\.ProjectAchievement and Impact Main Achievement\. Because every task of the project was conducting with on-the spot inspection and adopting the herdsmen' opinion as a base, the project constructionwas conductingobjectively and has gained a good effect\. The World Bank snow disasters project in Arleta prefecture has constructed 530 silages, repaired 1437 animal sheds and 30925mu artificial grasslands, improved 7000mu grasslands, rebuilt 244 animal sheds and 254 herdsmen houses\. The project has trained 4927 herdsmen\. There are 3946 beneficiaries' families and 19,004 beneficiaries covering 3 counties, 1 city and 35 towns\. Successful project implementationhas assisted the beneficiaries in normalizingtheir production\. TechnicalInfluences\. In autumn, 2001 and the spring, 2002, with careful preparation the project office in every county (city, town) made the training cause to the beneficiaries regularly, the contents of the training involved the World Bank project introduction, the standard of the project construction, the silages construction & its maintenance, the scientific farming, the forage manufacture, the preserve slulls, scientific herding etc\. They also organized beneficiaries to have an on-the-spot inspection and visiting\. There were 4927 herdsmen trainers and beneficiaries were satisfied with the training\. In 2002, the county (city) project offices made after-supervisionabout the completed project and found that most of the herdsmen hap applied the facilities and practical techniquesthey had learnedto their production,which had a positive on surroundingpeople\. Environmental Influences\. Implementation of the project has offered beneficiaries' herdsmen houses, animals' sheds, grasslands, silages and other living facilities\. In winter, part of animals can be fed inside the sheds without marching to winter pasture far away; this has cut down destroy towards grasslandsextremely,and has protectedthe biological environmentefficiently\. Social Influences\. By means of news medium, wide publicity of the World Bank, the communication between herdsmen and visible construction site, all of these make sufferers and people of all social ranks understand the project deeply\. It's beyond all doubts that the World Bank' aids to majority of herdsmen sufferers are especially on condition that our area suffered a series of disasters\. This inspire sufferers with their enthusiasm to regain production and rebuild their houses, they participated in the project construction actively\. By means of training courses, 24  the herdsmen have mastered the advanced husbandry technique, improved the scientific herding level, increasedtheir income and caused wide-ranging social influences\. 4\. Experience We have accumulatedrich working experience by means of project implementation,especially in terms of internationalproject\. We hardly ever carried out this sort of international project before, but by way of the practice,we cultivatesome project talents and have establisheda good basis for a smooth development of the World Bank project which topic is "grasslands comprehensive development project"\. In addition, face-to-face speaking with the herdsmen in the process of project implementation offered us an opportunity to accumulate our working experience; in the meanwhile, it's also an opportunity that the herdsmen gave more credit to the government\. According to the World Bank requirements for technique and quality,we have made a progress for the quality of the sheds construction\. Certainly there were some problems in the process of the project implementation that we need to draw admonishments\.First, at the initial stage of the project, our work was developing passively because our worlung staffs were unfamiliar with the project implementation regulations of the World Bank\. Be aimed at this point, the town project sent people for reach and further studying, made the worlung situation changed inside out\. Secondary, during the process of the artificial grasslands construction, there was migratory problem existed because short of consideration (comprehension)towards the snow disastersproject,but we corrected it in time\. 5\.Project evaluation During the project implementation, great help was offered by the World Bank\. A) during the preparation period, missions had been sent by the World Bank to come to the project counties to inspect\. And set the clear objectives for the project\. B) During the implementation, World Bank showed great concern and suggestionswere provided to solve the problems\. C) When the project was completed, training was provided on the preparation of the final report\. And gave clear requirements\.Their hard working spirit deeply impressedus\. Though it is the first time for the prefecture and county leaders to implementWorld Bank project, they have been strictly doing the job according to the World Bank requirement, project management regulations were carefully studied, and the loan was distributed to the herdsmen as required by the World Bank\. And repayment plan was also made\. They frequently checked the progress of the implementation\.Counterpartfunds were allocatedtimely as planned\. Project implementation was done according to the World Bank requirement, and it has already playing importantrole in the production in the project area\. Requirementswere given to the project counties to do a better job in later on management of the project to ensure bigger project benefit\. Good cultivationmanagement should be done to the artificial and upgradedpastureland to increase grass yield\. Further cares should be given to the newly built and upgraded animal sheds and houses of the herdsmen\. And more training should be provided to the herdsmen\. And the loan repayment should be done according to the plan\. Data bank of the project herdsmen and their production shouldbe establishedby using the available computers\. ALETAIPREFECTUREPMO 13TH,Nov\. 2002 25  8\.b\. Tacheng Prefecture Implementation Completion Note There had been very heavy snowfalls and abruptly temperature falling happening in TaCheng region since the beginning of the winter of 2000\.There had been 35 heavy snowfalls happening in more than 80 days\. The depth of the snowfall in plain area is about 1 meter deep and in mountain area is about 2 meters deep\. The snowfall did not thaw until 5 months later\. And the lowest temperature reachedthe minus 37 degree centigrade\. Because the snowfall calamitieshad hit a vast area, the city of TaCheng and the county of TouLee, the county of Emin, the county of YuMin, the county of HeFeng were hit by the snowfall calamitiesbadly\. At the same time, the areas mentioned above suffered from the strong destroying gale and abruptly temperature falling and the heavy snowfalls in the first ten days of the April of 2001\.The grade of the strong destroying gale reached to the 9th to 10* grade and even to the 12& grade in some areas\.Thesenatural calamitiescost our TaChengregion a great deal\. There had been 174 thousand people influenced by the snowfall calamities, and 1\.9 million domestic animals influenced by the snowfall calamities\. 9 herdsmen were killed in the snowfall calamities and 50 herdsmen were injured badly\. There were 21 thousand domestic animals were llled in the snowfall calamities\. In the snowfall calamities, 1137dwelling houses were destroyed in the snowfall calamities and 2959 dwelling houses were damaged\. 7890 cattle pens were totally destroyed or badly damagedby the calamities,which cost the loss of 165million Yuan\. There had been 84\.6thousandpeople hit by the snowfallcalamities in most seriously influenced areas such as the county of Emin, the county of YuMin and the city of TaCheng\. And 1\.026 million domestics animals were hit by the natural snowfall calamities\. And there had been 5 herdsmen were killed in the snowfall calamities,and 12\.8thousand domestics animalswere killed in those areas, in addition to those losses, 6757 dwelling houses and cattle pens were totally destroyed and badly damaged\. The areasmentioned above sufferedthe losses of 100million Yuan\. Objectives\. The objectives of rebuilding items in TaCheng region after the snowfall calamities were to solve the problems that the herdsmen in the city of TaCheng and the county of Emin, the county of YuMin, the county of HeFeng, the county of TouLee had with their production and their lives, and to solve the problem of the production of snowfall calamities-stricken areas and help the beneficiarieshouses to give enough forage to their domesticsanimals in the biting cold season and helpingthem to enhancethe abilityof protecting againstthe snowfallcalamities\. Implementation Plan There was the whole investment of 3\.28 million dollars according to the planning of carrying out the items, in which there was 2\.14 million Yuan form the World Bank's aiding loans (1630000 SDR), and in which there was 1\.14 million Yuan from the domestics funds\. At present, we have finished all construction items under the all investment of 26\.8303 million Yuan\. And we have finishedthe constructiveitems under 25\.0862 million Yuan\. And the amount of the drawingof the application was 16\.306 million Yuan\. And the amount of the rendering the account of the purchasing goods was 1\.6372 million Yuan; the amount of the drawing of the application was 1\.2279 million Yuan\. The amount of the rendering the account of the offices of items and the trainingthe herdsmen was 167\.1thousand Yuan\. Repair of cattlepens The cattle pens had been repaired completelyby the Nov\. of 2001\. And rendering the account had been done to the World Bank by the middle of the April of 2002\. The total amount of the rendering the account was 5\.1079 million Yuan, in which the amount of drawing of the application was 26  3\.3203 million Yuan\. There had been 111\.0405square meters of the cattle pens repaired and there had been 1274beneficiary households in the whole region\. 1,7007million Yuan was invested in the city of TaCheng\.36\.971 thousand square meters of the cattle pens was repaired and there had been 473 beneficiary households in the city of TaCheng\. 1\.4592million Yuan was invested in the county of Emin\. 31\.7215 thousand square meters of the cattle pens was repaired and 303 beneficiary households in the county Emin\. 462\.3 thousand Yuan was invested in the county of TouLee\.10\.049thousand meters of the cattle pens was repaired and 100beneficiaryhouseholds in the county of TouLee\.1\.1007 million Yuan was invested in the YuMin County\. 23\.928 square meters of the cattle pens was repaired and 305 beneficiary households in the county of YuMin\. 385\.1 thousand Yuan was invested in the county of HeFeng\. 8\.371 squaremeters of the cattlepens was repaired and 93 beneficiaryhouseholds in the county of HeFeng\. Construction of cattlepens The cattle pens had been totally finished accordingto the planning by the 11' of Nov\. 2002 in ow region\. The cattle pens had been checked and accepted and put into use\. 8\.1408 million Yuan had been invested totally into the constructionsof the cattle pens, in which 5\.29 million Yuan was used fkom the loans of the World Bank\. 69\.592thousand squaremeters of the cattle pens was built under the funds and there had been 745 beneficiary households\. 2\.64 million Yuan was invested in the city of TaCheng\. 29\.040 square meters of the cattle pens was built there and there had been 264 beneficiary households in the city of TaCheng\.2\.1045 million Yuan was invested in the county of Emin\.15\.440 square meters of the cattle pens was built there and there had been 193 beneficiary households in the county of Emin\. 961 thousand Yuan was invested in the county of TouLee\.6\.746 thousand squaremeters of the cattlepens was built and there had been 97 beneficiaryhouseholdsin the county of TouLee\. 1\.673 million Yuan was invested in the county of YuMin\. 11345 square meters of the cattle pens was built and there had been 116beneficiary households in the county of YuMin\. 762 thousand Yuan was invested in the county of HeFeng\. 5\.521 thousand square meters of the cattlepens was built and there had been 75 beneficiariesin the county of HeFeng\. Construction ofgrasslands The constructions of the artificial grasslands had been finished completely by the June of 2002 under the investment of the 5\.5985 million Yuan, in which 3\.639 million Yuan was used form the loans of the World Bank\. There were 26\.286 thousand mu of the newly-built artificial grasslands that had been finished and there had been 816beneficiary households in our region\. 1\.7725million Yuan was invested in the city of TaCheng\. 8306 mu of the newly-built artificial grasslands was finished and there had been 286 beneficiary households in the city of TaCheng\. 1\.4673 million Yuan was invested in the county of Emin\. 6\.962 thousand mu of the artificial grasslands was finished and there had been 218 beneficiary households in the county of Emin\. 1\.1623 million Yuan was invested in the county of YuMin\. 5\.508 thousand mu of the artificial grasslands was finished and there had been 111 beneficiary households in the county of YuMin\. 561\.7 thousand Yuan was invested in the county of HeFeng\. 2\.442 thousand mu of the artificial grasslands was finishedand there had been 126beneficiaryhouseholds in the county of HeFeng\. Construction of reforming of grasslands The construction of reforming the grasslandshad been totally finished by Septemberof 2002\. The amount of the investment for the reforming the grasslands was 3\.8859 million Yuan, in which 2\.5258 million Yuan was from the World Bank's loans fund\.101\.938 square mu of the grasslands had been reformed and there had been 680 beneficiary households in our whole region\. 1\.2156 million Yuan was invested in the city of TaCheng\. 29\.650 square mu of the grasslands had been reformed and there had been 147 beneficiary households in the city of TaCheng\. 1\.0701 million Yuan was invested in the county of Emin\. 26\.1 thousand square mu of grasslands was reformed and there had been 262 beneficiary households in the county of Emin\. 446\.9 thousand Yuan was 27  invested in the county of TouLee\. 10\.9 thousand square mu of the grasslands had been reformed and there had been 55 beneficiary households in the county of TouLee\. 805\.8 thousand Yuan was invested in the county of YuMin\. 24\.455 square mu of the grasslands had been reformed and there had been 122beneficiary households in the county of YuMin\. 347\.5 thousand Yuan was invested in the county of HeFeng\. 10\.833squaremu of grasslands had been reformed and there had been 94 beneficiaryhouseholdsin the county of HeFeng\. Purchasing of thepasture seeds We had signed the contract that we bought the 30 tons of the seeds of pasturage from the XinJiang CAOYE technical company (worthy of 444 thousand Yuan)\. Then we had allocated the pasture seeds to the city of TaCheng,the countyof Emin, the county of YuMin,the countyof TouLee\. And we had finishedrenderingthe account\.We had alreadygot 333 thousand Yuan\. Purchasing of grass-mowing machines We had purchased the grass mowing machines according to the purchasing procedures of the World Bank in the Sep\.20* 2002\. And we had sign the contractsthat we bought 85 17-horsepower tractors and 48 grass-mowingmachines and 109 disintegratorsfrom TaCheng NONGJU company, TaCheng FengYuan Company, TaCheng farming-machines company respectively\. At the same time, the county of TouLee had signed the contracts that the county of TouLee purchased 35 17- horsepower tractors from the TaCheng FengYuan Company and the county of TouLee had signed the contracts that the county of TouLee purchased 51 disintegratorsfrom the TaCheng farming - machines company under the permission of the World Bank on the second time\. The purchasing mentioned above totally cost 1\.07million Yuan, in which 802\.5thousand Yuan was used from the loans of the World Bank\. At present all machines purchased are put into use under the request of the World Bank\. Training of herdsmen By far 4574 people have been trained\. According to the plans, 100%herdsmen have been trained\. Because the trainees were trained on-site, the expenses spent were less than the ones we had planned\. Altogether we have spent 136\.1thousand Yuan\. 1550 herdsmen have been trained in the city of TaCheng\. 914 herdsmen have been trained in the county of YuMin\. 1286 herdsmen have been trained in the county of Emin\. 408 herdsmen have been trained in the county of TouLee\. 416 herdsmenhave been trained in the county of HeFeng\. Someherders were trained twice\. Plan Adjustments During the time of carrying out the items plans, because the actual cost was different from the planning cost and the beneficiaryhouseholds selected in the county of HeFeng didn't live up to the requirement of the World Bank, we had adjusted some items into purchasing goods under the permission of the World Bank\. The items had been adjusted from 1\.52 million SDR to 1\.505739 million SDR and the goods had been adjusted from 77 thousand SDR to 111\.791 thousand SDR and the training had been adjusted from 25 thousand SDR to 12\.5thousand SDR on the condition that the whole amount of the loans was 1\.63 million SDR unchanged\. And the money form domesticshad been adjustedby 35 % under the require of the World Bank\. Procurement All the purchasingitems were done by the require of the World Bank\. But when the clerks from the county of Emin they had signed the purchasing contracts, they had signed the contracts the expenses of which were beyond the limit of the World Bank without understanding the require of the World Bank\. The engineering contracts' expenses they had signed about the cattle pens were beyond the limit of the World Bank\. And the contracts' expenses they had signed about the reforming the grassland were beyond the limit of the World Bank\. The county of Emin had 28  explained the events to the World Bank and the World Bank had already accepted the accounts forwardedby the county of Emin\. Disbursement The purchasingitems had been done accordingto the require of the World Bank carefully\. We paid the money after the items had been finishedand checked and accepted\. Supervision and evaluation Because the engineering items were done by the beneficiary houses themselves,the supervising of the items was in the charge of the qualified departments\. The departments mainly checked the qualities of the mending cattle pens and the newly-built cattle pens\. And the departments checked the qualitiesof the reforming the grasslands and the newly-built grasslands,and the qualitiesof the newly-built vaults for the storing the green forage\. The whole items were finished by the constructive standards of the World Bank carefully, so every subordinate item lived up to the standardsof the World Bank\. Main achievements and impact The main achievements\. 179\.632 thousand square meters of cattle pens had been finished and repaired, which can make sure that 250 thousand sheep live through the biting cold winter\. 101\.938 square mu of the grasslands had been reformed and 33\.283 square mu of the grasslands had been newly built, which can be estimated to yield 24 thousand tons of the hay which can meet the require of 80 thousand sheep\. 33\.283 thousand square meters of the vaults for green forage had been finished which can store 24 thousand tons of the green forage which can meet the require of 40 thousand sheep to live through the winter\. 4574 herdsmen were trained to let them acquire the knowledgeabout the making the forage and raising the domestic animalsin winter and the planting the pasture grass\. Environmental and Social Benejits\. We has solved the problems that the herdsmen hit by the snowfall calamities wanted the forage to feed their domestic animals\. And we had bettered the ecology environments by protecting and newly built the grasslands\. And the grasslands were protected well\. The grasslandsnow can yield more pasture grass\. We had helped the herdsmen to live through the biting cold winter and we had kept the society stable\. More and more people come to know the World Bank and the people in our region show great enthusiasmto the World Bank\. Lessons and experience\. We have learnt a lot of scientific methods of management and the strict handle procedures and the careful attitudes of the officers from the World Bank\. And at the same time, a lot of clerks were trained to learn the handle procedures of the World Bank\. We have accumulatedlots of experience to handle the items of the World Bank\. There had great differences between the World Bank and us in the items management and the handling procedures\. There were some problems existing in the handling the procedures because we had contactedthe foreign capital of the World Bank the first time\. The selectingthe beneficiary households in the county of Emin and HeFeng didn't accord with the require of the World Bank\. We reselected the beneficiary households in the counties of Emin and HeFeng after the World Bank had found the beneficiary households chosen didn't accord with the require of the World Bank\. And we reselected 33 new beneficiaryhouseholdsin the county of HeFeng to help them with goods instead of constructionwith the permission of the World Bank (greater area)\. And the areas of some newly built cattle pens in the city of TaCheng were too large beyond the require of the 29  World Bank\. And 12 cattlepens were built with the soil tampered walls in order to reduce the cost, which would reduce the consistence of the walls of the cattle pens\. We had asked the city of TaCheng to rebuild the walls of the 12cattlepens mentioned above\. And the expenses of the newly built cattle pens in the county of Emin were excess of the permission of the World Bank, at the same time, the expenses of the reformingthe grasslandswere excess of the permission of the World Bank, from which we understand that we must obey the rules of the WorldBank to make surethe items go smoothly\. Assessments WorldBank Though the emergent aiding items from the World Bank to our region were not in the large scale, the World Bank had given us an ocean of helps when the clerksof our region had some difficulties in understanding the require of the World Bank\. The officers of the World Bank had come to our region 4 times to check our work and offer us a great deal of helps in the whole 2001\. They had pointed out the mistakes which we made in the handling the items and they had taught us how to handle them correctly\. We had communicated with the World Bank frequently and got the useful information in time, which was the key factors by which we had finished the items successfully\. Borrower\. The emergent aiding items from the World Bank to our TaCheng region were greatly supported by the communism committees and the communism governments\. The beneficiary households and the company carrying into execution they had showed great enthusiasm to the World Bank\. They had tried their best to carry out the items with the require of World Bank\. There were still some problems existing in the processing of the handling the items for the opinions we hold differ from the WorldBank's\. We immediatelycorrect the mistakes which we made in the handling the items when the officer of the World Bank pointed them out\. Administering agencies were founded accordingto the require of the World Bank ranging from the prefecture to the village & town to manage the handling the emergent aiding items\. Special clerks were sent to see to the handling the items\. And the TaCheng prefecture had know the 20% of the processing information about the beneficiary households and the handling items\. And the counties and the villages & towns had know the 100% of the processing information about the beneficiary households and the handlingitems\. At present we had finished all the constructive items under the order of the World Bank\. And we deal with the surplus fundswhich came form the changed interests by purchasingthe pasture grass- processing machines and handing them out to the beneficiary households or new beneficiary households\. At present all constructive items had been checked and accepted, which have been handed over to the beneficiary householdsto use\. According to the informationwe have collected, the beneficiaryhouseholdswere very satisfiedto the qualities of the constructiveitems\.The newly- built and the repaired cattlepens make sure that the herdsmen could let their domesticsanimals live through the winter\. Compared with the traditional cattle pens, the newly built cattle pens will husband 20% forage\. And the survivingrate of the lambs was improved\.The reforminggrasslands have taken on a new look, which yield 20% to 30% more grass than the last year\. 90% herdsmen are using the newly-built vaults for the green forages\. There are about 20 thousand tons of forages stored to make sure that the domestics animals in our region can live through the winter\. The herdsmen were very satisfied to the pasture grass processing machines, which can help the herdsmen mow, transport, disintegratethe pasture grass and help the other herdsmen to mow and transport the pasture grass to benefit\. The artificial grasslands will benefit well in the future if they are managed well\. 30  Costs and Benefits\. The deathrate of the domesticsanimalshave been reduced and the survivingrate of the lambshave been increased\.And the periods of the domestics animals'getting maturing have been shorten\.The output of the pasture grass has been increased\.Every beneficiary household must pay 10 thousand Yuan back to the World Bank, which can be paid off in 5 to 8 years for the survivingrate of the domestics animals has been increased and the cost of the forage has been reduced by the aiding items of the World Bank\. Every animal can get 15 to 20 Yuan more than before, by which every beneficiaryhouse can pay off the 10thousandYuan in 5 to 8years\. Behavior of the WorldBank and Borrower The strict and scientific methods of management and the handling procedures embody the open, fair and square, transparent principles, especially the careful attitudes and the precise workmg of officers of the World Bank gave the local clerks deep impressions\. And the diligence and the hardworkmg of the officers of the World Bank were the key factorsto the finishingthe items\. The herdsmen showed the great enthusiasm to the World Bank's items, so did the local governments and communism committees\. Though there were some problems existing during the items were handled,the World Bank and the whole TaChengregion have overcomethe problemstogether\. Future Plans\. In order to make sure the items can yield the most benefit and help the beneficiary households overcomethe problemsthey would meet in the future\. The items offices in our region will be lasted for a long time to sever the beneficiary households and train the herdsmen and help the treasury departments in our region to reclaim the loans from the World Bank\. And we will sum up the experience and the lessons form the processing the items with the World Bank in order to do the best work with the World Bank in the future\. TaChengPrefecturePMO March, 2003 31  Annex 9\. Photographs Animal shed destroyedby snowstorm,early 2001\. Constructionof new brick shed\. 32  Severelydeterioratedgrassland,spring 2001\. New alfalfaproduction\. 33

REVIEW

P003581

 ICRR 10905 Report Number : ICRR10905 ICR Review Operations Evaluation Department 1\. Project Data: Date Posted : 05/04/2001 PROJ ID : P003581 Appraisal Actual Project Name : Henan Prov\. Transport Project Costs 300\.7 296\.2 US$M ) (US$M) Country : China Loan /Credit (US$M) Loan/ US$M ) 120 112 Sector (s): Board: TR - Roads and Cofinancing highways (97%), US$M ) (US$M) Sub-national government administration (3%) L/C Number : L3531 Board Approval 93 FY) (FY) Partners involved : Closing Date 06/30/1998 06/30/2000 Prepared by : Reviewed by : Group Manager : Group : Kavita Mathur Alice C\. Galenson Alain A\. Barbu OEDST 2\. Project Objectives and Components a\. Objectives The project objectives were to: 1\. Improve Henan's road network by: (a) relieving congestion in the heavily trafficked east-west corridor and linking Henan and other provinces with the new port of Lianyungang; (b) rehabilitating and expanding the provincial road network; and (c) improving rural roads mainly in the poverty areas\. 2\. Strengthen Henan Provincial Communications Department (HPCD) and the five key HPCD agencies, mainly in the areas of planning and management of highways system; and providing equipment maintenance for the highway network and operations of the Kaifeng-Zhengzhou Expressway\. 3\. Make recommendations for improving the efficiency and quality of road transport services, currently characterized by high cost, little competition and inadequate industry structure\. b\. Components The project consisted of the following components: (a) construction of a 120 km single carriage-way, two lane access controlled expressway between Zhengzhou and Luoyang, including service facilities and toll stations; (b) rehabilitation and improvement of five provincial roads (180 km) and six rural roads (112 km) in Northwest Henan where some of the poorest counties of the province were concentrated; (c) a province-wide local roads improvement program comprising 740 km of national, provincial, prefectural and rural roads; (d) provision of equipment for highway maintenance and operations, including environmental monitoring; (e) institutional strengthening of HPCD staff and the five agencies affiliated with HPCD; (f) Training of staff of High-Grade Highway Construction Authority (HGHCA) and Highway Administration Bureau (HAB) and its divisions at local level; and (g) a study of trucking industry in Henan province to improve its efficiency\. Revised Components The specifications of Zhengzhou-Luoyang Expressway were changed from single to dual carriage-way\. c\. Comments on Project Cost, Financing and Dates Total disbursement at completion was US$112 million versus the approved loan amount of US$120 million, and US$8 million was undisbursed\. The actual project cost was US$296\.2 million, slightly lower than the appraisal estimate of US$300\.7 million\. However, the cost in Renminbi were higher by 45%\. The project closed on June 30, 2000, two years after the original closing, to complete the traffic engineering contracts\. 3\. Achievement of Relevant Objectives: The project achieved most of its key objectives\. 1\. The road network in the Henan Province has improved considerably\. Physical targets for the construction of the Zhengzhou-Luoyang Expressway (ZLE) and rehabilitation and improvement of provincial roads were met\. However, the achievement under the Road Improvement Program (RIP) fell short of the target (see section 5)\. The construction of ZLE is reported to have considerably relieved the traffic congestion in the heavily trafficked east-west corridor\. The ex-post ERR for the expressway is estimated to be 25\.1% versus the appraisal estimate of 28\.9%\. The reduction in the ERR estimate is mainly because of the increase in the cost of the project\. The economic rate of return indicates that the investment is providing substantial economic benefits in the form of reduced vehicle operating costs and travel time savings in the corridor\. The ERR for the total project is 29\.6%, slightly higher than 28% estimated in SAR\. The rehabilitation of provincial and rural roads has substantially improved access to remote areas and expanded growth opportunities in poor areas\. 2\. The institutional development of HPCD and its five key agencies was achieved through the successful implementation of the staff training program and introduction of new technologies for road construction, management and maintenance and the provision of specialized equipment\. 3\. The trucking study was satisfactorily completed\. Several recommendations of the study have been implemented, including the cargo consolidation terminals, vehicle inspection stations, weigh bridges maintenance and repair facilities, and rationalization of policies and regulations governing the trucking industry\. An action plan has been developed for implementation of other recommendations\. 4\. Significant Outcomes/Impacts: Significant achievements of the project are: (i) the construction of the Zhengzhou-Luoyang Expressway (ZLE) thereby connecting the eastern and western parts of China; (ii) improvement in highway maintenance, construction and planning; and (iii) introduction of modern methods in toll road organization and management\. 5\. Significant Shortcomings (including non-compliance with safeguard policies): The physical targets for rehabilitation/improvement under the Road Improvement Program were not fully met\. Of the 740 km planned at appraisal, 491\.5 km of provincial and rural roads were rehabilitated/improved\. There were significant delays in the installation of traffic engineering systems on the expressway\. The project did not address the overloading problem\. There are signs of premature wear on the pavement surface of the expressway, largely due to overloading\. 6\. Ratings : ICR OED Review Reason for Disagreement /Comments Outcome : Satisfactory Satisfactory Institutional Dev \.: Substantial Substantial Sustainability : Likely Likely  Bank Performance : Satisfactory Satisfactory Borrower Perf \.: Satisfactory Satisfactory Quality of ICR : Satisfactory NOTE: NOTE ICR rating values flagged with ' * ' don't comply with OP/BP 13\.55, but are listed for completeness\. 7\. Lessons of Broad Applicability: When combining highways and rural roads components in one project, particular attention must be given to the rural roads components so that the targets are achieved\. The rural roads component had significant benefits and has proved to be an effective instrument for targeting poverty\. 8\. Assessment Recommended? Yes No Why? The project could be audited together with other recently completed highway projects in China\. 9\. Comments on Quality of ICR: The quality of ICR is satisfactory\. However, the ICR does not provide the reasons for the underachievement of RIP targets\.

REVIEW

P059971

 ICRR 11960 Report Number : ICRR11960 ICR Review Operations Evaluation Department 1\. Project Data: Date Posted : 12/22/2004 PROJ ID : P059971 Appraisal Actual Project Name : Kh-education Quality Project Costs 5\.55 5\.43 Improvement US$M ) (US$M) Country : Cambodia Loan /Credit (US$M) Loan/ US$M ) 5\.0 4\.87 Sector (s): Board: ED - General Cofinancing education sector (79%), US$M ) (US$M) Central government administration (19%), Sub-national government administration (2%) L/C Number : C3283 Board Approval 00 FY ) (FY) Partners involved : World Food Program, VSO, Closing Date 03/31/2004 03/31/2004 DFID Prepared by : Reviewed by : Group Manager : Group : H\. Dean Nielsen Fernando Manibog Alain A\. Barbu OEDSG 2\. Project Objectives and Components a\. Objectives The objective of the Education Quality Improvement Project (EQIP) was to develop and put into practice a participatory approach to school quality improvement and performance based management \. The Project Appraisal Document (PAD) also indicates that the approach should be "shown to be effective for extension to other provinces, " and the Development Credit Agreement (DCA) indicates that the approach should be "used for demonstration purposes\." It is noted that neither ICR nor the PAD gave operational definitions of "performance based management\." The record shows that the pilot project which preceded EQIP made payment installments based on good financial accounting, but no such performance requirements were mentioned for EQIP \. b\. Components 1\. Quality Improvement Grants Program (Estimated, $3\.95 million; Actual, $3\.6 million) 2\. Institutional Strengthening (Estimated, $0\.72 million; Actual, $0\.07 million) 3\. Project Management (Estimated, $0\.88 million; Actual, $1\.26 million) c\. Comments on Project Cost, Financing and Dates The financial allocation was fully disbursed, but because of a change of the value of the US dollar against SDRs, expenditures totalled $4\.87 million instead of the estimated $5\.0 million\. The amounts of IDA allocated to the three components is different in the ICR (Annex 2) compared to the PAD amounts and the actual expenditures in components 2 and 3 differ widely from the PAD estimates (component 2, 33% below; component 3, 50% above) without explanation\. Also, Annex 2 inappropriately enters amounts for cofinancing \. The Project was completed on time\. 3\. Achievement of Relevant Objectives: There were two sets of key performance indicators related to Project Development Objectives (mentioned in the ICR as goals), namely, a) Schools participating in the program should increasingly demonstrate characteristics of effective schools as revealed in : (i) student enrollment, (ii) attendance, (iii) student flows, and (iv) achievement; b) the Government will draw lessons from practice to policies to : (i) improve teacher motivation, (ii) lower the cost of education, (iii) reduce repetition and drop-out, and (iv) increase the time available for learning \. a\.i) Student enrollments in EQIP provinces did increase, but basically at the same rate as the nation as a whole \. (This indicator would have been better addressed through gross or net enrollment ratios, since changes in absolute enrollment numbers may be a reflection of population increases \.) a\.ii) Student attendance was not reported on \. a\.iii) Student flows were evaluated in terms of drop -out and promotion rates\. Multiple regression analysis of schools which had been in EQIP during varying lengths of time (and including various control variables ) show substantial reductions in drop out rates in EQIP schools (about 30-40 fewer students per cluster dropping out per year ) and positive changes in promotion rates (increases of between 1 and 2\.5 percent per year\. a\.iv) Concerning student achievement, EQIP participation was associated with a 0\.62 point increase in the numeracy test given in EQIP schools and a 0\.88 point increase in the literacy test \. (Given that the standard deviation of each test was around 3\.5 points, these effectives were considered quite large in standardized terms )\. On the impact of project practice on Government policies, a qualitative evaluation of the project by Geeves et al \. (2002) demonstrates that the Project had considerable influence on funding flows to schools (using a grant mechanism with decentralized planning features ) and government positions on the use of clusters, the school timetable, and use of data in school monitoring and evaluation \. Also, policy studies on monitoring clusters grants, quality improvement monitoring and evaluation systems, grade four student achievement, and decentralization were completed and considered influential (Geeves et al\.)\. The Project did not specifically address the policy issues specified in the PAD of teacher motivation, cost of education, and time available for learning \. 4\. Significant Outcomes/Impacts: EQIP did succeed in creating a demonstration model of the participatory approach to school quality improvement, shown to energize school and supervisory personnel in planning for and executing school improvement plans at the cluster level; Positive outcomes on student flows and learning outcomes were found to be linked to EQIP and its use of grants at the school level; teacher training planned and executed at the cluster level seems to have been particularly effective; Achievement testing on a national sample to evaluate education quality has been instituted, based on the Project's student testing efforts; The channeling of funds to school clusters through district offices was a breakthrough in the decentralization in educational financial management; District officers who acted during the EQIP as animators are generally much more grounded in the realities of schools and are now in regular contact with schools; District, provincial and national officials have broadened their understanding of effective schooling and how to promote it; Educational managers at all levels have increased their interest in and capacity to use performance indicators in evaluating school performance; \. 5\. Significant Shortcomings (including non-compliance with safeguard policies): The Project did not appear to measure (or at least the ICR did not report) student attendance, one of the four main improvement indicators, which might have shown whether educational climate was more interesting and engaging to children; The Project did not appear to track the effect of the demonstration program on key policy issues (specified in the PAD) such as how to improve teacher motivation, lower the cost of education, and increase time available for learning\. It is not clear whether the EQIP model will be extended to provinces other than those in the Project (e\.g\., it does not seem that the new Priority Action Program (PAP) is participatory in the same way; also the future of the cluster system seems to be uncertain ); The heavy use of expat volunteers (24 person years) to animate the animators was never counted in Project costs and thus the real cost -effectiveness of the system is unknown; also, there are doubts whether the local offices can sustain an innovative program like EQIP without expat consultants and /or without extra financial incentives for supervisors and teachers; Once the main channel for policy improvement, the National Committee on Effective Schooling, was dissolved (half-way through the project) it does not appear that any specific body for translating Project successes into policy improvement was established to take its place \. 6\. Ratings : ICR OED Review Reason for Disagreement /Comments Outcome : Satisfactory Satisfactory Some of the performance indicators in the Project design were not addressed by the Project, but the main outcomes indicators, student flows and learning outcomes were, an important accomplishment for a country where this kind of tracking had never been done before\. Institutional Dev \.: Substantial Substantial The Project succeeded in lifting awareness about elements of and contributors to school effectiveness at all levels (school to national) and supported innovations in decentralized management, but the decision to manage  the Project through special Implementation Units at the National and Provincial levels creates a risk that those most instrumental in managing change under the project will not continue in positions of power\. Sustainability : Likely Non-evaluable It is not clear to what extent the lack of continued financial support for cluster level teacher training and facilitation by animators will affect the sustainability of the school improvement model\. It is also not clear what aspects of quality improvement have been taken up in the new PAP budgeting system\. Finally, there is uncertainty as to whether the EQIP system of cluster-level school improvement planning will be continued \. Bank Performance : Satisfactory Satisfactory Borrower Perf \.: Satisfactory Satisfactory Quality of ICR : Satisfactory NOTE: NOTE ICR rating values flagged with ' * ' don't comply with OP/BP 13\.55, but are listed for completeness\. 7\. Lessons of Broad Applicability: Key lessons learned from this LIL are : One viable model for improving school quality is to gradually build the concept of effective schools from the ground up including school or cluster -level choices about learning materials, teacher training, and innovative practices, yielding grounded experiences and results which can be translated into policies at higher levels; Even at the grassroots level, but also at higher administrative levels, technical assistance is important to catalyze local creativity, introduce fresh ideas, and build capacity; Allowing schools or clusters of schools to articulate their own teacher training needs can be a more effective way of organizing inservice teacher training than creating teacher training programs at the center (central Ministry or teacher training college); For Projects aiming to improve school effectiveness through substantial changes in educator attitudes and practices, it would be good to include some observable, intermediate outcomes (such time on task, student activity level, or child-centered teaching) in addition to the kind of performance indicators set for the Project (student enrollment, attendance, promotion /drop-out, and achievement, and policy improvement ), since the latter often change quite gradually or are affected by system -wide improvements\. Classroom observations by qualitative researchers (reported in an ICR supporting document ) revealed positive changes in classrooms which were not reflected in the formal project performance indicators \. It is a good idea to draw Project catalysts at the school /cluster level (in EQIP called "animators") from among the district officers so that once the Project is completed these officers will be in a position to support the continuation of innovation; however, since the Project provided financial incentives to animators, the country will need to find ways to motivate local managers to keep up the extra school support efforts; Good information and effective communication covering innovative practices and their impacts are important, requiring both adequately-resourced monitoring and evaluation systems, and timely, readable reports in the national language in order to reach target audiences and influence the overall policy dialogue \. 8\. Assessment Recommended? Yes No 9\. Comments on Quality of ICR: The ICR is generally satisfactory \. It is clearly written and informative but has some shortcomings, however : its failure to discuss the results in Annex 1 and its omission of data on student achievement made it difficult to assess Project outcomes; also, scant description of the new PAP system of school financing made it difficult to understand whether the new system is participatory or performance based; moreover, it was not clear whether there was just one policy study (the one on 4th grade achievement) or others (e\.g\., the ICR supporting documents )\.

REVIEW

P070560

 ICRR 11463 Report Number : ICRR11463 ICR Review Operations Evaluation Department 1\. Project Data: Date Posted : 03/18/2003 PROJ ID : P070561 Appraisal Actual Project Name : Programmatic Financial Project Costs 1100 1100 And Public Sector US$M ) (US$M) Adjustment Loan I Country : Turkey Loan /Credit (US$M) Loan/ US$M ) 1100 1100 Sector (s): Board: FSP - Central Cofinancing government administration US$M ) (US$M) (50%), Banking (46%), Capital markets (2%), General industry and trade sector (2%) L/C Number : L4632; L4633 Board Approval 2 FY ) (FY) Partners involved : Closing Date 12/31/2001 12/31/2001 Prepared by : Reviewed by : Group Manager : Group : Elliott Hurwitz Laurie Effron Kyle Peters OEDCR 2\. Project Objectives and Components a\. Objectives The main objectives were to address immediate financial and public sector reforms \. In the financial sector: (i) overhaul of the regulatory framework for banking activity, (ii) institutional development of the new Bank Regulation and Supervision Agency (BRSA), (iii) problem bank/bank failure resolution, and (iv) state bank restructuring and privatization\. In the public sector: (i) structural fiscal policies, (ii) public expenditure management, (iii) public sector governance\. b\. Components Financial Sector --1\. Improvement of the legislative and regulatory framework for banking activity; 2\. Institutional development of the new Bank Regulation and Supervision Agency (BRSA), and the bank failure resolution entity, the Savings and Deposit Insurance Fund (SDIF); 3\. Problem bank/bank failure resolution, to undertake restructuring of private sector banks; 4\. State bank restructuring and privatization \. Public sector --1\. Implementation of structural fiscal policies to underpin fiscal adjustment; 2\. Design and implementation of reforms to modernize public expenditure management in line with EU and international norms including budget reform, financial accountability and public liability management; 3\. Institutional reforms to improve public sector governance \. c\. Comments on Project Cost, Financing and Dates  The loan disbursed in one tranche immediately after effectiveness \. 3\. Achievement of Relevant Objectives: Banking Regulatory Framework : Loan loss provisioning, formerly considered on an individual basis, was modified to be considered on a consolidated basis (i\.e\., to banks and their subsidiaries together ) a Basel-compliant market risk based capital charge was imposed a new, stronger capital adequacy regulation was introduced Institutional Development of the BRSA /SDIF: SDIF BRSA and SDIF Boards adopted time-bound plans for institutional development Problem Bank /Bank Failure Resolution : BRSA identified all capital deficient banks, and Treasury and the Central Bank injected sufficient capital into SDIF banks to ensure that the banks had a positive CAR and sufficient liquidity problem banks were resolved by merger into other banks (10 banks) or sale (4 banks) non-performing loans of intervened banks were transferred to an SDIF -controlled bank (of which there are 2) State Bank Restructuring and Privatization : Remaining state banks were financially restructured, with the injection by Treasury of sufficient marketable securities and cash, to ensure a CAR of 8% and adequate liquidity\. Including both State banks and SDIF banks, the fiscal cost of bank recapitalization in 2001 through May 15 was 23\.8% of GNP, with a net increase in the  public debt stock of 13\.3% of GNP\. legislation permitting sale of Vakifbank shares was adopted a privatization advisor was appointed for Vakifbank Structural Fiscal Policies : The primary balance was +5\.9% of GNP in 2001, a significant improvement from the two previous years (in 200 it was +2\.3%, and in 1999 it was -2\.0%), and met program targets; fiscal performance in 2002 broadly met targets\. The improvement in the primary balance was an effort to offset the larger interest payments resulting from the bank recapitalization and the related increase in domestic debt a rule was established that SOEs could replace only 15% of the employees retiring Public Expenditure Management -- Additional budgetary and extra -budgetary funds were closed, leaving just 1 budgetary fund (out of 62 before reforms were undertaken) and 5 extra-budgetary funds (out of 13) an improved budget classification system, GFS, was introduced on a pilot basis and will be made mandatory in 2004 the process of preparing the government budget and public investment program was rationalized Financial Accountability : An automated accounting system for all government agencies --linking 1500 sites--was implemented a new public procurement law was enacted that meets UN standards Public Liability Management : The legal basis for authorizing imposition of duty losses was eliminated public debt management was strengthened by the enactment of new legislation confirming Treasury as the single borrowing authority for the government, and establishing an office for public debt and risk management Public Sector Governance : An anti-corruption strategy was adopted 4\. Significant Outcomes/Impacts:  BRSA completed comprehensive audits of all banks for compliance with capital adequacy, connected lending and non-financial equity exposure, and all non -compliant banks either came into compliance or were intervened \. The number of staff and branch offices of SDIF -controlled banks was reduced significantly SDIF auctioned US$2\.9 billion of SDIF bank liabilities along with matching assets The remaining state banks were financially restructured to restore their solvency and increase their liquidity Fifteen budgetary funds and 2 extra-budgetary funds were closed A new public procurement law was enacted that is a significant advance toward EU standards 5\. Significant Shortcomings (including non-compliance with safeguard policies): The project was overly ambitious in expecting that substantial progress could be made in developing BRSA and SDIF capacity--including harmonization and integration of staff structure, data systems, and procedures--while these agencies were consumed with addressing pressing operational problems Institutional development of BRSA and SDIF has proceeded much more slowly than envisioned 6\. Ratings : ICR OED Review Reason for Disagreement /Comments Outcome : Satisfactory Satisfactory Institutional Dev \.: Modest Substantial Sufficient improvements were made in the enabling environment and restructuring of the financial sector to warrant an IDI rating of substantial: implementation of specific acts to strengthen banking regulation, legislation to permit privatization of Vakifbank, bank restructuring including the merger or sale of weak private banks, closure of around 800 State bank branches and a reduction in staffing of around 50% in the remaining state banks, improvement in the governance of state banks, closure of budgetary and extra-budgetary funds, and additional improvements to fiscal and public expenditure management and public liability management\. Sustainability : Likely Non-evaluable Although the Government has followed responsible fiscal policies as shown by the impressive increase in the primary balance, Turkey is facing a very hostile environment, including the risk of war in the middle east\. It is difficult to predict the  potential consequences of a conflict on Turkey's economy and further demands for fiscal adjustment\. Bank Performance : Satisfactory Satisfactory Borrower Perf \.: Satisfactory Satisfactory Quality of ICR : Satisfactory NOTE: NOTE ICR rating values flagged with ' * ' don't comply with OP/BP 13\.55, but are listed for completeness\. 7\. Lessons of Broad Applicability: It is very difficult to build capacity or make major organizational changes to agencies that have major and pressing operational responsibilities Implementing financial sector and public sector reforms concurrently yields considerable benefit, in that  establishing an improved fiscal situation removes the major source of the country's macroeconomic instability and thereby lessens pressures on the financial sector 8\. Assessment Recommended? Yes No Why? Given the extensive Bank assistance to the country's financial sector, it would be useful to examine the impact of this assistance through a cluster audit \. 9\. Comments on Quality of ICR: The ICR is satisfactory\. It would have been helpful if additional macroeconomic analysis had been presented, as well as data on the cost of the banking recapitalization program \. Additionally, enumeration of PFPSAL II achievements makes assessment of PFPSAL I more difficult \.

REVIEW

P006644

 Urban streets and transport project Report No: ; Type: Report/Evaluation Memorandum ; Country: Chile; Region: Latin America And Caribbean; Sector: Urban Transport; Major Sector: Transportation; ProjectID: P006644 The Chile Urban Streets and Transport project, supported by Loan 3028-CH for US$75 million equivalent, was approved in FY89\. The loan was closed in FY96 one year late; US$1 million was canceled\. The Implementation Completion Report (ICR) was prepared by the Latin America and the Caribbean Regional Office\. A summary of the borrower's report is included as an appendix\. The objectives of the project were: (i) to strengthen the planning, management, and maintenance of urban transport systems in Chile; (ii) to preserve and maintain urban street infrastructure; (iii) to reduce congestion and air pollution; and (iv) to integrate different urban transport modes and demonstrate the efficiency of alternative modes, including bikeways\. To achieve these objectives, the project comprised: (a) rehabilitation and maintenance of urban streets; (b) construction and evaluation of pilot bus/tramways and bikeways; (c) traffic management measures; and (d) technical assistance, including studies and training\. The project was executed by the Ministry of Housing and Urban Planning (MINVU) and the Executive Secretariat of the Commission for Transport Planning (SECTRA)\. The project achieved, and in some cases exceeded, most physical objectives\. The Government's increased emphasis on investment for infrastructure and social sectors and a favorable macroeconomic climate during project implementation more than doubled the funding available to MINVU for street maintenance and rehabilitation\. In addition, the successful implementation of traffic management measures and introduction of low-cost and participatory paving programs by MINVU resulted in substantially higher capacity utilization of urban streets than estimated at appraisal\. Other minor project components, such as the construction of pilot bus/tramways and bikeways, however, were not fully carried out as originally envisaged due to changes in Government plans\. On the institutional side, the outcome was mixed\. SECTRA successfully carried out all studies and the related technical assistance and training programs financed under the project made a substantial contribution to urban transport planning and traffic management in Chile\. On the other hand, the result of the institutional strengthening of MINVU was less than satisfactory\. The main reasons were: (i) MINVU, the central ministry, was unable to manage and coordinate the functions and responsibilities of its regional offices, and (ii) the inadequate participation of local governments in the management and maintenance of urban streets and transport\. The economic rate of return, estimated at 26 percent at appraisal, was not reevaluated due to insufficient data on traffic flows\. OED rates project outcome as satisfactory, sustainability as uncertain (although likely for the SECTRA component), institutional development impact as modest, and Bank performance as satisfactory\. These ratings are consistent with those in the ICR\. The key lesson from this project is that devolving responsibilities for managing and maintaining local streets and transport to municipalities enhances government ownership at the local level, and increases the likelihood that project benefits will be sustained\. The ICR is satisfactory and covers most areas thoroughly\. However, it would have been improved by a more detailed discussion of the problems related to institutional structures and organization and a more thorough discussion of plans for future operations, and their monitoring and evaluation\. No audit is planned\.

REVIEW

P048983

Document of The World Bank FOR OFFICIAL USE ONLY Report No: 31584 IMPLEMENTATION COMPLETION REPORT (SCL-43510 TF-22644) ON A LOAN IN THE AMOUNT OF DEM74 MILLION (US$40\.6 MILLION EQUIVALENT) TO THE REPUBLIC OF CROATIA FOR A RECONSTRUCTION PROJECT FOR EASTERN SLAVONIA, BARANJA AND WESTERN SRIJEM May 31, 2005 Infrastructure and Energy Sector Unit South Central Europe Country Unit Europe and Central Asia Region This document has a restricted distribution and may be used by recipients only in the performance of their official duties\. Its contents may not otherwise be disclosed without World Bank authorization\.  CURRENCY EQUIVALENTS (Exchange Rate Effective ) Currency Unit = Croatian Kuna (HRK) HRK 1 = US$ 0\.175 US$ 1 = HRK 5\.72 FISCAL YEAR January 1- December 31 ABBREVIATIONS AND ACRONYMS BOD Biological Oxygen Demand CAS Country Assistance Strategy CROMAC Croatia Mining Action Center ERP Emergency Reconstruction Project ERR Economic Rate of Return FAO Food and Agriculture Organization FRR Financial Rate of Return GEF Global Environment Facility GCR Government's Completion Report HV Hrvatske vode (Croatian Waters) KEC Karst Ecosystem Conservation Project MOE Ministry of Environment MSP Medium Size Project NGOs Non Governmental Organizations NPV Net Present Values PIU Project Implementation Unit RoC Republic of Croatia UNTAES United Nations Transitional Administration for Estern Slavonia, Baranja and Eastern Srijem WWCs Water and Wastewater Companies WWTP Wastewater Treatment Plant Vice President: Shigeo Katsu, ECA Country Director Anand K\. Seth, ECCU5 Sector Manager Sumter Lee Travers, ECSIE Task Team Leader: Manuel Mariño, ECSIE  CROATIA EAST SLAVONIA REC CONTENTS Page No\. 1\. Project Data 1 2\. Principal Performance Ratings 1 3\. Assessment of Development Objective and Design, and of Quality at Entry 2 4\. Achievement of Objective and Outputs 6 5\. Major Factors Affecting Implementation and Outcome 11 6\. Sustainability 13 7\. Bank and Borrower Performance 14 8\. Lessons Learned 16 9\. Partner Comments 16 10\. Additional Information 16 Annex 1\. Key Performance Indicators/Log Frame Matrix 18 Annex 2\. Project Costs and Financing 19 Annex 3\. Economic Costs and Benefits 22 Annex 4\. Bank Inputs 25 Annex 5\. Ratings for Achievement of Objectives/Outputs of Components 27 Annex 6\. Ratings of Bank and Borrower Performance 28 Annex 7\. List of Supporting Documents 29 Annex 8\. Borrower's Evaluation Report Summary 30 Annex 9\. Grant for Kopacki Rit Weland Management Project Completion Report 35 Annex 10\. ICR Mission, Aide-Memoire 49 Annex 11\. Map Section: General Map of the Project Area 56  Project ID: P048983 Project Name: EAST SLAVONIA REC Global Supplemental ID: P059754 (To be Determined) Supp\. Name: KOPACKI RIT WETLANDS (GEF MED SZ) Team Leader: Manuel G\. Marino TL Unit: ECSIE ICR Type: Core ICR Report Date: May 31, 2005 1\. Project Data Name: EAST SLAVONIA REC L/C/TF Number: SCL-43510 Country/Department: CROATIA Region: Europe and Central Asia Region Sector/subsector: Flood protection (68%); Sewerage (30%); Central government administration (2%) Theme: Pollution management and environmental health (P); Rural services and infrastructure (P); Conflict prevention and post-conflict reconstruction (P); Water resource management (S); Biodiversity (S) KEY DATES Original Revised/Actual PCD: 09/26/1996 Effective: 12/07/1998 01/06/1999 Appraisal: 02/26/1998 MTR: 03/01/2000 11/07/2003 Approval: 06/18/1998 Closing: 06/30/2003 12/31/2004 Supplemental Name: KOPACKI RIT WETLANDS (GEF MED SZ) L/C/TF Number: TF-22644 Sector/subsector: Flood protection (60%); Sanitation (30%); Central government administration (10%) Theme: Water resource management (P); Pollution management and environmental health (P); Rural services and infrastructure (P); Conflict prevention and post-conflict reconstruction (P); Biodiversity (S) KEY DATES Original Revised/Actual GEF Council: Effective: 06/14/1999 06/14/1999 Appraisal: MTR: Approval: 11/06/1998 Closing: 09/01/2003 12/31/2003 Borrower/Implementing Agency: CROATIA GOVERNMENT/HRUATSKA VODE; CROATIA GOVERNMENT/ULICA GRADA; CROATIA GOVERNMENT/1000 ZAGREB; CROATIA GOVERNMENT/CROATIA Other Partners: STAFF Current At Appraisal Vice President: Shigeo Katsu Johannes F\. Linn Country Director: Anand K\. Seth Arntraud Hartmann Sector Manager/Director: Sumter Lee Travers Motoo Konishi Team Leader at ICR: Manuel G\. Marino Susan Rutledge ICR Primary Author: Xavier Chauvot De Beauchene 2\. Principal Performance Ratings  (HS=Highly Satisfactory, S=Satisfactory, U=Unsatisfactory, HL=Highly Likely, L=Likely, UN=Unlikely, HUN=Highly Unlikely, HU=Highly Unsatisfactory, H=High, SU=Substantial, M=Modest, N=Negligible) Rating Rating (Supplemental GEF) Outcome: HS Sustainability: HL Institutional Development Impact: M Bank Performance: S Borrower Performance: HS QAG (if available) ICR Quality at Entry: S Project at Risk at Any Time: 3\. Assessment of Development Objective and Design, and of Quality at Entry 3\.1 Original Objective: Context: The preparation and design of the Project took place in a context of post-conflict, and political and social sensitivity: (i) until mid-January 1998, the Eastern Slavonia, Baranja and Western Srijem areas of Croatia (the Project area), located close to the border with Serbia, were under the executive authority of the United Nations Transitional Administration for Eastern Slavonia, Baranja and Western Srijem (UNTAES); (ii) the reintegration of Croat and Serb populations in the local administration was underway, under high surveillance, and (iii) it was extremely difficult for Croatian Government officials to conduct detailed evaluation of the needs and state of the infrastructure, because of the access restrictions to the Project area, lack of data, and extensive mined areas, particularly around the infrastructure to be rehabilitated under the Project\. When the Government initiated its urgent reconstruction program, the Project area, which was the scene of most of the conflict between the Yugoslav and the Croatian army, had been deserted by its population\. Agriculture activities had stopped and vegetation covered and clogged most drainage canals\. Pumping stations and flood protection dikes suffered from lack of maintenance, partial destruction and mining\. In response to this situation and challenges, the Government declared the area for "special care" and substantial funds were allocated to finance minesweeping, reconstruction, return of refugees and to support the recovery of agriculture production\. The Republic of Croatia (RoC) joined the World Bank and the International Development Association in 1993\. World Bank assistance focused initially on helping the country with post war reconstruction\. The Emergency Reconstruction Project (ERP), approved in 1994, was the first Bank-financed Project to the RoC\. It addressed the most urgent infrastructure reconstruction needs in regard to housing, power, water supply and sanitation, transport, agriculture, health and education, in war damaged areas, then under the control of the Government\. Investments in the water sector consisted of repairing water supply networks and rebuilding water supply treatment plants and other facilities destroyed during the conflict\. The Eastern Slavonia, Baranja and Western Srijem reconstruction Project, which this ICR reviews, was developed to complete and expand the investments made under the ERP\. (Annex 11 presents a map of the Project area)\. Objective: The project development objective was to repair and rebuild war-damaged water sector infrastructure (including the clearing of landmines), which was critically needed to restart the local economy (and in - 2 -  particular, local agriculture) of Eastern Slavonia, Baranja and Western Srijem\. The Project also aimed to mitigate the negative environmental impact likely to be caused to the adjacent nature park by the restart of local agriculture\. This objective was to be achieved through the rehabilitation of critical flood protection infrastructure and of agricultural drainage systems in Baranja and Eastern Slavonia; the completion of the Vinkovci municipal Wastewater Treatment Plant (WWTP), started prior to the war, and the extension of the related wastewater collection system; the demining of all construction sites; and the development and strengthening of the State Directorate for the Protection of Nature and Environment, and of the Kopacki rit Nature Park\. Assessment of Objective: The objectives of the Project were clear, focused and reflected the essential priorities set forth by both the Croatian Government and the World Bank through its first Country Assistance Strategy (CAS)\. They were consistent with the Government's urgent economic strategy to rebuild the Eastern Slavonia, Baranja and Western Srijem areas, focusing on the reconstruction of essential infrastructure as the instrument to restart the economy of the area and encourage the return of refugees and displaced persons to their homes\. While focusing on CAS top priorities, which called for "the rebuilding of war-damaged infrastructure", the objectives remained general to allow flexibility in the response to a quickly evolving context\. Through the inclusion of environmental protection, the objectives developed an integrated approach combining strategic infrastructure investments and investments consistent with the commitment of Croatia towards the protection of the Nature Park and the Danube river, as a recent signatory to the Danube Convention\. Given the circumstances at the time of project design, the objectives were realistic in terms of (i) building on demonstrated capacity of the implementation agency; and (ii) recognizing the strong time constraints and related risks and the extreme political and institutional difficulties that Croatia, and the Project area in particular, faced\. 3\.2 Revised Objective: The objective was not revised\. 3\.3 Original Components: The currency of the Loan was originally the Deutsche Mark and later the Euro\. Therefore, references to US Dollars in this report have to be understood as US Dollars equivalent\. The total Project cost was estimated at US$61\.1 million equivalent, of which, US$40\.6 million was to be funded by a Bank Loan and US$20\.5 million was to be provided as counterpart funding from RoC\. The project comprised four components\. Component I\. Flood Control and Drainage (US$37\.8 million equivalent, 62% of total costs) Flood Control\. The Project was designed to finance critically needed investments to repair and rebuild the Drava river bank protection infrastructure\. Once completed the level of protection against floods would be raised to a period of return of one in a hundred years, as originally designed, in compliance with Croatia's commitment to Hungary under the Danube river Flood Control plan\. Based on Hrvatske vode (HV) estimates, because of destruction that occurred during the war and lack of proper maintenance during and after the war (suspected presence of landmines and restricted access to the facilities), the level of protection had a period of return of only ten years at Project start\. According to the Food and Agriculture Organization (FAO), both the area inundated and the risk that one of the flood protection dikes would collapse, increased by ten percent every year\. - 3 -  Drainage\. In addition to the rehabilitation of the flood control infrastructure, the Project was designed to finance the cleaning and repair of the primary and secondary drainage networks and the rehabilitation of associated pumping stations\. These networks drain a total area of 155,000 hectares in both Baranja and Eastern Slavonia areas, of which 110,000 hectares were of arable land before the war\. Component II\. Wastewater Management (US$16\.1 million equivalent, 27% of total costs) Collection and treatment facilities construction\. To address the lack of treatment of domestic wastewater and eliminate an important source of pollution of the Bosut river, the Project would finance the rebuilding of the Vinkovci WWTP, which was under construction before the war, but was totally destroyed at the end of it\. The Project would also finance the extension of the sewerage system from 65% to 85% of the population\. Component III\. Clearing of Landmines (US$5\.0 million equivalent, 8% of total costs) Minesweeping of construction sites\. To address the suspected presence of landmines, on or around flood protection and drainage system, the Project was to finance the verification and, eventually, the clearing of landmines prior to the repair of the flood and drainage system\. Component IV\. Nature Protection (US$2\.2 million equivalent, 3% of total costs) Improvement of Nature Protection management, equipment and facilities\. This component would finance the development of a comprehensive management plan and monitoring program for the Kopacki rit Nature Park to mitigate possible negative impacts of the expected restart of local agriculture\. It would also finance the rehabilitation of Park facilities and provision of equipment to give the Park's Management Office the means to improve its performance, ensure monitoring and develop services to provide long term environmental protection for the area on a sustainable manner\. The component would also provide technical assistance to strengthen institutional capacity of both the State Directorate for Nature Protection and the Nature Park Management Office, responsible for the implementation of that component\. Overall responsibility for the Project was given to HV, the leading public institution responsible for the management and investments in the water and flood protection sectors in Croatia\. Assessment of Project design and component: The project design included credible means to achieve the project objectives\. The design was simple and clearly formulated, and reflected the priorities of the RoC\. It succeeded in maintaining the focus on a limited number of activities under direct responsibility of the Agencies in charge of their implementation\. HV's implementing unit had demonstrated expertise, efficiency and extensive experience in implementing parts of the previous World Bank financed projects\. Development of agreements on the use of funds among Government organizations and on the implementation arrangements started early in the design process and included lessons learned from the previous projects\. One of the lessons learned was to include an interim review to give flexibility to the design and allow the reallocation of uncommitted funds, early in the Project lifetime, so that the Project could be adapted to the situation encountered in the field\. The component I, the most important in size, was well designed\. By allowing safe return into production of the inundated agricultural land, the Project was expected to have a significant impact on the local economy\. As all areas were suspected to be mined, the real state of the infrastructure could not be fully assessed - 4 -  during preparation\. Therefore, to be on the safe side, the design reserved eight percent of the estimated work contract values to eventually finance consultant services for design studies\. The drainage part of the component dealt with the rehabilitation of primary and secondary drainage networks, under the direct responsibility of HV\. The component II was also well designed\. The main needs for water supply had been addressed as part of the ERP, thus the project focused on improving wastewater treatment in one of the largest cities in the area ­Vinkovci­(about 50,000 inhabitants), where pollution problems were more important, and on extending the associated sewerage network (although Osijek was larger, dilution capacity in the Drava river, where it discharges, made it a lower priority)\. Additionally, documentation was ready to allow speedy implementation of Vinkovci's treatment plant contract\. Reaching agreement on the implementation arrangements of component III was a critical aspect of Project design\. Building on the lessons learned from the ERP, mine clearing contracts were included as a sub-contract of the civil works contracts\. This approach improved contractors' security, timely implementation and increased competition in the selection of the mine clearing companies\. Additionally, as part of the design, HV was given overall responsibility for procurement of these combined contracts, in cooperation with mine clearing authorities for the prequalification of firms and quality assurance\. This had an important positive impact as it minimized the consequences of the transfer of responsibility for mine clearing from the Ministry of Interior to the newly established Croatia Mining Action Center (CROMAC)\. The component IV, though small in size, added value to the overall Project design by developing an integrated and coordinated approach\. The monitoring program to be developed would quantify potential negative effects of the expected restart of agriculture in the surroundings of the Park\. In parallel, the management plan would propose concrete measures to minimize them, in an efficient and concerted way\. This component would build on the results of the national biodiversity strategy that was developed at the time of preparation\. In addition, it allowed involvement of the Global Environment Facility (GEF) through a medium size project for the Kopacki rit Wetland Management\. This GEF grant was developed as an integral part of this component and is thus treated as such in this ICR\. For specific information, please refer to the completion note for this grant, attached in Annex 9\. Additional preparation time would have been necessary to further clarify the roles and responsibility of the State Directorate for Nature Protection, the project unit in the Kopacki rit Nature Park and HV in regard to the implementation of this component of the Project and of the GEF grant\. Despite the limited time, this component was properly designed\. The risk assessment in the PAD seems to have overlooked some aspects and presents inconsistencies\. The overall risk rating of the Project was indicated as high, primarily due to the regional political risk, however, none of the critical risks identified refer to such risk or are rated "H"\. In particular, the risk of failure of the reintegration process possibly leading to a restart of the conflict is not mentioned, though it was probably the most important at the time of Project preparation\. In addition to three negligible risks, the project identified five moderate risks: (i) delays in placing agricultural land protected from flooding into production due to, for instance, shortage of agricultural inputs or land ownership issues; (ii) wastewater facilities not needed due to loss of population in local area; (iii) complications arise in the clearing of landmines; (iv) lack of counterpart funding for the nature protection program; and (v) availability of appropriate technology for minesweeping\. Out of the three negligible risks, two were linked to the capacity of HV to select qualified staff for the Project Implementation Unit (PIU) and to follow Bank procedures, and one to the selection of qualified contractors in the procurement process\. The proposed mitigation measures are rather vague\. They relied, to a great extent, on the national solidarity for the reconstruction of the Project area, on implementation arrangements and on the capacity of HV to consult with all stakeholders to ensure that appropriate measures are taken by the Government\. HV's leading position and - 5 -  the high degree of collaboration between Government agencies to ensure efficient reconstruction of the Project area allowed potential problems to be adequately addressed\. Therefore, the overall design is rated satisfactory\. 3\.4 Revised Components: The design of the Project components was not revised\. However, during implementation, additional investments were included to use the unallocated and uncommitted funds\. 3\.5 Quality at Entry: Satisfactory\. The quality at entry is rated satisfactory based on the strength of (i) consistency of objectives with the priorities of both the RoC and the Bank; (ii) incorporation in the Project design of successful experience and lessons learned, in particular under the ERP; (iii) demonstrated capacity and leadership of the implementing agency, and (iv) realistic, targeted and well defined project design, which, subject to some limitations in terms of monitoring and evaluation arrangements, addressed institutional constraints while allowing flexibility and developing appropriate implementation arrangements\. The PAD documented the Project and its background particularly well, and assessed the benefits adequately\. The Project focused on necessary physical investments to support the restart of agriculture, the primary engine for growth in the Project area\. In addition, the return of agricultural land to production and improving access to sanitation services were properly selected as key factors to encourage the return of refugees, another priority of the Croatian Government\. However, benefiting from its position and experience, the Bank could have included mechanisms to better monitor that potential risks would be properly mitigated through the measures developed by the Government\. In addition, Project design should have incorporated more emphasis on implementation arrangements and sharing of responsibilities in the management of component IV\. The only safeguard triggered by the Project was the OP7:50 "Project in International Waterways\." However, because the Project aimed to rehabilitate drainage and wastewater collection and treatment infrastructure to the originally designed level, its implementation was not expected to adversely change the quantity or quality of the water flows of the Drava and Danube rivers\. On the contrary, positive impact on the quality of the water discharged was expected as a result of component II\. For these reasons, the Project fell under the exception to notify the riparian countries\. Additionally, as the ROC is a member of the International Convention for the Protection of the Danube River, riparian countries were informed about the Project through Danube Commission\. Since the repair and reconstruction to be financed under the Project were expected to replace previously existing facilities with minimal environmental impact, no Environmental Impact Assessment was prepared for the Project\. In summary, the objective of the Project was appropriately focused, and the project design was clear and achievable\. The Project responded effectively to the need for reconstruction of war-damaged infrastructure, while mitigating possible negative impacts on the environment\. Safeguards policies were adequately addressed during preparation\. Additional attention could have been given by the Project team to the identification of critical risks and the monitoring of associated mitigation measures\. 4\. Achievement of Objective and Outputs 4\.1 Outcome/achievement of objective: Highly Satisfactory\. The project is rated highly satisfactory as it achieved and exceeded all its objectives\. All performance targets have been met and significantly exceeded, although over a somewhat longer period of time (6 years) than the 4\.5 years originally envisaged\. Also, the Project has already proven to have - 6 -  significant developmental impact\. The most important objective of the project was to protect agricultural land in Baranja and Eastern Slavonia from floods and inundations\. Flood protection dikes and levees along the river Drava were repaired and drainage of the Project area was significantly improved through the clearing of the primary and secondary canals and the rehabilitation of main pumping stations\. The positive impact of the Project can best be seen as the newly rebuilt infrastructure successfully faced a 40 year flood in 2003 and no inundation of agricultural land was reported in the Project area\. The important savings made throughout the Project life (please refer to section 5\.4\.b for details) gave it a stronger environmental orientation\. Consistent with the flexible character of the Project, the uncommitted funds were used to finance additional investments under each component, and in particular the development of wastewater collection and treatment facilities\. Despite its small size, component IV has proven to have had a much stronger impact on the local economy than originally envisaged: the number of visitors reached and exceeded prewar levels, and internally generated revenues already cover 50% of the Park operations expenditures\. Moreover, the management plan developed by the Nature Park Kopacki rit was the first of its kind in Croatia\. In the process of getting the plan endorsed and approved, the Nature Park management office contributed to develop a legally endorsed institutional framework for such plans\. It had therefore a strong demonstration effect as management plans are expected to be developed in other Nature Parks in Croatia\. Assessment of component IV is slightly hindered by the choice of the performance indicator that was agreed to for this component\. Indeed, the indicator - Percentage of change in the populations of indicator species in Kopacki rit - requires that population of indicator species be actually monitored and regularly counted; which has no direct link with the achievements of outcomes of the Project\. 4\.2 Outputs by components: Table 1: Summary: Component Appraisal Appraisal Actual (EURm) Rating estimate (US$m estimate (EURm) eq\.) I Flood 37\.8 33\.4 25\.3 HS Protection and Drainage II Wastewater 16\.1 15\.0 15\.5 HS Management III Clearing of 5\.0 5\.5 11\.3 HS landmines IV Nature Park 2\.2 2\.6 2\.5 HS TOTAL 61\.1 56\.4 54\.6 Component I (Flood Protection and Drainage)\. This component is rated highly satisfactory\. The main achievements under this component were the repair of the 120 km of levees and the clearing of 600 km of primary and secondary canals, representing increases respectively of 120% and 152% over the targets set at appraisal\. Using the savings, additional 20 km of levees were repaired in Eastern Slavonia and 204 km of canals were cleared, mostly (about 80%) in Eastern Slavonia\. During Project implementation, arable land gradually returned to agriculture production, showing a good coordination between the advances under the Project, the mine clearing and the decrease of groundwater level\. Before the end of the Project, the increase in hectares under cultivation was not only the 9,600 protected from flooding, but also the additional 30,000 hectares that experienced high groundwater levels before the Project started\. If properly accounted for, the Project contributed to protect about 40,000 hectares, roughly 36% of the 110,000 arable hectares in Baranja and Eastern Slavonia, exceeding the original targets\. - 7 -  Component II (Wastewater Management)\. This component is rated highly satisfactory\. Achievements under this component include the rebuilding of the Vinkovci WWTP and the extension of the main wastewater collector allowing to increase sanitation services from 65 to 85% of the population, as originally planned, but also the reconstruction of Beli Manastir WWTP and the extension of four wastewater collection systems serving nine municipalities (see details in Table 2), thus greatly exceeding the original objective\. The implementation of this component experienced some delays\. The original date set in the PAD for the completion of the Vinkovci WWTP was June 30, 2002\. These delays were the consequences of two main factors, first the decision to transfer financial responsibility for the repayment of the ERP from the Government to the municipalities, and second the decision to change the design of the WWTP\. Vinkovci WWTP has only recently started its normal operation\. First results in terms of decrease of BOD are satisfactory and the quality of discharged water complies with the quality standards\. Under the ERP, the Municipality of Vinkovci benefited from investments in water supply treatment and network infrastructure which were to be repaid from the state budget for this area of special care\. As this budget was running low, the central Government decided in November 2002 to require the municipalities to reimburse their share of the investments financed under the ERP\. In addition, the Government decided to cap the capacity of municipalities to borrow, consequently delaying the capacity of Vinkovci to borrow the amounts as foreseen under this Project\. As an additional condition to ensure sustainability of the investments and to limit the tariff increase for loan repayment, the Bank required that a proper financing plan was prepared, detailing how the investments financed under the two projects would be repaid and the impact of such repayments on the tariffs\. In the meantime, all documentation had to be prepared and authorization obtained to reflect the change in design of the WWTP\. Consequently, all conditions were fulfilled and the contract was procured in June 2003\. As it benefited from the reallocation of the uncommitted funds, a number of activities have been added to this component of the Project in June 2003 and the following results have been realized\. Table 2: Activities added to the component II and associated targets, as reflected Actual Achievements in the Loan and Project Agreements dated June 24, 2003\. Reconstruction of the WWTP in Beli Manastir Completed Extension of 3 km of collectors in Nustar and 3 km 8 km in Ivankovo in Eastern Slavonia, as part of wastewater collection systems 8 km under the responsibility of Vinkovci Water and Wastewater Company\. Construction of a new WWTP in Nustar Financed through counterpart funding Extension of 5 km of wastewater collection system in Antunovac, 5 km 11 km in Sarvas in Eastern Slavonia, 7\.5 km 8 km in Bilje, Darda and Kopacevo in Baranja, and 5 km connection of these networks to the Osijek's collection system\. Construction of a new WWTP to serve Bilje, Darda and Kopacevo (9,000 Connected to Osijek's people equivalent) network instead Extension of the wastewater collection system in Vukovar, in Western Srijem\. Completed Extension of the wastewater collection system in Ilok, in Western Srijem\. Completed - 8 -  Almost all additional activities have been fully implemented during the last year and a half of the Project, significantly increasing the achievements under this component in comparison to the objectives and targets set at appraisal\. Additionally, all wastewater collection system extensions will be completed by the end of 2005\. The new WWTP to serve Bilje, Darda and Kopacevo was expected to be a constructed treatment wetland with ecological benefits to the area\. After further analysis, it was decided to connect these three municipalities to Osijek, where a WWTP is expected to be constructed soon, thus avoiding effluent discharges in the Nature Park\. To date, Bilje has already been connected to the Osijek sewage network using Project funds\. Darda and Kopacevo are expected to be connected in 2005\. Concerning the construction of a new WWTP in Nustar, additional counterparts funding were obtained from the State Budget, increasing the level of savings under the Project\. Construction is advanced as civil works have been already completed, equipment is being installed, allowing the plant to start operating later in 2005\. Component III (Clearing of Landmines)\. In accordance with the important increase in the works carried out under component I, outputs under this component are significantly higher than planned at appraisal: 6 million square meters were verified and eventually cleared\. This represents 3 times the 2 million square meters planned at appraisal, for slightly more than twice the price originally estimated\. Aggregated actual costs of components I and III compared to the estimates at appraisal reveal that both physical and financial objectives have been significantly exceeded\. Component III is rated highly satisfactory\. Please refer to Annex 2 for details\. Component IV (Nature Protection)\. This component has been rated highly satisfactory\. Achievements under this component have far exceeded the objectives set at appraisal\. Through this component, the Project set the basis for modern environmental management of the Kopacki rit Nature Park, with the rehabilitation and construction of Park management facilities and with the preparation of a Management Plan for the Nature Park\. Thematic studies, financed under the Project, were carried out to set the basis of the Management Plan and propose concrete restrictions measures to ensure the protection of the Park against pollution, in particular in regard to agricultural practices in the park surroundings\. The Management Plan was developed in a participatory way\. Extensive communication and public hearings were organized to present the results of the thematic studies and to discuss the proposed restriction measures\. Results of such consultations were incorporated in the final version of the document, which has been finalized in December 2003\. The Management Plan was then reviewed and endorsed by several Ministries, including the Ministry of Environment, and the Ministry of Agriculture and Water\. Because it is the first management plan for nature parks in Croatia, procedures for public disclosure and official approval had to be drafted\. This process took significant time because of the transfer of the directorate for Nature Protection from the Ministry of Environment to the Ministry of Culture after the November 2003 parliamentarian elections\. Procedures have now been drafted, public disclosure is taking place and the document is scheduled to be ratified by the Parliament in the coming weeks\. Other achievements under this component include the training of Park rangers and staff of the management office, the development of a GIS-based fauna and flora monitoring program, the rehabilitation of Park management facilities and the purchase of a tour boat\. Additionally, a Visitor center has been constructed and a bio-ecological station including a research center and education facilities has been developed in the Tikves Castle\. The population of a number of species, including indicator species, has increased during the Project life and new species, essentially migratory birds, can now be observed from time to time in the Park\. In summary, achievements under the Project have reached and exceeded the targets set at appraisal for the output indicators: length of levees repaired; length of drainage canals cleared; number of pumping stations rehabilitated; reconstruction of Vinkovci wastewater treatment plant; length of sewage collectors laid; - 9 -  Kopacki rit management plan prepared; Kopacki rit management facilities constructed; and Kopacki rit monitoring program operational\. The Project design succeeded in ensuring that responsibilities for each component lay with the entities having the biggest stake in making it successful\. This approach has proven to be efficient, flexible and capable of restructuring the Project to implement a number of additional activities within a limited amount of time\. 4\.3 Net Present Value/Economic rate of return: The economic assessment during appraisal was based on a cost benefit analysis conducted by experts from the Food and Agriculture Organization (FAO) of the United Nations\. This analysis focused on the flood protection and drainage component and its expected benefits\. Project benefits identified at appraisal were (i) protecting about 24,350 hectares of agricultural land from floods and destruction of crops while providing greater safety to the population, infrastructure and houses, (ii) improved drainage of about 30,000 ha of rich agricultural land in Baranja and Eastern Slavonia, which were affected by high water table; and (iii) the restoration and return to cultivation of about 9,600 hectares of inundated arable land though the increase in the level of protection against floods from a return period of one to ten years to one to a hundred years\. For the two sub-regions, the analysis generated an average economic rate of return (ERR) of 16% (20% for Baranja and 12% for Eastern Slavonia, respectively) and a Net present Value (NPV) of $14\.5 million ($12 million for Baranja and $2\.5 million for Eastern Slavonia, respectively)\. At Project completion, the economic results were re-estimated utilizing the FAO model (see Annex 3); however, due to data limitations, it was not possible to carry out separate analyses for Baranja and Eastern Slavonia\. Instead, the estimation was carried out based on aggregated data for the two areas as a whole\. On this basis, the re-estimated ERR is 20%and the NPV US$17\.5 million\. While these results have to be treated with caution since they are based on aggregated data, it seems fair to conclude that the economic results projected at appraisal have largely been achieved\. This is supported also by other indicators such as increases in productivity and economic margins on agricultural products\. The benefits described above are the quantifiable benefits; in addition, there were non-quantifiable benefits to the population in the area from (i) return to normalcy in daily living; (ii) the removal of the threat to personal safety, and (iii) reduction in hazards to health from uncollected and untreated wastewater\. Other benefits not included in this analysis are those related to the restart of the Park activities, the increased number of visitors and associated benefits on the local economy\. Eight full time employees are now working for the Park, in addition to part time employees during the tourist season\. An important increase of the tourist accommodation capacity in the Park surroundings have also been reported, as well as the development of eco-tourism activities and the increased direct sales of local wine producers and farmers neighboring the Park\. 4\.4 Financial rate of return: A Financial Rate of Return (FRR) was not calculated at appraisal and has not been estimated at Project completion\. 4\.5 Institutional development impact: Modest\. The Project was designed primarily to restore critically needed infrastructure facilities; institutional development was not a significant objective\. Nevertheless, the Project has contributed to some institutional development\. The development of the Kopacki rit Nature Park as an entity able to generate significant revenues during its first year of real operation is a significant achievement\. The Management Office of the Park managed to control its expenses through a good human resources policy, a rigorous operational management, and the development of a number of marketing activities with a strong cost - 10 -  recovery focus\. Important evidence of the good management is the generation of important income through the hunting fees, the increase of the number of visitors to the prewar levels much sooner than expected, and the capacity to attract funds from other international institutions\. Another important aspect of the development impact is the preparation of the first management plan for nature parks in Croatia and the development of procedures for review and endorsement and public consultations within the Ministry of Culture\. This comprehensive high-quality document developed with a high focus on the participation of all stakeholders in the review is expected to have a strong demonstration effect on other Nature Parks in Croatia\. The Project also contributed to further develop HV's capacity to directly manage World Bank projects\. HV built on the experience it acquired during the ERP and demonstrated its efficiency in all aspects of Project management, in particular in procurement\. Investment and O&M of flood protection and drainage infrastructure is the major activity of HV\. It has comprehensive knowledge of the strengths and weaknesses of the existing systems and how to best operate them, based on the climatic events encountered\. Thus, investments under the flood protection and drainage component were carried out in a remarkable technical and cost efficient manner, taking into account the sensitivity of the infrastructure in regard to a possible flood event\. 5\. Major Factors Affecting Implementation and Outcome 5\.1 Factors outside the control of government or implementing agency: No major factor outside the control of government or implementing agency and negatively affecting the implementation and outcome were identified\. An important factor affecting Project implementation was the drop of unit prices of civil works and mine clearing costs\. The cumulated effects of these unit prices drop and good procurement practices resulted in important savings, allowing to finance a number of additional activities out of the Project funds\. The privatization process of the very large publicly owned farms called "agrokombinats" has started with Bilje agrokombinat\. Even though it is one of the best performing in the area, the process collapsed as not enough potential bidders participated in the tender\. It is expected that another attempt will take place during 2005\. 5\.2 Factors generally subject to government control: The Government succeeded in making available appropriate level of equipment, fuel and inputs (seeds fertilizers, etc\.) to allow a timely restart of the local agriculture\. This is reflected in the substantial increases in productivity and production for most major crops in the area\. Moreover, coordination among Government agencies and with local authorities in regard to mine sweeping was instrumental to encourage the return to cultivation of the arable land improved under the Project\. The unexpected decision of the Government to transfer the responsibility for reimbursing the ERP to the municipalities that had benefited from it, coupled with the capping of the municipalities's capacity to borrow, generated significant delays of sanitation investments in Vinkovci\. Multiple changes in the Government organizational structure generated delays, in particular in the endorsement process of the management plan for the Kopacki rit nature park\. Procedures for public disclosure of such document were specifically developed by the Ministry of Environment to allow its endorsement and official approval\. Following the November 2003 elections, responsibility for the Directorate for Nature Protection was transferred to the Ministry of Culture, which had different requirements in terms of public disclosure\. Consequently, new procedures had to be developed, generating - 11 -  delays\. Government restructuring also affected HV, which was transferred from the Ministry of Public Works and Construction to the Ministry of Agriculture and Water\. However, the overall effects of these changes were limited to minor delays in implementation\. 5\.3 Factors generally subject to implementing agency control: HV demonstrated its strong commitment towards the Project and this enabled it to reach and exceed all performance targets set at appraisal\. HV developed the right level of responsibility sharing between its central and local offices and the participating municipal Water and Wastewater Companies (WWCs), especially on contract procurement and supervision\. Moreover, though sharing of roles and responsibilities between HV, the State Directorate for Nature Protection and the Park Management Office, efficient coordination and extensive collaboration took place in a successful manner\. Furthermore, despite difficult relations between HV and the Croatian mine clearing authorities at Project start, HV was able to develop a positive cooperation leading to an efficient processing of the contracts including minesweeping\. 5\.4 Costs and financing: The total actual cost of the Project remained consistent with the appraisal estimates\. However, the breakdown by components, presented in Annex 2, reflects the important savings made under component I and the extra costs under component III, generated by the additional outputs\. The cost breakdown by sub-regions reveals that, under component I, a greater proportion of the savings have been reused to finance additional investments in Eastern Slavonia, bringing the actual costs for this sub-region to the level estimated at appraisal\. Additionally, the aggregated actual costs of components I and III compare to the appraisal estimates\. During loan negotiations, it was agreed that the physical contingencies would be set to 20% of the works program as opposed to the usual 15%, to increase the flexible character of the Project\. With the decline in unit prices and high efficiency in Project implementation, important savings were made; these resulted in about Euro 10 million that remained uncommitted after all contracts were procured\. The most important savings were achieved in components I and II a) Euro 5 million were saved out of component I At appraisal, costs of consultancy services were estimated as percentage of the investments\. During implementation, a detailed assessment of the actual status of hydro technical facilities became possible\. It revealed that the damage to the infrastructure could be repaired to bring it back to design condition on the basis of the existing documentation\. Thus, about Euro 1\.5 million were saved compared to the planned costs of consultancy services for developing new design documentation\. Similarly, a detailed assessment of the Paulin Dvor pumping station, the most important in Eastern Slavonia, revealed that the pumps could be rehabilitated and the building could be repaired, resulting in saving Euro 1\.5 million\. In addition, the purchase of four mobile pumps avoided the need to rehabilitate smaller pumping stations, while allowing greater flexibility in operation\. Applying International Competitive Bidding (ICB) procedures for civil works on drainage canals and including competitive selection by the bidders of the sub-contractor in charge of mine clearing increased competition and significantly reduced unit prices\. For these reasons, about Euro 2 millions of savings were realized on foreseen prices\. b) Euro 5 million were saved out of component II - 12 -  Given the state of the Vinkovci WWTP site at the end of the conflict and taking into account the advances in wastewater treatment technology, it was decided to abandon the initial design (1988) and to develop a new design based on modern and affordable technology\. In addition, procurement of the contract under an ICB procedure with post-qualification of the best bidder resulted in the reduction by half of the contract value, saving Euro 5 million\. The Government and the Bank agreed to include additional wastewater investments in the main urban centers of the Project area (see section 4\.2) to utilize uncommitted funds\. These new activities were included through amendments in the Loan and Project Agreements\. Despite the fact that the type and size of contracts changed, adjustments in the aggregated amounts per procurement method stipulated in the legal documents were not included in the amendments\. This represented an obstacle to commit the entirety of the Loan proceeds, as time to implement the additional investments by the revised closing date (December 31, 2004) was running out\. At the closing of the Project, Euro 1\.4 million (4%) of the loan proceeds remained uncommitted\. 6\. Sustainability 6\.1 Rationale for sustainability rating: Highly likely\. In order to secure a high level of sustainability, responsibility for Project implementation has been given to the entity (HV) with the most interest in proper operation and maintenance of the infrastructure while involving the entities having the biggest stake in making it successful\. Flood Protection and Drainage\. Through the central and local offices of HV, the Government was assigned highly experienced personal, best suited to ensure efficient operation and maintenance of the investments\. Financing of the O&M is covered by the catchments fee collected by HV and about HRK 16 million are allocated yearly to the Project area for that purpose\. Additionally, the catchments fee is expected to be increased to allow for the repayment of the Loan\. The sustainability of this component is rated highly likely\. Wastewater management\. Participating WWCs were closely involved in the preparation of the technical documents and in the supervision of the works, in collaboration with HV\. In the case of Vinkovci, the tariff surcharge established for the purpose of the repayment of the ERP has been maintained to provision for Loan repayment\. Management efficiency and development of O&M capacity within the Vinkovci WWC has been taken care of in two ways\. On the one hand, HV included, as part of the contracts, provisions for training of the WWC staff on efficient O&M of the works or equipment procured\. On the other hand, HV provided immediate and informal assistance on specific aspects, including efficient technical and financial management\. In a more formal way, HV organized hands-on training on water quality standards, analysis and monitoring in their laboratories\. In the municipalities that joined the Project later, training did not take place to the same extent\. HV identified important training needs in some of these WWCs, in which the lack of qualified personnel and the difficult financial situation of the WWCs are sometimes preventing the hiring of qualified staff\. Even though time constraints did not allow developing full training of WWCs staff during the Project, immediate and direct support was provided and will continue to be provided by HV on specific problems\. Based on HV's extensive experience, this is considered to be an appropriate solution to guarantee sustainability of the investments financed under the Project\. Overall, the sustainability of this component is rated likely\. - 13 -  Nature Protection\. Sustainability of component IV was predicted to be uncertain in the PAD, which did not estimate any expected level of revenue, indicating that "some revenues will likely be available for payment of O&M expenses"\. However, due to efficient management and marketing efforts from the Park's management office, the first financial results are noteworthy, and far exceeded expectations\. Revenues collected in 2004 by the Park allowed it to cover half of the O&M costs of the Park for the same year\. Primary sources of revenues are the fees for hunting and access fees from visitors\. Although it can be argued that this success is an initial reaction to the reopening of the Park, and may not be lasting, the cultural importance of hunting and the important population of the main hunting species - red deer and wild boar - could provide a reasonable base level of income to the Park, should the number of visitor drop in the future\. In addition, the Park has an important impact on the local economy, which contributes to its long-term sustainability\. In particular, the Park managed to obtain the participation and support of the local communities and businesses around the Park\. It also managed to develop partnerships with schools, universities and the scientific community for the organization of visits and learning events\. Furthermore, the Government is committed to provide necessary technical and financial support\. Therefore the sustainability of the Project is rated highly likely\. Based on the above, the overall sustainability of the Project is rated highly likely\. 6\.2 Transition arrangement to regular operations: HV, on behalf of the Borrower, has coordinated the preparation and the completion of Operations Plans, in collaboration with the Park management office, the participating WWCs and the CROMAC\. These plan detail measures taken or to be taken to ensure technical and financial sustainability of the investments financed under the Project\. They also include performance monitoring indicators of such measures\. These plans have been submitted to the Bank for its review\. Comments have been provided, and final versions of these documents are expected prior to the finalization of this ICR\. Under component II, all facilities have been formally handed over to the respective WWCs and are operating satisfactorily since then\. 7\. Bank and Borrower Performance Bank 7\.1 Lending: Satisfactory\. The performance of the Bank team during project identification, assistance to the Borrower in project preparation and project appraisal was satisfactory\. Project identification responded to the priorities of the Croatian Government and the Bank to improving the restart of the local economy through critical infrastructure repair and addressing its potential consequences on the environment and the Danube River\. The Project was prepared by the ROC in 6 months (from "Begin preparation" to Board approval dates), in a large part, due to the efficient and effective assistance given by the Bank team\. The appraisal document is a clear, straightforward, yet thorough document\. All relevant technical, institutional, environmental and social issues were appropriately addressed commensurate with the Project's size and scope, the critical time constraint and the specific post-conflict situation\. The implementation arrangements were overall well thought out and procurement arrangements were simple and well designed\. Additional efforts could have been made to deepen the risk analysis and develop adequate mitigation measures and monitoring mechanisms to ensure that agricultural areas were effectively returning to cultivation\. 7\.2 Supervision: Satisfactory\. The Bank's performance during supervision is rated satisfactory for the following reasons: (i) adequate reporting of project implementation progress; (ii) timely, comprehensive and realistic Project Status Reports (PSRs); (iii) the quality and timeliness of advice and assistance provided to the Borrower; - 14 -  and (iv) the regular and appropriately staffed supervision missions and correspondence with the Borrower\. A mid-term review took place in early 2003 and focused on determining how best to use the remaining funds\. The Project closing date was extended two times, to allow the completion of the on-going works and the implementation of additional contracts\. During the first 18 months, the Project experienced implementation delays due to lack of clarity in the sharing of responsibility in the procurement of the demining contracts and the long time to get clearances from the CROMAC\. The Bank team played an instrumental role in getting the agreement to delegate more responsibility to HV in regard to procurement and to develop competitive selection of the demining companies within the procurement of the civil works contracts\. In addition, the Bank team effectively managed to offer useful technical advice, to field frequent missions with the requisite skill sets, and to respond in time to all requests\. 7\.3 Overall Bank performance: Satisfactory\. On balance, the Bank's performance is rated satisfactory\. Borrower 7\.4 Preparation: Highly Satisfactory\. Project preparation, including all aspects of the design and relevant sectoral issues, was of high quality\. The leading role of HV, the commitment of the Ministry of Finance and the quality of the collaboration among Government agencies and with the Bank was exemplary\. In spite of the difficult context and the unclear status of Eastern Slavonia, the Borrower managed to prepare the Project in six months\. Additionally, the Borrower contributed adequately to Bank missions\. 7\.5 Government implementation performance: Satisfactory\. The overall responsibility for the Project was given to HV\. Project implementation involved five Government Agencies, the Ministry of Finance, the Ministry of Public Works, Physical Planning and Construction (through HV), the Ministry of Interior, through the CROMAC, the State Directorate for Environment and Nature Protection and the Kopacki rit Nature Park\. The few difficulties encountered at the beginning of the Project, in regard to the sharing of responsibilities for the procurement of the mine clearing and for the practical organization of procurement for component IV, were promptly and adequately resolved\. Under the leadership of HV and based on its comprehensive experience and efficiency in dealing with Bank procurement, it was agreed that HV would be responsible for all procurement aspects, while technical specifications would remain with the relevant entities\. All counterpart funding from the ROC, HV and the Municipalities was provided in a timely manner 7\.6 Implementing Agency: Highly Satisfactory\. HV has performed highly satisfactorily in implementing all aspects of the project\. Procurement has been carried out in an exemplary manner\. All reporting has been timely and of adequate quality\. Core staff in HV has remained the same throughout the Project\. Implementation arrangements took place in a satisfactory manner both between HV and the WWCs and between HV and the Park\. In particular, HV provided them with informal support and assistance throughout the Project life, allowing for a smooth transition and experience sharing on management aspects\. The collaboration between the Bank and HV has been excellent throughout the Project\. In parallel with the implementation of this Project, the Government of Croatia and HV developed a programmatic approach to develop wastewater collection and treatment in coastal cities in Croatia\. This comprehensive Program has been submitted for financing by the Bank through an APL, which first phase is currently being implemented through the on-going Coastal Cities Pollution Control Project\. 7\.7 Overall Borrower performance: - 15 -  Highly Satisfactory\. On balance, the Borrower's performance is rated highly satisfactory\. 8\. Lessons Learned The denomination of the Loan in Deutsche Mark (DEM) and then in Euros helped mitigating the exchange rate risk\. At the time, the Croatian Kuna exchange rate was fixed to the DEM\. In addition, the DEM was then the main currency used in international contracts in South Eastern Europe, as the Euro is now\. Denominating the Loan in the currency in which major contracts are procured helps limiting the exchange rate risk\. Given the evolution of the exchange rate, in 2003 and 2004, when about Euro 30 million were disbursed, the denomination of the Loan in USD would have generated important losses\. Combining infrastructure and nature protection components increases synergies through the development of integrated approaches\. Linking in one operation direct infrastructure investments to their possible consequences on the environment has important demonstrative and positive effects to build ownership in the country and in the region\. However, it needs a strong coordination and clear responsibility sharing between institutions, and, eventually, a more important Bank involvement\. Treating Mine Clearing activities as part of a regular civil work contract increases transparency and financial efficiency\. Competitive selection of such activities within civil works contracts increased competition and contributed to reducing prices significantly\. Moreover, the inclusion of demining as part of regular civil works contracts ensured timeliness in implementation\. The Bank should promote flexibility as an incentive to efficient Project management\. The quality of procurement and the knowledge of Bank procedures by experienced teams contribute to increase competition and efficient financial management, eventually, translating into the generation of savings\. Introducing flexibility in Projects to allow the use of potential savings needs to be coupled with the identification of an implementing agency that has adequate autonomy and expertise to make good decisions about the use of such savings\. Giving sufficient flexibility should also include the possibility to improve the Project implementation arrangements, e\.g\. to provide the appropriate level of delegation of supervision of the works to the final beneficiaries, thus facilitating experience sharing and smooth transfer of the assets for a higher long-term sustainability\. 9\. Partner Comments (a) Borrower/implementing agency: HV has submitted the Borrower's Completion Report, on behalf of the Republic of Croatia\. The full text of the report is included in Annex 8\. No further comments have been received from the Government on the final report\. (b) Cofinanciers: The Project was co-financed by the GEF through a middle-sized project for the Kopacki rit Wetland Management\. The US$750,000 GEF grant financed complementary investments to the Nature Park Kopacki rit, in addition to the ones financed under the Nature Protection component\. The completion note of this activity is attached to this ICR in annex 9\. (c) Other partners (NGOs/private sector): NGOs with an interest in the Project were regularly consulted during project preparation, implementation and for this completion report\. This interest was essentially focused on the Nature Protection component and the preparation of the management plan, which included extensive public consultation\. - 16 -  10\. Additional Information The Bank's team who worked on this project consisted of the following members: Manuel G\. Mariño (Lead Water and Sanitation Specialist/TTL) Salim Benouniche (Senior Procurement Specialist) Jacque Bure (Consultant) Xavier Chauvot De Beauchene (Water and Sanitation Specialist) Joseph Paul Formoso (Senior Finance Officer) Stjepan Gabric (Consultant) Michael Gascoyne (Senior Financial Management Specialist) Takao Ikegami (Senior Sanitary Engineer/Procurement Specialist) Irina Kichigina (Senior Counsel) Maria Teresa R\. Lim (Program Assistant) Richard MacEwen (Senior Sanitary Engineer/TTL) Njeri Muhoho (Financial Analyst) Kishore Nadkarni (Senior Financial Analyst) Jan Post (Environmental Specialist) Stan Peabody (Lead Social Scientist) Susan Rutledge (Program Team Leader) Vladimir Skendrovic (Consultant) Roberto Tarallo (Financial Management Specialist) - 17 -  Annex 1\. Key Performance Indicators/Log Frame Matrix Outcome / Impact Indicators: 1 Indicator/Matrix Projected in last PSR Actual/Latest Estimate Percentage of project (constructions 100% 100 contracts) completed (100%) Percentage of Project funds disbursed 87% 94% (100%) (97%) * Percentage of reduction of BOD from plant 85% 85% discharge site at Vinkovci ** (85%) Increase in hectares under cultivation in the 9,600 9,600 project area (9,600) Percentage of change in the populations of 85% 8% indicator species in Kopacki rit (No significant decrease in the populations of indicator species) Note: End of Project projections at appraisal are shown in parentheses underneath each item\. * At the end of the Project, about 3% of the Project funds remained uncommitted (4% of the loan proceeds) ** This indicator has been stated in PSRs as "Percent of population connected to Vinkovci sewerage network" Output Indicators: 1 Indicator/Matrix Projected in last PSR Actual/Latest Estimate Length of levees repaired 120 120 *** (100 km) Length of drainage canals cleared 600 600 *** (396 km) No\. of pumping stations rehabilitated 15 15 (15) Reconstruction of Vinkovci Wastewater Completed Operational and satisfying water quality Treatment Plant *** standards Length of sewage collectors laid N/A 43\.5 *** (20 km) Kopacki rit management plan prepared 100% 100% (100%) Management Plan is in the process of being endorsed by the Government\. Kopacki Rit management facilities N/A 100% constructed (Construction of blinds, (100%) fishponds and other park management facilities) **** Kopacki Rit monitoring program operational N/A 100% and purchase of monitoring and supervisory (100%) equipment *** 1 End of project *** The number and the extent of construction contracts under the project have been extended to be able to use the savings made\. Therefore the work carried out as part of these contracts exceeded by far the investments foreseen at appraisal\. **** All or parts of these indicators were not included in the monitoring indicators agreed at negotiations\. - 18 -  Annex 2\. Project Costs and Financing Project Cost by Component (in million) Component Appraisal Actual/Latest Percentage of Estimate Estimate Appraisal Total (WB-financing) Total (WB-financing) Total (WB-financing) Flood Protection and Drainage 33,39 (22,95) 25,33 (16,41) 76 % (72%) Wastewater Management 14,97 (9,75) 15,45 (11,49) 103% (118%) Clearing of Landmines 5,52 (3,94) 11,30 (6,77) 205 % (172%) Nature Protection 2,56 (1,18) 2,49 (1,71) 97% (145%) Total Baseline Cost 56,44 (37,82) Physical contingencies Price contingencies Total Project Costs 56,44 (37,82) 54,57 (36,40) 97% (96%) Total Financing Required Project Cost breakdown for Components I and III (in million) Component Appraisal Actual/Latest Percentage of Estimate Estimate Appraisal Total (WB-financing) Total (WB-financing) Total (WB-financing) Flood Protection and Drainage ­ Eastern 16,06 (11,03) 15,89 (10,10) 99% (92%) Slavonia Flood Protection and Drainage - Baranja 17,33 (11,92) 9,44 (6,31) 54% (53%) Flood Protection and Drainage - TOTAL 33,39 (22,95) 25,33 (16,41) 76 % (72%) Clearing of Landmines - Eastern Slavonia 2,76 (1,97) 7,01 (4,20) 254% (213%) Clearing of Landmines - Baranja 2,76 (1,97) 4,29 (2,57) 155 % (130%) Clearing of Landmines - Total 5,52 (3,94) 11,30 (6,77) 205 % (172%) Flood Protection and Drainage & Clearing 38,91 (26,89) 36,63 (23,18) 94% (86%) of Landmines - TOTAL Project Costs by Procurement Arrangements (Appraisal Estimate) ( million) Procurement Method Expenditure Category ICB* NCB Other** N\.B\.F\. Total Cost 1\. Works Price 30,42 14,8 0,29 45,51 (18,41) (8,88) (0,19) (27,48) 2\. Goods 5,91 0,39 0,59 6,89 (5,91) (0,39) (6,30) 3\. Services 4,04 4,04 (4,04) (4,04) - 19 -  4\. Miscellaneous Total 36,33 14,8 4,72 0,59 56,44 WB (24,32) (8,88) (4,62) (37,82) * Figures in parenthesis are the amounts to be financed by the Bank Loan\. all costs include contingencies\. ** Includes civil woks and goods to be procured through national shopping, consulting services, services of contracted staff of the project management office, training, technical assistance services, and incremental operating costs related to (i) managing the project; and (ii) re-lending project fnds to local government units\. Project Costs by Procurement Arrangements (Actual/Latest Estimate) ( million) Procurement Method Expenditure Category ICB NCB Other N\.B\.F\. Total Cost 1\. Works Price 25,89 15,00 0,49 41,38 (15,53) (9,01) (0,29) (24,83) 2\. Goods 8,41 0,14 0,98 9,53 (8,41) (0,14) (8,55) 3\. Services 3,21 0,45 3,66 (3,02) (3,02) 4\. Miscellaneous Total 34,30 15,00 3,84 1,43 54,57 WB (23,94) (9,01) (3,45) (36,40) - 20 -  Project Financing by Component (in million) Percentage of Component Appraisal Estimate Actual/Latest Estimate Appraisal Bank Govt\. Total\. Bank Govt\. Total Bank Govt\. Flood Protection and Drainage ­ Eastern Slavonia 11,03 5,03 16,06 10,10 5,79 15,89 92% 115% Flood Protection and Drainage - Baranja 11,92 5,41 17,33 6,31 3,13 9,44 53% 58% Flood Protection and Drainage - Total 22,95 10,44 33,39 16,41 8,92 25,33 72% 85% Clearing of Landmines - Eastern Slavonia 1,97 0,79 2,76 4,20 2,81 7,01 213% 356% Clearing of Landmines - Baranja 1,97 0,79 2,76 2,57 1,72 4,29 130% 218% Clearing of Landmines - Total 3,94 1,58 5,52 6,77 4,53 11,30 172% 287% Wastewater Management 9,75 5,22 14,97 11,49 3,96 15,45 118% 75% Nature Protection 1,18 1,38 2,56 1,70 0,78 2,49 145% 57% Total Baseline Cost 37,82 18,61 56,44 36,40 18,19 54,57 96% 98% Physical contingencies Price contingencies Total Project Costs Total Financing Required - 21 -  Annex 3\. Economic Costs and Benefits Cost-Effectiveness Summary Background: The main components of the project were (i) flood protection and drainage, (ii) demining, including for agricultural land, and (iii) wastewater collection and treatment\. The project exceeded its physical targets in respect of all three components\. The ensuing economic benefits to the population in the project area include an increase in well-being from (i) the return to normalcy in daily living, (ii) the removal of the threat to personal safety, and (iii) reduction in hazards to health from uncollected and untreated wastewater\. These benefits cannot be easily quantified\. The overall economic benefits of the project therefore go far beyond the quantifiable benefits based on the increase in agricultural production and incomes\. In regards to this, it was recognized in the appraisal document that, while the investments in infrastructure under the project were necessary conditions for achieving these outcomes, they were not sufficient conditions in themselves as achievement of the outcomes was also dependent upon satisfactory progress in the overall enabling environment including the Government's policies in regards to land ownership, and marketing and pricing of agricultural inputs and outputs\. It was further recognized that these would not be covered under the project which would focus primarily on ensuring that the required infrastructure was put in place\. Estimates at appraisal: These focused primarily on the costs-benefits to be derived from the expected increase in agricultural production and agricultural incomes\. Based on studies carried out by FAO, separate economic analyses were carried out for the Baranja and Eastern Slavonia components, and the economic costs and benefits were aggregated to calculate Economic Rates of Return (ERR) and Net Present Values (NPV) using a 10% discount rate\. The economic benefits were obtained by replacing financial prices with economic values in the crop models and by projecting cropping patterns for the two scenario "with project" and "without project"\. Given the greater flood vulnerability of Baranja, a probabilistic approach was used in regards to the occurrence of a major flood and its impacts, with and without the project\. By running the model 100 times, the expected (or average) result was estimated to result in an ERR of 20% and an NPV of US$12 million\. For Eastern Slavonia, the ERR was estimated at 12% with an NPV of US$2 million\. The more modest economic results in the case of Eastern Slavonia were attributed largely to the negative impact of sugarbeet production for which the economic value was assessed to be negative\. For the two areas combined, the ERR was estimated at 16\.2% and the NPV at US$14\.5 million\. Re-estimation of economic benefits: At project completion, the economic results have been re-estimated utilizing the FAO model and, subject to data limitations, updating the model inputs for the actual results during implementation up to 2004 and projections from 2005 onwards\. Due to data limitations, it was not possible to carry out separate analyses for Baranja and Eastern Slavonia; instead the economic results are re-estimated based on aggregated information for the two areas together\. On this basis, the re-estimated ERR is 20% and the NPV US$17\.5 million at a discount rate of 10%\. The higher ERR and NPV as compared to those estimated at appraisal are due to higher than projected productivity, and to changes in cropping patterns and in relative prices, but the results need to be treated with caution given the aggregation of data for the area as a whole\. Nevertheless, it would seem fair to conclude that the economic benefits projected at - 22 -  appraisal were achieved\. Achievements over the period of project implementation: At appraisal, quantifiable benefits were assessed for the flood and drainage component alone\. In regards to this component, physical targets were exceeded at project completion\. Consequently, the component is expected to have achieved the appraisal expectations of: (i) in Baranja, protecting an estimated 24,350 ha of agricultural land from floods from destruction of crops together while providing greater safety to the population, infrastructure and houses; (ii) evacuation of water from inundated lands in Baranja (6,000 ha) and Eastern Slavonia (3,600 ha); and (iii) improving drainage in another 30,000 ha of land leading to increase in crop productivity\. For the combined area, substantial increases in production and productivity per hectare were achieved over the period 1998 to 2004 for the main agricultural outputs\. These are summarized in the table below: Item Cultivated area Production (tons) Productivity Output prices (ha) (tons/ha) (HRK/ton) 1998 2004 1998 2004 1998 2004 1998 2004 Wheat 57268 53179 289579 321204 5\.06 6\.04 1100 1000 Maize 63852 73562 417024 662058 6\.53 9\.00 600 800 Oilseeds 18383 17819 40772 49893 2\.35 2\.80 2470 1350 Sugarbeet 10223 9643 438595 501436 42\.90 52\.00 270 250 Animal 10541 13269 156571 270687 17\.35 20\.40 350 800 fodder Productivity increases ranged from a high of 38% for maize to 18% for animal fodder, with that for the other outputs falling between these two values\. Comparison of current to appraised end-of-project results: These are summarized in the following table: - 23 -  Item Productivity Cultivated area (ha) Economic margins Economic benefits (tons/ha) (HRK/ha) (000 HRK) Appraisal Current Appraisal Current Appraisal Current Appraisal Current estimate estimate estimate estimate estimate estimate estimate estimate Wheat 6\.4 6\.0 29168 24084 1943 1481 56673 35668 Maize 7\.2 9\.0 31286 32421 714 1066 22338 34560 Oilseed 2\.6 2\.8 7974 8337 2330 2500 18579 20842 Sugarbeet 45\.0 52\.0 7049 4632 -7954 -8721 -56068 -40396 Animal 5\.0 7\.1 8851 5558 1175 1910 10400 10616 fodder Fallow 8193 17489 land Total for 92521 92521 51922 61290 all crops - 24 -  Annex 4\. Bank Inputs (a) Missions: Stage of Project Cycle No\. of Persons and Specialty Performance Rating (e\.g\. 2 Economists, 1 FMS, etc\.) Implementation Development Month/Year Count Specialty Progress Objective Identification/Preparation 12/03/97 8 TTL, Water (1), Environment upgraded to (1), Consultants (4) Appraisal on 02/26/98 Appraisal/Negotiation 04/14/98 Supervision 07/27/1998 3 WATER (1); HS HS RECONSTRUCTION (1); ENVIRONMENT (1) 05/17/1999 1 ENGINEER (1) S S 01/20/2000 2 TEAM LEADER\. ENGINEER S S (1); ENGINEER (1) 08/23/2000 3 TASK TEAM LEADER (1); S S ENGINEER (1); ENVT'L \. SPECIALIST (1) 07/03/2001 2 TASK TEAM LEADER (1); S S ENGINEER (1) 11/20/2001 4 ENGINEER (1); ENVT'L\. S S ENGINEER (1); ECONOMIST (1); TASK TEAM LEADER (1) 03/14/2002 2 TEAM LEADER (1); S S ENGINEER (1) 10/24/2002 3 TEAM LEADER (1); S S ENGINEER (1); ENVT'L\. SPECIALIST (1) 11/07/2003 2 TEAM LEADER (1); S S WATER/SAN\. SPECIALIST (1) 05/05/2004 4 TEAM LEADER (1); S S WATER/SAN\. SPECIALIST (1); ENGINEER (1); ENVT'L\. SPECIALIST (1) 09/21/2004 4 TEAM LEADER (1); S S ENGINEER (1); CONSULTANT (1); PROCUREMENT SPECIALIST (1) 12/17/2004 4 TEAM LEADER\. ENGINEER HS HS (1); ENGINEER (2); FINANCIAL ANALYST (1) - 25 -  ICR 10/08/2004 2 Water (2) S S (b) Staff: Stage of Project Cycle Actual/Latest Estimate No\. Staff weeks US$ ('000) Identification/Preparation Appraisal/Negotiation 242\.4 Supervision 537\.1 ICR Total - 26 -  Annex 5\. Ratings for Achievement of Objectives/Outputs of Components (H=High, SU=Substantial, M=Modest, N=Negligible, NA=Not Applicable) Rating Rating (Supplemental GEF) Macro policies H SU M N NA H SU M N NA Sector Policies H SU M N NA H SU M N NA Physical H SU M N NA H SU M N NA Financial H SU M N NA H SU M N NA Institutional Development H SU M N NA H SU M N NA Environmental H SU M N NA H SU M N NA Social Poverty Reduction H SU M N NA H SU M N NA Gender H SU M N NA H SU M N NA Other (Please specify) H SU M N NA H SU M N NA Private sector development H SU M N NA H SU M N NA Public sector management H SU M N NA H SU M N NA Other (Please specify) H SU M N NA H SU M N NA - 27 -  Annex 6\. Ratings of Bank and Borrower Performance (HS=Highly Satisfactory, S=Satisfactory, U=Unsatisfactory, HU=Highly Unsatisfactory) 6\.1 Bank performance Rating Rating (Supplemental GEF) Lending HS S U HU HS S U HU Supervision HS S U HU HS S U HU Overall HS S U HU HS S U HU 6\.2 Borrower performance Rating Rating (Supplemental GEF) Preparation HS S U HU HS S U HU Government implementation performance HS S U HU HS S U HU Implementation agency performance HS S U HU HS S U HU Overall HS S U HU HS S U HU - 28 -  Annex 7\. List of Supporting Documents 1\. Aide-Memoires, BTORs and PSRs (1 to 16) 2\. Project Implementation Plan (dated March 18, 1998) 3\. Country Assistance Strategy for the Republic of Croatia 4\. Project Appraisal Document (May 21, 1998) 5\. Loan Agreement (September 8, 1998) and amendments 6\. Project Agreement (September 8, 1998) 7\. Mid-Interim Report submitted by HV (dated March 2003) - 29 -  Additional Annex 8\. Borrower's Evaluation Report Summary 1\. Relevance of Project Objectives The project's development objective was to repair and rebuild war-damaged water sector infrastructure(including clearing of landmines), critically needed to restart the local economy (and in particular, local agriculture) of Eastern Slavonia, Baranja and Western Srijem while mitigating the negative environmental impact likely to be caused to the adjacent nature park by the restart of local agriculture\. Key performance indicators to measure the project's success were: (i) progress in commitments of construction contracts and disbursement of funds, (ii) improvement in ambient water quality at Vinkovci, (iii) increase in the area of arable land under cultivation, and (iv) stability of population levels of "indicator" species in the Kopacki rit Nature Park\. The fighting in Eastern Slavonia, Baranja and Western Srijem had damaged or destroyed much of the area's infrastructure, and therefore the Government developed an urgent economic strategy intended to rebuild Eastern Slavonia, Baranja and Western Srijem and to help restart the local economy\. It was expected that the implementation of the program will encourage the return of refugees and displaced persons to their homes and to productive activity\. Two key elements of the Government program were: (i) the reintegration of public services and (ii) reconstruction of infrastructure\. Hence, the project was intended as a crucial first step in addressing the urgent reconstruction of key infrastructure, such as flood control and drainage systems\. In this context the project objective (as listed above) was and has remained highly relevant as it has supported and complemented the government efforts\. As shown by relevant indicators, the agriculture production has increased since the implementation of the project, thus showing that the project has helped the government strategy\. 2\. Suitability of Project Design The project was designed as to focus on crucial investments which: (i) have a critical time factor in implementation; (ii) support complementarity of grant-funded programs; and (iii) do not hinder further sectoral reforms or future capital investment programs\. Consequently, the project investments were selected and they consisted of four components Flood Control & Drainage Wastewater Management Clearing of Landmines Nature Protection (Kopacki rit Nature Park) The first project component focused on flood control and drainage systems that are the responsibility of the Government and for which no alternative financing was available\. The investments in the Vinkovci wastewater system was needed to clean up an important source of wastewater pollution into the Danube\. Since most of the flood control facilities were known to be contaminated by landmines, landmine clearing became a precondition to repair of the flood - 30 -  control network and therefore land mine clearing complemented the flood control and drainage investments\. The nature protection component was needed to ensure that the restart of local agriculture would not have a detrimental impact on the neighboring nature park at Kopacki rit\. Because the project targeted investments that cannot wait the time was of the essence for the success of the project\. Every delay in restoring flood control and drainage systems would have caused severe economic losses and hinder the return of refugees and displaced persons\. Moreover, there was a risk that one of the two dikes on the Drava or the Danube Rivers collapses, causing total destruction of that year's crops, damage to housing and local infrastructure, loss of life, and displacement of households\. The project design was suitable to meet the objective\. However, the scope of the project in terms of the area covered, has not been adequate\. At the time of project preparation the project area was still occupied and not accessible and therefore not all the needs in the area had been precisely identified\. On the other hand, it was found that some facilities which had been originally included in the project were in better condition than anticipated\. Consequently, in May 2003 the project duration was extended and funds were reallocated thus enabling the implementing agency to undertake additional investments without changing the project objectives\. The changes in the project components were made in a timely and appropriate manner\. 3\. Suitability of Implementation Arrangements The flood control and drainage component was implemented by the Croatian Waters (HV), which retained ownership of the facilities once reconstruction was completed\. The Wastewater Management component was also implemented by HV\. Originally, it was intended that, once completed, HV would transfer the facilities to Vinkovci Water and Wastewater (VVK) and it was reflected so in the PAD\. However, before the start of the implementation a more effective solution was introduced by which the VVK became the owner of the facilities from the start of construction and therefore there was no need for transferring the facility once it was completed\. A major improvement in the implementation arrangement was introduced during the project preparation for the mine clearing component\. Under another project (the Emergency Transport and Mine Clearing Project), which started before this one, all contracting for mine clearing was conducted by the Ministry of Interior\. Such implementation arrangements that require contracting through a centralized mine-clearing organization had been slower than expected\. In addition, under the Reconstruction Project for Eastern Slavonia, Baranja and Western Srijem, the timing of mine clearing was more important since virtually all the flood control and drainage investments had to be cleared or verified before repair and reconstruction could begin\. Therefore the project allowed the construction contractor to directly hire the mine clearing contractor and thus ensure that the clearing works are completed on time for the reconstruction of the flood control and drainage network\. Regarding the Nature Protection component several steps have been successfully taken to strengthen the implementation arrangements\. The authority responsible for environmental management was the State Directorate for the Protection of Nature and Environment, which was - 31 -  later on established as the Ministry of Environment Protection and Physical Planning\. The idea was that the Directorate (with the assistance of consultants) would outline the technical requirements for the procurement of goods and works contracts, while the Project Implementation Unit (PIU) of HV would conduct the procurement process\. Such an arrangement did exclude the beneficiary of the component i\.e\. the Kopacki rit Nature Park\. Therefore, the arrangement was changed during the early stage of the project implementation insofar that Kopacki rit was involved in the process by preparing requests and specifications, which were then approved by the Ministry and submitted to HV for procurement\. These necessary changes in the implementation arrangements were done in timely and effective manner\. The implementation arrangements have provided for adequate involvement of the different stakeholders\. No difficulties have been encountered in this regard\. Technical assistance has also been provided during the project preparation by the international environmental nongovernment organizations already active in Croatia\. Two major NGOs have been active in working with the Ministry and Kopacki rit, providing analysis and advice\. The process of adoption of the Management Plan for Kopacki rit has also involved public hearings as regulated by Croatian laws\. 4\. Project Implementation The project implementation commenced as originally planned and a number of activities have proceeded within the original timeframe\. On the other hand there were some activities, in particular those that required input from the Ministry, that were delayed and faced some problems related to the procurement process and counterpart financing, but they were overcome once a cooperation between the Ministry and HV became effective\. \.However, due to considerable savings realized by efficient HV project management, several new facilities in the area not originally included in the project scope, were added and therefore the project duration had to be extended accordingly\. The Bank was very responsive in making requested adjustments for changing circumstances\. 5\. Project Cost and Financing Compared with the original estimate made at project appraisal, there have been some considerable saving and for the following reasons: some facilities originally included in the project were in better condition than anticipated, cost of construction works in Croatia has been decreasing because of higher competition and foreign contractors entering the construction market, well prepared bidding documents and skillful management of construction process by HV have allowed savings to take place\. Savings were utilized for expansion of the project scope to some areas not originally covered by the project\. Reallocation of project funds were made in timely and effective manner\. Information regarding the project costs, financing and procurement details are given in Attachment 1\. - 32 -  6\. Project Benefits The primary beneficiaries have been the population of Eastern Slavonia, Baranja, and Western Srijem and in particular the farmers and local agricultural organizations who are now realizing increased yields and incomes\. In addition, householders have access to wastewater services, and construction crews and others living and working in areas that might be contaminated with landmines have safe access to their areas of activities\. Generally, it may be concluded that the project has surpassed the development targets for all elements\. Flood Control component: The expected benefits consist of restored protection against floods for 35,000 hectares of valuable agricultural land and rural infrastructure\. The level of protection of one in ten years, which had been deteriorating due to a continued lack of maintenance to the dikes and canals, has been increased to one in 100 years thus meeting Croatia's commitments to Hungary under the Danube River Flood Control Plan\. For both Baranja and Eastern Slavonia, the project benefits were: (i) improved drainage on about 30,000 hectares of rich agricultural land which was suffering from a high water table and (ii) restored and put back into cultivation about 9,600 hectares of inundated agricultural land\. The project has improved the overall economic situation in the area and at the same time contributed to increased farmers' incomes\. The statistical information related to the restored agricultural land and agricultural production are shown in Attachment 2\. Wastewater component: The Government has adopted the goal of meeting EU standards of wastewater treatment and collection\. Construction of the WWTP at Vinkovci, reconstruction of the WWTP at Beli Manastir and construction of two WWTPs at Nustar were considered the least-cost investment plan needed to meet the national standards and the project has financed about 20 percent of the total requirements to rebuild the damaged or destroyed wastewater systems in Eastern Slavonia, Baranja and Western Srijem\. The wastewater treatment potentially eliminated the threats to the quality of groundwater acquifer, which is the population's primary source of clean water\. Reduced biological oxygen demand (BOD) has also improved water quality to downstream areas, thereby improving the quality of water discharged in the Sava and Drava and, later in the Danube\. Mine Clearing component: Mine clearing is considered to be an essential precondition for the infrastructure reconstruction program and was justified by the expected benefits of the proposed investment program\. Without clearing of landmines, the investments in the flood control and drainage network could not have been implemented, but once mine clearing was completed, valuable land could be drained and brought into productive use\. Nature Protection component: Since Kopacki rit is considered wetlands of global importance, measures introduced to protect the environmental quality of the Nature Park have benefited not only tourism to the area, but also members of the international community concerned with environmental protection and natural resource preservation\. The facilities built under the project in the Nature Nark have already attracted an increased number of visitors in the park\. The statistical information on the stability of population levels of "indicator" species in the Kopacki rit Nature Park are given in Attachment 3\. - 33 -  7\. Borrower's Performance and Lessons Learnt The Borrower's and implementing agency's performance have been highly satisfactory with outstanding performance starting from the preparation phase, during which the Borrower showed a high degree of commitment and cooperation with the Bank and throughout the project implementation as the Borrower and HV have been prompt in resolving problems and responding in timely and efficient manner to Bank requirements\. In particular, HV was very effective, with support from the Borrower, in resolving problems related to the Kopacki rit component, arising from unclear implementation roles of each of participating organizations, i\.e\. HV, the Nature Park and the Ministry\. Except for a very few instances, there have been no problems with the provision of counterpart funding\. HV as the implementing agency has shown high professionalism in its work on the project\. All procurement actions have been managed by Project Implementation Unit (PIU) established by and within HV\. The PIU has managed the project implementation in an efficient and timely manner leading to considerable savings in the use of the loan and counterpart funds, thus enabling financing of additional facilities in the areas not originally included in the project\. The procurement and financial management conducted by HV can be evaluated as "best practice\." 8\. Bank's Performance and Lessons Learn Bank's performance has been highly satisfactory both in the preparatory phase and in project implementation\. Bank's team was changed during the project implementation, but the change did not have any impact on the continuity of the project good performance\. Supervision and procurement review were performed in timely manner providing advice to the Borrower and PIU whenever needed\. The Bank's team has established a very effective relationship with the implementing agency\. Attachments: 1\. Project costs, financing and procurement data 2\. Statistical information related to the restored agricultural land and agricultural production 3\. Statistical information on the stability of population levels of "indicator" species in the Kopacki rit Nature Park - 34 -  Additional Annex 9\. Grant for Kopacki rit Wetland Management Project Completion Report Grant for Kopaki rit Wetland Management Project (GEF - MSP grant No\. TF022644) Completion Report April 2004 - 35 -  Table of Contents: Basic Information 3 Executive Summary 4 Linkages between the Grant and the Loan 5 Impact Analysis 6 Main achievements 6 Project Sustainability 8 Replicability 8 Stakeholder Involvement 8 Summary of main lessons learned 9 Procurement and Disbursement Information 9 Financial Management Status 10 ANNEX 1 : Project planning and implementation arrangement 11 ANNEX 2 : final Project Management Report table 12 - 36 -  Basic Information Date of Completion Report: April 23, 2004 Title of GEF Medium-Sized Project: Kopaki rit Wetland Management Project (the Grant) GEF Allocation: US$750\.000 Period of Project Implementation: June 14, 1999 - September 1, 2003 Grant Recipient: Republic of Croatia World Bank Manager/Task Team: Manuel Mariño, Goals and Objectives: (include any changes in the objectives): The goal and objectives were not modified during project implementation\. The key objective of the Grant was and remained to complement the support provided under the Loan to conserve and sustainably use the globally significant biodiversity of the Kopaki rit Wetlands, a highly threatened and global ecosystem\. Information about the activities financed under the Grant, the Grant Objective indicators, the summary of the results achieved and the impact of the Grant financed activities are described in the following sections\. Financial Information: The Grant was an integral part of the Bank's on-going Reconstruction Project for Eastern Slavonia, Baranja and Western Srijem (hereinafter referred to as "the Loan" / "the Project")\. The original financing plan of the Kopaki rit Nature Park total assistance is detailed in the Table 2 below\. The Loan experienced several reallocations of its proceeds, whereas the Grant encountered only one: The funds allocated for consulting services and work from both the Loan and the Grant exceeded the needs\. In the meantime, the funds allocated for equipment (goods) were insufficient\. Therefore, a request for the reallocation of the Grant proceeds was addressed to the Bank on February 3, 2000\. The Bank agreed on March 3, 2000 to reallocate the proceeds of the Grant as presented in Table 1\. Table 1: Reallocation of the Grant proceeds as of March 2000\. Expenditure Categories Original Allocation Reallocation as of of the Grant Proceeds March 2000 Goods 100,000 680,000 Works 180,000 0 Consultants Services and Training 400,000 0 Operational Costs 70,000 70,000 TOTAL 750,000 750,000 - 37 -  Additional information regarding the Financial Management Status, the Audits and Procurement and Disbursement information is detailed in the relevant sections below\. Executive Summary Kopaki rit Nature Park (hereinafter referred to as Kopacki rit) is one of the centers of Croatian biodiversity with more than 2500 registered biological species, out of which many are rare and endangered on a European and/or global level\. Recognized for its globally significant biodiversity, Kopaki rit was declared a Ramsar site on June 26, 1996\. The war activities in the area (1991 ­ 1997) had a strong negative impact on the Nature Park ­ on infrastructure as well as on the ecological values and social community\. The GEF Grant to the Republic of Croatia (the Grant) for the purpose of the Kopaki rit Wetlands Management Project (GEF ­ MSP Grant No\. TF022644) was activated on June 14, 1999\. The USD 750\.000 Grant is consistent with OP 4\.04 on Natural Habitats and was an integral part of the Bank's on-going Reconstruction Project for Eastern Slavonia, Baranja and Western Srijem (hereinafter referred o as "the Loan" or "the Project")\. The key objective of the Grant is to complement the support provided under the Loan to conserve and sustainably use the globally significant biodiversity of the Kopaki rit Wetlands, a highly threatened and global ecosystem\. The following activities have been financed out of the Grant proceeds: (i) training of the Nature Park's staff in protected areas and natural resource management, nature park administration, patrolling, enforcement and monitoring (preparation of the Park's management Plan is financed under the Loan); (ii) provision of equipment needed for the protection and management of the Park, for increasing the Park's accessibility and potential self-financing, as well as for the Management Office (rehabilitation of the Nature Park's infrastructure is financed under the Loan); (iii) carrying out of surveys of (a) population of birds, deer and wild boar, vegetation and water quality at representative sites; and (b) the impacts of the Project on the local population and on the subsistence and economic activities on biodiversity (iv) strengthening the capacity of community groups\. The Grant, and the associated Loan have been instrumental in improving the management of the Kopaki rit Nature Park and in protecting its biodiversity values\. It contributed to increase its sustainability through long-term protection of natural resources and biodiversity, development of a proper business environment aiming at ensuring its financial sustainability, increase of the tourist-related local economy in the Park surroundings and the attraction of the funds from other international donors\. For these reasons, the Grant objectives have been fully met and often exceeded, therefore it has been rated "highly satisfactory"\. The Grant has been closed as planned on September 1, 2003\. All Grant funded contracts have been successfully completed and disbursed before the end of the four-month grace period, approved by the Bank August 28, 2003, that ended January 1, 2004\. - 38 -  The Grant financial statements for the period from grant inception to December 31, 2002 were audited in accordance with International Standards on Auditing, by an auditor acceptable to the Bank and received an unqualified (clean) audit opinion\. Financial statements, and the audit thereof, for the period from January 1, 2003 to December 31, 2003 are due before June 30, 2004\. - 39 -  Linkages between the Grant and the Loan The Grant was an integral part of the Bank's on-going Reconstruction Project for Eastern Slavonia, Baranja and Western Srijem (P048983), through its Nature Protection component\. The specific objective of the Nature Protection component was to develop and strengthen the State Directorate for the Protection of Nature en Environment of the Ministry of Environmental Protection and Physical Planning (Ministry of Environment or MoE), construct facilities through: (i) preparation of a management plan and monitoring program for the Kopacki rit Nature Park; (ii) provision of technical assistance to strengthen the institutional capacity of the State Directorate for the Protection of Nature and Environment as well as that of the Kopacki rit Nature Park; (iii) the purchase of boats, all-terrain vehicles, a geographic information system (GIS), water quality monitoring equipment and other supervisory equipment for Kopacki rit (and for the use of the State Water Directorate); and (iv) repair and rehabilitation of blinds (observation areas), fishponds, park management facilities and other infrastructure necessary to provide long-term environmental protection for the area\. The key performance indicator to measure the success of this component of the Project is the stability of population levels of "indicator" species in the Kopacki rit Nature Park\. Typical species of the Nature Park include rare and endangered species of birds such as European Black Stork (endangered), White-Tailed Sea Eagle, Black-crowned Night-herons, Squacco Herons, Ferruginous Duck (endangered), Whiskered Terns (endangered), Saker Falcon, Little Egrets, Spoonbills (during migration) and Bean Geese; rare mammals species such as Otter, Wild Cat, Pine Marten and the Bilch\. In addition, forty four species of fish and ten species of reptiles, including the endangered European Marsh Turtle, occur in the marshes and lakes\. For the purpose of this component, the Loan and the counterpart financing from the Government of Croatia provided USD 1\.61 million co-financing to the Project, thus totaling USD 2\.36 million, as detailed in the Table 2 below\. Table 2\. Breakdown of the Kopaki rit Nature Park total assistance GEF Grant $750,000 World Bank Loan $966,000 Government of Croatia $644,000 Total $2,360,000 The Loan Closing date, initially scheduled June 30, 2003, has been extended to December 31, 2004, mostly for the completion of additional infrastructure financed under the flood protection and wastewater treatment components\. Cooperation between Hrvatske Vode, the implementing Agency of the Project, and the Nature Park Management Office has been excellent\. Satisfaction with progress was expressed by the representative of the MoE\. All contracts financed under the Nature Park component of the loan have been satisfactorily completed and disbursed before the end of 2003, as planned\. The management office of the Park is now fully operational, the visitor center has been completed and the visitor's boat has been purchased and launched and are ready to open for the next tourist season\. Rehabilitation of the eco-center near Tikves Castle has been completed ahead of schedule\. Since the Grant was an integral part of the Project, the present Completion Report (GEF Medium Size Project Completion Report) refers to the achievements reached without making distinctions between the - 40 -  Project Completion Report) refers to the achievements reached without making distinctions between the Grant and the Nature Park Component of the Project\. - 41 -  Impact Analysis Main achievements The Grant provided a critical addition to the Loan financed works and technical assistance\. It contributed support for the purchase of equipment that is essential to increase its sustainability and to its long-term protection\. Ministry of Environment Grant Objective indicators have been fully met and often exceeded, as indicated in Table 3\. Table 3: Monitoring of the Grant Objective Indicators Grant Objective Indicators: Summary of the results achieved Number of breeding and hunted population of endangered species on the world level remained species stabilized or increasing stable, e\.g\., White-tailed Eagles (23 pairs in 1999; 25 in 2003) and Black Storks (10 pairs in 1999; 8 in 2003)\. population of some threatened species increased, e\.g\. 120 pairs of Greylag Goose and 680 pairs of Whiskered Terns were counted in 2001\. new species started with nesting in the area: 3 new species where observed in 2002, including Avocets (2 pairs) and Stilts (15 pairs)\. Strategy/mechanism for financing Strategy/mechanism for financing the operating and capital costs of the operating and capital costs of the Kopacki rit Nature Park Management Authority has been the Kopacki rit Nature Park established\. Management Authority established The management office of the Park is now fully operational and its work has already generated encouraging results, some of which are indicated below\. The main results/impacts of the Project include : An increase in on-site protection measures and better safeguarding of the area from damaging impacts and misuses\. As a result, population of some threatened species increased (like Greylag Goose, Whiskered Terns) and new species started nesting in the area (e\.g\. Avocets and Stilts, as indicated in Table 3)\. Population of endangered species on the world level, like White-tailed Eagles and Black Storks remained stable\. More than 2500 biological species have been registered in the Nature Park until now and it is expected that improved conditions will enable further research of biodiversity\. According to the current assumptions, the number of biological species could reach up to 4000 species\. Based on recent studies, one species of mammals, one species of birds, two species of crawfish, and 29 species of Carabidae were added to the number of biological species registered in the Nature Park\. Improved quality of the offer and attractiveness of the Nature Park to tourists and visitors thanks to the improvement of the Nature Park infrastructure, including the construction of a visitors center at the border of the Nature Park, the rehabilitation of the Tikves Castle bio-ecological station and information center and the purchase of a 50-passenger tour boat\. - 42 -  With the restoration of habitats, the enhancement of accessibility and the overall infrastructure improvement during Project implementation, the number of visitors increased from 100 in 1999 to over 7500 in 2003\. Very good signals were given in the beginning of 2004\. For instance, during one single weekend in April 2004 the Nature Park received 1000 visitors\. Based on the observed trend of increase, the number of visitors before the war (about 20,000 per year) is expected to be reached as early as before the end of 2004\. The establishment of a proper business environment, regulated through the development of the Management Plan and the income generated by the increased number of visitor will result in financial sustainability of the Nature Park\. For example, 1000 visitors during one single week-end generated a revenue of 5000\. During 2004, it is expected that the income generated by visitors will reach up to 200\.000, which would represent more than 65% of the Natural Park Office's total income\. As a result of the Project the Management Office has already been able to create new job opportunities for the local communities\. During 2002, about 40 local people were temporarily employed in different positions in the Nature Park\. During 2003 and early 2004, the Management Office has employed 10 additional people full time regular positions\. Increased numbers of visitors also enabled opportunities for the local population in the development of environmentally sound tourism practices in the Nature Park surroundings\. In the period from 2001 to 2003, eleven new private guesthouses were opened in the Bilje municipality serving over 55 beds\. Due to the great interest, an increase in capacity is expected to reach 100% in 2004\. With the rehabilitation and equipment of the bio-ecological station of Tikves Castle, the capacity of the Management Office to properly protect the Park's natural resources and biodiversity have been increased significantly\. As a complementary benefit of the Project, since the Project started, the Nature Park has attracted significant international support and a number of parallel similar projects are currently under implementation, including: o The "Ecological Network Danube- Drava National Park - Kopacki rit Nature Park" proposed by the European Center for Nature Conservation (ECNC), financed from the Government of the Netherlands\. The total value of first phase is 57,000\. o The International Project "Macrophytes, River Corridor, Land Use, Habitats: A multifunctional study in the Danube Catchment based on a GIS approach" led by the Institute of Ecology and Conservation Biology, University of Vienna (Austria)\. The total value of this Project is 5,000\. o An International Protocol of Cooperation for promotion of ecological and touristic facilities has been signed with Consortium CO\.RI\.BA and C\.I\.E\.M\. (Italy)\. o International Protocols of Cooperation have been signed with National Park Danube- Drava (Hungary)\. In addition, the Nature Park Management Office is currently preparing participation for INTEREG project in cooperation with the University of Venice (Italy)\. - 43 -  Project Sustainability The up-to-date equipment for biodiversity research and monitoring that has been provided is expected to ensure that the technical capacity of the Management Office is sufficient to properly protect the Parks resources\. In addition, the expected increase in revenues generated by the increase in the number of visitors will allow additional investments in biodiversity conservation and environmental protection to take place, thus ensuring the sustainability of the Park and the Project results\. In particular, it is expected that the income generated by the visitors in 2004 would represent over 65% of the Nature Park's total income\. The remaining income would come from Government funds and other projects\. The overall development of tourism in the Nature Park area and the ability to attract International Donors funding that the Project has helped putting into motion will further contribute to ensuring the financial sustainability of the Park and the economic development of the surroundings areas\. Replicability As indicated earlier, the success generated by the Grant-financed activities have been experienced long before the Grant closed, and went beyond expectations\. Thus, the successful development of sustainable management and long-term environmental protection sets the Kopacki rit Nature Park as an example not only in Croatia, but also in the entire Balkan area\. Given the very rich natural patrimony of the area and the number of natural resources protection initiatives, the Grant has a high potential of replicability in Croatia and more broadly in the entire South-East Europe\. In particular, the experience gained under this project is being used in other Park management activities in Croatia (e\.g\., Karst Ecosystem Conservation Project (KEC) funded under through GEF Grant)\. Moreover, since the Kopaki rit Nature Park is the first that has developed a management plan for the protected area, a workshop will take place in June to share experience and lessons learned with other national and nature parks To expand the impact of the Project the management office has requested a follow up operation to rehabilitate as wetlands an area adjacent to the park and use it for the treatment of wastewaters coming from the villages in the area\. Such operation would fall under the Black Sea Partnership Stakeholder Involvement Government and Implementing Agencies Like many World Bank projects, this GEF project was affected by "actors and factors", negatively and positively, during the project implementation\. Two phases can be distinguished in Project implementation: The first phase covers the period from 1999 to 2001\. Project preparation activities were at a very low level, there was no effective PIU and less than 15% of the total Grant proceeds have been committed during this period\. In addition, the Management Office was still in the process of forming with only 5 employees without necessary work equipment or property rights for the use of the Park's infrastructure\. The second phase covers the period from 2001 to 2003\. The project was positively affected by several actors\. The key actor was the Minister of Environment, whose decisions accelerated the contract procedures and resulted in a better cooperation between PIU and the MoE\. This, along with the replacement of the Management Office Director accelerated Project implementation\. Replacement of PIU members and leadership had a positive impact on Project progress\. - 44 -  Local communities The local communities have been involved from the very early stages of the Project preparation\. High ownership and interest has been build for the activities related to improving the quality of the offer and attractiveness of the Nature Park which benefit directly the local economy\. Moreover, the local communities have participated in the development of the Nature Park Management Plan and in the design of the visitor center in respect of the traditional rural architecture and building practices\. Furthermore, a portion of the visitor center has been reserved for the promotion of traditional local production of the region, integrating small shops where local products and handcraft work will be sold\. In addition, improved quality of the offer and attractiveness of the Nature Park to tourists and resulting increased number of visitors give local communities opportunities for economic development and income generation, e\.g\. though employment opportunities or tourism-related small businesses creation\. Additional information on Project planning and implementation arrangement is attached to this document in Annex 1\. Summary of main lessons learned a\. The motivation and great interest for the Project at all levels (from PIU members to the Government) has been critical for thorough realization of the project\. b\. Fast, in-time and open cooperation between the different stakeholders involved in Project implementation made the completion in time possible\. c\. Extensive experience gained and knowledge gathered during the Project implementation contribute to the success of this Project and will have positive impact on the implementation of future national and international projects\. Procurement and Disbursement Information 34 contracts, essentially for procurement of Goods were financed out of the Grant proceeds, for a total amount of USD 750\.320,61\. The final Project Management Report table showing procurement and disbursement information is attached to this document in Annex 2\. The disbursement rate during the implementation period is indicated in Table 3\. To insure conditions for biological and ecological protection of the Nature park wetlands and to strengthen the Management Office, the following goods were procured: - furniture and equipment for 6 offices including computers; - furniture and equipment for 4 laboratories (hydrological, zoological, botanical and pedological) situated within the Bio-ecological station\. The laboratories will be used to monitor the state of plant and animal populations and environment\. A water quality analyzer, microscopes and lupes were procured in order to assess the water quality and planktonic communities\. Telescopes and binoculars were procured in order to monitor bird populations; - furniture and equipment for the multimedia room in the Bio-ecological station: computer hardware and software for "greed conception"\. Preconditions were thus created for an up-to-date monitoring, - 45 -  and software for "greed conception"\. Preconditions were thus created for an up-to-date monitoring, presentation and preservation of the Parks ecological values as well as global data exchange; - field research equipment, supervisory equipment (4*4 vehicles) and park maintenance equipment (tractor); Equipment and goods were also purchased to improve tourism and visits to the Park, including: 3 telescopes (situated at the most attractive sites); 50 binoculars (for bird watching); one tour boat (capacity for 50 passengers, for sightseeing of the most interesting parts of the Park through waterways); and one mini bus (for transportation of visitors within the Park)\. Table 3\. Level of Disbursement per year Year Amount (USD) Rate 2000 81\.836,88 10,93% 2001 172\.872,69 23,03% 2002 49\.338,28 6,57% 2003 446\.272,76 59,47% Total 750\.320,61 100,00% Financial Management Status Grant financial statements have been presented to the Bank for the period from Grant inception to December 31, 2002\. The Grant financial statements were audited in accordance with International Standards on Auditing, by an auditor acceptable to the Bank The Grant financial statements received an unqualified (clean) audit opinion\. Financial statements, and the audit thereof, for the period from January 1, 2003 to December 31, 2003 are due before June 30, 2004\. - 46 -  ANNEX 1 : Project planning and implementation arrangement Project Planning In order to plan the project activities, budget and specifications (scope), the "Implementation Plan" was activated on September 20, 2001\. The Implementation Plan served as a baseline plan for the project\. It specifies what activities should be accomplished, their start and finish dates, the budget costs and the human and physical resources that should be allocated to the activities\. The emphasis was on the check of the critical path\. The Implementation plan for the GEF - project was in close connection with the IBRD - project Implementation Plan\. Activity of the GEF ­ project depended sometimes on the realization of individual phases of the IBRD ­ projects, which was the reason for their delayed activation\. Implementation Arrangements The PIU was set up after Project effectiveness\. From 1999 to 2001 the PIU was consisted of: Boris Bolsec and Tibor Mikuska as a PIU leader\. From 2001 to 2003 PIU was composed by Boris Bolsec, Tibor Mikuska, Besim Mehi and Darko Karali as a PIU leader\. The director of the Nature Park was also the project director\. The project director for the initial period between 1991 to 2000 was Dr\. Jozsef Mikuska; he was later replaced by Dr\. Melita Mihaljevi\. Additional to their regular working tasks and without any additional payments, all members of PIU, including the project director, worked on the Project\. The PIU was responsible for Procurement of Goods and Services\. The director of the Nature Park was responsible for the Project Management\. The MoE was responsible for the Project coordination, financial management and disbursement\. Hrvatske Vode bears overall responsibility for the implementation of the Project under the Loan No\. 4351HR\. They also provided Consulting Services to the PIU during the Grant realization\. During the Project Implementation the members of PIU completed the following trainings: - Equipment procurement management for World Bank funded projects in Croatia (Darko Karali) - Procurement of Services in World Bank funded projects (Melita Mihaljevi) - Disbursement procedures in World Bank funded projects in Croatia (Darko Karali) - Project Management in World Bank funded projects: Control of Project delivery, procurement and financial management procedures (Melita Mihaljevi) - 47 -  ANNEX 2 : final Project Management Report table PROJECTMANAGEMENTREPORT (PMR) ( GOODS&OPERATING COSTS ) GEF grant No\.: TF 022644 Date: 31th December 2003 (WORLD BANK FINANCED CONTRACTS) GEF GRANT-GOODS CONTRACT DESCRIPTION Proc\. BIDDING PROCESS CONTRACT SUPPLIER Curr\. AMOUNT Contract No NAME OF COMPONENT Advertising Issuance Signature End delivery HRK GEF(USD) JUPPKR-HV/NS/D/4\.1\.2\./2001-08 Vehicles IS 05/16/01 05/16/01 07/28/01 08/31/01 Remix HRK 99,901\.04 12,880\.20 JUPPKR-HV/IS/D/4\.1\.2\.c/1999-01 Vehicles IS 05\.11\.99\. 22\.11\.99\. 03\.06\.00\. 29\.12\.00\. Remix HRK 247,324\.95 25,696\.91 JUPPKR-HV/NS/D/4\.2\.10\.b/1999-02-A Optical equipment NS 12\.11\.99\. 26\.11\.99\. 05\.06\.00\. 05\.07\.00\. H\.F\.F\. Sport HRK 35,694\.79 3,802\.23 JUPPKR-HV/NS/D/4\.2\.10\.b/1999-02-B Optical equipment NS 12\.11\.99\. 26\.11\.99\. 05\.08\.00\. 20\.04\.01\. Fanzoj-Inox HRK 43,450\.00 4,505\.47 JUPPKR-HV/NS/D/4\.1\.1\./1999-03 Office furniture NS 12\.11\.99\. 26\.11\.99\. 28\.02\.00\. 12\.05\.00\. Con-formo HRK 47,117\.20 4,692\.18 JUPPKR-HV/NS/D/4\.1\.2/1999-05-A Office equipment NS 12\.11\.99\. 26\.11\.99\. 28\.02\.00\. 12\.05\.00\. Filmoteka HRK 4,120\.00 410\.29 JUPPKR-HV/NS/D/4\.1\.2/1999-05-B Office equipment NS 12\.11\.99\. 26\.11\.99\. 28\.02\.00\. 12\.05\.00\. Birotrade HRK 3,460\.00 344\.57 JUPPKR-HV/DC/D/5\.1/1999-10 Kopacki rit videotape DC 17\.11\.99\. 30\.11\.99\. 29\.01\.00\. 12\.05\.00\. Romulic HRK 24,000\.00 2,390\.05 JUPPKR-HV/NS/D/4\.1\.2\.c/1999-12 Vehicles NS 08\.12\.99\. 22\.12\.99\. 04\.06\.00\. 05\.07\.00\. Adria-Lada HRK 133,200\.00 14,188\.54 JUPPKR-HV/NS/D/4\.1/2000-01 Safe box NS 02\.02\.00\. 18\.02\.00\. 12\.08\.00\. 10\.08\.00\. Birotrade HRK 9,345\.00 952\.23 JUPPKR-HV/IS/D/1\.3/2000-02-B Hardware and software IS 16\.02\.00\. 28\.02\.00\. 10\.12\.00\. 19\.03\.01\. Gisdata HRK 796,769\.71 83,270\.87 JUPPKR-HV/IS/D/1\.3/2000-02-A Hardware and software IS 16\.02\.00\. 28\.02\.00\. 12\.09\.00\. 12\.12\.00\. Spin HRK 41,447\.73 4,085\.57 JUPPKR-HV/DC/D/1\.4/2000-04 Cartographic aero-photo DC 02\.02\.00\. 25\.02\.00\. 20\.08\.00\. 15\.12\.00\. Drz\.Geod\.upr\. HRK 60,500\.00 6,008\.43 JUPPKR-HV/NS/D/4\.2\.10b/2000-05-A Multimedia equipment NS 28\.03\.00\. 12\.04\.00\. 17\.09\.00\. 23\.11\.00\. HSM-Inform\. HRK 51,696\.00 4,999\.18 JUPPKR-HV/NS/D/4\.2\.10b/2000-05-B Multimedia equipment NS 28\.03\.00\. 12\.04\.00\. 13\.09\.00\. 19\.03\.01\. Exportdrvo-ing HRK 52,495\.30 5,402\.85 JUPPKR-HV/NS/D/4\.2\.10b/2000-06 Mobile toilette cabines NS 28\.03\.00\. 12\.04\.00\. 06\.09\.00\. 10\.08\.00\. Magrad HRK 95,872\.00 9,769\.06 JUPPKR-HV/NS/D/4\.2\.10b/2000-08 Tractors & agricultural equip\. NS 13\.11\.00\. 27\.11\.00\. 09\.04\.01\. 09\.05\.01\. Zemat HRK 140,815\.55 14,577\.77 JUPPKR-HV/NS/D/4\.2\.10\.b/2000-09-A Goods-souvenirs NS 13\.11\.00\. 27\.11\.00\. 11\.02\.01\. 11\.03\.01\. Romulic HRK 26,000\.00 2,656\.43 JUPPKR-HV/NS/D/4\.2\.10\.b/2000-09-B Goods-souvenirs NS 13\.11\.00\. 27\.11\.00\. 22\.04\.01\. 22\.05\.01\. Carolija HRK 2,500\.00 253\.19 JUPPKR-HV/NS/D/4\.2\.10\.b/2000-09-C Office equipment NS 13\.11\.00\. 27\.11\.00\. 22\.04\.01\. 22\.05\.01\. Con-formo HRK 17,465\.00 1,801\.23 JUPPKR-HV/NS/D/4\.2\.10\.b/2000-09-D Office equipment NS 13\.11\.00\. 27\.11\.00\. 28\.04\.01\. 22\.05\.01\. Iluminacija HRK 7,869\.80 799\.65 JUPPKR-HV/NS/D/4\.2\.10\.b/2000-09-E Office equipment NS 13\.11\.00\. 27\.11\.00\. 28\.04\.01\. 22\.05\.01\. Cedar HRK 6,988\.50 719\.95 JUPPKR-HV/NS/D/4\.2\.10\.b/2000-09-F Photo-optic & comunic\. equip\. NS 13\.11\.00\. 27\.11\.00\. 13\.05\.01\. 13\.06\.01\. Filmoteka HRK 86,628\.35 8,837\.14 JUPPKR-HV/NS/D/4\.2\.10\.b/2000-09-G Goods-souvenirs NS 13\.11\.00\. 27\.11\.00\. 16\.05\.01\. 16\.06\.01\. Sitotisak HRK 86,700\.00 8,776\.04 JUPPKR-HV/NS/D/4\.1\.2/2000-10 Hardware and software NS 11\.12\.00\. 28\.12\.00\. 16\.05\.01\. 16\.06\.01\. Eurocom\.Sys\. HRK 92,191\.00 9,317\.29 JUPPKR-HV/NS/D/4\.1\.2/2001-06 Computer accessories NS 30\.01\.01\. 09\.02\.01\. 03\.07\.01\. 22\.05\.01\. Brrax HRK 4,262\.00 439\.07 JUPPKR-HV/DC/1\.1\.3\./2001-07 Photographs DC 05\.07\.01\. 20\.07\.01\. 31\.08\.01\. 03\.10\.01\. Baranya Museums HRK 15,421\.52 2,080\.73 JUPPKR-HV/NS/D/4\.2\.10/2002-02 Visitors telescopes NS 22\.04\.02\. 15\.05\.02\. 24\.05\.02\. 24\.06\.02\. Etran HRK 82,782\.15 11,130\.89 JUPPKR-HV/IS/D/4\.2\.10/2003-02 Office equipment IS 03/27/03 04/14/03 06/16/03 07/30/03 Podravina HRK 351,706\.26 52,808\.75 JUPPKR-HV/NS/D/4\.2\.3\./2003-01 Laboratory equipment NS 03/03/03 03/20/03 05/28/03 07/30/03 Linea-Frigo HRK 370,167\.00 55,864\.43 JUPPKR-HV/NS/D/4\.2\.7/2001-11 Visitors equipment NS 30\.07\.01\. 17\.08\.01\. 24\.09\.01\. 21\.07\.03\. Esso HRK 146,849\.00 21,023\.64 JUPPKR-HV/NS/D/4\.2\.3\./2003-04 Library & cabinets equipment NS 06/20/03 7/4/2003 7/10/2003 8/12/2003 Con-formo HRK 169,019\.10 25,378\.24 JUPPKR-HV/NS/D/4\.2\.3/2003-03 Multimedia equipment NS 06/12/03 6/23/2003 7/16/2003 7/21/2003 Coming HRK 356,835\.39 44,457\.54 JUPPKR-HV/IS/D/4\.2\.10\.A/2002-01 Purchasing of boat IS 01\.07\.03\. 7/10/2003 15\.07\.2003\. 30\.08\.2003\. Prinz Adriatic USD 1,488,886\.48 236,000\.00 GEF TOTAL GOODS 5,199,480\.82 680\.320\.61 GEF TOTAL OPERATING COSTS 523,665\.46 70,000\.00 - 48 -  Additional Annex 10\. ICR Mission, Aide-Memoire December 8-17, 2004 Extract from the Aide Memoire for the supervision and ICR mission for the Eastern Slavonja, Baranja and Srijem Reconstruction Project A mission consisting of Messrs\. Xavier Chauvot de Beauchene, Kishore Nadkarni and Manuel Mariño visited Croatia Between December 8 to 17 to supervise the Eastern Slavonja, Baranja and Srijem Reconstruction Project and to conduct the Implementation Completion Mission of the Project\. The mission was joined by Stjepan Gabri from the World Bank Country Office in Zagreb\. This aide-memoire records the findings and agreements of the mission\. The mission acknowledge the kind support and collaboration extended by the Government of Croatia and Hrvatske vode\. A list of persons met is attached in Annex 1\. 8\. Preparation of the Implementation Completion Report (ICR)\. The mission met with the representatives of HV, the implementing agency, to present the purpose and methodology of the ICR and to start Project assessment and data collection\. The mission also met with representatives of key agencies in central government, local government, local communities and relevant stakeholder groups and beneficiaries to solicit a broad range of views on all aspects of each of the four components of the Project\. The assessment and analysis of the Project will rely on the review of all relevant project documentation, data collection and interviews conducted in Zagreb and in the Project area\. Site visits were conducted to the flood protection and drainage sites and pumping stations in Baranja and Eastern Slavonia, to the Vinkovci wastewater treatment plant and to the Nature Park Kopacki rit\. The mission also prepared a list of data to be collected from the different authorities and beneficiaries to allow further evaluation of the Project, including key information on the agriculture sector in the Project area, necessary to carry out the post-project financial and economic analysis (see Annex 2)\. 9\. The mission also discussed the methodology and possible format of the Government's Completion Report (GCR), to be prepared by the borrower, which will be part of the ICR\. The mission prepared guidelines for the preparation of the GCR\. These Guidelines include a list of data to be collected from the different authorities and beneficiaries to allow further evaluation of the Project\. They also include provisions for the preparation of the operational plan that will describe the mechanisms in place to operate and monitor the sustainability of the investments made under the Project\. It was agreed that such data will be collected and submitted to the Bank by January 15, 2005 and that HV will coordinate and prepare the GCR\. It was also agreed that the GCR will be submitted to the Bank by the end of January, including an executive summary if it is more than ten pages\. The draft ICR is expected to be submitted for comments to the Government, including HV, Kopacki rit Nature Park management office, Ministry of Agriculture and Water and the Directorate for Nature Protection of the Ministry of Culture, by February 15, 2004\. - 49 -  Annex 1\. List of persons met during the mission Hrvatska vode (HV) -\.Mr\. Stulan, Head of Supervisory Board -\.Mr\. Slavko Rajnovic, Deputy General Manager -\.Mr\. Miroslav Steinbauer, Head of Sector for the - Mr\. Dinko Poli, Head of Sector - Mr\. Zoran Durokovic, Director, Water Management Department, Drava and Danube river basin - Mr\. Zeljko Sarcevic, HV representative in Vinkovci office Ministry of Agriculture, Water Management and Forestry - Mr\. Bozo Gali, State Secretary for Water Kopaki rit Nature Park - Ms\. Melita Mihaljevi, Director of the Nature Park Management Office Ministry of Culture - Mr\. Eugen Draganovic, Head of Protected Area Section Municipal and County Representatives - Mr\. Mladen Karli, Mayor, Vinkovci - Mr\. Drazen Milinkovic, Director, Vodovod Vinkovci - Mr\. Davorin Bubalovic, Mayor, Beli Manastir - Mr\. Josip Kompalovic, City Council, Beli Manastir - Mr\. Zvonko Vlahek, Director, Baranjski Vodovod - Mr\. Zeljko Kraljicak, Department Head, Agriculture and Economic Affairs, County of Osijek-Baranja - Mr\. Tihomir Zivic, International Affairs Adviser, County of Osijek-Baranja - Mr\. Martin Marolin, Head, Development Agency, County of Osijek-Baranja - Mr\. Kresimir Bubalo, County Prefect, County of Osijek-Baranja Other local representatives - Mr\. Vladimir Puvaca, Development Department, Agrocombinat Belje ­ Beli Manastir - Mrs\. Gabrijela Ivancevic, Development Department, Agrocombinat Belje ­ Beli Manastir - Mr\. Miljenko Vahtarevic, Assistant Director, CROMAC - 50 -  Annex 2\. Statistical Data Statistical Information on Agricultural Production in the Project Area (required to re-estimate economic benefits from increased agricultural production) 1\. Area under cultivation in 1998 and 2004 for: Crop Area in 1998 Area in 2004 Wheat (psenicu) 57\.268 53\.179 Maize (kukuruz) 63\.852 73\.562 Oilseeds (uljarice) 18\.383 17\.819 Sugarbeet (seernu repu) 10\.223 9\.643 Animal fodder (stonu hranu) 10\.541 13\.269 2\. Area under cultivation in 1998 and 2004 by: Area in 1998 (ha) Area in 2004 (ha) agricultural kombinats 84\.277 62\.226 (poljoprivrednim kombinatima) private farmers (privatnim 111\.736 145\.364 seoskim gospodarstvima) 3\. Production (in tons) in 1998 and 2004 for: Crop Production (in tons) in 1998 Production (in tons) in 2004 Wheat (psenicu) 289\.579 321\.204 Maize (kukuruz) 417\.024 662\.058 Oilseeds (uljarice) 40\.772 49\.893 Sugarbeet (seernu repu) 438\.595 501\.436 Animal fodder (stonu hranu) 156\.571 270\.687 4\. Productivity (kgs per hectare) in 1998 and 2004 for: Crop Production (in tons) in 1998 Production (in tons) in 2004 Wheat (psenicu) 5,06 6,04 Maize (kukuruz) 6,53 9,00 Oilseeds (uljarice) 2,35 2,80 Sugarbeet (seernu repu) 42,90 52,00 Animal fodder (stonu hranu) 17,35 20,40 - 51 -  5\. Prices (kuna per ton) in 1998 and 2004 for: Crop Prices (kuna per ton) in 1998 Prices (kuna per ton) in 2004 Wheat (psenicu) 1\.000 Maize (kukuruz) 800 Oilseeds (uljarice) 1350 Sugarbeet (seernu repu) 250 Animal fodder (stonu hranu) 800 - 52 -  6\. Subsidies in 1998 and 2004 for: Crop Amount of subsidies in 1998 Amount of subsidies in 2004 Wheat (psenicu) 72\.267\.763,26 Maize (kukuruz) 55\.236\.969,08 Oilseeds (uljarice) 43\.311\.411,00 Sugarbeet (seernu repu) 34\.978\.269,09 Animal fodder (stonu hranu) 7\.696\.410,26 (as subsidy model in 1998 was differently structured it is not possible to compare them) 7\. Prices (kuna per ton) in 2004 for: Price of seeds Seeds quantity Market price Hybrid corn (I grupa) 40\.000 seeds 275 kn/unit Hybrid corn (I grupa) 25\.000 seeds 180 kn/unit Soya 1 kg 4,60 kn Barley 1 kg 2,80 kn Hybrid oilseeds 1 kg 48 kn Fodder 1 kg 40 kn Price of fertilizers Type Production price VAT 22% Market price (1\.000 kg) UREA 46% N 1\.332,18 293,08 1\.625,26 KAN 27% N 1\.134,82 249,66 1\.384,48 UAN 30% N 1\.092,27 240,30 1\.332,57 NPK 15:15:15 1\.699,96 373,99 2\.073,95 NPK 2\.342,74 515,40 2\.858,14 8:26:26+Fe+Zn NPK 2\.112,68 484,79 2\.577,47 7:20:30+Fe+Zn NPK 20:10:10 1\.643,37 361,54 2\.004,91 8\. Number of private farms, average farm size (1998, 2003, 2004) There is no data yet for 1998\. Data for 2003 is: 41 103 farms and 2\.3 ha average size 9\. Average farm household income per month (1998, 2003, 2004) - 53 -  No data yet - 54 -  Annex 3\. Species in Kopacki rit Ramsar Indicator name: Numbers of selected wetland species with declining, stable, and increasing overall population trends respectively in Kopaki rit Nature Park Species Base-line population in Population level in pairs (Year) pairs (Year) Black-necked Grebe 0 (1999) 5 (2004) Podiceps nigricollis Great Cormorant 1614 (1998) 1627 (2004) Phalacrocorax carbo Great Egret 5-10 (1999) 5-10 (2004) Egretta alba White Stork 14 (2000) 13 (2004) Ciconia ciconia Black Stork 5 (2001) 10 (2004) Ciconia nigra Black-winged Stilt 0 (1999) 14 (2002) Himantopus himantopus Avocet 0 (1999) 1 (2002) Recurvirostra avosetta Little ringed Plover 0 (1999) 3 (2002) Charadrius dubius White-tailed Eagle 20 (2000) 23 (2004) Haliaeetus albicilla Common Gull 18 (2001) 74 (2004) Larus ridibundus Sand Martin 40 (2001) 75 (2004) Riparia riparia Mid-winter International 28\.887 individuals (1999) 29\.692 individuals (2003) Waterbird Census - 55 -  Additional Annex 11\. Map Section: Map 1\. General Map of the Project Area - 56 -  Map 2: IBRD 4351 - HR RECONSTRUCTION Legend: Pumping station Dam WWTP Sewage collector Reconstructed water bed Reconstructed wetland Kopacki rit Nature Park Project area limits Forest State border River Village Roads Railway track - 57 -  Map 3: IBRD 4351 - HR DEMINING Legend: Pumping station Dam Demining of pumping station Demined area Kopacki rit Nature Park Project area limits Forest State border River Village Roads Railway track - 58 -  - 59 -  - 60 -

REVIEW

P085708

 Document of The World Bank Report No: ICR00002699 IMPLEMENTATION COMPLETION AND RESULTS REPORT (IDA-39810 TF-53937) ON A CREDIT IN THE AMOUNT OF SDR 20\.6 MILLION (US$ 29\.9 MILLION EQUIVALENT) AND A GLOBAL ENVIRONMENTAL FACILITY GRANT IN THE AMOUNT OF US$ 5\.0 MILLION TO THE REPUBLIC OF SENEGAL FOR AN ELECTRICITY SERVICES FOR RURAL AREAS PROJECT JUNE 21, 2013 Sustainable Development Department Country Department AFCF1 Africa Region  CURRENCY EQUIVALENTS (Exchange Rate Effective May 28, 2013) Currency Unit = CFA F SDR 1\.00 = US$ [1\.49] US$ 1\.00 = CFA F [507] FISCAL YEAR January 1 – December 31 ABBREVIATIONS AND ACRONYMS AFD Agence Française de Développementt (French Development Agency) AfDB Africa Development Bank APL Adaptable Program Loan ASER Agence Sénégalaise d’Electrification Rurale CAS Country Assistance Strategy CIMES Comité Intersectoriel pour la Mise en œuvre des Synergies CRSE Commission de Régulation du Secteur de l’Electricité (Electricity Sector Regulator) ERIL Electrification Rurale par Initiatives Locales (small-scale concession) GIS Geographic Information System GIZ German International Development Agency GoS Government of Senegal ICR Implementation Completion Report KFW Kreditanstalt Fur Wiederaufbau MEM Ministry of Energy and Mines MEF Ministry of Economy and Finance PAD Project Appraisal Document PREM Programme Energétique Multisectoriel PROGEDE Projet de Gestion et de Substitution des Energies Renouvelables (Sustainable and Participatory Energy Management Project) SENELEC Société Nationale d’Electricité (national power utility in Senegal) Vice President: Makhtar Diop Country Director: Vera Songwe Sector Manager: Meike van Ginneken Project Team Leader: Awa Seck ICR Team Leader: Alain Ouedraogo  SENEGAL Electricity Services for Rural Areas Project CONTENTS Data Sheet A\. Basic Information B\. Key Dates C\. Ratings Summary D\. Sector and Theme Codes E\. Bank Staff F\. Results Framework Analysis G\. Ratings of Project Performance in ISRs H\. Restructuring I\. Disbursement Graph 1\. Project Context, Development and Global Environment Objectives Design \. 1 2\. Key Factors Affecting Implementation and Outcomes \. 7 3\. Assessment of Outcomes \. 13 4\. Assessment of Risk to Development Outcome and Global Environment Outcome \. 23 5\. Assessment of Bank and Borrower Performance \. 23 6\. Lessons Learned\. 25 7\. Comments on Issues Raised by Borrower/Implementing Agencies/Partners\. 26 Annex 1\. Project Costs and Financing \. 28 Annex 2\. Outputs by Component\. 29 Annex 3\. Economic and Financial Analysis \. 33 Annex 4\. Bank Lending and Implementation Support/Supervision Processes\. 36 Annex 5\. Beneficiary Survey Results \. 38 Annex 6\. Stakeholder Workshop Report and Results\. 39 Annex 7\. Summary of Borrower's ICR \. 40 Annex 8\. Comments of Cofinanciers and Other Partners/Stakeholders \. 42 Annex 9\. List of Supporting Documents \. 43 MAP \. 44 i A\. Basic Information SN-Elec\. Serv\. for Rural Country: Senegal Project Name: Areas (FY05) Project ID: P085708,P070530 L/C/TF Number(s): IDA-39810,TF-53937 ICR Date: 02/18/2013 ICR Type: Core ICR Lending Instrument: APL,SIL Borrower: Republic OF SENEGAL Original Total XDR 20\.60M, XDR 13\.28M, Disbursed Amount: Commitment: USD 5\.00M USD 0\.82M Revised Amount XDR 14\.2M Environmental Category:B Focal Area: C Implementing Agencies: ASER (Agence Sénégalaise d’Electrification Rurale) Direction des Eaux et Forêts Cofinanciers and Other External Partners: African Development Bank (AfDB) Kreditanstalt Fur Wiederaufbau (KFW) European Union Agence Française de Développement (AFD) B\. Key Dates SN-Elec\. Serv\. for Rural Areas (FY05) - P085708 Revised / Actual Process Date Process Original Date Date(s) Concept Review: 10/21/2003 Effectiveness: 06/30/2005 06/30/2005 06/30/2009 Appraisal: 06/17/2004 Restructuring(s): 12/17/2012 Approval: 09/09/2004 Mid-term Review: 03/12/2007 06/30/2008 Closing: 06/30/2009 12/31/2012 SN-GEF Elec Srvc for Rural Areas (FY05) - P070530 Revised / Actual Process Date Process Original Date Date(s) Concept Review: 10/21/2003 Effectiveness: 06/29/2005 06/30/2005 Appraisal: Restructuring(s): Approval: 09/09/2004 Mid-term Review: 07/31/2008 06/30/2008 ii  Closing: 06/30/2009 12/31/2012 C\. Ratings Summary C\.1 Performance Rating by ICR Outcomes Moderately Satisfactory GEO Outcomes Moderately Satisfactory Risk to Development Outcome Moderate Risk to GEO Outcome Moderate Bank Performance Moderately Satisfactory Borrower Performance Moderately Satisfactory C\.2 Detailed Ratings of Bank and Borrower Performance (by ICR) Bank Ratings Borrower Ratings Quality at Entry Moderately Satisfactory Government: Moderately Satisfactory Implementing Quality of Supervision: Moderately Satisfactory Moderately Satisfactory Agency/Agencies: Overall Bank Overall Borrower Moderately Satisfactory Moderately Satisfactory Performance Performance C\.3 Quality at Entry and Implementation Performance Indicators SN-Elec\. Serv\. for Rural Areas (FY05) - P085708 Implementation QAG Assessments (if Indicators Rating: Performance any) Potential Problem Project No Quality at Entry (QEA) MS at any time (Yes/No): Problem Project at any time Quality of Supervision Yes MU (Yes/No): (QSA) DO rating before Moderately Closing/Inactive status Satisfactory iii SN-GEF Elec Srvc for Rural Areas (FY05) - P070530 Implementation QAG Assessments (if Indicators Rating: Performance any) Potential Problem Project No Quality at Entry (QEA) None at any time (Yes/No): Problem Project at any time Quality of Supervision No None (Yes/No): (QSA) GEO rating before Moderately Closing/Inactive Status Satisfactory D\. Sector and Theme Codes SN-Elec\. Serv\. for Rural Areas (FY05) - P085708 Original Actual Sector Code (as % of total Bank financing) Central government administration 27 27 General agriculture, fishing and forestry sector 9 9 General energy sector 57 57 General finance sector 4 4 Water supply 3 3 Theme Code (as % of total Bank financing) Climate change 28 28 Infrastructure services for private sector development 29 29 Micro, Small and Medium Enterprise support 14 14 Rural services and infrastructure 29 29 SN-GEF Elec Srvc for Rural Areas (FY05) - P070530 Original Actual Sector Code (as % of total Bank financing) Central government administration 14 14 Transmission and Distribution of Electricity 86 86 Theme Code (as % of total Bank financing) Micro, Small and Medium Enterprise support 33 33 Rural services and infrastructure 67 67 iv E\. Bank Staff SN-Elec\. Serv\. for Rural Areas (FY05) - P085708 Positions At ICR At Approval Vice President: Makhtar Diop Callisto E\. Madavo Country Director: Vera Songwe Madani M\. Tall Sector Manager: Meike van Ginneken Yusupha B\. Crookes Project Team Leader: Awa Seck Michel E\. Layec ICR Team Leader: Alain Ouedraogo ICR Primary Author: Alain Ouedraogo SN-GEF Elec Srvc for Rural Areas (FY05) - P070530 Positions At ICR At Approval Vice President: Makhtar Diop Callisto E\. Madavo Country Director: Vera Songwe Madani M\. Tall Sector Manager: Meike van Ginneken Yusupha B\. Crookes Project Team Leader: Awa Seck Michel E\. Layec ICR Team Leader: Alain Ouedraogo ICR Primary Author: Alain Ouedraogo F\. Results Framework Analysis Project Development Objectives (from Project Appraisal Document) The project's development objective is to increase the access of Senegal's rural population to modern energy services and to ensure the environmental and social sustainability of wood fuels in urban and peri-urban areas\. Revised Project Development Objectives (as approved by original approving authority) Not applicable Global Environment Objectives (from Project Appraisal Document) The program will have a positive environmental impact at the global and local levels\. At the global level, it will help reduce net CO2 emissions\. At the local level, it will promote conservation by encouraging the use of: (i) renewable sources of energy; (ii) efficient lamps and improved cooking stoves; (iii) improved carbonization methods and improved wood fuel stoves\. It will also continue implementation of sustainable forest and natural resource management which will also reduce deforestation\. Revised Global Environment Objectives (as approved by original approving authority) Not applicable v (a) PDO Indicator(s) Original Target Actual Value Formally Values (from Achieved at Indicator Baseline Value Revised Target approval Completion or Values documents) Target Years Indicator 1: Increase in the number of households benefiting directly from electricity Value (quantitative 0 35,000 20,386 or qualitative) Date June 30, 2004 December 31, 2012 December 31, 2012 As indicated in the project credit agreement, the indicator refers to the number of households and productive users benefiting from electricity access through interventions from both the Comments (incl\. % World Bank and other donors\. By project closing date, 58% of the targeted connections were achievement) realized\. The target is, however expected to be achieved by the end of 2014 and exceeded as concessionaires committed in their concession contracts to reach 107,799 connections by 2030\. vi  Volume of annual sustainable wood fuel production for marketing in the urban and peri-urban Indicator 2: energy markets (tons of charcoal produced per year) Value (quantitative 0 60,000 65,817 or qualitative) Date January 1, 2005 December 31, 2008 December 31, 2008 Comments (incl\. % Original target exceeded (110%) achievement) Number of hectares brought under community-based sustainable management within the project Indicator 3 implementation zone Value (quantitative 0 230,000 289,116 or qualitative) Date January 1, 2005 December 31, 2008 December 31, 2008 Comments (incl\. % Original target exceeded (126%) achievement) Indicator 4 Number of improved carbonization units installed Value (quantitative 0 150 250 or qualitative) Date January 1, 2005 December 31, 2008 December 31, 2008 Comments (incl\. % Original target exceeded (167%) achievement) Indicator 5 Number of improved wood fuel stoves disseminated Value (quantitative 0 120,000 205,728 or qualitative) Date January 1, 2005 December 31, 2008 December 31, 2008 Comments (incl\. % Original target exceeded (171%) achievement) Indicator 6 Number of improved alternative fuel stoves disseminated Value (quantitative 0 30,000 14,740 49% or qualitative) Date January 1, 2005 Date January 1, 2005 Date The project promoted kerosene stoves but attained only 49% of the original target , mainly Comments (incl\. % because kerosene price increased dramatically, making it less competitive than stoves using achievement) LPG, which was subsidized\. Indicator 7 Total sustainable incremental revenue generation capacity among participating villages Value (quantitative 0 US$6 million/year US$14\.6 million/year or qualitative) Date January 1, 2005 December 31, 2008 December 31, 2008 Comments (incl\. % The original target was exceeded (244%)\. achievement) vii (b) GEO Indicator(s) Original Target Actual Value Formally Values (from Achieved at Indicator Baseline Value Revised Target approval Completion or Values documents) Target Years Reduce net CO2 emissions and promote conservation by encouraging use of renewable sources Indicator 1 of energy, efficient lamps and improved cookstoves, improved carbonization methods and improved wood fuel stoves Value (quantitative 0 8,000 tons of CO2 604,045 tons of CO2 or qualitative) Date June 30, 2004 December 31, 2012 December 31, 2012 The original target was exceeded\. The target value originally considered the CO2 reduction through renewable sources and energy efficient lamps\. The amount achieved is comprise of: (1) Comments (incl\. % 587,045 tons of CO2 through the reduction of deforestation, the use of 205,728 improved wood achievement) stoves, and 250 higher energy-efficient carbonization units; and (2) 17,000 tons of CO2 through the use of 105,768 CFLs and 1\.1 MW of solar PV systems\. (c) Intermediate Outcome Indicator(s) Original Target Actual Value Formally Values (from Achieved at Indicator Baseline Value Revised Target approval Completion or Values documents) Target Years Indicator 1: Awarding private concessions for the provision of electricity services in rural areas\. Six (06) private rural Six (6) private rural concessions awarded Value (quantitative concessions awarded, No rural concession awarded through financing or qualitative) including two from IDA from IDA/GEF and Credit and GEF Grant\. other donors\. Date 30-Jun-2004 December 31, 2012 December 31, 2012 Comments (incl\. % Original target achieved\. achievement) viii Indicator 2: Implementing Multi-Sectorial Energy Programs (PREMs)\. No Multi-Sectorial Energy 6 PREMs Value (quantitative 29 PREMS financed Programs (PREMs) as of end implemented in the 3 or qualitative) under IDA/GEF 2004\. IDA/GEF financed Date 30-Jun-2004 December 31, 2012 December 31, 2012 Under IDA/GEF financing, 28 health centers and an agro-business (pumping stations) were selected for connection\. The network is being constructed to connect the 29 selected PREMs\. Comments (incl\. % Other targeted IDA/GEF financed PREMs, for which the first tranche of funds was already achievement) disbursed are 39 schools\. For other donors and government funding (GVEP, AFD, GoS), targeted PREMs are 138 social infrastructures (schools and health centers), 26 productive uses (multi-functional platforms, micro-eco-tourism, agro-forestry product transformation, etc\.) Indicator 3 Supporting and implementing local initiatives (ERILs) for the provision of electricity services Value (quantitative No ERIL signed\. 40 ERILs signed 7 ERILs signed or qualitative) Date 30-Jun-2004 December 31, 2012 December 31, 2012 7 ERILs were signed\. Out of the 7; 3 were from Bank financing, 2, from KFW/GIZ, and 2 from Comments (incl\. % ASER (request for proposals)\. Fewer ERILs than expected were signed because of delays in achievement) approving the guidelines governing the ERILs\. Building preparation-implementation capacities for Rural Electrification Agency (ASER), Indicator 4 Electricity Sector Regulatory Commission (CRSE), Energy Ministry, Multi-sectorial committees and private sector Full autonomy of Capacity of ASER, CRSE, ASER, CRSE, Energy Ministry, Multisectoral ASER, CRSE, and Value (quantitative Ministry of Energy Committees and private sector MEM were able to or qualitative) and other institutions to implement the RE program implement the program to implement RE to be improved program Date 30-Jun-2004 December 31, 2012 December 31, 2012 Comments (incl\. % ASER, CRSE, and MEM were able to implement the program but delays were experienced\. achievement) They have, however, demonstrated autonomy in running the project\. Carrying studies and providing technical assistance to ASER and ERIL's sponsors; Carrying Indicator 5 project monitoring and evaluation and information and communication\. 5 concession contracts At least 3 concession were signed\. A sixth contracts signed; concession was No concessions contracts Local electrification awarded but not yet Value (quantitative signed\. Local electrification plans for Phase 2 of signed\. 6 local or qualitative) plans for phase not prepared, the APL finalized\. electrification plans and no monitoring in place Program monitoring in were finalized\. A M&E place mechanism was developed Date 30-Jun-2004 December 31, 2012 December 31, 2012 Comments (incl\. % The targets for concessions signed and M&E development were achieved\. 6 local electrification achievement) plans were developed, even though Phase 2 of the APL was dropped\. Implementation sustainable wood fuels supply and demand management and inter-fuel Indicator 6 substitution options Value (quantitative Not implemented Implemented Implemented or qualitative) ix Date 30-Jun-2004 December 31, 2008 December 31, 2008 Comments (incl\. % The component was fully implemented\. achievement) G\. Ratings of Project Performance in ISRs - Actual Disbursements Date ISR (USD millions) No\. DO GEO IP Archived Project 1 Project 2 1 06/15/2005 S S S 0\.00 0\.00 2 12/21/2005 S S S 3\.25 0\.19 3 06/30/2006 S S S 4\.19 0\.19 4 12/29/2006 S S S 5\.70 0\.19 5 06/18/2007 S S S 6\.88 0\.19 6 12/17/2007 MS MS MS 8\.12 0\.19 7 06/03/2008 MS MS MS 9\.56 0\.25 8 12/19/2008 MS MS MS 10\.62 0\.25 9 05/29/2009 MS MS MS 12\.49 0\.25 10 12/18/2009 MS MS MS 12\.61 0\.25 11 06/27/2010 MS MS MS 12\.66 0\.29 12 03/28/2011 MS MS MU 12\.71 0\.33 13 04/01/2012 MU MU MU 13\.67 0\.37 14 01/15/2013 MS MS MS 16\.14 0\.82 H\. Restructuring (if any) Amount Disbursed at ISR Ratings at Board Approved Restructuring in Reason for Restructuring Restructuring USD millions Restructuring & Key Date(s) PDO GEO Changes Made DO GEO IP Project1 Project 2 Change Change 06/30/2009 MS MS 12\.49 Closing date extension Partial credit 12/17/2012 MS MS 16\.14 cancellation x I\. Disbursement Profile P085708 P070530 xi 1\. Project Context, Development and Global Environment Objectives Design 1\.1 Context at Appraisal Country background 1\. During project preparation, Senegal’s economy was growing steadily but with unequal poverty reduction impacts in urban and rural areas\. Compared to an average growth rate of 6 percent in the rest of Sub-Saharan Africa (SSA), growth in Senegal averaged 4 percent between 2000 and 2005\. However, the impact of the economic growth was inequitable\. Significant gaps existed between rural and urban Senegal in terms of income, education, health, and access to modern services\. Poverty incidence ranged from 44 to 59 percent of the population in urban areas but was higher in rural areas, varying from 72 to 88 percent\. Sector background 2\. Electricity access was low in rural areas and unreliable in urban areas\. Less than 4 percent of Senegal’s villages were estimated to have electricity, and in the electrified villages, less than 30 percent of households have electricity connections\. An electricity network was mainly available in the capital city, Dakar, and four urban centers: St-Louis, Kaolack, Ziguinchor and Tambacounda\. But supply in these cities was sometimes interrupted during peak demand periods, as the low installed power capacity, running mostly on costly imported fuel, was struggling to meet the electricity demand growing at a pace of 25 – 30 MW a year\. 3\. Recognizing the electricity access challenges and limited financing, the Government of Senegal (GoS) pursued reforms to promote private sector participation\. The foundation of these reforms rests on the 1998 Electricity Law (98-29), which provided the sector legal, regulatory, and institutional framework\. The law promotes private sector involvement in electricity generation and distribution through delivery of concessions and licenses under the oversight of an independent electricity sector regulator, established later as the Commission de Régulation du Secteur de l’Electricité (CRSE)\. The law also calls for scaling up rural electrification by transferring responsibility to service rural areas from SENELEC - the national power utility who used to have a monopoly in electricity generation, transmission, and distribution - to a dedicated rural electrification agency, set up in 1999 as the Agence Sénégalaise d’Electrification Rurale (ASER)\. 4\. The government’s commitment to rural electrification was later reinforced in the 2004 Rural Electrification Development Policy Letter\. The policy letter sets a target to increase rural electrification rate to 30 percent by 2015 and clarified ASER’s operating mechanisms\. Two main mechanisms for involving the private sector in rural electricity generation and distribution were identified: large-scale concessions and locally sponsored electrification initiatives, known as ERIL (Electrification Rurale par Initiatives Locales) or smaller concessions\. To facilitate the implementation of concessions, the country was divided in 18 geographical areas, corresponding to 18 large-scale concessions\. 1 5\. In the energy-for-cooking subsector, wood fuel harvest for charcoal production was unsustainable, despite encouraging results from community-based forest management\. The World Bank-financed Sustainable and Participatory Energy Management Project, known as PROGEDE I, effective since 1997, was being implemented and nearing completion\. The project had successfully initiated community- based forest management practices to reduce widespread rural wood fuel exploitation for charcoal production and sales by urban-based traders\. It closed in December 2004 with a highly satisfactory rating\. Rationale for Bank involvement 6\. The main rationale for the Bank’s involvement was to bring international experience and trust to set up a public-private partnership framework for providing electricity services to rural areas\. Given the government’s two unsuccessful attempts to privatize SENELEC in 2000 and 2002, and its strategy to implement concessions in rural areas, the involvement of the Bank, as an “honest brokerâ€?, was thought to be critical to establishing a framework that could leverage investments from the private sector and multilateral/bilateral development agencies\. The project was the first of its kind that helped pioneer the public –private sector partnerships in the delivery rural electrification services in Sub Saharan countries\. 7\. The project contributed to achieving the 2003 Country Assistance Strategy (CAS)’s third objective: to improve living conditions among the poor and vulnerable groups\. It sought to increase access to electricity services in rural areas, support productive uses for income generation, and scale up community-based wood fuel management, which constituted a means for improving the living conditions of the poor\. The project’s focus on involving private operators also contributed to developing a private market and associated employment sector, thereby facilitating wealth creation, another strategic pillar of the CAS\. 1\.2 Original Project Development Objectives (PDO) and Key Indicators (as approved) 8\. The project's development objective is to increase the access of Senegal's rural population to modern energy services and to ensure the environmental and social sustainability of wood fuels in urban and peri-urban areas\. 9\. The key project development objective indicators, as presented in the credit agreement, covered not only IDA/GEF financing but also other participating donors\. The indicators are: 2 Outcome indicators Target Comments / units Increase in the number of households benefiting 35,000 The 35,000 connections are broken directly from electricity down as follow: IDA/GEF 16,000 (concessions) Other donors 14,000 (concessions) ERILs 5,000 (all donors) Total 35,000 Volume of annual sustainable wood fuel production 60,000 tons of charcoal per year capacity for marketing in the urban and peri-urban energy markets Number of hectares brought under community-based 230,000 hectares sustainable management systems within the project implementation zone Number of improved carbonization units installed 150 carbonization units Number of improved wood fuels stoves 120,000 wood fuel stoves disseminated Number of improved alternatives fuel stoves 30,000 alternative fuel stoves disseminated Total sustainable incremental revenue generation US$6 million per year capacity among participating villages 10\. The outcome indicator target for electricity access (35,000 connections) includes connections to be achieved through parallel financing\. The original financing plan of the project involves IDA/GEF financing and parallel financing from other donors and the GoS\. The parallel financing was to materialize through separate financing agreements between other donors and ASER\. At appraisal, the African Development Bank (AfDB) and KFW/GIZ confirmed parallel financing\. Other parallel financing was expected from the French Development Agency (AFD) and the European Union\. The GoS was also expected to not only provide counterpart financing but also parallel financing in a form of budget for programmatic village electrification\. 11\. The project was designed as the first of a three-phase adaptable program, whose objective was to support the transformation and improvement in the living conditions of rural Senegal by: (i) providing lighting and access to modern communication to rural households, (ii) improving delivery of social services by providing electricity to potable water delivery systems, health clinics, schools, etc\., and (iii) enhancing economic productivity through the provision of electricity for productive purposes\. Moving from the project (phase 1 or APL1) to subsequent phases (APL2 and APL3) was subject to a number of conditions including timely completion of the concessions\. Because the project (phase 1)’s implementation was delayed and the number of concessions was later reduced from 18 to 10, the subsequent phases were dropped\. It should, however, be noted that the project (phase 1) is being followed up by a technical assistance operation under the Sustainable Energy for All initiative\. 3 12\. For this ICR, the analysis and evaluation will be conducted against the development objective of the project (phase 1 of the program or APL1)\. 1\.3 Original Global Environment Objectives (GEO) and Key Indicators (as approved) 13\. The program will have a positive environmental impact at the global and local levels\. At the global level, it will help reduce net CO2 emissions\. At the local level, it will promote conservation by encouraging the use of: (i) renewable sources of energy; (ii) efficient lamps and improved cooking stoves; (iii) improved carbonization methods and improved wood fuel stoves\. It will also continue implementation of sustainable forest and natural resource management that will also reduce deforestation\. 14\. Although no GEO indicators were explicitly included in the GEF Trust Fund Agreement, the results framework indicates the following key GEO indicator: ï‚ Net CO2 emissions reduction and conservation promotion by encouraging the use of renewable sources of energy, efficient lamps and improved cookstoves, improved carbonization methods, and improved wood fuel stoves\. The indicator target is 8,000 tons of CO2 emissions reduced\. 1\.4 Revised PDO (as approved by original approving authority) and Key Indicators, and reasons/justification 15\. The project development objective was not revised\. 1\.5 Revised GEO (as approved by original approving authority) and Key Indicators, and reasons/justification 16\. The global environment objective was not revised\. 1\.6 Main Beneficiaries 17\. The project’s main expected beneficiaries, grouped by intervention areas, were: Rural electrification (Component 1, 2, and 3) ï‚ Households, small businesses, health centers, and schools located in the three concessions areas financed by IDA ((i) Dagana-Podor-St-Louis, (ii) Mbour, (iii) Kolda-Velingara): would gain access to on-grid and off-grid electricity, supplied by private operators that will be awarded large or small-scale (ERIL) concessions ï‚ ASER: would be provided with four new staff, training, information technology equipment, vehicles, and technical assistance in a number of activities including the development of local electrification plans, multi-sectorial energy programs (PREMs), monitoring & evaluation system and the implementation of a communication and education plan\. ï‚ CRSE: would receive support for study tours to countries with relevant regulatory experience and for participation in regional and international regulatory forums\. It 4  was also expected to receive assistance in carrying out studies on specific rural electrification regulatory aspects\. ï‚ The Ministry of Energy and Mines (MEM): would receive support for training and workshop participation or organization and technical assistance in conducting specific studies\. Sustainable and participatory wood fuels management (PROGEDE transition component: component 4) ï‚ 100 village-level communities in the Sedhiou, Bakel, and Kedougou sub-regions would receive small tools and field equipment to put 230,000 ha of forest under sustainable community-based management\. They would benefit from the proceeds of fuel wood, charcoal sales, and other income-generating activities supported by the project\. ï‚ Forest services covering the 100 villages, where community-based forest management will be practiced, would receive office and field equipment to support the communities in their activities (carbonization units, agro-forestry enterprises, fuel wood markets) ï‚ Energy Directorate and Forestry Directorate: both would receive office supplies including computers and energy database software (household cooking energy data, forestry data)\. 1\.7 Original Components (as approved) 18\. The project comprises four components: Three of the four components support rural electrification and the fourth component supports sustainable access to wood fuels for cooking\. Component 1 - Financing of investments (IDA: US$16\.25 million; GEF: US$3\.6 million) 19\. The component was to provide output-based capital subsidies, refinancing and guarantees to support both rural electrification, and multi-sectorial energy sub-projects (promoting productive uses of electricity) in three rural concession areas - Dagana-Podor, Mbour, and Kolda-Velingara\. Providing capital subsidies was deemed necessary to ensure sustainability of rural electrification\. The component was also to finance the preparation of rural electrification proposals from community-based organizations\. Component 2 - Capacity development and institutional strengthening (IDA: US$2\.55 million; GEF: US$0\.4 million) 20\. The component was to strengthen the capacities of institutions involved in the implementation of the project to enable them to play their role efficiently\. It was to provide training and technical assistance to ASER (including the administration of the Rural Electrification Fund), CRSE, MEM, and a Multi-Sectorial Committee in charge of promoting productive uses of electricity\. 5 Component 3 – Implementation, Communication, Monitoring & Evaluation (IDA: US$2\.25 million; GEF: US$0\.55 million) 21\. The component was to support productive and social uses of electrification, local electrification initiatives, outreach and monitoring\. The support was to cover: ï‚ Establishment of a committee responsible for promoting productive uses of electricity in the three rural areas to be electrified (CIMES); and preparation and implementation of productive uses activities\. ï‚ Preparation of community-based electrification initiatives and piloting some of the prepared initiatives\. ï‚ Information, education, and communication campaigns on the rural electrification project ï‚ Monitoring and evaluation activities including auditing and reporting Component 4 – Sustainable Wood Fuel Supply Management, Demand Management and Inter-fuel Substitution Options (IDA: US$4\.1 million) 22\. The component, known as PROGEDE transition phase, was to support supply and demand-side interventions to improve access to sustainable wood fuels for cooking\. On the supply side, the component was to finance activities to consolidate gains from the PROGEDE I, such as (i) community-based management of 230,000 ha of forest in the Sedhiou, Bakel and Kedougou departments, and (ii) acquisition of small tools, field and office equipment, and other materials for the rural communities, the regional offices of the Forest Service/Directorate, and agro-forestry enterprises\. On the demand side, the component was to provide technical assistance and office equipment for the Directorate of Energy and the Directorate of Water and Forests, as well as finance selected studies; demonstration pilots (i\.e\. charcoal briquettes, biofuels, etc\.); interfuel substitution; and publicity/communication services for the promotion of improved cookstoves\. 1\.8 Revised Components 23\. Although the number and headings of the project components were unchanged, the first and fourth components’ scope was slightly modified, following the mid-term review: ï‚ Component 1: two sub-components were added\. The first to finance in-house electrical wiring, meters, and other equipment necessary to connect new rural customers to power grid recently constructed through the government emergency rural electrification program\. The second to finance small diesel generators and transformers to provide back up\. The additions were requested by the Government to address pressing demands for electricity given delays in the concessions implementation\. About US$1\.25 million was reallocated to finance the additions\. ï‚ Component 4: the component’s closing date (initially December 2007) was extended to continue the consolidation of community-based forest management activities until the preparation of a separate PROGEDE II project\. US$ 2\.7 million were reallocated to the component\. 1\.9 Other significant changes 6 24\. The project was restructured twice\. The first restructuring extended the project closing date for three and a half years, from June 30, 2009, to December 31, 2012 to account for delays in awarding rural concessions\. The second restructuring cancelled SDR 6\.4 million from the original credit and changed the delivery of output-based subsidies to improve disbursement\. The partial cancellation was done as part of a comprehensive performance improvement plan developed after change of project supervision leadership\. It was informed by both implementation progress on the ground and detailed disbursement forecasts that considered concessionaires' investment schedules\. The cancellation allowed the reallocation of predicted undisbursed funds to the energy sector financing in Senegal\. 2\. Key Factors Affecting Implementation and Outcomes 2\.1 Project Preparation, Design and Quality at Entry 25\. The project was prepared based on a comprehensive background analysis involving different stakeholders\. Over 15 studies were conducted mainly to inform the design of the concession approach\. The studies included, among others, the definition of the geographic limits of rural concession areas, the development of electrification plans for three concession areas to provide private operators with background information for bid preparation, the preparation of concession award procedures, the design of the rural electrification fund, and the analysis of international and local private sector’s interest in the concession approach\. Emphasis was put on the design of the large-scale concessions with the consideration that small-scale concessions constitute short-term mechanisms to address electrification needs in villages that were not in the large-scale concession’s electrification priority plan for the first three years\. Small-scale concessions were to be later transferred under the management of large-scale concessions owners\. The studies’ findings were shared and discussed through workshops with key government agencies (ASER, MEM, and CRSE) and multilateral and bilateral development agencies including the AfDB, KFW, GTZ, and AFD\. 26\. The project was the first ever large-scale electricity concession project in rural areas, financed by the Bank in Sub-Saharan Africa, and its design incorporated innovative features and lessons learned\. The rural electrification approach based on concessions was the first ever public-private partnership model to be implemented in rural areas in Senegal\. The rationale for its adoption lies on the strong need for complementing limited funding from the government and development agencies with significant investments from the private sector, and on the private sector’s greater capacity and expertise to ensure cost-effectiveness in rural electrification and operate and maintain the network\. The government and donors’ funding was provided as subsidies tied to the concession bidding process, making it an output-based delivery of investment subsidies\. The design of the output-based scheme was informed by lessons that pointed out that investment subsidies to private sector are more effective when they are provided based on service output\. The project also included a subcomponent, known as PREMs, to 7 promote productive and social uses of electricity, reflecting lessons learned from impacts assessments of rural electrification programs that revealed the importance of complementing rural electrification programs with multi-sector measures to increase income, and thereby contributing to ensure financial viability of rural electrification\. 27\. The government’s commitment to the project’s concession-based approach was adequate overall\. During the project preparation, the government divided rural areas into 18 geographic areas to facilitate the implementation of rural concessions\. It continued to provide ASER with an operating budget and fulfilled conditions required to establish the rural electrification fund\. The government reiterated its commitment to the concession approach in the Rural Electrification Development Policy Letter, issued in July 2004, and signed by both the Minister of Energy and Mines and the Minister of Economy and Finance\. The letter confirms the adoption of both large-scale and small-scale concession approaches, establishes a rural electrification fund as the main financing mechanism, and separates the geographic service areas of ASER from that of SENELEC\. The letter sets out the government’s plan to pursue an emergency rural electrification program to help increase the rural electrification rate to 62 percent by 2022 from 12\.5 percent in 2003\. It also authorizes SENELEC to create a separate subsidiary utility that is allowed to compete with international private operators for concessions\. 28\. Although the project rightly identified a number of risks, some were overlooked\. International and local private sector’s interest in rural concessions was rated high and the implementation of the proposed mitigation measure—extensive consultations with potential private operators—successfully addressed the risk\. In contrast, ASER’s capacity to implement the project and CRSE’s capacity to regulate private operator interventions were rightly rated high\. However, the mitigation measure—ensure that key institution- building elements for ASER and CRSE are in place during the project—lacked specifics\. Also, two risks were overlooked\. The first is failure from SENELEC to cooperate in the concession award process\. Though SENELEC was not an implementing agency, its agreement to let private operators extend its medium voltage network to connect rural households was required at the concession contract negotiation stage\. Also, SENELEC did not react well to the end of its monopoly in rural areas, making it reluctant to engage in the rural electrification project\. Not accounting for SENELEC’s engagement risk contributed to implementation delays\. The second risk is the inability of various stakeholders to work in a collaborative manner leading to timely decision-making\. Key inputs in the concession award were provided by not only ASER, CRSE, and SENELEC, but also MEM, MEF’s procurement control unit, and private operators\. Such multiple interventions raise coordination and collaboration challenges that should have been considered in the risk analysis\. In sum, given the innovative nature of the project, the risk analysis should have been more comprehensive and the mitigation measures should have provided for a longer implementation timeframe\. 2\.2 Implementation 8 29\. The project implementation was significantly delayed as the time for concession awards and putting in place the appropriate regulatory framework was greatly underestimated\. Award of the first concession took three years, instead of one year as initially planned\. Award of the second and third concessions also took longer, due to an unsuccessful first biding\. After the first concession award, approving service regulations, which govern electricity delivery to consumers including tariffs, metering, and service quality aspects took 22 months\. Also, the implementation of the ERIL component (small- scale concession) was delayed for about two years\. 30\. The delays were caused by a combination of factors including the innovative nature of the project, stakeholders’ reluctance to compromise, and ASER’s stretched implementation capacity\. The innovative and untested nature of the project gave rise to implementation challenges\. Procuring a rural concession was a first time experience for government agencies and the World Bank supervision team\. Therefore, thorough and lengthy reviews involving ASER, CRSE, MEM, MEF’s procurement control unit, and the WB were conducted to short list the firms and to evaluate the technical and financial bids\. SENELEC had to approve, for the first time, unfamiliar proposals of least-cost electrification techniques (smaller section of wires, lighter electricity poles, Single Wire Earth Return - SWER) from private operators\. Approving, for instance, the SWER technique, required a study tour in Tunisia\. CRSE, who used to regulate only on urban electricity production and distribution, lacked sample models for rural electrification, and had to develop them\. 31\. Stakeholders’ reluctance to compromise exacerbated delays\. Collaboration weakened as implementation difficulties arose\. For instance, ASER, and CRSE, hosted in the same building, had to go through the MEM to communicate and hold meetings\. SENELEC held strong resistance against least-cost electrification proposals, taking, for example, six months to approve simplified standards proposed by the first concessionaire\. MEM’s commitment also weakened\. It took two years to approve and issue procedures guiding subsidy provision to promoters of small-scale electrification initiatives, which delayed the implementation of the ERIL sub-component\. MEM’s weakened commitment was mainly due to its greater focus to urban electricity issues, with the 2009-2011 electricity sector crises, which increased in intensity in 2010-2011, causing widespread load shedding in urban areas\. 32\. The implementation of the government-funded emergency rural electrification program distracted ASER from the concession approach and contributed to deterioration in its financial health and institutional efficiency\. From 2002 to 2009, ASER had been receiving government funding through agreements to electrify about 560 villages, known as the emergency rural electrification program\. The program’s implementation did not follow Bank fiduciary procedures1, but was however, considered as a complement to the 1 Bank fiduciary procedures were applicable to IDA/GEF financing stipulated in the credit agreement\. Separate co-financing agreements were signed between other donors and ASER\. Also, MEM and ASER have agreements for implementing the emergency rural electrification program\. 9 World Bank-financed project2\. Mismanagement occurred in the use of the government’s budget for the emergency rural electrification program (Bank financing was not affected)\. A number of villages were electrified without appropriate government budget, and not following national procurement guidelines, leading to ASER’s annual operating expenses exceeding the government funding\. This led to ASER’s debts amounting to 1\.3 billion CFA (about US$ 2\.6 million)\. On the organizational side, since project effectiveness, ASER’s staff has more than doubled - from 30 to 82 staff members – with recruitment not related to the achievement of its mission\. ASER’s management has changed three times\. Beyond the negative financial, organizational, and reputational impact, implementing the emergency rural electrification program has distracted ASER focus from the concession activities\. 33\. The recent management change at ASER and MEM has brought positive developments in the project implementation\. Following the March 2012 elections, new management was appointed at ASER and MEM\. The new government reiterated rural electrification as one of the top energy sector priorities\. MEM has, since, demonstrated strong leadership\. It set up timelines for stakeholders to reach compromises, speeding up implementation\. For instance, under MEM’s oversight, CRSE and ONE, the first concessionaire, agreed on the service regulation terms, that were initiated in 2011\. MEM also approved and issued the ERIL procedures and guidelines, prepared by ASER and CRSE\. MEM requested the review of the number of years that private operators should guarantee their investments and the request was addressed in 3 weeks\. It has been proactive in addressing requests from ASER to accelerate implementation, and is monitoring closely implementation progress with regular meetings with involved stakeholders, which facilitates collaboration and problem solving\. ASER’s new management is making efforts to improve the agency’s financial health and efficiency\. A financial recovery and internal re-organization plan, prepared by an independent consulting firm, is being finalized\. 2\.3 Monitoring and Evaluation (M&E) Design, Implementation and Utilization 34\. M&E design: The project’s M&E system consisted of various platforms including Excel-based database and geographic information system (GIS)\. The Excel-based database integrates the results framework indicators and M&E guidance that were defined at project appraisal, as well as information collected through baseline surveys and post surveys of electrified villages\. The GIS incorporates socio-economic data on villages and is used to map out transmission and distribution lines as they are constructed\. The M&E system was enhanced with Bank financing to consolidate existing M&E platforms into one system and make it web-based and more user-friendly\. ASER led the M&E system modernization in a participative manner, incorporating inputs from a task force made up of representatives from ASER, CRSE, Department of Electricity, planning division of MEM, CIMES (multi-sectorial committee), and GIZ\. The M&E enhancement was delayed by: (i) slow approval of the M&E operational plan by the World Bank 2 The Bank financed in-house wiring for 2,639 households, enabling their connection to grid constructed under the emergency rural electrification program\. Also the project appraisal document indicates that the government was expected to contribute to the project through parallel co-financing\. 10 (about 6 months3), (ii) replacement of the first recruited M&E consultant who passed away, and (iii) integration of gender and emissions reduction aspects that were not initially planned\. 35\. M&E implementation: The enhanced M&E system includes a result framework anchored by 50 indicators at different levels - inputs, outputs, outcomes, and development objective – and appropriate for monitoring progress towards the project and environment development objective\. For each indicator, means of verification, assumptions & risks, data collection methods, and institutional responsibility are defined\. The M&E system goes beyond the PDO to track rural electrification impacts on economic and social development as well as on achieving MDGs\. It is being set up, which involves upgrading the former M&E and linking the GIS platform to the recently developed version\. After completing the M&E upgrade, ASER plans to link it to data platforms from concessionaires and SENELEC, providing a real-time M&E platform capable to provide data on the project’s outputs and outcomes\. 36\. M&E utilization: The former M&E system was used to monitor the project and the enhanced system will be the primary M&E tool moving forward\. ASER used Excel spreadsheets to monitor progress against indicator targets and prepare progress reports and action plans for accelerated implementation\. With the GIS, ASER captured progress in network construction, household connections, and new socio-economic infrastructure\. Moving forward, the upgraded M&E system will constitute the main tool for monitoring carbon reduction, under the Emission Reduction Purchase Agreement signed with the World Bank-Carbon Finance\. The system will also provide ASER with a monitoring and impact assessment tool that will inform the government’s overall M&E system put in place to monitor progress towards targets set in the 2012 Energy Sector Development Policy Letter\. 2\.4 Safeguard and Fiduciary Compliance 37\. Safeguards: Project implementation complied with safeguards requirements despite minor shortcomings\. The Bank supervision team lacked a Safeguards Specialist during the first four implementation years\. This did not however impact safeguards compliance as no concessions were officially awarded during that period and ASER’s Director of Studies and Information Systems, who is a trained social and environmental specialist, has been handling safeguards aspects\. Since 2009, supervision missions included a WB Safeguards Specialist who delivered on-the-ground training to ASER staff and monitored safeguard aspects\. ASER, with World Bank assistance, successfully conducted public consultations and supported concessionaires in preparing environmental & social management plans (ESMP)\. ONE included environmental and social clauses in contracts with contractors\. ASER attempted to develop a guidance note on the preparation and implementation of ESMPs, and to hire an Environmental and Social 3 World Bank supervision team was heavily involved in assisting the government to address the severe electricity crisis striking urban centers\. This affected prompt response to no-objection requests\. 11 Specialist, but has lacked sufficient budget\. These are however planned under the ongoing organizational restructuring\. 38\. Financial management: A comprehensive assessment of ASER’s financial management capacities was conducted at project preparation and led to enhancements by project effectiveness\. ASER maintained financial management satisfactorily the first two project implementation years\. But, since 2008, financial management has deteriorated with difficulties in mobilizing timely government co-financing and insufficient government budget\. ASER had been using IDA financing to pre-finance services, goods and works that should have been funded by the government co-financing (US$50,000 in 2011)\. It also used IDA financing to pre-finance its operating expenses (US$164,000 in 2011), despite World Bank advance warning not to\. ASER had, however, regularly reimbursed ineligible expenses\. Another issue was ASER’s weak internal control mechanisms for the government budget, which is being addressed as part of the financial recovery and internal re-organization plan\. 39\. It should be noted that the 2010 Quality Assessment of Lending Portfolio (QALP) indicated that financial management should have been rated unsatisfactory\. The ICR team acknowledges the seriousness of financial management issues, but suggests a balanced assessment, taking into consideration financial management improvements\. Project’s accounting was regularly updated; interim financial reports were submitted on time and their quality was satisfactory; and the financial recovery and internal re-organization plan is being implemented\. 40\. Procurement: Although procurement complied with Bank requirements, it was significantly delayed\. Procuring the first concession financed by the Bank took about three years due to: (i) high learning curve – first time for all involved stakeholders – for firms short listing and bids evaluation; (ii) slow approval from the Ministry of Economy and Finance; and (iii) lengthy negotiations between SENELEC and pre-selected operators over technical network standards\. Also the procurement of the second and third concessions were delayed by unsuccessful first bids and had to be re-launched\. ASER’s project procurement staff was also involved in procuring works and services under the government-funded emergency rural electrification program\. 2\.5 Post-completion Operation/Next Phase 41\. The experience gained has paved the way for an accelerated implementation and completion of the rural concessions\. Despite the delays, six concessions, as initially planned, were awarded to international private operators, who constructed on-grid and mini-grid networks covering 186 villages\. With the recent approval of electricity service regulations, one operator, ONE, is ramping up in-house wiring and meter installation to connect 8,836 households starting in August 2013\. The approved regulations were applied to two World Bank-financed concessions, and will be applicable to the remaining four awarded concessions, saving considerable time\. Also, least-cost electrification techniques are now well accepted by SENELEC, which will avoid delays in negotiating 12 the remaining four concessions not yet financed\. The ERILs assistance guidelines and procedures have been issued and will facilitate the acceleration of the sub-component\. 42\. Besides the network construction and regulatory gains, MEM is monitoring the project closely\. The Minister of Energy and Mines’ cabinet is setting up a coordination committee, under his leadership, and comprising the heads of ASER, CRSE, and SENELEC\. The committee will meet monthly or as needed, to discuss emerging issues and work out solutions\. This will provide a platform to quickly address emerging issues and facilitate the operationalization of the concessions\. 43\. The project continues to be financed by a number of multi-lateral and bilateral development agencies, including AfDB, KfW, AFD and the European Union\. The European Union extended its financing closing date for two years and planned to scale up the scope of their activities in rural electrification in Senegal\. The AfDB also plans to grant a closing date extension\. KFW envisions scaling up its support in the ERIL component\. 44\. Moving forward, the World Bank is providing technical assistance to strengthen rural electrification operations and plans\. Under the Sustainable Energy for All initiative, funding was mobilized to assist ASER in a number of areas including: (i) improvement of ASER’s financial health and operational efficiency through the implementation of the financial recovery and reorganization plan, and (ii) planning for universal energy access by 2030, through the development of local electrification plans for two concessions areas lacking financing, and the preparation of long-term energy access plans along with an investment prospectus to facilitate leveraging financing\. The Bank will consider a new IDA operation once the management and performance of ASER has been strengthened\. 3\. Assessment of Outcomes 3\.1 Relevance of Objectives, Design and Implementation 45\. The project’s objective, design and implementation are highly relevant to current country and global priorities and to the Bank’s FY2013-2017 Country Partnership Strategy\. 46\. Relevance of design: The project’s approach and implementation arrangements build on the regulatory and institutional framework provided in the Electricity Law (98- 24)\. Considering the law’s provision to increase electricity access through delivery of concessions to private operators and the need for complementing limited funding from donors and the government with capital from the private sector, the project opted to provide investment subsidies to attract private operators to invest in designed concession areas\. The components for implementing the concessions were well designed, based on comprehensive studies and thorough analysis of private sector interest involving extensive consultations with international and local private sector as well as bilateral development agencies\. Instead of establishing a separate, external unit to implement rural 13 electrification activities, the project gave implementing responsibilities to ASER, which was mandated by the Electricity Law to promote rural electrification with regulatory inputs from CRSE, and included capacity building and institutional strengthening activities\. This allowed trained staff to remain in place after project end, sustaining capacity enhancements\. 47\. Relevance of objective and design to country priorities: The project’s objective to increase access to electricity and sustainable cooking fuels for rural population remains a priority for the government\. The October 2012 Energy Sector Development Policy Letter, issued by the President, sets the objective to ensure sustainable supply of household cooking fuels-which was part of the project objective-and set the target of 50 percent of rural electrification rate by 2017, which builds on the project objective to increase electricity access\. To reach the objective and target, the letter calls for expanding community-based forest management systems and addressing constraints that led to delays in implementing the project-designed concessions, highlighting the relevance of the project’s approach to both community-based forest management and rural concessions\. The policy letter’s action plan consistently includes activities to increase forest areas under community-based sustainable management and complete the implementation of concessions awarded through the project\. 48\. Relevance of objective and design to global priorities: The project-initiated public- private partnership to dramatically increase rural electricity access contributes to achieving Senegal’s universal energy access by 2030, one of the three goals of the Sustainable Energy for All, a global initiative launched in September 2011 by the UN Secretary General, and strongly supported by the World Bank Group, whose President now co-chaired the initiative’s high-level Advisory Group\. As part of the World Bank Group’s commitment to the initiative, the Bank’s Energy Sector Management Assistance Program (ESMAP) has set up a Sustainable Energy for All Facility that provide resources to World Bank regional energy units to assist selected countries-including Senegal-to move towards universal energy access by 2030\. 49\. Relevance of objective and design to Bank partnership strategy: The project’s increased rural electricity access objective is one of the expected outcomes (outcome 9B) from the Bank’s FY2013-2017 Country Partnership Strategy, under the first pillar – accelerating growth and generating employment\. The Bank strategy mentions support for both sustainable management of household cooking fuels, which was facilitated by the project’s PROGEDE transition component, and for rural electrification through assistance from the Sustainable Energy for All\. The assistance has been launched and builds on the project’s concession approach and results to assess remaining gaps towards universal rural electricity access, and develop an investment prospectus\. The project’s objective and design, therefore, provides a strong basis upon which current lending and assistance is provided, which indicates its relevance to Bank strategy and interventions\. 50\. Relevance of implementation: Project implementation responded to changing circumstances\. Acknowledging delays in awarding and implementing concessions, the Bank restructured the project component 1 to finance in-house wiring and meter 14 installation, allowing thousands of households to be connected to electricity network constructed with the government parallel financing\. The Bank also changed project supervision leadership to enable closer monitoring and guidance\. A second restructuring changed the investment subsidy delivery mechanisms, and contributed to increased disbursement and accelerated implementation\. Besides, the inclusion of the PROGEDE transition phase component was a sound strategic move that responded to government’s needs and enabled it to continue key successful activities, maintaining momentum generated by the PROGEDE I till the preparation of a separate investment lending operation (PROGEDE II)\. The project also showed responsiveness in reallocating proceeds to provide an additional US$2\.7 million to implement remaining activities and consolidate the achievements of PROGEDE I\. 3\.2 Achievement of Project Development Objectives and Global Environment Objectives 51\. This section analyses the project’s overall efficacy by breaking down the development objective in two parts (PDO – (a) and PDO – (b)) and evaluating the GEF objective separately\. The analysis revealed an overall moderately satisfactory achievement of development and GEF objectives\. PDO – (a) to increase the access of Senegal's rural population to modern energy services 52\. Outcome: 20,386 households, productive and social users gained access to electricity by project closing; below the initial target of 35,000 households to be reached through financing from all donors including the GoS, as presented in the credit agreement\. Out of the 20,386 connections: ï‚ 16,089 households and productive users gained electricity access through the implementation of the government of Senegal’s emergency rural electrification program (which is similar to the ERIL approach) by ASER ï‚ 2,639 households gained electricity access with World Bank financing in-house wiring and meters acquisition and installation to enable connection to electricity network constructed under the Government-funded emergency program\. ï‚ 1,503 households and productive users received electricity connections through a the implementation of a small-scale concession (ERIL) financed by KFW/GIZ that enabled the installation of solar home systems (SHS) and the construction of hybrid (diesel-solar) power plants and mini grids in 73 villages\. ï‚ 131 households and community facilities gained electricity through three small- scale concessions (ERIL) financed jointly by the World Bank and the Netherlands cooperation\. ï‚ 24 solar home systems where installed as part of tests in a large-scale concession financed by the AFD 53\. Outputs from the Bank and Co-financiers: Excluding the GoS-supported emergency program, the project led to 6 awarded concessions—as initially targeted— resulting in the construction of a network covering 186 villages by the closing date (please see more details in Table 1)\. The village breakdown by source of financing is: 15  ï‚ 66 villages through the first Bank-financed concession\. The concessionaire, ONE, rapidly expanded the network construction, covering 116 villages by April 2013\. During the ICR mission, ONE was installing first solar homes systems (SHS) through the concession approach, and successfully tested the operation of public lighting in 9 villages\. The second Bank-financed concession was recently awarded to STEG, the Tunisian power utility, and network construction has not yet begun\. ï‚ 47 villages through the AfDB-financed concession ï‚ 73 villages through KFW/GIZ-supported ERIL Table 1: Outputs from the Bank and Co-financiers Financing source Approach Outputs (amount) World Bank Concession Network covering 66 villages by December 2012: 88 km of (US$21\.16 M) transmission line, 184 km of distribution line, and 57 transformer sub-stations constructed By April 2013, network covered 116 villages; public lighting available in 9 villages 2 concessions awarded to ONE, and STEG Transmission line being constructed to connect 28 health centers and pumping stations for an agro-business (PREM) ERIL (small 131 SHS installed concession) 10 micro-power plants (10-25 kW) being constructed African Concession Network covering 47 villages: 32 km of transmission line, 59 Development km of distribution line, and 35 sub-stations Bank Concession awarded to ONE (US$14\.27 M) KFW/GIZ Concession Concession awarded\. Construction has not yet started (US$6\.84 M) ERIL Hybrid (diesel-solar) power plants constructed with network covering 73 villages 1503 connections realized AFD Concession 24 SHS installed (US$10\.10 M) Network construction has not yet begun Concession awarded European Union Concession Concession recently awarded (US$10\.60 M) 54\. Expected outcome: The project’s initial access target is, however, expected to be exceeded\. The private operators that were awarded the six concessions and three small- scale concessions (ERIL) committed in their concession contracts to provide electricity to 107,799 customers\. ICR ratings are based on the number of 20,386 customers that were connected by project close\. However, the 35,000 connections target is expected to be reached by December 31, 2014 and over 100,000 customers are expected to be connected by 2030\. Table 2: connection commitments in the concession contracts 16 Concessionaire Concession Source of Connection commitments in the concession area financing contracts ONE Dagana - IDA - 14,885* on-grid/mini connections Podor-Saint GEF 5719 SHS Louis 28 health clinics and 1 agro-business STEG Mbour IDA – 9,700 on-grid connections GEF ONE Louga- AfDB 9,974 on-grid connections\. 1852 SHS Kébemer- Linguère ISOFOTON Fatick-Gossas- KfW/GIZ 27,000 connections Kaolack-Nioro EDF Kaffrine- AFD 18001 household connections Tambacounda- 61 heath centers and schools Kedougou ISOFOTON Kolda- European 20,500 connections Vélingara Union / 78 schools, health centers, and SMEs GoS TOTAL 107,799 connections * : The 14,885 connections include 1,000 connections through ERIL that will be transferred in the concessions\. PDO – (b) and to ensure the environmental and social sustainability of wood fuels in urban and peri-urban areas\. 55\. The project’s PROGEDE transition component ensured environmental sustainability of wood fuel provision to urban and peri-urban areas through the establishment of participatory management of wood fuel production, afforestation, and biodiversity conservation\. The component developed community-based forest management plans whose implementation brought 289,116 ha of forest under the management of village organizations, exceeding the initial target of 230,000 ha\. The community-based forest management involved harvesting an amount of wood fuel, for charcoal production, that can be replaced through natural forest growth and afforestation, ensuring the sustainability of wood fuel production to meet the energy-for-cooking needs of urban and peri-urban households\. 65,817 tons of charcoal was produced per year in a sustainable manner; exceeding the target of 60,000 tons\. Also, 81,908 ha of community- based biodiversity conservation reserves were established in three villages along the perimeter of the National Niokolo Kobal Park, contributing to fight against the loss of specific vegetal and animal species\. 56\. The social sustainability was ensured through the empowerment of community- based organizations leading to increased revenues in villages\. Charcoal production from wood fuel collection has shifted from commercial exploitation by urban-based traders to participatory management by 465 village and inter-village organizations\. The community-based management involved pre-defined revenue sharing schemes that enabled charcoal proceeds to trickle down to village inhabitants\. In addition to charcoal production, the component supported various income generation activities including intensive farming, gardening, animal breeding, and enhanced apiculture that resulted to additional income\. The total income increase was estimated at US$14\.6 million per year, 17 over the double of the initial target of US$6 million – and contributed significantly to reducing poverty in the participating villages\. 57\. The implementation of the PROGEDE transition component has led to three key reforms undertaken by the government in the household cooking energy sub-sector\. First, the GoS eliminated charcoal quota system that favored wholesale traders from urban areas\. Second, it restricted charcoal production only in sustainability managed forests\. Third, it revised the 1998 forestry code, in order to adapt tax regulations and provide higher returns to local communities\. These reforms were informed by: (i) the knowledge of sustainable wood fuel harvesting volume, now available thanks to the implementation of community-based forest management plans in the PROGEDE component, and (ii) the realization of poverty reduction potential from revenues made by village organizations\. The reforms have been “game-changersâ€? in wood fuel management and supply and are very important achievements as biomass continues to dominate national energy consumption patterns\. Table 3: The project’s PROGEDE transition component exceeded most of its original targets Outcome indicators for the Targets Achieved Efficacy index PROGEDE component Volume of annual sustainable wood 60,000 65,817 tons/year of 110% fuel production capacity for marketing tons/year of charcoal in the urban and peri-urban energy charcoal markets Number of hectares brought under 230,000 289,116 126% community-based sustainable management Number of improved carbonization 150 250 167% units installed Number of improved wood fuels 120,000 205,728 171% stoves disseminated Number of improved alternatives fuel 30,000 14,740 49% stoves disseminated Total sustainable incremental revenue US$6 US$14\.6million/year 244% generation capacity among million/year participating villages GEO: The program will have a positive environmental impact at the global and local levels\. At the global level, it will help reduce net CO2 emissions\. At the local level, it will promote conservation by encouraging the use of: (i) renewable sources of energy; (ii) efficient lamps and improved cooking stoves; (iii) improved carbonization methods and improved wood fuel stoves\. It will also continue implementation of sustainable forest and natural resource management which will also reduce deforestation\. 18 58\. Outcome: The project has helped reduce 604,045 tons of CO2 emissions, exceeding the project’s target of 8,000 tons\. The emission reduction can be broken down as follows: ï‚ 587,045 tons of CO2 reduction achieved through the reduction of deforestation, the use of 205,728 improved wood fuels stoves, and of 250 higher energy- efficient kilns for charcoal production\. ï‚ 17,000 tons of CO2 reduction achieved through the installation of 105,768 compact fluorescent lamps and 1\.1 MW of solar PV systems through the implementation of the Government of Senegal’s emergency rural electrification program including support from bilateral development agencies and through the small-scale concession (ERIL) financed by KFW/GIZ\. 59\. Expected outcome: Further CO2 emissions reduction is expected\. ASER and the Community Development Carbon Fund, managed by the World Bank’s Carbon Finance unit, have signed Emissions Reduction Purchase Agreements for a maximum of 175,000 certified emissions reductions (by 2018) that will happened through the installation and use of compact fluorescent lamps under the World Bank-financed rural concessions\. The CDM Program of Activities (PoA) relative to the energy efficiency component of the rural electrification program was registered in January 2013 by the UNFCCC Secretariat\. Overall project’s efficacy 60\. Based on the above analysis the achievement of PDO and GEO is moderately satisfactory\. The table below summarizes the analysis\. PDO – (a) PDO – (b) GEO Initial target 35,000 electricity PROGEDE outcome 8,000 tons of CO2 connections indicators emissions reduction Achieved 20,386 electricity Most of the 604,045 tons of CO2 connections indicators exceeded emissions reduction Efficacy Moderately Satisfactory Highly Satisfactory Satisfactory Overall Efficacy Moderately Satisfactory 3\.3 Efficiency 61\. A re-evaluation of the cost-benefit analysis, using the appraisal methodology, revealed substantial project efficiency\. The economic internal rate of return (EIRR) increased to 16\.08 percent from the appraisal rate of 13\.4 percent\. The higher rate is due to substantial increase in project benefits, which offsets the increase in economic costs\. The benefits for the users have more than doubled because the number of connected users will triple over the concession period (25 years) with concessionaires committing to 107,799 connections against an appraisal target of 35,000 connections\. Also, the environmental benefits have surged as the amount of CO2 emissions reduction increased 75 times, though the current carbon price has declined (about US$2/tCO2 against US$4\.5/tCO2 at appraisal)\. In contrast, the construction cost of 1 km of transmission and 19 distribution line has doubled and more financing was received from co-financiers, leading to a 223 percent increase in the total economic costs\. Nonetheless, the increase in economic benefits from both the users and the environment significantly surpasses the increase in economic costs—present value of net benefits estimated at US$40\.50 million—resulting to a high EIRR\. Annex 3 provides more details on the re-evaluation of the cost-benefit analysis\. 62\. Concessions remained financially viable despite construction cost increase\. A financial analysis was conducted to assess the viability of the concession from the concessionaire’s perspective\. The analysis used the same Excel-based software that performed the financial analysis of three WB-financed concessions at the project appraisal\. It was limited to the first Bank-financed concession, in which network construction is well advanced and data on construction costs and expected revenues are available\. The electricity tariff used for the analysis is lower (the one approved in 2008) as CRSE is studying a tariffs increase to reflect higher costs\. The analysis revealed that the financial internal rate of return (FIRR) is lower than that at appraisal but remains higher than the discount rate\. \. The financial internal rate is 12\.22 percent, far below the PAD’s FIRR of 25\.46 percent for the three expected concessions, and slightly below the concessionaire’s initial FIRR of 15\.84 percent in 2008 when bid proposals were submitted\. The FIRR remained, however, higher than the discount rate (12 percent)\. The FIRR decrease is mainly due to the dramatic increase of electricity network construction costs, with the cost of 1 km of transmission and distribution line almost doubling over the project implementation period\. The FIRR is expected to be higher as CRSE is considering a tariff increase to reflect the cost increase\. 3\.4 Justification of Overall Outcome and Global Environment Outcome Rating Rating: Moderately Satisfactory 63\. The combination of high relevance, moderately satisfactory achievement of objectives, and substantial efficiency leads to an overall moderately satisfactory outcome rating\. Such rating is higher than that of the July 2010 QALP for the following reasons\. First, the QALP did not incorporate the PROGEDE transition component’s achievements, which ensured the environmental and social sustainability of wood fuels, including three major reforms in the household energy sub-sector, a key part of the overall project development objective\. Second, the QALP overlooked the emissions reduction from avoided deforestation, energy-efficient production of charcoal, and use of improve wood stoves, which contributed to meeting the Global environment objective highly satisfactorily\. Third, the assessment did not account for electricity connections realized through Bank financing in-house wiring in support of the government-funded emergency rural electrification program\. Fourth, network construction has expanded after the 2010 QALP and ERILs supported by KFW/GIZ provided electricity to 1,503 households and productive users by project closure\. 3\.5 Overarching Themes, Other Outcomes and Impacts 20 (a) Poverty Impacts, Gender Aspects, and Social Development 64\. Poverty impacts: The project contributed to reduce rural poverty through increased income and local job creation\. As mentioned under the PDO analysis, the PROGEDE component-supported community-based forest management and income- generating activities enabled inhabitants in the 465 participating villages to earn additional income estimated at US$14\.6 million per year, which significantly contributes to reduce poverty\. In addition, rural electrification interventions have created and will create local jobs\. ONE has already recruited 12 Senegalese staff at St-Louis, a city in its concession area, and envisions hiring 29 more in other cities\. Other jobs will be indirectly created with ONE’s plan to hire local contractors/companies to execute in -house wiring, collect bills, and provide after-sales services for SHS customers\. Similarly, as other concessionaires roll out their operations, more direct and indirect jobs are expected to be generated\. 65\. Gender aspects: The project was gender-informed\. The beneficiaries of the PROGEDE transition component included women who were mostly involved in gardening, small ruminants and improved poultry rising as part of the supported income- generating activities\. Although the monitoring arrangements for that component did not explicitly include gender-related indicators, gender aspects were considered, as in the previous phase\. A retrospective gender analysis was later conducted to document gender considerations\. The analysis informed the design of the follow-on separate PROGEDE II project, which explicitly included gender dimension at the development objective level\. Gender was also considered in the rural electrification components in two ways\. First, ASER included, in the M&E system, a gender-related indicator: the percentage of women groups with productive equipment using electricity provided through the project\. Second, an assessment of gender considerations in rural electrification was conducted in 2012 and proposed recommendations whose implementation will help mainstream gender in ongoing activities\. 66\. Social development: The project contributed positively to social development\. In the villages where community-based forest management was introduced, emigration to Europe has declined, as youth has experienced a dramatic income increase and were able to improve their living conditions4\. The ICR mission team visited villages electrified through the government emergency rural electrification, and villages being electrified under WB financing (public lighting was on, under operational tests) and perceived the impacts of rural electrification on social development: new businesses and income- generating activities have sprung up; new health centers were constructed that provide better quality services for longer hours; a number of schools have introduced computer- based courses; and students have better home study conditions\. Village chiefs or representatives have strongly requested network densification and the acceleration of household connections under the World Bank financing\. (b) Institutional Change/Strengthening 4 From personal communications with the head of the coordination unit for the PROGEDE transition component\. 21 67\. CRSE, SENELEC, and ASER have matured over the project implementation\. CRSE has acquired expertise in developing electricity tariffs schemes for rural areas and is now well equipped to regulate rural electrification operations\. SENELEC has learned about least cost-electrification techniques\. ASER has led the awarding process of six (6) multiple donor-funded rural electrification concessions out of ten and has completed the required studies for two out of the remaining four (4) concessions\. However, there is a need to improve its internal organization to make the agency more efficient as it continues to implement its program of activities\. (c) Other Unintended Outcomes and Impacts (positive or negative) 68\. Private investment leverage: The project leveraged significant private investments\. Concessions were awarded to international power utilities: (i) ONE, the Moroccan national power utility, (ii) STEG, the Tunisian national power utility, (iii) EDF, France’s power utility, and ISOFOTON, a Spain-founded global company involved in solar energy products design, manufacturing, and supply\. The concessionaires have committed, in the concession contracts, to invest US$51\.1 million, against US$11 million of investment subsidies from the World Bank, US$4\.5 million from the GoS, and US$42 million from co-financiers (African Development Bank, European Union, KfW/GIZ, Agence Française de Devéloppement)\. US$1 subsidy from the World Bank has, therefore, leveraged US$0\.4 from the GoS, US$3\.8 from co-financiers, and US$4\.6 from the private sector\. This level of leverage was not expected at the project design\. 69\. Expertise transfer: In addition, least-cost rural electrification techniques and know-how are being transferred in Senegal\. SENELEC has adopted simplified standards (smaller wire section, lighter electricity poles), proposed by ONE, for constructing secondary network for which future expansions are not planned\. It planned to incorporate this technique in its network development master plan\. SENELEC and ASER undertook a study tour to Tunisia to learn more about the Single Wire Earth Return (SWER) electrification, a safe, reliable, and less costly method for distributing electricity to sparsely populated areas\. ASER plans to adopt the method in electrifying villages through the government-funded emergency rural electrification program\. Local electricity sector contractors are also benefiting from the private sector know-how in network construction and in-house wiring\. The transfer of know-how and least-cost electrification techniques contributes to enhance efficiency and financial viability of rural electrification in Senegal\. 3\.6 Summary of Findings of Beneficiary Survey and/or Stakeholder Workshops 70\. Not applicable 22 4\. Assessment of Risk to Development Outcome and Global Environment Outcome Rating: Moderate 71\. A number of factors point out to a moderate risk to development and global environment outcome\. Key positive factors include: (i) currently high government commitment to the project’s concession approach related to recognition of its importance in achieving the target of 50% rural electrification rate by 2017, (ii) strong leadership from the Ministry of Energy and Mines as demonstrated by recent fast processing of rural operators requests, and (iii) continued support from multilateral and bilateral development agencies\. The moderate risk lies on ASER’s ability to improve its financial health with expected support from the Ministry of Economy and Finance\. Risks related to tariffs are not expected as the law (98-29) requires CRSE to ensure the financial viability of private operators, through tariff revisions to recover investment and operating costs\. 5\. Assessment of Bank and Borrower Performance 5\.1 Bank Performance (a) Bank Performance in Ensuring Quality at Entry Rating: Moderately Satisfactory 72\. Bank performance in ensuring quality at entry was moderately satisfactory\. The project’s large and small-scale concession approach was innovative and consistent with the government’s vision, legal and policy framework\. The design was based on comprehensive background analysis involving key government agencies\. Significant efforts were deployed to look for co-financiers and coordinate their involvement\. However, the inability of government agencies to work in a synergic manner was a considerable risk that was overlooked, and the project’s proposed implementation timeframe did not properly reflect (i) the initial weak financial, procurement, and technical capacities of ASER, and (ii) the innovative design features\. Also, the project preparation left some uncertainties on the coordination of financing from various donors and how results would be attributed\. (b) Quality of Supervision (including of fiduciary and safeguards policies) Rating: Moderately Satisfactory 73\. Quality of supervision was moderately satisfactory\. Since 2007, most of the project supervision team members-including the task team leader-were based in Senegal, facilitating continuous support and monitoring\. Financial management was regular and diligently performed\. Environmental and social safeguards skills were lacking during the first four years but were addressed\. However, project supervision leadership attention was diverted towards urban electricity needs to address Senegal’s 2009-2011 energy crisis that led to massive load shedding\. This negatively affected pro-activity in advising on implementation issues and timely response to requests for no-objection\. QALP also 23 pointed out a lack of candor in rating development objective and implementation progress during a certain period, and therefore rated quality of supervision as moderately unsatisfactory in 2010\. However, a change of project leadership occured in 2011, and government counterparts have noticed closer monitoring\. Project implementation also accelerated; a number of concessions were awarded; and disbursement improved\. (c) Justification of Rating for Overall Bank Performance Rating: Moderately Satisfactory 74\. Because of the moderately satisfactory performance in ensuring quality at entry and moderately satisfactory performance during supervision, Bank’s overall performance is rated moderately satisfactory\. 5\.2 Borrower Performance (a) Government Performance Rating: Moderately Satisfactory 75\. Performance of the government – specially the Ministry of Economy and Finance and the Ministry of Energy and Mines – was moderately satisfactory\. The Ministry of Economy and Finance did not timely provide counterpart financing, resulting in ASER using WB loan to pre-finance expenses that should have been incurred by counterpart financing\. At the Ministry of Energy and Mines level, project implementation had been delayed due to the past administration’s (i) failure to set timeframes within which involved parties—CRSE, ASER, SENELEC and ONE—have to reach compromises and (ii) slow endorsement—about two years—of guidelines governing the delivery of ERIL subsidies, prepared jointly by ASER and CRSE\. However, the situation has changed since 2012\. The new high-level officials in place at the Ministry of Energy and Mines have demonstrated strong leadership and succeeded in speeding up resolution of a number of issues\. Considering the recent MEM’s strong achievement and commitment, the government performance is rated moderately satisfactory\. (b) Implementing Agency or Agencies Performance Rating: Moderately Satisfactory 76\. Implementing agencies’ performance was overall moderately satisfactory\. 77\. The performance of ASER, who implemented three out of the project’s four components, was moderately satisfactory\. Although some implementation delays – related to inputs from CRSE and SENELEC - were out of ASER’s span of control, the agency’s execution of the government emergency program over 2008-2010, took away human resources that may have helped speed up the rural concession implementation\. 78\. In contrast, the performance of the implementing agencies for the PROGEDE transition phase component was satisfactory\. The agencies (project coordination unit, National Water and Forest Directorate, and the Energy Directorate), who highly successfully implemented the first phase of the PROGEDE project, were the same ones who executed the PROGEDE transition phase component\. The component activities were 24 carried out as planned\. An additional funding was allocated and completely disbursed by the extended timeframe with results exceeding initial targets\. (c) Justification of Rating for Overall Borrower Performance Rating: Moderately Satisfactory 79\. The combination of the government’s moderately satisfactory performance and the implementing agencies’ strong moderately satisfactory performance leads to overall borrower’s moderately satisfactory performance\. 6\. Lessons Learned 80\. Leveraging private sector investments for rural electrification is possible if the legal and regulatory framework includes certain incentives\. Among the factors that drove interest from international power utilities are fiscal incentives and legal insurance included in the 1998 Electricity Law (98-29) and the investment code\. The law emphasizes CRSE’s mandate to regulate in a manner to protect consumer’s rights, while ensuring the financial viability of private operators, and proposes factors to be considered in determining private operators’ financial internal rate of return\. The investment code and the agreement signed between ASER and the Ministry of Finance provide private operators with valued added tax cuts, duty free imports of selected new network equipment, and legal provisions to repatriate benefits and certain assets\. Such legal, fiscal, and regulatory incentives have been critical to attracting international power utilities to invest in rural electrification in Senegal\. 81\. Implementation of projects with innovative features takes time which should be properly accounted for at the design stage\. Given the novelty of the approach for the involved government stakeholders, the lack of a number of sample documents – particularly in the regulation aspects – the initial weak capacity of the main implementing agency, setting an implementation timeframe of four years, similar to that of repeater projects, was over ambitious and unrealistic\. A longer implementation timeframe should have been provided to account for the high learning curve and potential implementation challenges\. 82\. Flexibility or pragmatism is needed in certain contexts to achieve results\. The World Bank has required the approval of the regulatory framework governing the provision of subsidies for ERILs projects (village electrification projects initiated by community-based organizations or local private operators), prior to allowing the procurement of ERIL projects\. With delays in approving the ERIL regulatory framework, only 131 electricity connections were achieved through the WB-supported ERIL approach\. In contrast, KfW/GIZ allowed the procurement of ERILs to go through even though the regulatory framework was unclear\. By project closing date, KFW/GIZ- supported ERIL project realized 1,503 electricity connections, though the electricity tariffs were later defined in collaboration with CRSE\. The difference between the WB’s approach and that of KFW/GIZ highlights the necessity of flexibility in a certain context in order to achieve results in limited timeframe\. 25 83\. Having a permanent dialogue/consultation platform is critical in accelerating the implementation of projects with multiple involved stakeholders\. The project involved a relatively high number of stakeholders: ASER, CRSE, MEM, MEF, SENELEC, WB, AfDB, KfW/GIZ, AFD, and EU\. Addressing implementation issues through exchanges of official correspondence turned was inefficient as compared with bringing together all involved stakeholders around the same table for discussion\. Recognizing the positive impacts of such form of exchange, the MEM is institutionalizing it by setting up a permanent consultation platform\. This experience highlights the importance of a physical consultation platform, especially for projects involving multiple stakeholders and implemented by an agency that is not a ring-fenced, coordination unit\. 7\. Comments on Issues Raised by Borrower/Implementing Agencies/Partners (a) Borrower/implementing agencies 84\. ASER, the implementing agency for the rural electrification components, sent comments on the ICR\. ASER’s comments consisted of (i) edits that were incorporated in the present report and (ii) a proposal for a new rural electrification project\. 85\. To consolidate and scale up gains realized with the WB financing, the GoS invites its multilateral and bilateral development agencies – including the World Bank - to support a new rural electrification project\. The new project will build on the large and small-scale concession approach designed with WB financing\. It will continue the implementation of the six awarded concessions as well as launch and implement the remaining four concessions without current financing\. Other activities that could be financed under the new project include: ï‚ Scaling up the implementation of ERILs ï‚ Implementing more PREMs, which is critical to reducing poverty and contributing to economic and social development in rural areas ï‚ Densifying electricity networks within concessions to increase electricity access ï‚ Providing ASER with technical assistance to implementing the project\. Such assistance should include logistics and staff support, which was insufficient in the Bank-financed project, but impacts performance\. (b) Cofinanciers 86\. KFW/GIZ provided written comments that were incorporated\. KFW/GIZ indicated that the number of household connections achieved through its financed ERIL sub-project (known as ERSEN 1) has reached 3,500 connections by April 2013, with the network covering 150 villages\. This was included in the Annex 2—project outputs by component—of the ICR\. 87\. In addition to KFW/GIZ’s written comments, both KFW/GIZ and AFD shared their views on the project during the ICR mission held in April 2013\. They reiterated 26 their support to the project and highlighted that the project achievements are significant given its innovative nature and the initial weak capacity of ASER and CRSE\. They also mentioned the need for ASER to improve its financial situation and organizational efficiency\. In this regard, the World Bank and the co-financiers agreed to follow up very closely the implementation of the ESMAP SE4ALL Technical Assistance for Senegal, in which ASER strengthening and financial restructuring will be addressed\. (c) Other partners and stakeholders 88\. Not applicable\. 27 Annex 1\. Project Costs and Financing (a) Project Cost by Component (in USD Million equivalent) SN-Elec\. Serv\. for Rural Areas (FY05) - P085708 // P070530 Components Appraisal Estimate Actual Estimate Percentage of (US$ million) (US$ million) Appraisal Component 1 – Financing of 69,30 20,12 29% Investments Component 2 – Capacity 13,58 9,80 72% development and Institutional Strengthening Component 3 – Implementation, 5,64 2,45 43,4% Communication, Monitoring & Evaluation Component 4 - PROGEDE 4\.10 7,12 174% transition phase Sub Total 92,62 39,49 43% Physical contingencies Price contingencies Project preparation Facility Total Project Costs 92,62 39,49 (b) Financing from World Bank Source of funds Appraisal Estimate Actual Estimate Percentage of (US$ million) (US$ million) Appraisal IDA 25,15 19,27 77% GEF 4,55 0,00 0% BAD 15,33 14,27 93% KFW/GIZ 8,14 6,84 84% AFD 10,49* 10,10 96% European Union 17,25* 10,60 61% Government of Senegal 8,58 8,58 100% (counterpart funding for Bank financing) Government of Senegal 3,13 0,42 13,42% (counterpart funding for other donors’ financing) Total 92,62 70,08 *: Parallel financing from AFD and European Union were confirmed in 2007, two years after project appraisal\. 28  Annex 2\. Outputs by Component Component 1: Financing of investments The component provided output-based investment subsidies to private operators, who were awarded large and small scale concessions for electrification\. It also financed in- house wiring to connect households to electricity network constructed under the emergency rural electrification program, funded by the GoS\. The emergency program complemented the Bank-financed project as connections realized under the emergency program will be transferred to concessionaires\. The table below presents the component’s outputs\. Financing source Approach Outputs (amount) World Bank Concession ï‚ 2 concessions awarded : the 1st (Dagana-Podor-St Louis) to (US$21\.16 M) ONE and the 2nd (Mbour) to STEG ï‚ Constructed network covered 66 villages in December 2012: 88 km of transmission line, 184 km of distribution line, and 57 transformer sub-stations constructed\. The network was expanded and covered 116 villages in April 2013; public lighting is available in 9 villages\. ï‚ Transmission line under construction to connect 28 health centers and pumping stations of an agro-business (PREM) ERIL (small ï‚ 1 ERIL project financed by both World Bank (with co- concession) financing from the Netherlands Cooperation) ï‚ 131 solar home systems (SHS) installed ï‚ 10 micro power plants (10-25 kW) being constructed Emergency ï‚ in-house wiring and meter installation for 2,639 households program African Concession ï‚ 1 concession awarded (Louga-Linguère-Kébémer) to ONE Development ï‚ Constructed network covered 47 villages: 32 km of Bank transmission line, 59 km of distribution line, and 35 sub- (US$14\.27 M) stations KFW/GIZ Concession ï‚ 1 concession awarded (Kaolack-Nioro-Factick-Gossas)\. (US$6\.84 M) Construction has not yet started ERIL ï‚ 1 ERIL project implemented (known as ERSEN 1); Hybrid (diesel-solar) power plants constructed with network covering 73 villages\. Network coverage expanded to 150 villages by April 2013\. ï‚ 1,503 household connections\. This rose to 3,500 connections by April 2013\. ï‚ 2nd ERIL project under implementation (ERSEN 2) with co-financing from the European Union and the Netherlands\. Expected to cover 201 villages\. AFD Concession ï‚ 1 concession awarded (Kaffrine-Tambacounda-Kédougou) (US$10\.10 M) to EDF\. Network construction has not yet started ï‚ 24 SHS installed 29 European Union Concession ï‚ 1 concession recently awarded (Kolda-Vélingara) (US$10\.60 M) Government of Emergency ï‚ 18,728 households and productive uses gained access to Senegal program electricity Component 2 - Capacity development and institutional strengthening The component strengthened the capacities of ASER, CRSE, MEM, and a Multi- Sectorial Committee, in charge of promoting productive uses of electricity\. Specific outputs include: ASER ï‚ Additional staff recruited including a financial management specialist, a procurement specialist, a specialist in rural electrification concessions, and a consultant to improve the organizational effectiveness and update the project operational manual ï‚ Three vehicles acquired and information and communication technologies (ICT) installed\. ICT included computers, geographic information system software, and financial and accounting management software ï‚ Staff trained on a number of areas including: procurement, rural electrification regulations, geographic information systems, monitoring & evaluation, and project management ï‚ Study tours conducted in Tunisia and attendance to international workshops ï‚ Consultations done with international and local private operators on the concession design, and on the preparation of documents for pre-qualification and proposal requests\. The consultations were supported by recruited international experts in rural concessions who assisted ASER CRSE ï‚ Regulatory recommendations issued to inform decision making by MEM on the six concession awards ï‚ Approved electricity service regulations governing electricity delivery to consumers including tariffs, metering, service quality aspects ï‚ Operational rights delivered to private operators MEM ï‚ No-objections to concession awards ï‚ Decrees governing subsidy provision for village electrification initiatives promoted by community-based organizations or local private entrepreneurs (ERILs)\. ï‚ Counterpart financing mobilized for project implementation ï‚ Inputs to the preparation of the 2012 Energy Sector Development Policy Letter\. ï‚ Monitoring of project implementation (consultations/meetings held) Multi-Sectoral Committee ï‚ Established Multi-Sectorial Committee, under the presidency of the Directorate of Electricity, with ASER ensuring the secretariat\. The Multi-Sectorial Committee involves 14 local committees, out of which 8 were officially created\. ï‚ Selected PREM sub-projects for ASER financing ï‚ Approved action plan for promoting productive and social uses of electricity ï‚ National investment program for increased electricity uses for production and social applications\. Program prepared in collaboration with UNDP\. ï‚ Inputs into the preparation of the poverty reduction strategy ï‚ Attendance to national and international workshops on productive uses promotion 30 Component 3 – Implementation, Communication, Monitoring & Evaluation The component supported planning for productive and social uses of electricity, preparation of local electrification plans, outreach activities, and the development of the M&E\. Outputs include: Productive and social uses of electricity ï‚ Eight PREM sub-projects designed, of which half to be implemented in the Bank- financed concession and the remaining half in the European Union-supported concession\. ï‚ Approved action plan for promoting productive and social uses of electricity ï‚ National investment program for increased electricity uses for production and social applications\. Program prepared in collaboration with UNDP\. ï‚ Study conducted to analyze micro-finance provision in support of the implementation productive uses of electricity sub-projects\. ï‚ Inputs into the preparation of the poverty reduction strategy ï‚ Participation in national and international workshops on productive uses promotion Local electrification plans ï‚ Eight local electrification plans prepared\. The plans provided background information required by private operators for preparing technical and financial bids\. Three local electrification plans were later updated ï‚ Map of a concession area (Rufisque-Thiès-Mbacké) using satellite imaging ï‚ GIS-based map of Senegal electricity network Outreach ï‚ Consultations with local authorities and population in the Dagana-Podor-St Louis concession area on the concession implementation process ï‚ Sensibilization campaigns on the priority electrification plans of ONE for two concession areas ï‚ Consultations of local population on the environmental and social aspects of concessions implementation ï‚ Organization of international workshop on rural electrification in collaboration with the World Bank – Africa Electrification Initiative ï‚ TV ads, video, flyers, and brochures on ASER’s mission, operations, and achievements ï‚ Purchase of communication tools (cameras, software, TV) for ASER’s communication unit\. M&E ï‚ Developed M&E system ï‚ Purchase and Installation of GIS, and ArcGIS and tools for monitoring CO2 reduction under the Carbon Finance agreement Component 4: PROGEDE transition phase The component supported supply and demand-side interventions to improve access to sustainable wood fuels for cooking\. The support led to the following outputs: Supply-side ï‚ 65,817 tons of charcoal produced per year in a sustainable manner ï‚ Forest inventory and mapping realized ï‚ Updated forestry data for the forestry information software (SIEF) 31  ï‚ Trained staff from the PROGEDE coordination unit and the Forestry unit\. ï‚ 289,116 ha of forest under the management of 465 village and inter-village organizations\. ï‚ 81,908 ha of biodiversity conservation reserve established in three villages along the perimeter of the National Niokolo Kobal Park ï‚ 611 ha afforested ï‚ Revenues sharing and management schemes established ï‚ Income-generating activities practiced by village communities\. This has led to increased income estimated at US$ 14\.6 million per year\. Demand-side ï‚ 205,728 improved biomass cookstoves sold ï‚ 14,740 kerosene cookstoves sold ï‚ 250 improved carbonization units installed ï‚ Ads to promote cookstoves dissemination ï‚ Household energy information system developed and installed at the Directorate of Energy\. The system constitutes an important planning tool\. ï‚ Updated study on LPG promotion ï‚ Office equipment acquired for the Directorate of Energy and the Directorate of Water and Forests 32 Annex 3\. Economic and Financial Analysis At appraisal, the project’s efficiency was examined by analyzing costs and benefits of the entire rural electrification program (the project and two additional phases)\. Fewer data were provided for the cost-benefit analysis of the program’s first phase (the project)\. The first phase (the project)’s benefits for the users were significantly underestimated\. Excluded benefits include: ï‚ Benefits from productive and social users of electricity ï‚ Benefits from rural communities in charge of forest management under the PROGEDE transition component\. Rural communities have earned US$14\.6 million per year\. ï‚ Benefits from urban and peri-urban households who acquired 205,728 higher energy-efficient biomass stoves, resulting to savings in household energy expenditures\. The cost-analysis of the project was revisited following the methodology used at appraisal: ï‚ Economic benefits consist of the benefits for the users and the global environmental benefits\. The benefits for the users are estimated using the gross consumer surplus method, which evaluates incremental benefits resulting from lighting and use of TV/audio based on willingness to pay\. Given the lack of recent data on willingness to pay, the same level of benefits per user was assumed\. ï‚ Economic costs comprise (i) investments from both financiers (Bank and other donors) and private operators, (ii) operation and maintenance (O&M) costs from private operators, and (iii) costs for capacity building, communication, and technical assistance provided under the project components 2 and 3\. ï‚ Global environmental benefits are estimated using a reduced carbon price of US$2/tCO2 to account for the current decline of the carbon market\. The carbon price used at appraisal was US$4\.5/tCO2\. ï‚ The economic analysis is done over 25 years, the duration of a concession contract\. Based on the appraisal methodology, the re-evaluation of the project costs and benefits revealed an economic internal rate of return (EIRR) of 16\.08 percent, higher than the appraisal rate of 13\.4 percent\. The higher rate is due to the following factors (see table below): ï‚ Economic costs have doubled\. The cost increase comes from investments from private operators\. ONE, who was awarded two concession areas, and whose network construction is the most advanced, has documented that the cost of 1 km of transmission and distribution line has almost doubled\. Other concessionaires are expected to also face construction cost increases\. In addition to the construction cost increase, more financing than that considered at appraisal was provided (financing from AFD and European Union)\. Because of the construction 33  cost increase and the increased financing, the actual economic costs of the project have increased by 223 percent\. ï‚ Economic benefits for the users have more than doubled\. Concessionaires committed to achieve 107,799 connections—the triple of the appraisal target of 35,000 connections—over the next 25 years\. Although the benefits will be realized later than expected at appraisal, the present value of economic benefits for the users have increased by 250 percent within the concession timeframe\. ï‚ Environmental benefits have surged\. Though the carbon price decreased, the reduced CO2 emissions (604,045 tons) are 75 times more than the amount targeted at appraisal (8,000 tons)\. Hence, the environmental benefits have increased 33\.5 fold\. ï‚ Increase in the total economic benefits (benefits for the users and environment benefits) exceeds the increase in the economic costs, leading to a higher NPV of net benefits\. Cost-benefit analysis at Appraisal Closing Present Value of costs (invest\. + O&M + US$ million 81\.63 181\.92 capacity building and TA) Present Value of benefits for the users US$ million 83\.90 209\.67 Present Value of global environment benefits US$ million 0\.38 12\.75 Net Present Value of net benefits US$ million 2\.65 40\.50 EIRR % 13\.4 16\.08 A financial analysis was conducted for one concession to assess the financial viability from the concessionaire perspective, using the same Excel-based software that performed the financial analysis of three WB-financed concessions at the project appraisal\. The costs and expected revenues used for the analysis were received from ONE, the concessionaire of the first Bank-financed concession\. However, the electricity tariff used (2008 tariff) is lower as CRSE is studying a tariff increase to reflect higher costs\. The analysis resulted in a financial internal rate of 12\.22 percent, far below the PAD’s FIRR of 25\.46 percent for the three expected concessions, and slightly below the concessionaire’s initial FIRR of 15\.84 percent in 2008 when bid proposal was submitted\. The FIRR remained, however, higher than the discount rate (12 percent)\. The decrease is mainly due to the dramatic increase of electricity network construction costs, with the cost of 1 km of transmission and distribution line almost doubling over the project implementation period\. The FIRR is expected to be higher as CRSE is considering a tariff increase to reflect the costs increase\. 34 Table: Re-evaluation of the cost-benefit analysis Years 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Investments + O & M costs (US$ million) 10\.30 47\.76 66\.12 18\.19 22\.63 19\.46 21\.31 23\.32 25\.68 28\.29 Capacity building costs (US$ million) 1 2 2 2 3 3 1 - - Technical assistance costs (US$ million) 3 2 1 1 1 1 1 Total economic costs (US$ million) 14 52 69 21 27 23 23 23 26 28 Total Benefits for the users (US$ million) 1\.3 4\.5 12\.0 23\.8 34\.0 37\.8 37\.5 37\.8 37\.8 38\.0 38\.0 38\.3 38\.3 38\.5 38\.5 38\.8 38\.8 39\.0 39\.0 39\.3 39\.3 39\.5 39\.8 39\.8 40\.0 Total environmental benefits (US$ million) 0\.07 0\.28 0\.74 1\.46 2\.07 2\.32 2\.32 2\.32 2\.32 2\.32 2\.32 2\.32 2\.32 2\.32 2\.32 2\.32 2\.32 2\.32 2\.32 2\.32 2\.32 2\.32 2\.32 2\.32 2\.32 Net Benefits (US$ million) -13\.07 -46\.98 -56\.38 4\.02 9\.45 16\.61 16\.93 16\.75 14\.39 12\.03 40\.32 40\.57 40\.57 40\.82 40\.82 41\.07 41\.07 41\.32 41\.32 41\.57 41\.57 41\.82 42\.07 42\.07 42\.32 Discount rate 12% Net Present Value (US$ million) 40\.50 EIRR 16\.08% 35 Annex 4\. Bank Lending and Implementation Support/Supervision Processes (a) Task Team members Responsibility/ Names Title Unit Specialty Lending Christophe de Gouvello Senior Energy Specialist LCSEG Stephan Claude Frederic Garnier Sector Leader AFTSN Thanh Lu Ha Senior Program Assistant AFTG2 Supervision/ICR Amadou Konare Consultant AFTEW Awa Seck Senior Economist AFTG2 Bertrand P\. Marchais Consultant MIGEA Bourama Diaite Senior Procurement Specialist AFTPW Cheick Traore Senior Procurement Specialist AFTPW Cheikh A\. T\. Sagna Senior Social Development Spec AFTCS Christophe de Gouvello Senior Energy Specialist LCSEG Eric Jean Yoboue Senior Procurement Specialist AFTPE Fatouma Toure Ibrahima Senior Financial Specialist AFTG2 Wane Fily Sissoko Lead Financial Management Spec AFTMW Ibrah Rahamane Sanoussi Senior Procurement Specialist AFTPW Maimouna Mbow Fam Sr Financial Management Specia AFTMW Michel E\. Layec Consultant AFTG1 Moez Cherif Senior Energy Economist AFTG2 Saidou Diop Sr Financial Management Specia AFTMW Seynabou Thiaw Seye Program Assistant AFCF1 Stephan Claude Frederic Sector Leader AFTSN Garnier Thanh Lu Ha Senior Program Assistant AFTG2 Alain Ouedraogo Energy Specialist SEGES (b) Staff Time and Cost 36  Staff Time and Cost (Bank Budget Only) Stage of Project Cycle USD Thousands (including No\. of staff weeks travel and consultant costs) Lending FY04 40 0\.00 FY05 14 0\.00 Total: 54 0\.00 Supervision/ICR FY05 8 0\.00 FY06 26 0\.00 FY07 30 0\.00 FY08 33 0\.00 FY09 34 0\.00 Total: 131 0\.00 37 Annex 5\. Beneficiary Survey Results Not Applicable\. 38 Annex 6\. Stakeholder Workshop Report and Results Not applicable\. 39 Annex 7\. Summary of Borrower's ICR ASER, the agency that implemented the rural electrification components of the project, submitted an Implementation Completion Report\. The report covers the project activities in both rural electrification and household cooking energy\. The report sets the project context, presents outputs and impacts in each component, re-assesses the project risks, reviews the project financing and disbursements, evaluates the performance of the Bank and the borrower, draws areas for improvement, and makes the case for a follow-up rural electrification project\. The paragraphs below highlights some key points of the borrower ICR\. The project was designed based on the framework set by the 98-24 Electricity Law, which created ASER and defined its operating approach—large and small-scale concessions and support to productive uses of electricity\. It was prepared as the first of a three-phase program\. The project objective is to increase access of Senegal's rural population to modern energy services and to ensure the environmental and social sustainability of wood fuels in urban and peri-urban areas\. The objective was to be reached through the implementation of four components of which three focused on rural electrification\. On the rural electrification area, the objective target was to reach 35,000 connections with contribution from all donors and the Government of Senegal\. The project led to a number of outputs that are consistent with those described in the Bank ICR\. The implementation of the investments component led to the award of 6 concessions—out of 10 concessions—to internationally-known private operators who committed to providing electricity to 107,799 households and productive users over the concession period\. The awarded concessions are at different implementation stages with two concessions at advanced construction stage\. Besides the awarded large-scale concessions, a number of small-scale concessions (ERILs) were implemented, including (i) KFW/GIZ-financed ERSEN 1 and 2 projects, and (ii) the joint World Bank/Netherlands cooperation ERIL\. The KFW/GIZ-financed ERSEN 1 led to 1,503 household connections by project closure and to 3,500 connections by April 2013\. The performance of the Bank and the borrower is mixed\. Overall, the World Bank played a key technical and financial role\. The Bank supervision team supported the implementing agencies and the government and extended the project closing date at the request of the Government\. However, some shortcomings were noticed: (i) slow approval of requests for no-objection to award two concessions (Mbour and Kolda-Velingara) and ERIL sub-projects, (ii) slow approval of disbursement requests, and (iii) lack of flexibility in the selection of the concessionaire for the Kolda-Velingara concession, leading to the cancellation of the allotted investment subsidy\. On the borrower side, ASER faced a number of barriers that affected its performance\. This was mainly due to the innovative nature of the project and the lack of readiness of the institutional framework\. Analyzing the project implementation experience, a number of areas for improvement were found\. Key improvement areas include the following: 40  ï‚ ASER’s rural electrification approach: there is a need to re-focus ASER interventions only on the large-scale concessions and small-scale concessions (ERIL)\. ï‚ Concession award and effectiveness timeframe: To accelerate the concession award and effectiveness timeframe, the following can be done: (i) eliminate the prequalification step, (ii) reduce the timeframe for evaluating the bids, (iii) set deadlines for approvals, and (iv) enhance collaboration between intervening stakeholders\. ï‚ Bank’s financing areas: Bank financing allotted for ASER operations and logistic equipment was insufficient\. In addition, staff salaries were not covered by Bank financing\. This affected project implementation and should be taken into account if there is a follow up project\. A follow-up Bank-financed project would be relevant\. The project has led to significant regulatory, institutional, and private sector involvement gains\. ASER has acquired tremendous experience and learned from the implementation challenges\. In addition, the government is strongly committed to increasing rural electrification\. Based on these factors, the government invites its development partners to support a follow-up rural electrification project\. The follow-up project will build on the large and small-scale concession approach designed with WB financing\. It will continue the implementation of the six awarded concessions as well as launch and implement the remaining four concessions without current financing\. Other activities that could be financed under the new project include: ï‚ Scaling up the implementation of ERILs ï‚ Implementing more PREMs, which is critical to reducing poverty and contributing to economic and social development in rural areas ï‚ Densifying electricity networks within concessions to increase electricity access ï‚ Providing ASER with technical assistance to implementing the project\. Such assistance should include logistics and staff support, which was insufficient in the Bank-financed project, but impacts performance 41 Annex 8\. Comments of Cofinanciers and Other Partners/Stakeholders KFW/GIZ provided written comments that were incorporated\. KFW/GIZ indicated that the number of household connections achieved through its financed ERIL sub-project (known as ERSEN 1) has reached 3,500 connections by April 2013, with the network covering 150 villages\. This was included in the Annex 2—project outputs by component—of the ICR\. In addition to KFW/GIZ’s written comments, both KFW/GIZ and AFD shared their views on the project during the ICR mission held in April 2013\. Below are some key take-away views: ï‚ Both KFW/GIZ and AFD strongly support the project and continue to monitor closely project implementation progress\. KFW/GIZ financed the ERSEN 1 ERIL and is scaling up its support with the financing of ERSEN 2, which aims to electrify 201 villages\. Besides the ERILs, KFW/GIZ financed one large-scale concession (Kaolack-Nioro-Factick-Gossas) that was awarded\. AFD financed one concession (Kafrinne-Tambacounda-Kedougou) that was awarded to EDF\. ï‚ Both co-financiers highlighted that the project is innovative and constitutes a learning-by-doing experience for all involved stakeholders, including ASER, CRSE, and the World Bank\. ï‚ KFW/GIZ indicated that given the innovative nature of the project and the initial lack of capacity, the project achievements are significant\. ï‚ Both co-financiers look forward to ASER improving its financial situation and organizational efficiency\. 42 Annex 9\. List of Supporting Documents République du Sénégal ï‚ Loi sur le Secteur de L’Electricité 98-24\. 1998 ï‚ Amendement à la loi 98-24\. 2002 ï‚ Lettre de Politique de Développement du Secteur de l’Energie\. 2003 ï‚ Lettre de Politique de Développement de l’Electrification Rurale\. 2004 ï‚ Lettre de Politique de Développement du Secteur de l’Energie\. 2012 ï‚ Projet de Règlement de Service de COMASEL pour la concession Dagana-Podor- St Louis ï‚ Préparation du Rapport d’Achèvement\. Avril 2013 ï‚ Rapport d’Achèvement du Projet DASER\. ASER\. Juin 2013 ï‚ Rapport d’achèvement de la phase transitoire du PROGEDE\. 2008 World Bank ï‚ Project Appraisal Document ï‚ Credit Agreement ï‚ Mid-term Review Report ï‚ Minutes of project concept note review meeting ï‚ Restructuring papers and memorandums ï‚ Mission aide-memoires from 2003 to 2013 ï‚ Financial Management Supervision reports ï‚ Implementation Status Report from 2004 to 2013 ï‚ Project update reports ï‚ 2003 Country Assistance Strategy ï‚ FY2013-2017 Country Partnership Strategy ï‚ 2010 Quality Assessment of Lending Portfolio (QALP-2) ï‚ 2005 Implementation Completion Report for the Sustainable and Participatory Energy Management Project (PROGED I) ï‚ 2010 Project Appraisal Document for a Second Sustainable and Participatory Energy Management Project (PROGED II) ï‚ 2011 OPCS’s Guidelines on Implementation Completion and Results Report 43  18°W 16°W 14°W M A U R I TA N I A SENEG AL SELECTED CITIES AND TOWNS Sénégal To Podor Nouakchott REGION CAPITALS Rosso Doue Dagana NATIONAL CAPITAL SENEGAL Ndiayène Richard-Toll Haïré Lao RIVERS Lac de Guier SAINT- To MAIN ROADS LOUIS Kaedi Mbout Saint-Louis RAILROADS 16°N 16°N Thilogne REGION BOUNDARIES Mpal Va Lagbar ll ée d u Fer INTERNATIONAL BOUNDARIES Léona lo Ndiaye Louga Matam Koki Tioukougne Peul This map was produced by the Map Design Unit of The World Bank\. Kébémèr Daraa Linguère The boundaries, colors, denominations and any other information shown on this map do not imply, on the part of The World Bank Fâs Boye Group, any judgment on the legal status of any territory, or any Va én S llée ég endorsement or acceptance of such boundaries\. Darou Khoudos du al F Mékhé Darou Mousti LOUGA Mamâri er lo Vélingara CAP- Kayar Tivaouane Bakel Mbaké VE VERT Thiès DIOURBEL La Ferdo M ATA M DAKAR Val Rufisque THIÈS Diourbel lée du Mboun To Kayes Gossas Mbour FATICK Payar Nayé Toubéré Bafal oum Fatick Guinguinéo Sal Falém KAFFRINE m lo u Kaolack Sa Kaffrine TAMBACOUNDA é Ndangane 14°N 14°N Sakone KAOLACK Niahène Koungheul Koussanar AT LAN TI C Keur Madiabel Nganda MALI Nioro du Rip Tambacounda OCEAN Karang Maka dou gou S an To Gambia Barra TH E Dialakoto To Banjul IA GAM B I A Meedina Gounas SÉDHIOU e KOLDA Vélingara M anc KÉDOUGOU Ko Diouloulou al am ink ulo Bounkiling as e unt ZIGUINCHOR C Diana Kolda Gam ou Malari bie Mako Saraya Bignona nga Kaya Casamance Tanaf Sédhiou Ziguinchor 419 m To Kédougou Goudomp Farim To To Diembéreng Oussouye Bafata Koundara To Ingore 0 25 50 75 100 Kilometers IBRD 33475R1 GUINEA-BISSAU To Balake AUGUST 2010 0 25 50 75 Miles GUINEA 12°N 12°N 18°W 16°W 14°W 12°W

REVIEW

P035673

 ICRR 12896 Report Number : ICRR12896 IEG ICR Review Independent Evaluation Group 1\. Project Data: Date Posted : 05/29/2008 PROJ ID : P035673 Appraisal Actual Project Name : Community-based US$M ): Project Costs (US$M): 114\.85 74\.39 Rural Development Project Country : Burkina Faso Loan/ US$M): Loan /Credit (US$M): 66\.70 74\.39 Sector Board : ARD Cofinancing (US$M): US$M ): 21\.78 16\.44 Sector (s): General public administration sector (32%) Other social services (23%) General agriculture fishing and forestry sector (15%) Roads and highways (15%) General water sanitation and flood protection sector (15%) Theme (s): Participation and civic engagement (33% - P) Decentralization (33% - P) Rural services and infrastructure (17% - S) Other environment and natural resources management (17% - S) L/C Number : C3436 Board Approval Date : 11/30/2000 Partners involved : UNDP, IFAD, Govt\. of Closing Date : 06/30/2006 06/30/2007 Denmark Evaluator : Panel Reviewer : Group Manager : Group : Nalini B\. Kumar Ridley Nelson Monika Huppi IEGSG 2\. Project Objectives and Components: a\. Objectives: The overall objective of the Government 's Programme National de Developpement Rural Decentralise (PNDRD) is to reduce poverty and promote sustainable development in the rural areas \. The program is being implemented over a 15-year period as a three phase APL \. The project was the first phase of the program \. There are several different formulations of the project objectives given in the appraisal document (three to be precise, two on page 2, and another on page 37 as part of the Project Design Summary )\. None of the three exactly match the objectives as stated in the Credit Agreement\. This ICR review accepts the objectives as stated in the Credit Agreement as the ones against which the project should be assessed \. These objectives are "to assist the Borrower in reducing poverty and promoting sustainable development through support to a decentralized and participatory rural development ( a) improving the provision of services and socioeconomic infrastructure; and (b) building the strategy aimed at : (a capacity of civil society and decentralized institutions \." The ICR selected one of the three formulations of the project objectives in the appraisal document \. According to the ICR the project objectives are to "(i) increase the productive capacity of the rural sector and (ii) improve the effectiveness of public investments by developing the institutional and organizational capacity necessary to enable local communities to plan, implement and manage their own development process \." A close examination suggests that there is considerable correspondence between part (a) of the objectives in the Credit Agreement and (i) of the objectives as selected by the ICR and part (b) of the objectives in the Credit Agreement and (ii) of those in the ICR\. The end of the first phase project was to see the emergence of rural municipalities with functioning provincial level coordination forums and a facilitating framework (regulatory, institutional and fiscal ) at the national level\. However the Code General des Collectvites Territoriales was adopted by the National Assembly and promulgated in April 2005\. The Code defined the Department as the entry point for decentralization \. Consequently the notion of stimulating the emergence of rural municipalities lost its relevance and was abandoned \. b\.Were the project objectives/key associated outcome targets revised during implementation? Yes If yes, did the Board approve the revised objectives /key associated outcome targets? No c\. Components (or Key Conditions in the case of DPLs, as appropriate): The project had five main components : Component 1: Local Capacity Building (Appraisal Estimate US$ 11\. 11 \.38 million Actual US$ 7\.48 million )\. To strengthen the technical and organizational capacity of the rural population so that they can prioritize, plan and execute the activities envisaged under the program including the preparation and implementation of local development plans, and organization into socially and economically cohesive rural municipalities \.There were three sub-components: awareness raising, village land management and inter village land management committee training programs, technical support to community organizations \. Component II : Local Investment Fund (Appraisal Estimate US$ 54\. 33 \.75 million )\. With two 54 \.79 million Actual US$ 33\. financing windows, one for financing village and inter -village subprojects (less than US$30,000) and a special window (greater than US$30,000-less than US$150,000) to provide the provinces with resources to undertake larger structural works\. Component III : Institutional Capacity Building (Appraisal Estimate US$ 26\. 79 million, Actual US$ 12\. 26 \.79million, 73 million ) To 12 \.73million build institutional capacity at the local, provincial and national level \. 82 million, Actual US$ 3\.10million Component IV : Land Tenure Security Pilot Operation (Appraisal Estimate US$ 3\.82million, 10 million ): To support several Government initiated experiments to improve tenure arrangements \. The objective of the pilot operation was to help improve land tenure security and access for all users \. It was expected to contribute to fostering equity and social peace, encouraging investment and raising agricultural productivity and enhancing the preservation and rehabilitation of natural resources \. Component V : Administration, Monitoring and Project Coordination (Appraisal Estimate US$ 10\. 10 \.30 10 \.94 Actual 10\. million ) To provide support for the coordination office /forum of the PNDRD program, support for the coordination and management of the IDA-supported project and support for program and project monitoring and evaluation \. During mid-term review the implementation arrangements for component IV on Land Tenure Security Pilot Operation were adjusted\. Activities under the component were grouped in two categories : (i) those related to policy, institutional, legal and normative measures to enhance equitable and sustainable land tenure security were made the responsibility of the national committee in charge of land tenure security in rural areas (CNSFMR Comite National de Securiation Fonciere en Milieu Rural), which was put in place in September 2002 by the Government within the Ministry of Agriculture, Hydraulics and Fisheries \. (ii) the project was accountable for activities to secure communities' investments in targeted pilot areas \. A decision was also taken at MTR to cover all villages within the 26 (out of 45) provinces covered by the project on the basis of a government request \. A reallocation of project funds in January 2006 allowed the project to scale-up from the initial target of 2,000 villages to 3,013 villages by the end of the project in June 2007\. A UNDP program to enhance consultation and local governance was launched in 2004 and attached to the project \. This program was implemented by the project coordination unit in support of the Local Capacity Building and Institutional Capacity Building components \. This program allowed savings in the capacity building components of the project that made it possible to increase the amount allocated to the Local Investment Fund \. d\. Comments on Project Cost, Financing, Borrower Contribution, and Dates: The designated level of the Special Account was found to be insufficient to meet the increasing demand for the Local Investment Fund as annual investment plans were approved \. Hence the project unit was facing immense difficulties in the timely transfer of funds to communities for micro -project implementation\. Following a review of projected cash flow needs and the project's implementation and financial management performance, the Credit Agreement was amended in March 2003 increasing the designated level in the Special Account from 1\.5 to 4\.5 billion FCFA\. In addition the allocation formula for support from the Local Investment Fund was also modified during MTR to allow smaller villages to finance basic priority infrastructure \. The project preparation period was lengthy \. It took two years to finalize the design \. The project was approved by the Board on November 30, 2000 after having been appraised in January 2000\. The Credit Agreement was signed on June 7, 2001 six months after Board approval \. The delay was due to difficulties in sorting out arrangements stipulated in the Credit Agreement with one of the financing partners and in coming to an agreement with the Government on the location of the Project Account \. The project became effective on December 12, 2001\. The expected Dutch commitment at project preparation did not follow through because of realignment of their development priorities in Burkina Faso \. This contribution was to support activities to promote renewable energy as part of the local investment funds \. Withdrawal of Dutch support reduced opportunities to finance micro -projects in this field\. At appraisal the government contribution was estimated at US$ 15\.41 million\. During the first year of implementation a national portfolio review conducted jointly by the government, the World Bank and other donors concluded that the large amount of the counterpart funding required for all projects hampered projects' disbursements \. The country faced several economic shocks that limited the government's ability to meet its counterpart commitment \. Based on a Government request, the Credit Agreement was revised and Government contribution was brought down to US$ 7\.41 million\. 3\. Relevance of Objectives & Design: Relevance of Objectives : As seen in section 2 above there were several formulations of the project objectives and this ICR review assesses the project against the objectives as stated in the Credit Agreement \. These objectives were relevant and entirely consistent with the goals of the government \. The government put emphasis on improving the revenues and living conditions of the rural population by increasing access to socioeconomic services and employment opportunities and promoting good governance at the local level \. Decentralization and participation were also heralded as pillars of sustainable development in the Policy Letter for decentralized rural development endorsed by the Government in 2000\. Relevance of Design : There were some weaknesses in design \. Four of the five components directly supported the project objectives\. The Land Tenure Security Pilot Operation component had a very ambitious goal which while relevant to the overall program goal of poverty reduction and sustainable development added a complexity to project design\. The component was expected to define and propose, on the basis of concrete experimentation in the field, an institutional, legal, technical and methodological framework for stable and equitable land tenure in rural areas \. This is a very complex issue and could have received support as a separate intervention \. 4\. Achievement of Objectives (Efficacy): Overall efficacy is rated substantial \. To assess efficacy the objectives are broken down into three : To assist the Borrower in reducing poverty and promoting sustainable development through a decentralized and participatory rural development strategy \. Poverty reduction and sustainable development was an overall program goal and the evidence below suggests that the project did contribute to this \. The project also provided support for a decentralized and participatory rural development strategy \. At the village level the project supported the establishment and strengthening of village associations through local capacity building programs and the introduction of a participatory planning process which were essential to progress on the government's decentralized rural development agenda\. The project support was also fundamental in the revision of the decentralization law and the installation of the communes\. There were some shortcomings in the project on the Land Tenure Pilot Operation \. The indicators according to the reassigned responsibilities under the revised component were met, but some of the original expectations from the component were not met \. The rural strategy helps improve the provision of services and socioeconomic infrastructure : A total of 18,250 micro-projects were designed and implemented and a total of 3,013 villages benefited from investments which covered numerous activities including social infrastructure (health, education and water supply ), productive and economic investments for improving agricultural and livestock production and natural resource management activities including those related to soil and water conservation \. The water and health infrastructures as well as associated sensitization programs in hygiene and family planning contributed to improving the condition of women though a beneficiary survey noted as a shortcoming the inadequate support for revenue generating activities favored by women\. Productive and natural resource micro -projects are reported to have contributed to increased productivity and reduced land degradation combined with higher awareness of the importance of sustainable resource management\. The rural strategy helps build the capacity of civil society and decentralized institutions : Village level : A total of 2,961 village management committees benefited from a wide range of capacity building programs and were able to elaborate and implement their local development plans \.98 percent of planned micro-projects were completed according to annual investment plans \. The committees benefited from a wide range of training sessions centered on organizational, management and technical issues \. A technical audit and a beneficiary assessment study regarding the impact of project's activities provides evidence of positive project outcomes \. Most of the village committee members trained by the project were elected in the new decentralized bodies and structures \. Provincial level : 45 provincial coordination committees were revitalized and trained \. These provincial committees are reported to have been instrumental in helping achieve a better consultation /communication between public services, development partners and other actors intervening in the provinces and have become vital ingredients in the Government's decentralization and planning strategy \. Overall 1,337 service providers were trained including consultant firms, local enterprises and local animateurs \. National level : The project initiated the establishment of a national forum for consultation among development partners on rural development\. The CNCPDR (Cadre national de Coordination des Partenaires du Developpement Rural) was created with project support and held meetings to harmonize views among partners on the decentralized rural agenda\. This led to the setting up of three technical committees to monitor socioeconomic, environmental and institutional impacts\. The project made a valuable contribution to the production and test of the manual for communal development planning in preparation of the rural decentralization process \.The project also initiated and supported the establishment of CNSFMR in charge of land tenure issues in rural area \. 5\. Efficiency (not applicable to DPLs): No rate of return was calculated at the appraisal stage \. The appraisal report noted that because of the demand driven, dispersed and flexible nature of activities supported, a standard quantitative cost -benefit analysis was not carried\. The appraisal document contains a qualitative discussion of efficiency \. As a part of project preparation for the second phase and the ICR exercise an economic analysis of the project's portfolio between 2002-2006 was carried out\. The analysis covered 71 percent of the portfolio including sub -projects in water supply, literacy centers, stone fences, compost pits, animal vaccination facilities, teacher housing and classrooms \. Field work was carried out in 30 villages covering six provinces \. Rates of return could be calculated for water supply, fences, compost pits and animal vaccination facilities\. An indicative ERR of 74 percent is reported\. However the cost and benefit streams for this calculation are not presented in the ICR \. The ICR also presents the results from a cost efficiency analysis which show that unit costs for the project were between 34 and 94 percent of sectoral comparators with the largest efficiency gains in social infrastructure \. ERR )/Financial Rate of Return (FRR) a\. If available, enter the Economic Rate of Return (ERR) FRR ) at appraisal and the re -estimated value at evaluation : re- Rate Available? Point Value Coverage/Scope* Appraisal No ICR estimate Yes 74% 53% * Refers to percent of total project cost for which ERR/FRR was calculated\. 6\. Outcome: Based on the assessment of relevance, efficacy and efficiency outcome is rated satisfactory \. a\. Outcome Rating : Satisfactory  7\. Rationale for Risk to Development Outcome Rating: The majority of infrastructure constructed was found to be in good condition by the survey conducted as a part of the ICR\. However the ICR also acknowledges the need for "more awareness regarding maintenance " (page 11)\. It notes that operation and maintenance fee should be collected on a regular basis to assure sustainablity of village investments\. The Beneficiary Surveys/Stakeholder workshops also point to the lack of capacity of certain service providers which negatively affected some projects \. The sustained financing of provincial coordination committees beyond the project support also remains a concern to be tackled during the second phase \. The project was the first phase of a 15 year APL\. The second phase was approved by the Board in March 2007\. The second phase was to scale up to national coverage and is expected to put more emphasis on sustainability and reinforcing capacities of communities, local and central government institutions to enhance operations and maintenance arrangements of infrastructure while continuing to support institutional reform \. a\. Risk to Development Outcome Rating : Moderate 8\. Assessment of Bank Performance: Quality at Entry : The project design was ambitious given the limited institutional capacity in the country \. The project preparation was long and the ICR notes that this was in large part due to the decision taken at the time of appraisal to build a national program that placed a stronger emphasis on the capacity building and institutional support necessary at all levels to support the rural decentralization agenda \. However change in task team leadership prior to project appraisal also seems to have contributed to delay in launch of project activities \. Further the Bank should have given greater attention to building adequate capacity for safeguard compliance during this long preparation period\. Quality of Supervision : Supervision was carried out regularly \. However appropriate skill mix was lacking in the period before MTR resulting in some inadequacy on the safeguard front \. That said problems were identified during supervision and adequate remedial measures were taken in most cases to keep project implementation on track\. at -Entry :Moderately Satisfactory a\. Ensuring Quality -at- b\. Quality of Supervision :Satisfactory c\. Overall Bank Performance :Satisfactory 9\. Assessment of Borrower Performance: Government Performance : Government counterpart commitment was adjusted through a revision to the DCA (section 2 above)\. Government commitment and ownership for the project was high and key government institutions responsible for the Decentralization policy and Land Tenure regulations worked closely with the project to ensure sound implementation of the project \. However the rapid scaling up of the project at MTR at the request of the Government hampered the effective implementation of M&E (page 8 ICR)\. This may have also increased the implementation challenge (including those related to safeguard compliance ) that the project faced because of the lack of competent service providers at the provincial level \. This scale up was also partly responsible for lack of follow through on an important appraisal decision \. At appraisal it had been decided that the functions of the project implementation unit would be retrenched after two years of implementation by handing over technical support to trained technical service providers \. However this change could not be brought about partly because of the ambitious scale up \. Repeated staff changes in the Commissions Provinciales d'Atribution des Marches also negatively influenced the quality of the procurement commission's evaluations \. Implementing Agency Performance : The national unit was well staffed and had a minimal turnover of staff which provided for continuity\. It has demonstrated ability and autonomy to manage and carry out the entire program \. There was no report of financial mismanagement or misprocurement at the national or provincial level \. The implementing agency was also able to adequately track project activities and progress against output and outcome indicators\. a\. Government Performance :Satisfactory b\. Implementing Agency Performance :Highly Satisfactory c\. Overall Borrower Performance :Satisfactory  10\. M&E Design, Implementation, & Utilization: M&E Design : The project took advantage of an already existing Danish project to support the government to develop a M&E system for the national program for decentralized rural development in which the project was embedded\.The M&E component was run until mid-term by the NRM component under the Danish financed project \. Danish support ended in 2005 and IDA financing had to be readjusted to take over the related M&E costs which came mainly from the capacity building components \. The project was designed to have a participatory M&E system relying largely on beneficiary input with quality control provided by Project provincial staff \. Project execution, output and outcome data was to be collected at the community level by the beneficiaries themselves \. The beneficiaries were to be trained by the project \. The data collected by the beneficiaries was to be computerized, analyzed and aggregated by the Operational team and made available to the Provincial Technical Coordination Committee and the Regional Office of the Ministry of Economy and Finance \. At this level the information was to be used to review the work program (supervision, approval of new investment budgets etc\.), improve coordination between development projects, NGOs and public agencies and monitor development impact\. The participatory M&E system was to have close link and coordination with the financial recording system \. M&E Implementation : Some external factors hampered the implementation of the M&E system : the time lag between approval of Danish financial support (February 2000) and the start up of the project (April 2002); the rapid evolution of the number of villages after mid-term review (more than 3000 villages against a target of 2000)\. In addition impact monitoring was also hampered by the cumbersomeness of the monitoring committees' operation combined with the difficulty of finding qualified service providers \. Shortcomings were also noted in the absence of baseline data for some key performance indicators and the slowness in developing participatory outcome evaluation \. M&E Utilization : Despite the delay, the project unit was able to track and report on several output indicators \. Personnel was adequately trained at national and provincial levels \. The project set up three committees to monitor socioeconomic, economic and environmental impacts \. The ICR notes that on the outcome side the impact evaluation work was particularly good and well documented with progress reports published each year since 2005\. The project also supported the government in conducting a national baseline survey in 2004 on living conditions, revenues and poverty of rural households in Burkina Faso \. a\. M&E Quality Rating : Substantial 11\. Other Issues (Safeguards, Fiduciary, Unintended Positive and Negative Impacts): Safeguard Compliance : The project was rated as an environmental Category B \. It triggered two safeguard policies : environmental assessment (OP4\.01) and natural habitat (OP4\.04)\. However it took some time for the project to comply with these policies\. Although the project was effective in December 2001 and implementation started in April 2002, the safeguard documents related to directives and methodologies for micro -projects selection in accordance with environmental and social management plans were elaborated only in August 2003\. Until MTR the project experienced difficulties in implementing activities of the Environmental and Social Management Framework due to lack of capacity of different players in charge of its execution \. Following recommendations of the MTR in December 2004, a capacity building workshop on environmental safeguard policies was held in January 2006 for concerned project staff\. The workshop allowed a better understanding of World Bank safeguard policies and helped the project unit set up a strategy to speed the implementation of safeguard policies triggered during appraisal \. The workshop was followed up with further training sessions and starting in 2006 screening criteria for micro-projects were integrated in every new co-financing agreement with the village land management committees and all ongoing investments in the villages before the implementation of the Environmental and Social Management Framework (between 2003 and 2005) were also regularized\. Fiduciary Compliance : Unqualified audit reports were delivered on time \. The first Financial Management Reports were submitted only in September 2004 and were deficient since they did not include the physical execution of project activities\. Since then they have been completed and submitted on a regular basis \. Procurement initially faced a number of constraints generally associated with a poor understanding of World Bank procurement procedures \. The unavailability of qualified service providers at provincial level was another source of delay for the contracts' awards leading to frequent unfruitful bids \. In addition repeated staff changes at the Commissions Provinciales d'Attribution des Marches negatively affected the quality of the procurement commissions' evaluation \. At the community level though simplified procurement procedures were well executed by most villages though low literacy rates of the communities was a constraint\. The project however contributed to raising the capacity at the village level to deal with procurement issues 12\. 12\. Ratings : ICR IEG Review Reason for Disagreement /Comments Outcome : Satisfactory Satisfactory Risk to Development Negligible to Low Moderate There are sustainability issues as Outcome : regards the operation and maintenance of village investments and financing of provincial coordination committees which need to be sorted out during the second phase\. Bank Performance : Satisfactory Satisfactory Borrower Performance : Highly Satisfactory Satisfactory The rapid scaling up of the project at MTR imposed some implementation challenges\. Quality of ICR : Exemplary NOTES: NOTES - When insufficient information is provided by the Bank for IEG to arrive at a clear rating, IEG will downgrade the relevant ratings as warranted beginning July 1, 2006\. - The "Reason for Disagreement/Comments" column could cross-reference other sections of the ICR Review, as appropriate \. 13\. Lessons: Building on the ICR the following lessons are emphasized : Projects aimed at capacity enhancement and community participation should explicitly and systematically monitor and evaluate the extent to which these are achieved using both quantitative and qualitative measures and appropriate baselines\. The execution of community based programs necessitates a good knowledge of local conditions and the adoption of simple management procedures \. In addition flexibility in implementation procedures is essential without which it would not be possible to execute a large number of micro -projects in a short time period\. Effective harmonization of donor activities is critical to maximize local development impact \. Not only is strong government leadership key to achieving this goal but what is also needed is commitment among donors to harmonize their support around a national program \. 14\. Assessment Recommended? Yes No Why? To verify the ratings and provide lessons of experience for the implementation of the other two phases \. 15\. Comments on Quality of ICR: The ICR is rated exemplary\. It is forthcoming about the project's positive achievements and shortcomings and provides an honest discussion of some of the challenges that remain \. It also provides a breakdown of the most significant subprojects type by activity, something which is rarely done in ICRs of such community level interventions \. It also makes an attempt to assess efficiency and calculate rates of return for those sub -project types where it was possible even though such an attempt was not made at the appraisal stage \. That said it could have provided more information on the effect of the scaling up of the project at MTR on project implementation \. a\.Quality of ICR Rating : Exemplary

REVIEW

P107101

 ICRR 14018 Report Number : ICRR14018 IEG ICR Review Independent Evaluation Group 1\. Project Data: Date Posted : 09/19/2013 Country : Afghanistan Project ID : P107101 Appraisal Actual Project Name : Kabul Urban Roads US$M ): Project Costs (US$M): 18\.0 16\.1 Improvement Project L/C Number : Loan/ US$M ): Loan /Credit (US$M): 18\.0 15\.6 Sector Board : Transport US$M): Cofinancing (US$M ): 0 0 Cofinanciers : Board Approval Date : 12/19/2008 Closing Date : 12/31/2010 12/31/2011 Sector (s): Roads and highways (70%); Public administration- Transportation (20%); General transportation sector (10%) Theme (s): Other urban development (90% - S); Infrastructure services for private sector development (10% - P) Prepared by : Reviewed by : ICR Review Group : Coordinator : Kavita Mathur Roy Gilbert Soniya Carvalho IEGPS1 2\. Project Objectives and Components: a\. Objectives: According to the Project Information Document (p\. 3) and Afghanistan Reconstruction Trust Fund Project Paper (p\. 4) the development objective of the project was to improve traffic flows on priority corridors or segments of the main urban roads in Kabul\. The Afghanistan Reconstruction Trust Fund Project Paper stated "For measurement of the outcome, length of roads rehabilitated (km) has been identified as the key indicator \. Various options were considered, including reduction in travel time and reduction in roughness or improvement in ride quality \. Travel time reduction was eventually discarded as significant improvement is not foreseen considering the traffic volumes and congestion on these main roads \. Roughness measuring equipment and baseline data was also not available, hence the only appropriate indicator to be considered was road length rehabilitated \." b\.Were the project objectives/key associated outcome targets revised during implementation? No c\. Components: The project comprised of two components : 1\. Improvement of the Road Network in Kabul (appraisal estimate US$14\.8 million, actual cost US$11\.7 million)\. This included carrying out investments for the improvement of key city roads in Kabul : (i) rehabilitation of 12 kms of existing roads; (ii) construction and rehabilitation of road side drains and walkways; (iii) construction of roundabouts at key intersections; and (iv) installation of street lights\. 2\. Project Management Support (appraisal estimate US$3\.2 million, actual cost US$4\.4 million)\. Provision of support to Kabul Municipality for preparation, design, implementation and supervision of the project; and establishment of a Project Management Unit within the Kabul Municipality to strengthen the institutional capacity of the Kabul Municipality\. d\. Comments on Project Cost, Financing, Borrower Contribution, and Dates:  Project Cost and Financing : The project was financed through a Grant from the Afghanistan Reconstruction Trust Fund (TF 93632)\. The appraisal estimate was US$18\.0 million\. According to the Operations Portal, the Grant amount disbursed was US$15\.6 million and US$2\.4 million was cancelled\. The the total project cost is US$ 16\.1 million\. The difference between the grant amount disbursed and total project cost is due to exchange rate fluctuations \. Borrower Contribution : None\. Dates The original grant closing date was extended by one year from December 31, 2010 to December 31, 2011 to Dates: complete the civil works contracts financed by the Grant \. The failure to put in place a competent Project Management Unit, poor contractor capacity, failure to make payments to either the consultant ($2\.3 million) throughout the first year, or to the contractor ($2\.1 million) throughout the first half year of operation contributed to the lengthy implementation delays (see section 9b below)\. The works that the consultant and the contractor expected would take 9 months, and which Kabul Municipality expected to be done in 4 months, actually took 33 months\. Therefore, during the more than two years that completion was delayed, traffic was disrupted and benefits were postponed \. 3\. Relevance of Objectives & Design: a\. Relevance of Objectives: Relevance of objectives: substantial \. The project objectives are consistent with the current World Bank Afghanistan Interim Strategy Note for the period FY12-14\. The Bank refreshed its commitment to the urban sector through the scaling up of the Kabul Urban Roads Project\. This was emphasized under the second pillar "Equitable Service Delivery"\. The project objectives were also in line with the Afghanistan Transport Sector Strategy which is part of the Afghanistan National Development Strategy (2008 - 2013) in which the Government set the following goal "Seventy percent of all roads in municipalities (i\.e\., cities) are rehabilitated and improved by the end of 2010"\. During the 2010 Kabul Conference, the Government set national priorities to rebuild essential infrastructure and restore key areas damaged during the two decades of conflict and the lack of investment during that long period \. b\. Relevance of Design: Relevance of design: modest \. The project development objective was clearly defined \. However, the project design focussed mainly on the rehabilitation of roads and did not include activities that would establish a traffic management system for the corridors such as introduction of physical barriers between opposite lanes, traffic signs, etc \. 4\. Achievement of Objectives (Efficacy): Improve traffic flow on priority corridors or segments of the main urban roads in Kabul : substantial (according to Section 2a, the Afghanistan Reconstruction Trust Fund Project Paper had indicated that the length of roads rehabilitated (km) was to be the main measure of Outcome )\. The project funded the rehabilitation of 11\.9 km of roads in Kabul almost meeting the target of 12 km but did not address other related factors causing traffic congestion \. All planned roundabouts and street lighting were also completed \. The ICR (p\. 8) reports that "both vehicular and pedestrian traffic movements have improved on city center streets that previously had been severely congested, causing long trip delays"\. Apart from this statement, the ICR does not provide any evidence on improved traffic flow \. 5\. Efficiency: At appraisal the Economic Rate of Return was estimated at 16 to 21 percent depending on the expected life of the rehabilitated pavements, which were estimated at 15 to 20 years\. The benefits included were reduction in vehicle operating costs and travel time \. No economic analysis was carried out at completion because Kabul Municipality lacked the capacity to conduct traffic counts or measure reduction in travel time \. According to the Project team, one year delay in Afghanistan is short compared to the implementation period for other projects which took three or more years more than planned to complete\. The final cost of the road improvements was 8 percent lower than the appraisal estimate \. Efficiency is rated modest \. ERR )/Financial Rate of Return (FRR) a\. If available, enter the Economic Rate of Return (ERR) FRR ) at appraisal and the re- re -estimated value at evaluation : Rate Available? Point Value Coverage/Scope*  Appraisal Yes 18\.5% 82% ICR estimate No * Refers to percent of total project cost for which ERR/FRR was calculated\. 6\. Outcome: The relevance of the project objectives is substantial, while the relevance of project design is rated modest \. Efficiency is rated modest\. Efficacy is rated substantial \. Overall outcome of the project is rated moderately satisfactory\. a\. Outcome Rating : Moderately Satisfactory 7\. Rationale for Risk to Development Outcome Rating: The risk to development outcome rating is assessed as high for the following reasons : The Kabul Municipality does not have a permanent unit to manage traffic and network improvements \. The institutional capacity developed under the project is not sustained \. The Kabul Municipality had difficulties finding qualified specialists for its project management unit and in retaining them as implementation proceeded \. After the completion of project works, the last two of the three members of the Project Management Units left for more attractive jobs elsewhere\. The ICR (p\. 9) reports that the Kabul municipality lacked the capacity to conduct formal traffic counts or measures of travel time once the works were completed \. The durability of the pavements constructed will be undermined unless the city -wide drainage problem is addressed\. The sidewalks are at risk of damage from parked cars \. a\. Risk to Development Outcome Rating : High 8\. Assessment of Bank Performance: a\. Quality at entry: At preparation Afghanistan was emerging out of decades of war and was highly fragile in security and capacity aspects\. The Bank was and still continues to operate through Interim Strategy Note to respond to the fast-evolving emergency needs of the country \. The project was prepared and approved under OP 8\.00 Rapid Response to Crises and Emergencies \. Most risks were appropriately identified \. The project proposal took into account the weak institutional capacity of the implementing agencies, procurement and financial management in its risk assessment and rated these risks as modest\. These risks were to be mitigated through the use of an implementation consultant and strong oversight by the Bank team\. However, the project proposal did not explicitly recognize the risk of limited local contractor capacity and unavailability of international consultants \. The skills required of consultants were not available locally, and only few international consultants submitted proposals \. This in a number of cases led to the rejection of all bids as unqualified, or acceptance of bidders whose qualifications proved to be marginal \. This contributed to delays in implementation \. The project objectives was stated in the Afghanistan Reconstruction Trust Fund Project Paper as improving traffic flow on priority corridors or segments of the main urban roads in Kabul, but the same Paper had indicated that the length of roads rehabilitated (km) was to be the main measure of Outcome -- this discrepancy should have been addressed as part of assuring quality at entry \. The project design did not include activities that would establish a traffic management system for the corridors and at key junctions, including introduction of physical barriers between opposite lanes, traffic signs and signaling, with associated regulations, enforcement mechanisms and incentives \. The project's M&E system was predominantly output oriented\. As discussed in "section 10" below, no baseline data was collected at appraisal and no-expost analysis was done \. The ICR notes that traffic flows would have improved had the design included activities that would establish a traffic management system for the corridors and at key junctions, including introduction of physical barriers between opposite lanes, traffic signs and signaling, with associated regulations, enforcement mechanisms and incentives (p\. 8-9)\. at -Entry Rating : Quality -at- Moderately Unsatisfactory b\. Quality of supervision: The Bank carried out the following supervision missions: twice in 2009, thrice in 2010 and then once in 2011 and 2012\. Besides the routine supervision missions the Bank team carried out weekly meetings with the project team, consultants and contractors, and closely followed up the payment process, despite the difficult working conditions in Afghanistan\. The aide memoirs adequately identified and provided solutions to the project's many implementation problems, especially financial management and staffing \. During implementation, the Bank could have introduced traffic management measures, and strengthened the project's M&E system \. Quality of Supervision Rating : Moderately Satisfactory Overall Bank Performance Rating : Moderately Satisfactory 9\. Assessment of Borrower Performance: a\. Government Performance: The ICR (p\. 11) reports that the Government stayed focused on the project and made a reasonable effort to create a conducive environment for implementation and openly discussed with the Bank's supervision team key issues and actions to be taken \. The Ministry of Finance managed the Grant account and was partly responsible (together with the Kabul Municipality) for the delays in procurement and payment processes (see section 9b below)\. Government Performance Rating Moderately Satisfactory b\. Implementing Agency Performance: The Kabul Municipality's failure to attract and retain qualified people at the Project Management Unit was partly responsible for the initial delays during implementation \. The Project Management Unit staffing was delayed \. The three positions that were expected to be filled by December 2008 were not filled until February, May, and July 2010 respectively\. Others factors that led to implementation delays were : The budget committee was appointed late by the Kabul Municipality and remained barely functional \. The civil works contractor encountered difficulty in getting access to construction sites on heavily trafficked streets in the center of Kabul \. Poor contract management by the Kabul Municipality leading the implementation consultant to unilaterally terminate his contract, which in turn prompted the suspension of the civil works for over nine months \. The contractor's early invoices were kept unapproved by the Kabul Municipality during this period for lack of certification by the supervising engineer, who was not available for the above reason \. Even in the period when works proceeded, poor financial management resulted in excessive delays to the contractor's payments, which led to a shortage of the contractor's cash flow and eventual slowing down of construction activities\. The long delays in processing interim payments to the contractor can be attributed to very clumsy clearance requirements (as many as 40 - 45 signatures), mainly in Kabul Municipality but also in Ministry of Finance and a widespread lack of internal management systems and skills to tackle this problem \. With a new mayor in November 2009, the implementation of the project improved \. The Bank’s October 2010 supervision mission noted a significant improvement in progress and project management \. Physical progress of project works had reached 56% at the end of October 2010 from 29% in July 2010\. The Kabul Municipality had cleared all outstanding payments due to the contractor and the Implementation Consultant; and subsequently the quality of road works showed improvement \. In 2010 the quality of the asphalt pavement on some roads was found to be unsatisfactory \. The contractor replaced the defective sections at his own expense \. To improve the quality of roads, the Kabul Municipality made following arrangement with the contractor : (i) the contractor would provide asphalt mix only from suppliers approved by the Implementation Consultant; and (ii) the supervising consultant would deploy on a permanent basis a qualified inspector at the asphalt mix production site to certify all batches produced for the project, each time the supply to the project was processed \. Implementing Agency Performance Rating : Moderately Unsatisfactory Overall Borrower Performance Rating : Moderately Satisfactory 10\. M&E Design, Implementation, & Utilization: a\. M&E Design: The project M&E included only outputs indicators to measure the physical completion of works and services of the consultant\. The length of the road improved is not an adequate indicator for traffic flows \. The reduction in travel time is a good indicator, however, the ICR notes (p\. 5-6) travel time reduction was not included as significant improvements were not foreseen "considering the traffic volumes and congestion on these main roads "\. If this was the case, the project design should have included traffic management activities that would have resulted in reduced congestion/improved traffic flows\. b\. M&E Implementation: M&E implementation consisted primarily of reporting on implementation of civil works and maintenance of related financial records\. The ICR (p\. 9) reports that the Kabul municipality lacked the capacity to conduct formal traffic counts or measures of travel time once the works were completed \. c\. M&E Utilization: Monthly and quarterly progress reports submitted by the contractor provided a reasonable account of the project progress and key issues with practical recommendations \. Monitoring by the supervision consultant identified poor quality of roads\. Following the 2010-11 winter season some defects appeared in the asphalt surfacing, which upon close inspection were found to be caused by poor workmanship and substandard quality of asphalt mix \. The contractor took steps at his own expense to remove the pavement and reconstruct it under the close supervision of the consultant\. Monitoring of construction activities also led to adoption of the improved designs for the roadside drains\. M&E Quality Rating : Negligible 11\. Other Issues a\. Safeguards: The project was prepared under OP -BP 8\.00- Rapid Response to Crisis and Emergencies \. The project was assigned Environmental Category "B" and two safeguard policies: Environmental Assessment (4\.01) and Physical Cultural Resources (4\.11) were triggered\. The Integrated Safeguards Data Sheet stated that there will be no resettlement, but this will only be known after detailed surveys \. The Environmental and Social Management Framework would provide clear guidelines for any land or asset acquisition \. According to the ICR (p\. 6) "The consultant‘s specialist in environmental and social impacts ensured that Bank safeguard guidelines were respected \." According to the Project Paper (p\. 10) the Kabul Municipality had prepared an Environmental and Social Management Plan (ESMP) for the project roads in accordance with the Environmental and Social Safeguard Framework for emergency reconstruction projects in Afghanistan as agreed between the World Bank / IDA and Government of Afghanistan\. The ESMP is not available in the World Bank's Imagebank \. The main environmental concern was accumulated garbage and construction debris blocking drains and the lack of any network of larger storm drains to carry rain and melted snow away from the city center \. The natural drainage is into the Kabul River, which runs through the heart of the old city \. The project design did not include the broader drainage problem of the city which was expected to be very costly \. Small drainage works were included in the project\. During implementation, the consultant suggested a revised design for the roadside drains as the initial design was an open ditch, which was found to be blocked by the garbage thrown out from dwellings and shops \. In response, alternative designs were adopted using either steel grills or solid concrete blocks that could be easily removed to give access to the drain\. The ICR (p\. 17) reports that the October 2010 supervision mission rated safeguard management satisfactory \. Improvements had been made through a number of measures, including deploying a safeguard specialist under the consultants contract, and training sessions for the contractors and the consultants teams \. The ICR (p\. 5) reports that there was no resettlement, as the civil works were all within the existing alignment \. For the same reason the project did not require cutting down of trees \. The consultations with persons affected by the works were held by safeguards specialist \. As a result of these consultations, the Kabul Municipality took following steps : (i) it relocated mobile vendor's stalls away from the roadway (no compensation was required); (ii) it took (limited) measures to discipline on-street parking; and (iii) introduced movable concrete slabs that separated traffic going in opposite directions, and in some locations marked off lanes reserved for pedestrians and cyclists \. b\. Fiduciary Compliance: Fiduciary Management : According to the ICR (p\. 7), "The project closed with a Moderately Satisfactory FM supervision rating\." The Government of Afghanistan, with assistance from the World Bank Afghanistan Reconstruction Trust Fund was implementing Public Financial Management reforms \. Under these reforms proper records of grants received and disbursements through the designated account were maintained by the Ministry of Finance, Special Disbursement Unit \. Initially the system was manual, but later migrated to the Afghanistan Financial Management Information System\. The project benefitted from these reforms \. The ICR (p\. 6-7) reports that: Proper records of eligible expenditure for various components and activities were maintained by the implementing agency – Kabul Municipality through the Project Management Unit; Regular interim un-audited financial reports in the agreed format by the Bank were submitted during the life of the project\. Annual audited financial statements were submitted regularly \. The audit opinion of the Control and Audit Office of Afghanistan was qualified for the initial year but thereafter the audit opinion was unqualified \. Audit observations were promptly resolved \. Procurement : According to the ICR (p\. 7) "Procurement performance under the project was moderately satisfactory \." All procurement was conducted in accordance with the Bank ‘s guidelines (ICR p\. 7)\. Since no procurement capacity existed in the Kabul Municipality, the implementation consultant was tasked to perform the major procurement of the project, namely the civil works\. The firm prepared bidding documents and bid evaluation reports for the civil works \. Most of the bids were deficient in one way or another, requiring extensive consultation between the Implementation Consultant and the Bank and ultimately rejection as non -responsive\. It took several months before the bid evaluation reports could be finalized (delaying contract award for the works \. The bidding for the four works packages in September 2008 received very few bids, and one contractor, an Afghan firm, submitted the lowest bids for the first two packages, and was awarded the contract in February 2009\. No acceptable bids emerged for the third and fourth packages, which had to be rebid \. The sole qualified bidder in the second round was the same contractor who had won the first two package s\. The ICR does not state which firm was finally awarded the contract for the third and fourth packages \. c\. Unintended Impacts (positive or negative): None\. d\. Other: None\. 12\. 12\. Ratings : ICR IEG Review Reason for Disagreement /Comments Outcome : Satisfactory Moderately The relevance of the project objectives Satisfactory is substantial, while the relevance of project design is rated modest \. Efficiency is rated modest\. Efficacy is rated substantial\. Risk to Development Significant High The ICR (p\. 10) rates the Risk to Outcome : Development Outcome "Significant to High\." Bank Performance : Moderately Moderately Satisfactory Satisfactory Borrower Performance : Moderately Moderately  Satisfactory Satisfactory Quality of ICR : Satisfactory NOTES: NOTES - When insufficient information is provided by the Bank for IEG to arrive at a clear rating, IEG will downgrade the relevant ratings as warranted beginning July 1, 2006\. - The "Reason for Disagreement/Comments" column could cross-reference other sections of the ICR Review, as appropriate\. 13\. Lessons: The following lessons are taken from the ICR with some adaptation :(p 12 -13): In the absence of implementation capacity in the implementing agency, it is prudent to ensure the establishment of a strong project management unit well before financing becomes effective \. Project Preparation Funds may be used to employ essential staff of the unit before the project is approved \. The implementing agencies must be made aware of their obligation to pay their bills on time, when the work has been done in compliance with the contract \. This requires training staff to understand the requirements of the contracts and payment procedures, financial management systems, and appropriate delegation of decision authority\. Contract packaging should be done to limit the number /size of contracts that can be awarded to a single contractor to an appropriate level \. This can mitigate the risk of over -relying on a single contractor and possible poor implementation performance\. IEG Lesson: Projects that aim at reduction in traffic congestion should include activities that would establish a traffic management system for the corridors and at key junctions, including introduction of physical barriers between opposite lanes, traffic signs and signaling, with associated regulations, enforcement mechanisms and incentives\. 14\. Assessment Recommended? Yes No Why? To verify the ratings and document lessons \. 15\. Comments on Quality of ICR: The ICR offers a good discussion of factors that positively and negatively influenced the project \. The lessons are based on experience\. However the ICR has some shortcomings : (i) the ICR is mostly output based; and (ii) the ICR makes assertions without evidence, for example, the ICR (p\. 18) states that the economic return cannot be re-estimated with any precision, as no traffic counts have been made since completion, and trip times have not been measured systematically\. However, it continues to state that there has been a distinct improvement in traffic flow, despite marked growth in the vehicle fleet, suggesting that the economic return estimated at appraisal will be achieved or exceeded\. No evidence is provided to support this \. a\.Quality of ICR Rating : Satisfactory

REVIEW

P054125

 ICRR 12595 Report Number : ICRR12595 IEG ICR Review Independent Evaluation Group 1\. Project Data: Date Posted : 04/18/2007 PROJ ID : P054125 Appraisal Actual Project Name : Ozone Depleting US$M ): Project Costs (US$M): 9\.7 2\.9 Substances Phase-out Project (montreal Protocolo) Country : Colombia Loan/ US$M ): Loan /Credit (US$M): 8\.7 2\.6 Sector Board : ENV Cofinancing (US$M ): US$M): 1\.0 0\.3 Sector (s): Other industry (97%) Central government administration (3%) Theme (s): Pollution management and environmental health (100% - P) L/C Number : Board Approval Date : 06/18/1999 Partners involved : Closing Date : 06/30/2004 06/30/2006 Evaluator : Panel Reviewer : Group Manager : Group : Robert Mark Lacey Roy Gilbert Alain A\. Barbu IEGSG 2\. Project Objectives and Components: a\. Objectives: The project’s principal objective was to assist in phasing out ozone-depleting substances (ODS) use in Colombia within the framework of the Montreal Protocol (MP)\. This is the only objective mentioned in the legal agreement\. The other objective cited in the Project Document (PD) and the ICR – protecting the ozone layer – is impossible to achieve through a single project in one country, and also impossible to evaluate\. The ICR de facto ignores it after the initial mention\. b\.Were the project objectives/key associated outcome targets revised during implementation? No c\. Components (or Key Conditions in the case of DPLs, as appropriate): The project had three components: 1\. Sub-projects in Colombian enterprises that wished to switch from ODS-intensive production processes\. The project financed new equipment, initial operating costs and training under this main component\. Disbursements amounted to US$ 2\.5 million, compared to an appraisal estimate of US$8\.4 million 2\. Technical assistance/financial agency fee of three percent of disbursements allocated to the Agencia Colombiana de Cooperación Internacional (ACCI) to strengthen government management of Montreal Protocol (MP) operations, and to cover procurement, auditing, monitoring and general administrative services (US$0\.30 at appraisal, US$0\.09 at closure) 3\. Small operating costs such as fees, office supplies and travel expenses\. Revisions\. There were no revisions to the project components\. d\. Comments on Project Cost, Financing, Borrower Contribution, and Dates: Project Cost\. Total project costs at completion were US$2\.9 million, less than a third of the US$9\.7 million estimated at appraisal (see Section 4 below)\. Financing\. Almost all the implemented sub-projects required counterpart financing (total US$300,000) from the firms involved to cover expenses which were not eligible under the MPMF\. Dates\. At the Borrower’s request, the original closing date of June 30 2004, was extended by two years until June 30, 2006\. This was to enable completion of ongoing activities within a number of sub-projects\. The main causes of delay were complicate documentation requirements at various phases of implementation and EXCOM’s demanding definition of project completion (the date when production with the new equipment and substance begins; no consumption of ODS remains; and baseline equipment has been destroyed)\. 3\. Relevance of Objectives & Design: The project was highly relevant to Colombia’s efforts to meet its commitments under the Montreal Protocol and fully consistent with CAS goals\. It was also timely, since under the Protocol, developing countries were expected to reduce their consumption of CFC by 50 percent by 2005 and 85 percent by 2007\. Project design was also relevant and appropriately targeted towards key ODS consuming sectors, including mobile air conditioners, refrigeration, rigid foams and sterilants\. 4\. Achievement of Objectives (Efficacy): Although the grant was under-used, the outcome of the project is rated as Satisfactory\. Of the 18 sub-projects pre-identified at appraisal, 12 were actually implemented, and 10 completed (one of the remaining two companies went bankrupt and the other was transferred to UNDP)\. This reduced the anticipated ODS reduction from the project from 596 tonnes to 255 tonnes\. The under-usage of the grant did not result from over-design, but from a series of actions and policy decisions, mostly exogenous to the project, taken during project implementation: (a) exclusion of the eligibility of the supermarket sector (identified as a Priority in the PAD) for MP financing; (b) inclusion of umbrella projects which were difficult to prepare and implement, leading to frequent differences between predicted and actual disbursements; (c) preparation of a National ODS Phase-out Plan (NPP), causing a more accelerated phase-out than that originally planned and hence reducing activities eligible for funding under the project; (c) designation of the UNDP as implementing agency for the NPP, diminishing activity allocations to the Bank and hence to the project; (d) a recession during project implementation lowering ODS consumption to levels from which they never subsequently recovered; (e) development of new technologies reducing the overall costs of conversion projects; and (f) like similar grants elsewhere, this one was a ceiling rather than a disbursement target\. The fewer-than-anticipated number of ODS sub-projects financed by the grant does not detract from the efficacy of the disbursements which were made – 83 percent of the amounts actually approved by EXCOM were disbursed for sub-projects, and 87 percent of the phase-out targets corresponding to these sub-projects were achieved\. Ten sub-projects, involving a total of 43 enterprises, were financed by the grant and satisfactorily implemented, and these projects resulted directly in a reduction of 255 tonnes of ODS consumption between 1999 and 2005\. The grant was established as part of a wider program to ensure that Colombia’s CFC consumption decreased from a baseline of over 2,200 tonnes of CFC in 1999 to about 1,100 tonnes by 2005, in accordance with the country’s MP obligations\. Consumption in that year was in fact 556 tonnes, some 50 percent below this quota\. Colombia is, therefore, very well positioned to meet its 75 percent reduction target for 2007, and its commitment to a complete phase-out by 2010\. The project also contributed to Colombia’s wider ODS phase-out program by helping to build capacity\. The active involvement of ACCI, and the Ozone Technical Unit in the Environment Ministry, in all aspects of project implementation was a key contributory factor in the phase-out program’s broader success\. 5\. Efficiency (not applicable to DPLs): Project efficiency is satisfactory\. Rather than an ERR, eligible funding under the Montreal Protocol is determined by cost effectiveness\. Costs for each sector must fall within pre-established cost effectiveness thresholds, measured in terms of US dollars per kg unit of ozone depleting potential (ODP)\. All sub-projects financed by the grant complied with this criterion, except for the mobile air-conditioning sector, for which no threshold was set\. The figures are as follows: Sector Threshold (US$/kg ODP) Achieved cost (US$/kg ODP) Sterilization 19\.73 10\.20 Rigid foams 9\.53 9\.14 Refrigeration 15\.21 11\.65 ERR )/Financial Rate of Return (FRR) a\. If available, enter the Economic Rate of Return (ERR) FRR ) at appraisal and the re -estimated value at evaluation : re- Rate Available? Point Value Coverage/Scope* Appraisal % % ICR estimate % % * Refers to percent of total project cost for which ERR/FRR was calculated\. 6\. Outcome: The project’s development objectives remained relevant and were achieved\. The under-usage of the grant was due to factors external to the project\. Assisted by appropriate government intervention and by market forces which diminished ODS consumption, the reduced project still made an important contribution to reduced ODS consumption in Colombia and to the country’s success in carrying out its overall ODS phase-out program\. The total grant amount is, in any case, an indicative ceiling rather than a disbursement target\. a\. Outcome Rating : Satisfactory 7\. Rationale for Risk to Development Outcome Rating: Colombia continues to show strong commitment to achieving its Montreal Protocol commitments \. Investment and TA projects financed by the Bank and UNDP have been successfully implemented over the past 12 years, and about 75 percent of ODS consumption has already been phased out\. Companies which received assistance from the MPMF were provided with new equipment, training and incremental operating costs, and old equipment was destroyed\. It is, therefore, highly unlikely that enterprises will revert to ODS-intensive processes\. In parallel to its NPP and the sub-projects, the Government has enacted regulations controlling imports of ODS and their use in manufacturing sectors \. Global supply of ODS is projected to be reduced to virtually zero by 2010\. There is an ongoing institutional strengthening project, financed by the MPMF (implemented through UNDP) which will last at least through 2010\. a\. Risk to Development Outcome Rating : Negligible to Low 8\. Assessment of Bank Performance: Quality-at-entry was satisfactory\. Project design was sound, and the sectors and sub-projects carefully and appropriately targeted\. Bank staff worked closely with implementing agencies and implicated their staff in sub-project preparation and implementation\. Specialized consultants were financed to support the Government in key areas such as the design of technically challenging sub-projects and market studies to determine optimal phase-out strategies\. Supervision was adequate: good working relations with counterparts were established and maintained; supervision missions took place at least twice a year except in the last year of the project’s life when one mission was undertaken; during the missions, the companies with projects under implementation were visited; the stringent reporting requirements of the MPMF Secretariat were complied with, and Project Supervision Reports were introduced in FY00 to mainstream Montreal Protocol operations; aide-memoires were prepared at the conclusion of each mission\. at -Entry :Satisfactory a\. Ensuring Quality -at- b\. Quality of Supervision :Satisfactory c\. Overall Bank Performance :Satisfactory 9\. Assessment of Borrower Performance: The Government’s commitment to ODS phase-out, and hence to the project’s objectives is strong\. Pertinent regulation to control imports and consumption has been enacted and enforced at national level\. The implementing agencies performed satisfactorily – the Environment Ministry fulfilled its responsibilities of producing high quality project documents and supervision reports on time and preparing for Bank missions\. ACCI worked closely with the Bank to minimize delays due to the management of MPMF resources\. ACCI was also closely and effectively involved in the identification and supervision of sub-projects\. a\. Government Performance :Satisfactory b\. Implementing Agency Performance :Satisfactory c\. Overall Borrower Performance :Satisfactory 10\. M&E Design, Implementation, & Utilization: The performance indicators designed for the project are clear, quantified and easy to follow\. The logframe table in the ICR uses the same indicators as does the PD\. The indicators show Colombia’s progress in complying with its overall MP obligations, the number of sub-projects financed under the grant, and the direct contribution of the sub-projects to overall ODS reduction\. The hierarchy and causality are clear\. Detailed indicators were also developed for each sub-project both at appraisal and at completion\. These enable comparisons between anticipated and actual financing requirements and timing, as well as between anticipated and actual impact in terms of ODP\. a\. M&E Quality Rating : Substantial 11\. Other Issues (Safeguards, Fiduciary, Unintended Positive and Negative Impacts): Environment\. The project was rated category B since no major negative environmental impact was anticipated\. Participating enterprises were responsible for meeting emission standards, preparing environmental data sheets (no environmental impact assessments were required), and obtaining environmental licenses as required by both Colombian law and Bank guidelines\. Under EXCOM sector guidelines, replacement substances were evaluated and approved\. All environmental consequences were therefore positive\. The limited number of safety issues connected with some individual replacement substances were addressed on a case-by-case basis\. Resettlement No resettlement was associated with the project\. Fiduciary compliance was assured by ACCI which managed all sub-project disbursements\. The agency managed the twice yearly project audits required by the Bank\. There were no issues regarding this work\. ACCI also evaluated the financial viability of beneficiary agencies in accordance with criteria agreed with the Bank\. Although the enterprises presented a spectrum of financial circumstances, there were few cases of delay associated with financial weakness, and only one case of cancellation of a sub-project due to the bankruptcy of the company\. 12\. 12\. Ratings : ICR IEG Review Reason for Disagreement /Comments Outcome : Satisfactory Satisfactory Risk to Development Negligible to Low Negligible to Low Outcome : Bank Performance : Satisfactory Satisfactory Borrower Performance : Satisfactory Satisfactory Quality of ICR : Satisfactory NOTES: NOTES - When insufficient information is provided by the Bank for IEG to arrive at a clear rating, IEG will downgrade the relevant ratings as warranted beginning July 1, 2006\. - The "Reason for Disagreement/Comments" column could cross-reference other sections of the ICR Review, as appropriate \. 13\. Lessons: The main lessons are: 1\. The National Phase-out Plan, which takes account of the broad national picture, leads to greater and more timely success than following an individual project-by-project approach\. The Plan, supported by UNDP in Colombia’s case, gives the Government both responsibility and flexibility through performance-based agreements\. This allows the Authorities to adapt specific operations to the country and sector context, and to ensure a close fit between individual investments and broader policy level actions\. 2\. The umbrella approach adopted in the subprojects is appropriate since it achieves economies of scale and accelerates the pace of conversion in a given sector\. 3\. The phase-out achievements in individual sub-projects must be underpinned by an appropriate regulatory framework to control imports and consumption of ODS\. This was accomplished in Colombia’s case\. 4\. In most countries, there is room for only one international agency as the main policy interlocutor on Montreal Protocol issues\. Despite the success of the Bank-supported subprojects and generally good rapport with the Government, it is UNDP, rather than the Bank, which is the lead MP external partner in Colombia\. As implementing agency for the NPP and the principal provider of institutional support on ODS phase-out, UNDP has a higher and more productive level of policy dialogue on MP issues with the Government than does the Bank\. 5\. The indicative ceiling approach to MP grants is appropriate since it enables a flexible response to changing circumstances\. 6\. Close supervision and oversight by the relevant government agency are critically important since relatively small problems can delay implementation for months\. 7\. Documentation and reporting requirements for the MPMF are extremely rigorous and time consuming\. As the Government points out in its comments, it would be beneficial to consider easing some of these requirements especially in the case of small and medium-sized beneficiary enterprises\. 14\. Assessment Recommended? Yes No 15\. Comments on Quality of ICR: The ICR gives a clear picture of the project, its evolution and the issues which arose during preparation and implementation\. Substantial information and analysis is provided, and there is a good fit between the textual analysis and the ratings, although the document is quite long and includes some unnecessary repetitions\. Also, it is inappropriate to include “protection of the ozone layerâ€? as an objective of this project (see section 2a) and the ICR should not have referred to “Bank-implementedâ€? projects or subprojects, since implementation is the responsibility of the grant beneficiary\. On balance, however, this is a satisfactory ICR\. a\.Quality of ICR Rating : Satisfactory

REVIEW

P115816

 Document of The World Bank Report No: ICR00001729 IMPLEMENTATION COMPLETION AND RESULTS REPORT (P115816, TF-94028) ON A GRANT IN THE AMOUNT OF US$35\.0 MILLION TO THE REPUBLIC OF RWANDA FOR A EDUCATION FOR ALL – FAST TRACK INITIATIVE CATALYTIC FUND BASIC EDUCATION DEVELOPMENT POLICY GRANT June 7, 2011 Africa Education Department AFMRWCT Africa Region  CURRENCY EQUIVALENTS (Exchange Rate Effective April 28, 2011) Currency Unit = Rwandan Franc US$ 1\.00 = RWF 597 FISCAL YEAR July 1 - June 30 (from July 1, 2009) ABBREVIATIONS AND ACRONYMS CEO Chief Executive Officer CF Catalytic Fund CFC Catalytic Fund Committee CPAF Common Performance Assessment Framework DFID Department for International Development (UK) DPO Development Policy Operation EQR External Quality Review FTI Fast Track Initiative GOR Government of Rwanda ICR Implementation Completion and Results Report IEG Independent Evaluation Group (of the World Bank) IP Implementation Progress KIE Kigali Institute of Education M&E Monitoring and Evaluation MINEDUC Ministry of Education NGO Non-Governmental Organization PDO Project Development Objective PRSG Poverty Reduction Support Grant SE Supervising Entity TSC Teacher Service Commission Vice President: Obiageli K\. Ezekwesili Country Director: Johannes Zutt Sector Manager: Peter Materu (Acting) Task Team Leader: Margo A\. Hoftijzer ICR Team Leader: Olav Rex Christensen  REPUBLIC OF RWANDA Education for All – Fast Track Initiative Catalytic Fund Basic Education Development Policy Grant Contents  A\. Basic Information \. ii  B\. Key Dates \. ii  C\. Ratings Summary \. ii  D\. Sector and Theme Codes\. iii  E\. Bank Staff \. iii  F\. Results Framework Analysis \. iii  G\. Ratings of Program Performance in ISRs \. v  H\. Restructuring (if any) \. v  1\. Program Context, Development Objectives and Design \. 1  1\.1 Context at Appraisal \. 1  1\.2 Original Program Development Objectives (PDO) and Key Indicators (as approved) \. 5  1\.3 Revised PDO (as approved by original approving authority) and Key Indicators, and Reasons/Justification \. 6  1\.4 Original Policy Areas Supported by the Program (as approved) \. 6  1\.5 Revised Policy Areas (if applicable)\. 6  1\.6 Other significant changes \. 6  2\. Key Factors Affecting Implementation and Outcomes \. 6  2\.1 Program Performance \. 7  2\.2 Major Factors Affecting Implementation \. 7  2\.3 Monitoring and Evaluation (M&E) Design, Implementation and Utilization \. 8  2\.4 Expected Next Phase/Follow-up Operation \. 8  3\. Assessment of Outcomes \. 9  3\.1 Relevance of Objectives, Design and Implementation \. 9  3\.2 Achievement of Program Development Objectives \. 10  3\.4 Justification of Overall Outcome Rating \. 11  3\.5 Overarching Themes, Other Outcomes and Impacts \. 11  4\. Assessment of Risk to Development Outcome \. 12  5\. Assessment of Bank and Borrower Performance \. 13  5\.1 Bank Performance \. 13  5\.2 Borrower Performance \. 13  6\. Lessons Learned\. 14  7\. Comments on Issues Raised by Borrower/Implementing Agencies/Partners\. 16  Annex 1\. Bank Lending and Implementation Support/Supervision Processes\. 17  (a) Task Team members\. 17  (b) Staff Time and Cost\. 17  Annex 2\. Summary of Borrower's ICR and/or Comments on Draft ICR \. 18  Annex 3\. Comments of Co financiers and Other Partners/Stakeholders \. 23  Annex 4\. List of Supporting Documents \. 24  MAP \. 25  A\. Basic Information Education For All - Fast Track Initiative Country: Rwanda Program Name: Catalytic Fund Bridge Grant Program ID: P115816 L/C/TF Number(s): TF-94028 ICR Date: 06/29/2011 ICR Type: Core ICR MINISTRY OF Lending Instrument: DPL Borrower: FINANCE AND ECON\. PLANNING Original Total USD 35\.00M Disbursed Amount: USD 35\.00M Commitment: Revised Amount: USD 35\.00M Implementing Agencies: Ministry of Finance and Economic Planning Cofinanciers and Other External Partners: B\. Key Dates Revised / Actual Process Date Process Original Date Date(s) Concept Review: 02/13/2009 Effectiveness: 01/22/2010 12/23/2009 Appraisal: Restructuring(s): Approval: 10/09/2009 Mid-term Review: Closing: 06/30/2010 06/30/2010 C\. Ratings Summary C\.1 Performance Rating by ICR Outcomes: Satisfactory Risk to Development Outcome: Moderate Bank Performance: Moderately Satisfactory Grantee Performance: Satisfactory C\.2 Detailed Ratings of Bank and Borrower Performance (by ICR) Bank Ratings Borrower Ratings Quality at Entry: Moderately Satisfactory Government: Satisfactory Implementing Quality of Supervision: Satisfactory Moderately Satisfactory Agency/Agencies: Overall Bank Overall Borrower Moderately Satisfactory Satisfactory Performance: Performance: i C\.3 Quality at Entry and Implementation Performance Indicators Implementation QAG Assessments Indicators Rating: Performance (if any) Potential Problem Quality at Entry Program at any time No None (QEA): (Yes/No): Problem Program at any Quality of No None time (Yes/No): Supervision (QSA): DO rating before Satisfactory Closing/Inactive status: D\. Sector and Theme Codes Original Actual Sector Code (as % of total Bank financing) Pre-primary education 5 5 Primary education 65 65 Secondary education 30 30 Theme Code (as % of total Bank financing) Education for all 100 100 E\. Bank Staff Positions At ICR At Approval Vice President: Obiageli Katryn Ezekwesili Obiageli Katryn Ezekwesili Country Director: Johannes C\.M\. Zutt Johannes C\.M\. Zutt Sector Manager: Peter Nicolas Materu Lynne D\. Sherburne-Benz Program Team Leader: Margo A\. Hoftijzer Margo A\. Hoftijzer ICR Team Leader: Olav Rex Christensen ICR Primary Author: Olav Rex Christensen F\. Results Framework Analysis Program Development Objectives (from Project Appraisal Document) The Program Development Objective is to support the GoR#s policy reforms on Teacher Development and Management, Textbooks, and Girls# Education with the overall aim to improve the quality of basic education\. Revised Program Development Objectives (if any, as approved by original approving authority) ii (a) PDO Indicator(s) Original Target Formally Actual Value Values (from Revised Achieved at Indicator Baseline Value approval Target Completion or documents) Values Target Years Deputy CEO for teacher development and management appointed under the Indicator 1 : Rwanda Education Board Value (quantitative or 0 1 1 Qualitative) Date achieved 09/04/2009 09/04/2009 02/11/2010 Comments (incl\. % 100%\. achievement) #Awarded textbook status# given to publishers for up to four textbooks per Indicator 2 : subject for Grades 1-12 Value (quantitative or 0 1 1 Qualitative) Date achieved 09/04/2009 09/04/2009 02/11/2010 Comments (incl\. % 100% achievement) Core gender-sensitive indicators available and discussed during the annual Indicator 3 : Joint Review of Education Sector Value (quantitative or 0 1 1 Qualitative) Date achieved 09/04/2009 09/04/2009 02/11/2010 Comments (incl\. % 100% achievement) (b) Intermediate Outcome Indicator(s) Original Target Actual Value Formally Values (from Achieved at Indicator Baseline Value Revised approval Completion or Target Values documents) Target Years Indicator 1 : Textbook evaluators trained Value (quantitative or 0 250 300 Qualitative) Date achieved 09/04/2009 09/04/2009 02/11/2010 iii Comments (incl\. % 120% achievement) Indicator 2 : Number of schools with Textbook Selection Committee established Primary: 1926 out Value Primary: 0 out of 2408 of 2408 Primary: 2408 (quantitative or Secondary: 0 out of Secondary: 1159 Secondary: 1449 Qualitative) 1449 out of 1449 Date achieved 09/04/2009 09/04/2009 02/11/2010 Comments (incl\. % 125% achievement) Indicator 3 : Guidelines for in-service teacher training providers developed Value (quantitative or 0 1 1 Qualitative) Date achieved 09/04/2009 09/04/2009 02/11/2010 Comments (incl\. % 100% achievement) Disseminate Girls# Education Policy to every district, including awareness Indicator 4 : raising workshops with relevant stakeholders to include NGOs, faith-based organizations, and school administrators Value (quantitative or 0 1 1 Qualitative) Date achieved 09/04/2009 09/04/2009 02/11/2010 Comments (incl\. % 100% achievement) G\. Ratings of Program Performance in ISRs Actual Date ISR No\. DO IP Disbursements Archived (USD millions) 1 06/29/2010 Satisfactory Satisfactory 35\.00 H\. Restructuring (if any) Not Applicable iv 1\. Program Context, Development Objectives and Design 1\.1 Context at Appraisal 1\. The grant was part of the support provided to the Government of Rwanda (GOR) by the Education for All - Fast Track Initiative (FTI), more specifically funding from the Catalytic Fund (CF) that is the FTI mechanism for support to countries’ implementation of their FTI- endorsed education sector plans\. The CF is a multi-donor trust fund\. Its purpose is to provide transitional financial assistance to countries whose education sector plans have been endorsed by donors through the FTI review process, but which have difficulty mobilizing additional external funding at the country level\. Support from the Catalytic Fund is expected to enable countries to begin scaling up the implementation of their sector programs\. Currently 18 countries have made contribution to the CF and 37 countries have benefitted from the CF\. Total amount allocated by the fund has been US$ 2\.0 billion as of November 2010\. 2\. The Program Document for the operation stated that the 1994 conflict left the Rwanda education system infrastructure devastated and the teacher force decimated\. The initial focus of the GOR in the area of education has been on increasing access to primary education\. These efforts have been successful\. Over the last decade, the gross and net enrollment rates have increased from 88 to 128 percent and 70 to 94 percent, respectively\. The share of girls has remained constant, comprising slightly more than half of the student population at the primary level\. The Government is now turning its focus on both increasing access to nine year basic education (including lower secondary education), and improving the quality of education across the board\. 3\. The increased emphasis on quality of education requires progress in a number of areas, e\.g\. better qualification and utilization of teaching staff, increased access to appropriate learning equipment, an improved learning environment for girls, monitoring of learning achievement, a streamlined core curriculum, and as a result of this increased completion rates\. Such improvements are critical both for achieving the Government’s objective of universal completion of primary education (e\.g\., repetition and dropout rates remain quite high, completion rates low) and later universalizing the nine-grade basic education cycle\. 4\. The key prior actions of the grant were: (i) develop and approve a Girls' Education Policy and finalize a costed strategy as a first step toward its implementation; (ii) establish an implementation framework and procedures for the Textbook Policy, with the aim to decentralize procurement and allow school-level selection; and (iii) approve a Teacher Development and Management Policy, develop and cost a strategic plan for establishing a coordinated in-service teacher education structure, and start its implementation\. The first prior action was expected to improve the completion rate for girls, while the last two would contribute to improving primary school completion rates for both girls and boys\. 1 5\. Expected benefits from the grant included substantial progress on policy reforms that contribute to the acceleration of the Nine Year Basic Education Policy and Strategy\. Key elements are the decentralization of textbook procurement while enhancing school- level decision-making to ensure that textbook distribution and choice are adapted to local conditions; improved coordination and management of the in-service teacher education structure; and changing the school environment that will foster girls’ further success in school\. 6\. Rwanda’s education sector plan was endorsed by the local donors in 2006 and received a first allocation from the CF of US$70 million in November 2006 with the grant agreement signed in September 2007\. This first CF allocation was based on a specific CF model grant agreement, disbursed in tranches that were conditional on the submission of progress reports by GOR endorsed by the in-country education sector development partner working group\. Although government did report on its utilization within its education budget, regular Bank procedures for IDA lending on disbursement, financial management, and procurement were not applied\. The first CF grant to Rwanda was essentially provided as sector budget support\. In accordance with the applicable rules at that time no completion report was submitted, but FTI progress reports were sent to the FTI Secretariat through the World Bank as supervising entity of the grant\. The second grant, which is the subject of this ICR, was considered to be a bridge grant awaiting a three year application for funding when the new education sector strategy starting in 2010 would be ready for FTI endorsement\. 7\. As spelled out in the FTI Modality Guide (final version November 2008), “the most aligned modality should be used as agreed upon by the local donor group in the education sector\.â€? This would include not choosing a modality that was less aligned with that currently in use (by any donor) in a particular country\. Based on the overall FTI policy and the experience of the first CF grant to Rwanda as well as the use of sector budget support by other donors, the Bank offered to prepare the new operation as a development policy grant (DPO)\. This was the “next bestâ€? option considering that the local donors were in favor of using the same approach as for the first CF grant\. However, due to changes in Bank procedures this was not possible\. As this was going to be a one year bridge grant awaiting a new sector plan (the old one ended in 2009), the grant amount requested was half the amount of the two-year grant allocated in 2006 (50 percent of US$70 million) with a one year implementation period\. 8\. The application and preparation rules of CF grants changed during 2008 and 2009\. First, from 2009 all applications were expected to go through an External Quality Review (EQR) by independent consultants hired by the FTI Secretariat before the Catalytic Fund Committee (CFC) meeting\. This desk review is meant to assist the CFC in its allocation decision by assessing internal consistency, how the case for funding has been made, the clarity of objectives and performance monitoring, the objectivity of prior assessment, the application of aid effectiveness principles, and progress towards FTI goals\. The application for Rwanda was the first one to go through this process\. Second, these change in FTI procedures coincided with the changes in the Bank rules of preparation of recipient executed trust funds above US$5 million from July 2008, namely to apply full 2 IDA/IBRD rules\. Third, from the second half of 2008 all proposals needed to go through the Bank‘s full preparation/appraisal before submission to the Catalytic Fund Committee (CFC)\. The only remaining process after the allocation decision by the CFC was thus the negotiation and signing of the grant agreement\. 9\. The EQR rated the grant moderately satisfactory and recommended it for funding\. Most projects have received this rating since this first EQR\. The EQR Panel commended the GOR and the development partners for having made significant progress toward reaching Rwanda’s Education Sector Strategy goals\. Three sub-ratings were satisfactory (aid effectiveness principles; FTI goals; and quality of EQR logistics and process); three were moderately satisfactory (internal consistency; objectives/performance monitoring; PDO/performance monitoring; and assessment objectivity); and one was moderately unsatisfactory—the case for CF funding because of ambiguities in the financing gap 1 analysis\. 10\. The Panel found several aspects of the package of the documents strong\. ï‚ Good diagnosis of the challenges faced by Rwanda’s education sector ï‚ A realistic discussion of Rwanda’s macroeconomic status and the fiscal risks associated with the global economic downturn ï‚ Comprehensiveness and clarity of the education strategy ï‚ Documentation that was professionally prepared, presented, and generally internally consistent ï‚ Availability of baseline data for most key performance indicators and careful annual tracking of most of these indicators ï‚ Genuine ownership of the endeavor by both the Rwandan government and the development partners ï‚ Alignment of the CF objectives with the government’s sector strategy ï‚ Donor harmonization, especially in terms of the arrangements for M&E\. 11\. On the instrument, the review recommended not choosing a DPO, but rather a sector-wide approach that uses disbursement-linked-indicators (used for an education operation in Pakistan) – mostly because it asserted that DPO instruments increased implementation demands\. The review criticized the program actions chosen (â€?anemic conditionsâ€?) and the particular use of indicators, including the lack of continuation of previous performance indicators\. 12\. However, it is important not to overstate the importance of this review\. As the EQR was set-up mainly as a service to the CFC members and being conducted just before 1 Both in this operation as well as in the one prepared later by DFID the ambitions in the new sector strategy had resulted in a funding gap that was raised as a serious concern in both cases\. Sometimes a too big financing gap in a context of resource constraints is the sign of uncompleted work in terms of decisions regarding policy trade-offs\. In the case of Rwanda it was probably a question of pushing for more aid and urging donors, including FTI, to provide the aid in a more predictable manner\. 3 the allocation decisions as a pure desk review, the recommendations would not have any impact on design\. Some countries have taken comments made by the EQR and by the CFC into account later on\. The ICR team did not identify any areas where EQR findings and recommendations changed the agreement on support of the operation by the Sector Working Group – equivalent to the term “local education groupâ€? normally used by FTI - and the Bank also did not revise the design of the operation\. 13\. The Bank was well positioned to prepare and appraise the grant due to the ongoing general DPO series (Poverty Reduction Support Grants – PRSG1-7)\. Since PRSG5 the policy reforms have been chosen from the Common Performance Assessment Framework (CPAF) and the Bank has extensive experience with contributing to the content of the CPAF and aligning the PRSGs with the CPAF\. The CPAF sets the performance milestones in the short to medium term for the overall development of the country, including for the education sector\. The PRSG6 noted that the evidenced based policy dialogue is functioning best in the health and education sectors with long track records of using sector wide approaches\.2 14\. Also, the Bank had a clear picture of the challenges facing the education sector in Rwanda through its processing of the previous CF grant as well as the involvement in lending through the Human Resource Development Project (P045091) and knowledge work in the sector\. The major challenge was to agree on program actions that would fit into the Bank’s development policy framework and at the same time make sense in the context of the policy dialogue between the GOR and its development partners in education\. A DPO aims to help the country achieve sustainable poverty reduction through a program of policy and institutional actions, for example, strengthening public financial management or improving service delivery\. The Bank’s experience with similar instruments led to the reform in 2004 with a strong guidance to staff to keep the number of policy actions to a minimum\. However, FTI is based on the assumption that main policy reforms are already agreed among development partners as part of the development of an Education Sector Plan and the endorsement by local donors of this plan\. Therefore, the identification of the policy bottlenecks that could be supported by a DPO is more challenging in this context\. The PRSG faced the same issues selecting reforms already being a part of the CPAF or choosing slightly different policy actions that would then require changes to the CPAF\. But both Government and donors agreed that this was the best option\. In fact, the recent evaluation by the Bank’s Independent Evaluation Group (IEG) of the Trust Fund Portfolio was informed by the government of Rwanda that they see the “FTI as “a model aid programâ€? because its funding supports the government’s own education program and is delivered through sector budget support using Rwanda’s country systems3\.â€? The government also stated that: “While the fund is 2 Program Document for the Sixth Poverty Reduction Support Grant, March 3, 2010, page 22\. 3 Strictly speaking the DPO is not sector budget support as the funds are not earmarked in any way, but is solely a support to implement the agreed reforms in the education sector\. 4 multi-donor at the global level, the government needs to interact with only the partner managing the fund at the country level\.â€?4 15\. Initially, only some of the chosen program actions were included in the CPAF agreed among development partners and GOR\. Of the basic education related actions that were included in the CPAF at the start of project preparations, the larger share were either not considered to be ‘program actions’ in the definitions used by the Bank, or were not expected to be completed within such a timeframe as to be appropriate to be incorporated as a program action in the operation\. To ensure identified program actions were included in the CPAF, the CPAF was revised during the preparation process\. Comments and suggestions received during the Decision Meeting subsequently required an additional revision of the program actions and, consequently, the CPAF\. These second set of revisions were not considered to substantially change the content of the program actions\. 16\. While the government realized the need to focus more on quality aspects of basic education after the very rapid increase in access and duration of schooling, the leadership of the preparation of this operation by the GOR was lower than could be desired due to lack of capacity at the MINEDUC and the need for a very speedy preparation\. Although the Sector Working Group on education is working closely and well together, this resulted in a larger role for the local donors in the Sector Working Group, in particular the lead development partner DFID, in the discussions on the appropriate program actions and drafting of the program document\. 1\.2 Original Program Development Objectives (PDO) and Key Indicators (as approved) 17\. The Program Development Objective is to support the GOR’s policy reforms on Teacher Development and Management, Textbooks, and Girls’ Education with the overall aim to improve the quality of basic education\. 18\. Key indicators were closely linked to the PDO and prior actions: Prior Actions by June 30, 2009 Results Indicator and target by Related CPAF Medium- June 2010 Term Indicators (baseline=2008; target=2009/10) Policy area: teacher development Deputy CEO for teacher Primary school pupil to and management development and management qualified teacher ratio Adoption of a teacher development appointed under the Rwanda and management policy establishing Education Board Baseline=67 an entity for the oversight of teacher Target=65 services professionalization\. Guidelines for in-service teacher training providers developed Adoption of a cost-calculated 4 Trust Fund Support for Development: An Evaluation of the World Bank’s Trust Fund Portfolio, IEG February 2011\. 5 strategic plan for the establishment of a framework for coordinated in- service teacher training\. Policy area:textbooks “Awarded textbook statusâ€? given Primary school completion Adoption of a framework and to publishers for up to four rate, disaggregated by sex procedures for the implementation textbooks per subject for Grades 1- of decentralized procurement and 12 Total school-level selection of textbooks, Baseline=52\.5% as set out in the Textbook Policy\. Number of schools with Textbook Target=56% Selection Committee established: Issuance of an invitation to - Primary: 1926 (out of 2408) Girls publishers for the submission of - Secondary: 1159 (out of 1449) Baseline=52\.9% proposals of teaching and learning Target=55% materials for inclusion in the 250 textbook evaluators trained national approved list of such materials\. Policy area: girls’ education Core gender-sensitive indicators Primary school completion Adoption of a girls’ education available and discussed during the rate, disaggregated by sex policy including measures for annual Joint Review of Education improved gender-disaggregated data Sector Total collection and analysis\. Baseline=52\.5% Disseminate Girls’ Education Target=56% Adoption of a cost-calculated Policy to every district, including strategic plan for the implementation awareness raising workshops with Girls of said girls’ education policy\. relevant stakeholders to include Baseline=52\.9% NGOs, faith-based organizations, Target=55% and school administrators 1\.3 Revised PDO (as approved by original approving authority) and Key Indicators, and Reasons/Justification No revisions made\. 1\.4 Original Policy Areas Supported by the Program (as approved) 19\. The development policy grant supported the quality of basic education in the areas of teacher development and management policy, textbook policy, and girls’ education policy\. 1\.5 Revised Policy Areas (if applicable) Policy areas were not revised\. 1\.6 Other significant changes No significant changes\. 2\. Key Factors Affecting Implementation and Outcomes 20\. The GOR did a commendable job implementing the agreed program actions and ensured that the indicators could be monitored\. 6 2\.1 Program Performance Amount Planned Fund Release Date Actual Release Date US$35\.0 million 5/29/2009 12/23/2009 21\. The negotiations took place on June 19, 2009 and the GOR had fulfilled and documented the prior actions on September 3, 2009\. The grant amount was released on December 23, 2009\. The slight delay between the fulfillment of prior actions and the release of the funds was used for internal clearances and time to get the grant signed before effectiveness could be declared\. Although it was not a significant delay it did cause some problems between the Ministry of Finance and the Ministry of Education as explained in Annex 2\. Prior Actions Status Related CPAF indicators Adoption of a Teacher Development and Management Policy Achieved Primary school establishing an entity for the oversight of teacher services pupil to qualitfied professionalization teacher ratio Target=65 Actual=63 Adoption of a cost-calculated strategic plan for the establishment of Achieved Same a framework for coordinated in-service teacher training Adoption of a framework and procedures for the implementation of Achieved Primary school decentralized procurement and school-level selection of textbooks, completion rate, as set out in the Textbook Policy disaggregated by sex Total Target=56% Actual=74\.5 Girls Target=55 Actual=78\.5 Issuance of an invitation to publishers for the submission of Achieved Same proposals of teaching and learning materials for inclusion in the national approved list of such materials Adoption of a Girls’ Education Policy including measures for Achieved Same improved gender-disaggregated data collection and analysis Adoption of a cost-calculated strategic plan for implementation of Achieved Same said girls’ education policy Souce of actual data from 2009 from FTI Catalytic Fund Summary Documentation, September 2010\. 2\.2 Major Factors Affecting Implementation 22\. The indicators for the operation have all been fulfilled except the formal establishment of the Rwanda Education Board that requires change to the Constitution\. This is currently in process\. The substance of the indicator has been fulfilled as the Teacher Service Commission has the same mandate that would be given to the Rwanda Education Board\. 7 23\. The immediate development in the broader policy areas is the following: ï‚ The decentralization of textbook selection, procurement, and distribution has been a success\. The “decentralizing of textbook selection by schools, is creating massive improvements in the supply, distribution and availability of textbooks\.â€?5 ï‚ The new teacher development and management policy was adopted and better oversight established but the policy change has yet to fully achieve its potential\. In the October 2010 Annual Review, the Ministry announced that as part of the teacher management policy reforms it was reviewing salary increases and addressing incentives such as more provision of housing in difficult areas and greater access to loans through the Teachers Co-operative Scheme\. It was going to introduce improved Continuous Professional development opportunities for upgrading from certificate to diploma level, and from diploma to degree level through distance learning, and in-depth training in English language\. ï‚ The impact of the new girls’ education policy has still to have an effect on the equity indicators beyond basic education including the lower attainment for girls (note that post-basic education was not a focus area of this operation)\. A number of task forces have been established to ensure implementation of the policy, but this will take time to have impact on equity indicators, although the primary completion rate ended up higher for girls than boys in 2009\. 2\.3 Monitoring and Evaluation (M&E) Design, Implementation and Utilization 24\. The FTI external quality review noted that the M&E arrangements in the sector were excellent\. Progress towards reaching the project’s performance indicator targets were supervised during the Bank’s implementation support mission of the grant in February 2010\. At that time, performance indicators were available and on track to meet the targets set for June 30, 2010, including the gender-disaggregated data\. Similarly, after closing of the operation, indicator data were easily made available for the preparation of this ICR\. The M&E arrangements to follow this operation’s impact are part and parcel of government’s monitoring system and data was made available for the joint sector reviews\. 2\.4 Expected Next Phase/Follow-up Operation 25\. As expected, the GOR has prepared and development partners agreed to a new sector strategy for the period 2010 to 2015\. Based on this strategy the Sector Working Group has asked DFID to prepare a proposal to the CFC for a three year sector budget support grant\. DFID has submitted the proposal and a grant of US$70 million was approved in the FTI meetings in Madrid in November 2010\. 5 Appraisal of Education Sector Strategic Plan (ESSP) 2010 -2015, July 2010 8 26\. The shift from the Bank to DFID as supervising entity (SE) for the new CF proposal happened because the Bank was not able to promise to deliver a fully prepared operation by spring 20106\. But the shift was also the result of the experience that the development partners had with the Bank as supervising entity in the context of the considerable changes of both FTI procedures and the changes related to the full compliance with IBRD/IDA procedures\. As was vocalized by DFID, the lead of the in- country education sector development partner working group, the ‘new’ approaches were perceived to have moved decision making power from the Sector Working Group to internal Bank decision making processes, and to force policy discussions to focus on narrowly defined specific activities rather than on policy reforms in general\. Even though the operation was successfully delivered in a very short time period and thus provided crucial financial support to the sector, the complexity of the partnership at the country level including choice of SE, instrument, processes to be followed by FTI and the SE, did leave room for perceptions that other agencies might do a better job than the Bank as SE\. 27\. In addition, the DPO modality – providing general budget support – may not be the optimal instrument to provide financing which is perceived by key stakeholders (development partners) to be essentially intended to be allocated to a specific sector7\. A recent analysis of sector budget support made by Overseas Development Institute, Britain's leading independent think tank on international development and humanitarian issues, for the period 2008 to 2010 examined sector budget support to Rwanda and other Sub-Saharan countries\. All bilateral sector budget support is either earmarked and/or traceable covering specific line items in the government budget\. 3\. Assessment of Outcomes 3\.1 Relevance of Objectives, Design and Implementation 28\. It is the ICR team’s assessment that it is difficult to pick a limited number of specifically defined program actions in the circumstances where most actions that could be thought of and would be likely implemented with the capacity of the GOR were already included in the agreed CPAF\. As mentioned earlier this was a shared issue with the PRSG series\. 29\. However, given the Bank instrument and the need to define policy actions, the areas chosen were the most important areas in order to support the shift towards quality of education at that particular time of the sector reforms\. The actions also helped to keep the focus on gender issues to achieve the MDG3 and continue addressing gender issues also beyond primary and secondary education\. 6 DFID only managed to present the proposal for the FTI meeting in November 2010, submitted September 2010\. 7 DPOs disburse funds directly to the Treasury as general budget support, while DFID in its presentation to the CFC presented a break-down of the utilization of the grant\. 9 3\.2 Achievement of Program Development Objectives 30\. The objective of supporting the policy reforms in the three areas have been achieved as justified through the results indicators and targets that have all been met\. 31\. As indicated in the Program Document, the reforms that were supported by the grant are expected to contribute positively to the basic-education related medium term indicators from the CPAF (primary school completion rate, and primary school pupil to qualified teacher ratio)\. The actual primary school pupil to qualified teacher ratio in 2009 was slightly better than targeted (63 against a target of 65)\. The overall primary school completion rate exceeded the target by 30 percent (74\.5 percent compared to a target of 56 percent), and the completion rate for girls even exceeded the target by 43 percent (78\.5 percent compared to 55 percent)\. These stronger improvements compared to the target are probably due to the extension of the number of school years in basic education (from six to nine) and the consequent improvement in retention rates\. It is not possible to segregate the impact of the reforms supported by the operation and the effect of the move to nine years of basic education\. 32\. The study carried out by the Ministry in 2008 as a result of the DPO preparation in connection with the new Girls’ Education Policy, highlighted a number of concerns related to girls’ participation and performance in primary school grades\. The proportion of girls accessing upper secondary and especially higher learning institutions is lower than boys\. In tertiary institutions women are frequently only 30% or less of the student population\. The performance of girls in many subjects, especially science, mathematics and technology is poorer than boys, resulting in a lack of female role models in these fields\. The new Girls’ Education Policy targets teachers, communities, and learning materials to improved self-esteem and performance of rural girls in particular\. 33\. The DPO ensured that a major reform of textbook policy is being implemented with decentralized procurement and school-level selection being rolled out over the next two years, alongside training of teachers in use of these materials\. A textbook selection committee was established in each and every school surpassing the targets set\. 34\. As indicated in the PAD, it was not expected that the positive impact on the relevant CPAF indicators of the implementation of the reforms supported by this operation would be measurable within the short, one-year implementation period of the operation\.8 Also, as indicated above, the positive impact on the CPAF indicators of the reforms supported by this operation cannot be distinguished from other reforms that were carried out during this operation’s implementation period\. What is clear is that the DPO helped maintain the momentum of a successful and ambitious reform process that has achieved impressive results since after the 1994 genocide, by providing crucial and substantial bridge financing, contributing to maintaining a strong focus on the importance of the quality of basic education, and pushing important reforms\. The overall progress in 8 For this reason, and following a discussion on the issue during the Decision Meeting for this operation, the CPAF indicators were not selected as the operation’s key indicators\. 10 the sector has been impressive\. For example, enrolments have grown every year by an average of 4 percent; capitation grants transferred directly to schools have increase each year since 2004, making it possible to contract additional teachers bringing the pupil teacher ratio down\. 35\. There is an increasing focus on quality of education where the DPO supported the teacher training and provision of more relevant textbooks\. But other challenges are being worked on through the new education sector strategy in areas such as improving the professionalism and motivation of the teacher workforce, whole school management, and the more efficient and equitable distribution of learning/teaching materials\. These are now being addressed with specific strategies, along with changing the approach to literacy in mother tongue and second languages 3\.4 Justification of Overall Outcome Rating Rating: Satisfactory 36\. The Bank was able to respond very quickly to the need for bridge financing\. This was an important contribution to the continuation of the reform process the education sector is under-going in Rwanda\. As indicated by the Bank’s evaluation of the trust fund portfolio the government saw the FTI support as a “model aid programâ€? supporting government’s own program with a sector budget instrument\. At the same time all performance indicators achieved their target and the CPAF medium term indicators substantially exceeded the targets for more qualified teachers per student and especially higher primary completion rates both for boys and girls\. The GOR continues to make good progress in the three areas supported by the grant and is continuing to pay attention to these areas in the new sector plan\. 3\.5 Overarching Themes, Other Outcomes and Impacts (a) Poverty Impacts, Gender Aspects, and Social Development 37\. Improvement in the delivery of basic education is expected to have positive development impact, with disproportionate benefits to the poor and disadvantaged since those pupils who currently do not complete primary or basic education are more often girls and can be found more often among poor and rural households\. 38\. Although the gender parity in primary is close to achieving the MDG3 for primary education the equity indicators beyond basic education including lower attainment for girls are a concern and point to issues which at least partly seem to be rooted in basic education\. The new policy on girls’ education is expected to have a positive impact on gender aspects, poverty impacts and social development later in the education cycle, but this is still work in progress\. (b) Institutional Change/Strengthening 39\. The introduction of teacher development and management policy and a framework for in-service training is expected to have a long lasting impact on the teacher 11 management systems\. The framework for procurement of textbooks and broadening of local publishers are also expected to have longer term institutional benefits in the textbook management\. The introduction of decentralized procurement will also strengthen the procurement function beyond the MOE to the local level of government\. 4\. Assessment of Risk to Development Outcome Rating: modest 40\. The program document lists four risks of the program: political risk, macroeconomic and financial sector risk, aid provision and predictability risk, and program risk\. 41\. The elections in August 2010 resulted in reelection of the government\. The overall security situation has not deteriorated\. 42\. The economic growth was affected by the global financial crises but even in 2009 the GDP rose by 4\.1 percent, down from an average of 7\.5 percent in recent years\. It is expected that the growth in 2010 will be 5\.4 percent\. 43\. Available data on aid flows to education indicates that with the new allocation from FTI the level of external financing remains around US$75 million per year including sector budget support\. However, the ambitions in the new sector strategy have resulted in a funding gap that was raised as a concern in the context of the discussions of the application to FTI in November 2010\. 44\. The presentation made by GOR for the new grant from FTI shows that GOR have been able to keep up the high level of domestic support for education and particularly basic education\. 45\. In 2007/8 there was considerable down-sizing of the public service\. Consequently the GOR strategy for ‘leaner and meaner’ ministries has resulted in severe capacity constraints for large ministries like education 9 \. Although the Ministry of Education consist of a small number of staff it was possible for them to implement the agreed prior actions and fulfill the performance indicators, although slightly delayed, and achieve the results that were anticipated\. 9 Local Donor Group Appraisal, July 2010 12 5\. Assessment of Bank and Borrower Performance 5\.1 Bank Performance (a) Bank Performance in Ensuring Quality at Entry Rating: Moderately satisfactory 46\. The preparation of the operation was sufficiently timely and of sufficient quality to attract the requested financing from the Catalytic Fund within the planned timeline\. However, the complexity of the changes in the partnership including choice of instrument, changes in FTI processes, the design of program actions, and the internal Bank process of vetting those actions, led to a somewhat negative perception of the Bank among stakeholders\. 47\. A more in-depth understanding from the Sector Working Group of what a development policy grant may offer in terms of pushing specific policy bottle-necks forward in a situation with many competing priorities might have led to less disturbance of the country level dialogue\. (b) Quality of Supervision Rating: Satisfactory 48\. Considering the good quality of the M&E arrangements and the successful supervision mission in February 2010 the quality of supervision is considered satisfactory\. The fact that the PRSG has provided an overall frame for dialogue on the CPAF and the collaboration with the Sector Working Group has helped to ensure a continued good dialogue with government and development partners\. (c) Justification of Rating for Overall Bank Performance Rating: Moderately satisfactory 49\. The rating is based on the timely and sufficient quality of preparation and good supervision which both contributed to the operation’s satisfactory outcomes, but ‘issues’ with the instrument and bank procedures leading to a somewhat disturbed country level dialogue\. 5\.2 Borrower Performance (a) Government Performance Rating: Satisfactory 50\. The overall progress in the policy areas supported as well as the linkage to the overall education sector reform justify a satisfactory rating of the overall government performance\. The good performance in including the new policies in the M&E framework is also commendable\. 13 (b) Implementing Agency or Agencies Performance Rating: Moderately Satisfactory 51\. MINEDUC completed the program actions within a reasonable time-frame and met the target values of the project’s performance indicators\. In addition, as evidenced by recent actions as well as the content of the new Education Sector Strategic Plan, MINEDUC continues to focus its interventions on those policy areas that were targeted in the operation\. MINEDUC performance is rated moderately satisfactory as its leadership of the preparation process was less than optimal especially due to the compressed processing time available in order to meet the FTI deadlines\. (c) Justification of Rating for Overall Borrower Performance Rating: Satisfactory 52\. The actions and outcomes within the supported policy areas were achieved without any major delays\. The reform on the quality of education continues through the new education sector strategic plan for 2010-2015 providing more time to implement the reforms that were supported by this operation\. Although such reforms take time the government has used the specific reforms supported to further the implementation beyond the timeframe of this operation\. 6\. Lessons Learned 53\. The complexity of working in a partnership increases when rules change too often\. This led to a very short period for preparation although government knew that a financing gap would occur, but the Government did not know if it would be possible to get the funds from FTI and under which rules\. As explained the Bank and the Sector Working Group did respond quickly to the need for bridge funding and successfully delivered the operation making the continuation of the reform of the sector possible\. However, the lack of predictability of financing from FTI as well as the changes in the processes led to unnecessary problems in the collaboration among stakeholders at the country level\. 54\. Bank procedures which are applied to trust-funded operations, are almost similar to those applied to fully Bank-funded operations, but their weaknesses do become more evident when they are closely scrutinized by third parties such as the trust fund financiers or other development partners\. The DPO instrument, requiring a focus on a limited set of policy areas/actions, and the internal Bank process of vetting those actions, were not well received among some stakeholders\. A project preparation process resulting in a project of sufficient quality and with sufficient client ownership often requires sensitive in-country discussions and compromises\. Taking this into consideration, the value of theoretically perfect policy actions needs to be assessed in the context of possible disruption of country level processes\. The Bank’s own evaluation of the trust fund portfolio points to the fact that although the controls on trust funds have 14 improved the processes are still not fully integrated into Bank processes 10 \. A fully integrated trust fund framework would probably make it easier for others to understand the Bank’s processes and it would lower the transaction costs for the task teams with clear rules fully following similar IDA/IBRD operations\. 55\. The experience in Rwanda, as well in other countries benefitting from EFA- FTI funding, have shown that communication with the Sector Working Group to set expectations on what and how the Bank can deliver operations is important\. Also, better knowledge sharing of expectations within the FTI partnership with Bank units involved in review and clearance of FTI operations is important for all FTI operations\. To achieve this, a community of practice group has been established and Sharepoint is used to share documents and developments related to the partnership\. The Africa education sector unit has also appointed a focal person on FTI\. But further work should be built into the preparation of new operations to ensure better understanding of the Bank’s work from the Sector Working Group and better understanding of the FTI partnership within the Bank\. 56\. For Rwanda and other countries applying for EFA-FTI funding, the possibility to submit applications on a rolling or at least more regular basis would reduce pressure to deliver an operation on time for the current bi-annual approval process, and would facilitate more elaborate coordination between key stakeholders\. In the case of Rwanda, the tight deadlines to deliver the operation before the targeted EFA-FTI meeting meant that time constraints prevented more intensive coordination of project preparations, ownership building within MINEDUC and information sharing with development partners\. Since FTI applications are only discussed once every six months, the project would have been delayed at least half a year if the deadline would not have been met, which was considered to be unacceptable by the Government, the Bank and the development partners, in particular DFID\. The new FTI processes with expected quarterly allocation decisions will likely reduce these pressures\. 57\. The timing of FTI operations should be aligned with the implementation periods of national education sector plans of the participating countries\. The operation did provide its broader objective of providing financing for a short period to avoid a financing gap between the previous grant and a future, new three year operation\. However, as a one year operation it provided only limited scope to achieve visible outcomes within the project implementation period\. A programmatic series of DPOs over three years would have enabled a more constructive set of policy actions that would enable a clearer story on outcomes\. However, due to the lack of an updated education sector plan this was not an option, as the existence of such a plan for the project period is an eligibility criterion of the EFA-FTI CF\. 10 IEG, Trust Fund Support for Development, Page 13\. 15 7\. Comments on Issues Raised by Borrower/Implementing Agencies/Partners (a) Borrower/Implementing agencies (b) Co financiers 58\. The comments from DFID (see Annex 3) are largely in line with the reported contents of the main report 16 Annex 1\. Bank Lending and Implementation Support/Supervision Processes (a) Task Team members Responsibility/ Names Title Unit Specialty Lending Margo A\. Hoftiijzer Sr\. Economist AFTED Task Team Leader Anne Anglio Senior Program Assistant ECSHD Nadege K\. Nouviale Program Assistant AFTSP Dung-Kim Pham Operations Officer AFTED Johannes Widmann Country Officer AFCKE Supervision Margo Hoftijzer Sr\. Economist AFTED Task Team Leader Fadila Caillaud Education Economist AFTED Aichatou Seyni Hassane Consultant AFTED Keiko Inoue Education Spec\. AFTED (b) Staff Time and Cost Staff Time and Cost Stage USD (including travel and No\. of staff weeks consultant costs) Lending11 Total: 0 Supervision/ICR – BB 880 TF through FTI 64,584 Total: 65,464 The preparation was made in a few months without charging any costs\. The cost was fully covered by other education interventions in Rwanda using Bank Budget\. 11 No BB was available for preparation or supervision of this operation\. For supervision, TF funding was available\. 17 Annex 2\. Summary of Borrower's ICR and/or Comments on Draft ICR12 (i) Assessment of the operation’s objective, design, implementation and operational experience The EFA-FTI Bridge Grant was a 1-year budget support operation focusing on basic education\. The operation’s objective was specifically focused on supporting the GOR’s policy reforms in three specific policy areas – Teacher Development and Management, Textbooks, and Girls’ Education – with the overall aim of improving the quality of basic education\. Within these three specific policy areas a number of targets were set based on achieved prior actions\. These targets were as follows (from Table 7 of Program Document)\. Girls’ Education Core gender-sensitive indicators available and discussed during the annual Joint Review of the Education Sector\. Disseminate Girls’ Education Policy to every district, including awareness raising workshops with relevant stakeholders to include NGOs, faith-based organizations, and school administrators\. Textbooks “Awarded textbook statusâ€? given to publishers for up to four textbooks per subject for Grades 1-12\. Number of schools with Textbook Selection Committee established: â€? Primary: 1,926 (out of 2,408) â€? Secondary: 1,159 (out of 1,449) 250 textbook evaluators trained\. Teacher Development and Management Deputy CEO for teacher development and management appointed under the Rwanda Education Board\. Guidelines for in-service teacher training providers developed\. 12 This has been duly submitted by the Government\. 18  (ii) Assessment of the outcome of the operation against the agreed objectives Development in the Rwandan education sector as a whole was again highly impressive in 2009/10\. For example, in basic education, preliminary 2010 data shows the primary transition rate has increased to 95% in 2009 from 88% in 2008 and 55% in 2007\. This is a testament to the remarkable success of the Government’s 9 Years Basic Education Policy\. There was also notable progress in the three specific policy areas focused on by the EFA- FTI Bridge Grant: Girls’ Education There have been many successes in the policy area of Girls’ Education\. All statistics collected by the Ministry are now gender-disaggregated, and have been discussed at all joint reviews since 2009\. The Girls’ Education Policy was disseminated to every district in October 2010, and awareness raising workshops took place with all relevant stakeholders in November 2010\. A Girls’ Education Taskforce has also been established\. The gender disaggregated statistics demonstrate some of the initial successes in supporting girls’ education, in particular with girls’ enrolment and completion rates exceeding those for boys at primary level\. Textbooks The procurement of textbooks has been successfully decentralized\. Compared to previous years where there has been effective monopolization of textbook provision, the previous year saw 28 publishers competing to provide textbooks suited to the national curricula\. 300 textbook evaluators were trained to choose between competing publishers (surpassing the target of 250 evaluators to be trained)\. These evaluators chose 4 publishers for each grade and for each subject (i\.e\. gave them “awarded textbook statusâ€?, achieving the first specific target mentioned in the program document)\. Textbook selection committees (consisting of at least the Head Teacher, two other teachers and one parent) were established at every single school (surpassing the target of 1,926 and 1,159 at primary and secondary schools respectively)\. After allowing the publishers 6 months to market their books, each school then made its own individual choice on which textbooks to buy, from the list of 4 for each grade and for each subject\. As such all targets from the program document were achieved\. Teacher Development and Management Much progress has been made in the area of Teacher Development and Management\. The Teacher Service Commission (TSC) was established and its members appointed\. 19 The head of the TSC will become a Deputy CEO/DG of the Rwandan Education Board whose law has now been passed\. The development of guidelines for in-service teacher training providers is underway\. Kigali Institute of Education (KIE) is now mandated to oversee all teacher education activities\. As such KIE has taken over responsibility for curriculum, assessment and certification and quality assurance for teacher training providers\. This decision will lead to improved effectiveness of teacher training in the longer term\. A longer term view was also taken when undertaking the study on the supply and demand of teachers\. Rather than undertaking a simplistic study of supply and demand, the TSC is establishing an electronic National Teacher Registration System (NTRS) and database\. Once ready this system will not only provide data on the supply and demand of teachers, but also will be used complementarily with the National Teacher Licensing and Upgrading System (NTLUS) aimed at creating a teacher profession pathway and advancement of teachers\. In addition the TSC has embarked on the design of policies and tools to operationalise the teacher development system including: a National Teacher Code of Conduct (NTCC) – to govern the ethical behavior of teachers, Terms and Conditions of Services (TACOS) – to enable teacher contracts to be drawn and signed, National Teacher Professional Standards (NTPS) – to set out classroom competences expected from teachers and maintenance of teaching standards, and Teacher Appraisal and Evaluation System (TAES) – to facilitate ongoing assessment of teacher performance\. This system is expected to be fully operational at the latest by the end of 2011\. (iii) Evaluation of the borrower’s own performance during the preparation and implementation of the operation, with special emphasis on lessons learned that may be helpful in the future As seen in the previous section the GOR’s performance was strong in the implementation of the operation\. A number of lessons were, however, learnt in the implementation of the objectives\. Girls’ Education The availability of gender disaggregated statistics has demonstrated where some of the priorities should be in supporting girls’ education\. While enrolment and completion rates for girls exceed those for boys at the primary level, more boys than girls move on from lower secondary to upper secondary education\. The statistics have also shown that the proportion of girls studying in science and technology fields in the post-basic education sector is very low\. As such, lessons learned have been used to influence policy towards promoting girl’s education\. 20 Textbooks In decentralizing textbook procurement an online database system was established to handle all orders from schools for books\. This is a sophisticated tool that will become increasingly useful in coming years\. However, this system is web-based and so not all schools are able to access it due to lack of electricity and connectivity\. In addition, in many cases the human capacity of schools to use the system is not yet sufficient either\. These issues were, however, predicted and for the previous year schools were given manual forms to fill in to make their textbook orders\. 98% of schools made their textbook orders on time (the expectation based on experiences in other countries was only 60%)\. This demonstrated the keenness of schools to select their own textbooks themselves\. The success of the process can also be seen in the fact that no complaint was received from any publisher, including those which were not selected\. It is believed this is the result of the procedure being very transparent for all publishers\. Teacher Development and Management The scope of work required to overhaul Rwanda’s Teacher Development and Management sector was perhaps underestimated\. It was possibly inappropriate to have set such specific targets within a very short time frame, before the TSC had even been established\. The TSC feels that it has taken the right longer-term approach regarding Teacher Development and Management, rather than rushing out systems which could have proven to be poor quality\. (iv) Evaluation of the performance of the Bank, any cofinanciers, or of other partners during the preparation and implementation of the operation, including the effectiveness of their relationships, with special emphasis on lessons learned The preparation and implementation of the operation were strongly supported by the in- country development partners\. This support came in terms of further financial assistance as well as technical and logistical support\. The coordination between development partners has been improving\. By reducing the duplication of requested documentation, this coordination has decreased the overall bureaucratic burden on the Ministry\. This has allowed the Ministry’s key staff to focus more attention on the actual implementation of education programmes\. The disbursement of the EFA-FTI bridging grant was only made on December 23, 2009\. However, the GOR had fulfilled and documented the prior actions on September 3, 2009\. This delay in disbursement fortunately did not impact on the implementation of the operation, as the Ministry of Finance provided short-term funding to cover this delay\. Evidently, however, this carried a cost for the Ministry of Finance and if they had been 21 unable to provide this short-term funding the operation’s implementation would have been under threat\. (v) Description of the proposed arrangements for future operation of the project In November 2010 the board of the EFA-FTI Catalytic Fund approved the allocation of $70 million funding for the Rwandan education sector for the years 2010-13\. The supervising entity for this fund will be switching from the World Bank to DFID\. It is hoped that DFID’s role as supervising entity will further reduce bureaucratic demands on the Ministry as DFID can link together both the supervision of its own sector budget support program and the EFA-FTI fund\. 22 Annex 3\. Comments of Co financiers and Other Partners/Stakeholders DFID made the following comments on November 30, 2010: A) There was excellent in-country co-ordination and joint working on the FTI presentation amongst key partners such as Ministry of Finance, Ministry of Education and most major bilateral and multilateral partners in Rwanda\. B) There was quite strong collaboration between preparation of documentation for FTI by DFID, Ministry of Education, and the WB Program Document design team, but transaction costs grew with the additional demands on policy actions and parallel processes so greater synergy was lost at times\. C) The Ministry of Education did sometimes feel that too many demands were made, on specific officers, often after an issue was seemingly resolved, then the TTL would come back with further requests\. D) The actual disbursement took place 6/7 months after the FTI Catalytic Fund meeting and agreement in Copenhagen, and while it was not too problematic for implementation of the final phase of 2009/10 Annual Plan, it did hold back some planned activities\. E) It was felt that the EQR highlighted some issues that resulted from lack of understanding of the context in Rwanda\. However one useful lesson that emerged was the need for countries to explain and analyze fully the rationale behind the financing gap and the various scenarios\. F) The need for solid rigorous preparation and rehearsal became paramount and probably contributed to the success of the FTI application\. The quality and clarity of the Summary document and PowerPoint presentation is extremely important, as well as preparation for the kinds of questions one would expect\. G) After disbursement of the funds, the process of monitoring and reporting seemed vague – obviously the Annual Joint Reviews provided much useful feedback, but now that the FTI Progress Reports were no longer used, it was not clear until almost the end of the FTI disbursement period, how the final completion report would be carried out\. 23 Annex 4\. List of Supporting Documents DFID, Country Presentation, Rwanda, for the Copenhagen meeting April 22, 2009\. DFID, FTI Catalytic Fund Summary Documentation, September 2010\. FTI Secretariat, External Quality Review, Rwanda, no date, around March 2009\. FTI Secretariat, The EFA-FTI Modality Guidelines, November 2008\. IEG, Trust Fund Support for Development: An Evaluation of the World Bank’s Trust Fund Portfolio, February 2011\. Local Donor Group, Appraisal of Education Sector Strategic Plan 2010-2015, July 2010\. Overseas Development Institute, Sector Budget Support in Practice, November 2009\. World Bank, Program Document on a proposed grant to the Republic of Rwanda, Education for All - Fast Track Initiative Development Policy Grant, September 4, 2009\. World Bank, Aide Memoire of Education and Skills Development Mission January 25- February 11, 2010, March 18, 2010\. World Bank, Implementation Status and Results Report, P115816, June 29, 2010\. World Bank, Program Document for the Sixth Poverty Reduction Support Grant, March 3, 2010 24  29°30'E 30°00'E 30°30'E 31°00'E RWAN D A To Kafunzo 1°00'S Kagitumba SELECTED CITIES AND TOWNS AKARERE (DISTRICT) CAPITALS UGANDA To Kikagati INTARA (PROVINCE) CAPITALS Kag NATIONAL CAPITAL era To 0 10 20 30 40 Kilometers RIVERS Kisoro Nyagatare MAIN ROADS gitumba 0 10 20 30 Miles AKARERE (DISTRICT) BOUNDARIES To Muvumba Kidaho Butaro Kabale N YA G A T A R E Ka INTARA (PROVINCE) BOUNDARIES Lac Burera Lac Volcan Burera Rwanyakizinga INTERNATIONAL BOUNDARIES Karisimbi MUSANZA BURERA Mulindi Gatunda 1°30'S (4519 m) Muhoza Lac Kirambo 1°30'S Ruhondo Cyeru Lac Busogo G ICUMBI Gabiro Mikindi Kinihira 29°00'E G AT S I B O To Mukamira NORTH Byumba Gatsibo Rutshuru RUBAVU N YA B I H U Nemba Gakenke EAST Vir To Rubavu Kagali Lac Sake Karago PROVINCE Kinyami Kabarore Hago Gisenyi Nyondo un Tare Kiziguru PROVINCE ga Muramba GAKENKE Lac RULINDO Kivumba D E M \. R E P\. Kabaya Ngaru Muhura Rukara Lac To Bugene M Mbogo Lac Ihema Ny OF ts\. Ngororero Muhazi ab RUTSIRO Shyorongi K AY O N Z A ar CONGO La c K ivu NGORORERO go GASABO TA N Z A N I A no Murunda WEST KIGALI CITY Mukarange Gihingo Ndera Gikoro Rwamagana OV P RRutsiro I N C E Bulinga Rugenge KIGALI Rukoma Kicuro Bicumbi Kigabiro Lac 2°00'S MUHANGA Nasho 2°00'S Mabanza NYARUGENGE KICUKIRO RWAMAGANA Kibuye Nyamabuye Rubengera KAMONYI Lac Gitarama Lac Kigarama Lac Mpanga KARONGI Mugesera Cywambwe Bugesera Nyamata Kibungo Gishyita RUHANGO Rilima Bwakira NGOMA KIREHE Ngoma Gashora Sake Masango Ruhango Kirehe BUGESERA Gatagara N YA N Z A Kagano SOUTH Nyanza Busasamana Lac Cyohoha Ka g era Rwesero N YA M A G A B E Sud Lac To Kamembe N Y A M A S H E K E PROVINCE Rusatira Rweru Lusahanga Gasaka Karaba Cyangugu HUYE To 2°30'S To Kitabi Gikongoro Karama Walangu Rwumba Kirundo GISAGARA RUSIZI To Ngoma Nyya-Ghezi Ruramba Butare Ndora Kibeho RWANDA This map was produced by yaru the Map Design Unit of The N YA R U G U R U Kanzi an World Bank\. The boundaries, Bugarama Munini Kigembe To BURUNDI Ak colors, denominations and Cibitoke any other information shown To IBRD 33471R2 on this map do not imply, on the part of The World Bank Cibitoke Group, any judgment on the To To legal status of any territory, JUNE 2008 Kayanza Ngozi or any endorsement or acceptance of such boundaries\. 29°00'E 29°30'E 30°00'E 30°30'E

REVIEW

P003457

 Beilungang thermal power project Report No: ; Type: Report/Evaluation Memorandum ; Country: China; Region: East Asia And Pacific; Sector: Thermal; Major Sector: Electric Power & Other Energy; ProjectID: P003457 December 29, 1995 China: Beilungang Thermal Power Project (Loan 2706-CHA) The Implementation Completion Report (ICR) on China Beilungang Power project (Loan 2706-CHA, approved in FY86), was prepared by the East Asia and Pacific Regional Office with Annex 2 contributed by the Borrower\. The loan in the amount of US$225 million was closed on June 30, 1994, two years behind schedule and after two extensions of the closing date, at which time US$0\.6 million was canceled\. The project objectives were to: (i) provide additional electric power to support the fast growing industrial region in East China, south of Shanghai; (ii) introduce the technology of large coal-fired power plants to make use of China's abundant coal reserves; (iii) construct extra high voltage transmission lines; and (iv) introduce least-cost investment planning tools, power tariffs design methodologies, and utility management and financial planning\. Project components were: (a) construction of a large coal-fired power plant and its associated 500 kV transmission lines and sub-stations; (b) consultant services for engineering, procurement and construction management of the coal-fired power plant; (c) a large training program; and(d)a power tariff study\. The objectives were demanding on physical components and institutional development grounds but were successfully met\. The implementing agency, the Zhejiang Provincial Electric Power Bureau (ZPEPB), built and commissioned the first 600 MW unit at the Beilungang coal-fired thermal power plant and its associated 500 kV transmission lines\. This contributed significantly to mitigating the shortages of power supply in East China and to promoting industrial production and regional development\. Training of technical personnel (more than 500) transferred to ZPEPB modern technology for constructing and operating large coal-fired plants\. Training on planning and utility and financial management improved ZPEPB performance, and the tariff study laid the ground for a future sector reform\. Implementation was not problem free: procurement was protracted; construction and commissioning was delayed by 18 months due to problems in integrating equipment fabricated by numerous suppliers; and a serious boiler accident occurred after commissioning\. ZPEPB complied with most financial covenants, and, where it did not, its results were close to covenanted targets (e\.g\., average rate of return was 7\.9 percent compared to the covenanted 8\.1 percent)\. The ICR recalculated a project economic rate of return of 10\.5 percent (8\.5 percent at appraisal)\. The Operations Evaluation Department (OED) rates the project outcome as satisfactory and its institutional development as substantial\. OED rates project sustainability as likely since there is abundant coal for power generation, ZPEPB's staff are well-trained, and cost recovery is ensured by an adequate level of power tariffs and a booming demand for electricity\. Finally, OED rates Bank performance as satisfactory\. These ratings agree with the ICR's\. Two main lessons can be drawn: (i) the introduction of a new technology calls for a comprehensive and well designed training program at all levels of the power utility; and (ii) procurement should be split into fewer, more self-contained packages to minimize coordination problems among suppliers\. The ICR is of good quality\. It presents a reasonable picture of project implementation and results, of financial performance of ZPEPB and plans for operating Beilungang and increasing ZPEPB's autonomy and business orientation\. However, it could have included a better analysis of the impact of the devaluation of the Yuan on project cost estimates and project economic rate of return\. The project may be audited together with three recently completed power projects in East China\.

REVIEW

P064901

Document oI The World Bank FOR OFFICIAL USE ONLY Report No: 22275 IMPLEMENTATION COMPLETION REPORT (TF-25825; SCL-45420) ONA LOAN IN THE AMOUNT OF US$505\.06 MILLION TO THE FEDERATIVE REPUBLIC OF BRAZIL FOR A SECOND SOCIAL SECURITY SPECIAL SECTOR ADJUSTMENT LOAN June 25, 2001 This document has a restricted distribution and may be used by recipients only in the performance of their official duties\. Its contents may not otherwise be disclosed without World Bank authorization\.  CURRENCY EQUIVALENTS (Exchange Rate Effective) Currency Unit = Real 1 = US$ 0\.42699 US$ 1 = 2\.342 FISCAL YEAR July 1 to December 31 ABBREVIATIONS AND ACRONYMS CAS = Country Assistance Strategy CNIS = Unified Cadaster of Social Information GDP = Gross Domestic Product INSS = National Institute of Social Security MPAS = Ministry of Social Security and Social Assistance PROST = Bank's Pension Reform Options Simulation Toolkit PAYGO = pay-as-you-go pension system RGPS = Regime Geral de Previson Social (Social Security Regime for Private Sector Workers) RJU = Regime Juridico Unco (Social Security Regime for Public Sector Workers) S/SECAL = Special Sector Adjustment Loan SPC = Secretaria de Previdencia Complementar (Secretariat of the Complementary Pension System) Vice President: Mr\. David de Ferranti Country Manager/Director: Mr\. Gobind T\. Nankani Sector Manager/Director: Mr\. Danny Leipziger Task Team Leader/Task Manager: Ms\. Mariluz Cortes  FOR OFFICIAL USE ONLY CONTENTS Page No\. 1\. Project Data 1 2\. Principal Performance Ratings 1 3\. Assessment of Development Objective and Design, and of Quality at Entry 1 4\. Achievement of Objective and Outputs 6 5\. Major Factors Affecting Implementation and Outcome 13 6\. Sustainability 14 7\. Bank and Borrower Performance 15 8\. Lessons Learned 17 9\. Partner Comments 17 10\. Additional Information 18 Annex 1\. Key Performance Indicators/Log Frame Matrix 19 Annex 2\. Project Costs and Financing 20 Annex 3\. Economic Costs and Benefits 22 Annex 4\. Bank Inputs 23 Annex 5\. Ratings for Achievement of Objectives/Outputs of Components 24 Annex 6\. Ratings of Bank and Borrower Performance 25 Annex 7\. List of Supporting Documents 26 Annex 8\. Matrix of Policy Actions under the First and Second S/SECALs 27 Annex 9\. Borrower's Comments 30 This document has a restricted distribution and may be used by recipients only in the performance of their official duties\. Its contents may not otherwise be disclosed without World Bank authorization\.   Project ID: P064901 Project Name: Second Social Security Special Sector Adjustment Loan Team Leader: Mariluz Cortes TL Unit: LCSFF ICR Type: Core ICR Report Date: June 26, 2001 1\. Project Data Name: Second Social Security Special Sector Adjustment L/C/TFNumber: TF-25825; SCL-45420 Loan CountryIDepartmeni: BRAZIL Region: Latin America and Caribbean Region Sector/subsector: SI - Pensions & Social Insurance KEY DATES Original Revised/Actual PCD: 02/18/2000 Effective: 06/29/2000 06/29/2000 Appraisal: 02/24/2000 MTR: Approval: 03/30/2000 Closing: 12/31/2000 12/31/2000 Borrower/Implementing Agency: FEDERATIVE REPUBLIC OF BRAZIL/MINISTRY OF SOCIAL SECURITY (MPAS) Other Partners: STAFF Current At Appraisal Vice President: David De Ferranti David De Ferranti Country Manager: Gobind T\. Nankani Gobind T\. Nankani Sector Manager: Danny Leipziger Danny Leipziger Team Leader at ICR: Mariluz Cortes Mariluz Cortes ICR Primary Author: Aniruddha Bonneree 2\. Principal Performance Ratings (HS=Highly Satisfactory, S=Satisfactory, U=Unsatisfactory, HL=Highly Likely, L=Likely, UN=Unlikely, HUN=Highly Unlikely, HU=Highly Unsatisfactory, H=High, SU=Substantial, M=Modest, N=Negligible) Outcome: S Sustainability: HIL Institutional Development Impact: H Bank Performance: S Borrower Performance: S QAG (if available) ICR Quality at Entry: S S Project at Risk at Any Time: No 3\. Assessment of Development Objective and Design, and of Quality at Entry 3\.1 Original Objective: 3\.1\.1 \.a Relevant context: The objectives of this loan are best viewed in light of Brazil's recent exposure to increased economic and social vulnerability in the wake of the economic crises that swept through Brazil in  1997 -1998\. Policy makers in Brazil have been forced to confront the fact that uncontrolled and growing public sector deficits had undermined public confidence and exposed the economy to damaging extemal shocks\. Since almost two-thirds of public sector deficits (8% of GDP in 1999) comprise of social security deficits (5% of GDP in 1999), any viable commitment to reduce public sector deficits should address the financial imbalances of prevailing social security arrangements in Brazil\. Equally significantly, the recent economic upheavals have had a severe impact on the poor, especially those in rural areas and the elderly\. Against this background, the government's commitment and discipline in pursuing its fiscal stability program, while at the same time preserving core social protection expenditures, is laudable\. This operation is part of a Bank package of adjustment loans totaling US$2\.5 billion to help Brazil meet its external financing requirements as it undergoes key structural and social reforms designed to bring public finances into balance\. 3\.1\.1 \.b This loan is the second of two S/SECALS in support of Brazil's social security reform program\. It supports a reform program that aims to reduce the fiscal debt of Brazil's public pension system for private sector employees - Regime Geral de Previdencia Social (RGPS)\. This pension system is the largest social security regime in Brazil\. It pays benefits to almost 18 million beneficiaries and collects mandatory contributions from almost 30 million affiliates\. The constitutionally guaranteed generosity of the scheme, combined with system maturity and aging, implied rapidly increasing pension liabilities and hence the prospect of rapidly increasing government fiscal liabilities\. The fiscal deficits of the RGPS- about 1% of GDP in 1999 - are expected to grow quickly to more than 5% of GDP within the next fifteen or twenty years in the absence of any reform\. In addition to fiscal balance, the reforms supported by this loan also address social protection concerns related to children's education, equity, fairness, and institutional development and depth\. 3\.1\.2 Government reform framework: The objectives of the government's social security reform program are described in the Letter of Sector Policy dated March 2nd, 2000, sent to the World Bank by the Minister of Social Security and Social Assistance and the Minister of Finance\. Given the complexity of the various pension schemes and the demanding political economy consequences of reforms, the administration is committed to a pragmatic 'phased' or 'progressive' agenda for pension reform that attempts to: (a) reduce the fiscal deficit of the pension system; (b) curb the inequality in pension benefits between private and public sector workers; and (c) extend individual choice by broadening the regime for complementary pensions\. The first phase of reforms would remove the legal and constitutional provisions that blocked the government from pursuing serious social security reform efforts\. The second and third phases of reforms would then be aimed at improving the financial viability of specific regimes, improving governance and increasing efficiency, so that future pensions would be more equitable and cost less to the government\. 3\.1\.3 The First Social Security S/SECAL supported the first phase of the pension reform program in Brazil, which centered on the approval of Constitutional Amendment 20/98, of December 1998\. This necessary and long debated amendment modified articles of the Federal Constitution of 1998 concerning the main parameters of Brazil's multi-pillar pension system\. It also adopted a number of emergency measures to reduce the fiscal deficit of the pension regime for public-sector workers\. The passage of Constitutional Amendment 20/98 was an important milestone for social security reform, since it paved the way for further social security reforms through ordinary laws and regulations\. The Second Social Security S/SECAL was tied to the second phase of the pension reform program which centered on reforms to achieve the financial and actuarial balance of the RGPS\. The main reform in the second phase of social security reform in Brazil was the adoption of a new benefit formula for the RGPS which was expected to significantly reduce the fiscal deficit of the system\. The loan also supported the creation of a modern regulatory framework for the System of Complementary Pension Funds (privately managed)\. - 2 -  3\.1\.4 Bank policy framework: This loan was within the objectives established in the framework paper " Special Program of Support for Brazil (SecM98-943)" of November 25, 1998, which outlined the Bank's overall special support program for Brazil\. The paper proposed a US$4\.5 billion package of sector adjustment loans to Brazil until end of fiscal year 2001 at special pricing and maturity, plus a 1% front-end fee\. The framework paper noted that the 1997 CAS (discussed in the Board on June 12, 1997) and the 1998 CAS progress report (discussed on June 2, 1998) acknowledged that Brazil could be subject to external shocks\. In such an event, if the government responded with corrective policy measures, the CAS proposed to respond quickly with financial support for reforms in such areas as privatization, social security, and safety nets\. The external shock materialized in late 1998, and the government responded with a strong reform program in the area of social security to improve the long-term actuarial imbalances of the social security system, which accounts for about two thirds of the overall government fiscal deficit\. 3\.1\.5 The First Social Security S/SECAL for US$757\.57 million was presented to the Board on January 6, 1999, in support of Constitutional Amendment 20/98\. The framework paper indicated that a second social security S/SECAL would be presented to the Board at a second stage in support of the implementation of the Constitutional Amendment through enabling legislation, which would determine, to a large extent, the scope of the reforms made possible by the amendment\. Accordingly, the Second Social Security S/SECAL was designed to support the second phase of pension reform which consisted primarily of the adoption of a new benefit formula for the RGPS\. It was determined that the reform of the Social Security Regime for Public Servants (RJU), envisaged for the third phase of reforms, could be supported by regular adjustment loans\. 3\.1\.6 Timing and desi,gn: This operation was timely and well designed\. At the time of loan preparation, Brazil was recovering from the external shocks of late 1997/98\. The government had indicated its interest to draw only US$1\.5 million under the special support program and let the remaining US$2\.0 billion lapse\. Nevertheless, the government was expecting a current account deficit of about US$23 billion in the year 2000, and counted on the Bank loan to meet its external financing requirements\. Thus, the timing of this operation was useful in helping Brazil meet its external financing requirements during very difficult times, while benefiting from the opportunity to protect key social sector areas\. The operation was well designed from several important points of view: (i) it was based on rigorous analytical work; (ii) it ensured the preservation of the pension benefits of the poorer sectors of the population; and (iii) it had a programmatic approach which was well suited to the political difficulties inherent to pension reform in Brazil; and (iv) it had important synergy with other Bank lending and non-lending forms of support for Brazil's social security reform program\. Comments on each of these follow: 3\.1\.6\.a Strong analytic foundations: The Bank support for pension reform in Brazil is based on a rigorous analytical effort in the social security/labor area\. The main conclusions of the analytical work on pension reform, underway since 1998, have been synthesized in "Brazil: Critical Issues in Social Security"\. Draft Report No\. 19641-BR, November, 1999\. This report showed the need to reform the two pay-as-you-go (PAYGO) regimes of Brazil's pension system - the RJU and the RGPS - in order to reduce their fiscal deficits\. The overall pension deficit in 1999 was US$27\.6 billion, about 5% of GDP\. Without reform, the pension deficits for these two schemes could reach about 11% of GDP by the year 2020\. The accounting deficit (receipts minus expenditures) in the RGPS was estimated at about US$5\.1 billion (0\.9% of GDP in 1999)\. The deficit of the public servants RJU (including Federal, state and local RJ`Us) was estimated at about US$22\.5 billion in 1999 (4\.1% of GDP)\. Although currently the fiscal deficit of the RJU is much larger than that of the RGPS, projections indicate that future deficits of the RGPS will exceed RJU deficits in about ten to fifteen years\. Furthermore, given that the 18 million beneficiaries and 30 million contributors of the RGPS, labor market and equity considerations are significantly higher compared to the RJU\. Finally, in the face of system wide adjustments in benefits prompted by these reforms, it was - 3 -  necessary to ensure that the benefits of the elderly poor, widows and widowers contributing to the RGPS were not scaled down\. Thus, the Bank was right in deciding to support the reform of the RGPS regime under the second S/SECAL operation\. 3\.1\.6\.b The use of innovative analytic tools (PROST): In the course of project preparation, the task team utilized the Bank's Pension Reform Options Simulation Toolkit (PROST) to estimate the effects of the new benefit formula for the RGPS regime\. Under the assumptions made, the simulations showed sizable fiscal savings from the new benefit formula in the short, medium, and long-term\. The reformed RGPS showed a positive fiscal balance by 2003, and a rise in the surplus to almost 1% of GDP by 2010, instead of a deficit of 2% of GDP, without the reform\. The Bank analysis concluded that if implemented rigorously, and if accompanied by a tightening of the other RGPS programs like "Old Age" and "Disability", the reform promised significant fiscal and labor market efficiency benefits\. The Bank also supports Brazil's program of social security reform with two Learning and Innovation Loans (LILs) which, inter alia, support the use of actuarial models by states to diagnose the nature and severity of their pension problems, and by the National Institute of Social Security (INSS) for the design of the new pension parameters consistent with the principle of actuarial balance\. 3\.1\.6\.c Significant pro-poor implications: In Brazil the Old Age Pensions represent about one third of all social security benefits\. About 80% of the beneficiaries of the Old Age Pension Program are women and 2/3rds of all rural pensioners are in the Old Age Pension Program\. A study by a Government agency shows that families with Old Age pensioners have, on average, 14\.5% higher income than families without them, and that Old Age pensioners contribute, on average, to about 52% of their family's income\. In designing the loan, the Bank strongly supported the Government's efforts to ensure that the social protection subprogram covering the very elderly and rural workers was not changed by any reforms to the benefit formula of the RGPS\. These reforms target the parameters of the Length of Service Pension Program, largely corresponding to urban, male, formal sector workers\. The eligibility and benefit parameters of the Old Age Pension Program, mostly for the poor, women and for rural workers, are not affected by the reforms, and are in fact protected since these pensions have been shown to serve as an important "rural farming insurance" mechanism\. The provision of a guaranteed minimum level of income reduces income shocks typically associated with the agricultural sector\. To receive an Old Age Pension, a person must have contributed for 15 years and be 65 years or older\. Rural workers can retire under the Old Age Program five years earlier (60 years for men and 55 years for women)\. Although the actuarial coefficient can be used to calculate the Old Age Pension, the worker can choose to have the new formula applied only if the application of the actuarial coefficient results in a higher pension with the new formula than with the old\. Also, there is a minimum wage past which the new formula will not be applied to calculate retirement benefits\. Since the majority of Old Age pension beneficiaries make the minimum wage, the parameters of their pensions are not changed\. 3\.1\.6\.d Programmatic approach to support pension reform in Brazil: The Bank was judicious in choosing to negotiate a medium-term reform strategy and allocate its reform goals over a series of single-tranche adjustment operations, rather than trying to lock the government into an overly ambitious and politically sensitive policy agenda\. The programmatic approach, in which the medium-term strategy is outlined in the first loan, but implemented through a series of successive loans, has proven to be a very effective lending instrument in support of policy reforms in environments where external and domestic economic shocks may be likely\. 3\.1\.6\.e Synergy generated with other forms of Bank lending and non-lending support to the Government\. In addition to the strong analytical work described above, the Bank has supported the Government's program of Social Security reform with a number of lending and non-lending instruments\. This concerted - 4 -  approach has generated strong synergy in support of pension reform in Brazil\. Most importantly are two LILs: one in support of the use of actuarial models by states to diagnose the nature and severity of their pension problems, and the other in support of new solutions for the restructuring of Brazil's pension administration agencies: INSS and the Secretariat for Complementary Pension System (SPC), for the design of the new pension rules through the application of actuarial models to determine new parameters consistent with the principle of actuarial balance, and for the technical training of staff in the Ministry of Social Security and Social Assistance (MPAS)\. In addition, the Bank has played a key role in providing Brazilian policy makers with access to international experience and state-of-the-art literature on social security reform through the holding of seminars and the publication of reports in Portuguese\. 3\.2 Revised Objective: The project objectives remained unchanged\. 3\.3 Original Components: The S/SECAL was a one tranche adjustment loan in support of up front measures taken by the Government to reform the RGPS and strengthen the regulatory framework of the Complementary Pension Funds System\. 3\.4 Revised Components: The loan components remained unchanged\. 3\.5 Quality at Entry: 3\.5\.1 Quality at entry was satisfactory\. The operation was well timed and well designed\. During the loan preparation phase, Brazil was still recovering from the financial crises of the last few years and hence remained vulnerable due to continuing, albeit declining, fiscal and current account deficits\. Support for reforms to the RGPS which would lead to sizable fiscal savings in the near future was well justified\. 3\.5\.2 The objectives of the loan were realistic and important for Brazil\. In designing the reform the Bank took into account that pension reform would be unusually difficult in Brazil compared to other countries because benefit rules and eligibility criteria are embodied in the Federal Constitution adopted in 1988\. Constitutional Amendment 20/98 eliminated the eligibility rules and benefit levels for the RGPS from the constitution thereby making it possible to design new and more efficient parameters through enactment of specific laws\. 3\.5\.3 The implementing agency had already been working in close collaboration with technical specialists from the Bank on pension issues and thus were well equipped to deal with the technical complexities of the reform process, having been trained in the use of sophisticated pension simulation software and attended relevant pension seminars and conferences\. 3\.5\.4 The reforms to the RGPS benefit formula were in tandem with efforts to update human resources and information systems of the INSS - reforms that would greatly facilitate the implementation of RGPS reforms\. 3\.5\.5 Reforms to the RJU would require an amendment to the constitution once again - a process that requires 3/5th approval in both houses of parliament, twice\. Since there was little political motivation to - 5 -  engage in yet another round of constitutional changes following so quickly on the heels of the previous constitutional amendment, the Bank was correct in supporting the reforms aimed at the RGPS while continuing its technical assistance support and policy dialogue with the Brazilian authorities towards a possible future reform of the RJIU system\. 4\. Achievement of Objective and Outputs 4\.1 Outcome/achievement of objective: 4\.1\.1 This S/SECAL has achieved its intended objective of supporting the reform of the RGPS system aimed at reducing the system's fiscal imbalance and, therefore, contributing to fiscal adjustment\. All policy reform measures supported by this S/SECAL were implemented prior to Board approval of this loan, and it is expected that the project would achieve all its major relevant objectives with substantial developmental and institutional results\. The achievement of objectives is rated as satisfactory since they have had the effect of: a) reducing fiscal liabilities of the RGPS and hence potential public liabilities; b) providing better incentives and linkages between contributions and benefits, with due consideration towards actuarial balance; c) promoting institutional depth and development; d) providing an effective old age safety net for the poorest workers; and e) providing incentives and motivation for the RJIJ to engage in cost saving reform measures\. It is also expected that the provision in the new legislation of tying family allowances to children's school attendance would provide a positive encouragement towards increased school attendance\. All these measures are indeed in accordance with the general thrust of government social security reform policy in Brazil that ultimately aims to a) reduce fiscal deficits b) reduce the disparity between private and public sector workers, and, c) extend and modernize complementary pension regimes\. The specific measures implemented under this operation and expected outcomes are described in the following paragraphs\. 4\.1\.2 The Regime Geral de Previdencia Social - (RGPS), is administered by the Federal Government's INSS, from which 18 million Brazilians receive pension, disability and survivor benefits, and to which about half of the labor force of 60 million make compulsory contributions\. Constitutional Amendmnent 20/98, supported by the Bank's First Social Security S/SECAL, accomplished the following with respect to the RGPS: * removed the definition of the benefit formula from the 1988 Constitution (from the average of 36 months salaries), and stated the need to establish, through ordinary laws and regulations, a new benefit formula that would meet the principles of fiscal and actuarial balances\. However, a provision to introduce a minimum retirement age under the RGPS failed to be approved by Congress; * eliminated special pension regimes, except for school teachers and some risky occupations; * adopted years-of-contributions instead of years-of-service for benefit eligibility; * eliminated early retirement with a partial pension (70%), with transition rules; * set a ceiling on retirement benefits indexed to inflation; * expanded the contribution base to all work-related earnings; * allowed income taxes to be levied on pension and survivor benefits of persons over 65 years old; and, * opened the work injury insurance program to the private sector\. 4\.1\.3 At the time these reforms were being implemented, modest fiscal impacts were expected as a result of the elimination of the early retirement option (aposentadoria proporcional) with reduced benefits - 6 -  (70%)\. A larger fiscal impact was expected to be felt later on, as a result of adopting a new benefit formula that would respect the principles of actuarial and fiscal balance, as mandated by the Constitutional amendment\. 4\.1\.4 Main Reform of the RGPS supported by S/SECAL II\. The main reform supported by this loan was the enactment of Law No\. 9876, of November 26, 1999, which introduced a new formula for the calculation of pension benefits under the RGPS, established new rules for contribution to the RGPS by self-employed persons, created incentives for such persons to join the system, established higher fines for evasion and incentives for debt settlement, and, conditioned payment of family allowances (salrio-familia) to children's school attendance\. The regulation of this law was approved in December 1999 through a Presidential Decree\. The new formula incrementally extends the reference wage to eventually include a worker's entire working life, and establishes an endogenous accrual rate determined by years of contribution and life expectancy at retirement for old and new entrants to the labor force\. A primary objective of these reform measures is to reduce the fiscal deficit of the RGPS, while contributing to institutional development and depth and providing for an enabling social protection environment for rural workers in Brazil\. 4\.1\.4\.a New benefit formula: The new law establishes that the RGPS pensions should be based on the entire work history but, to protect workers with highly variable eamings (such as women), the average pension will be based on 80% of the highest annual wages over the working life\. Under the new formula, pensions are now defined as Sb=M*f Sb is the pension level, M is the average of the 80% highest contribution wages indexed by past inflation, and f f=[(tc*a/Ex)*(l+(age_r+tc*a)/100)], where tc=contribution time, a=total contributions(0\.31), Ex=life expectancy of insured worker, age_r-age at retirement\. is an actuarial coefficient ('fator previdenciario') that depends on two components\. The first part of the actuarial coefficient formula equilibrates the contribution period of each insured worker to the average time the benefit is received (life expectancy at retirement, by age)\. The second part of the actuarial coefficient is a "bonus" given to insured workers, the size of which is increased based on how long they have worked and the age at which they retire\. For the first time, therefore, conditions are being introduced to encourage workers to keep working, even after meeting all the legal qualifications for retirement\. A rule of transition is included through a gradual application of the actuarial coefficient over five years\. 4\.1\.4\.b Actuarially fair incentives: Sensitivity analysis showed that for the long-run finances of the system, whether or not RGPS participants actually respond to the incentive to work longer that is built into the new benefit formula is relatively unimportant\. The main reason for this relative "neutrality" of fiscal outcomes to behavioral responses is that these incentives are almost actuarially fair\. That is, the additional amounts workers will pay in as contributors if they work longer sum up to roughly the expected additional amounts they will receive in pension benefits\. 4\.1\.5 Estimates of the effect of the new reforms, using PROST are presented in Figure 1, which plots RGPS fiscal deficits as a percent of GDP under the base case (no reform), the amendment ending Aposentadoria Proporcional, and the new benefit formula using the following assumptions: (i) women and men delay retirement until 60 and 65 years of age, respectively; and (ii) 20% of retirees in the age bracket 48/53 years - 60/65 years switch to the Old Age Scheme, which is not modified by the reform and has only a 15 year contribution requirement and slightly lower benefits\. It is estimated that this causes a 10% drop in revenues and a 4% drop in expenditures\. Although the final impact on the fiscal deficit of the RGPS will depend to some extent on behavioral responses of people switching to the Old Age pension scheme, it is easy to demonstrate that the long run fiscal savings from the overall reform are much greater than the uncertain costs imposed by those with incentives to switch to the Old Age scheme\. - 7 -  4\.1\.5\.a Estimates of the total sum of net present value of deficits, also known as the financing gap, are shown to reduce by almost 75% over a 50 year time horizon implying significant potential fiscal efficiency gains as the new benefit formula becomes effective at retirement over the next ten to twenty years\. The reduction in projected deficits may have important anti-poverty implications if resources are directed judiciously over the next few decades\. 2\.00% - 0\.00% , AAgAAAAAAA *'td\.4 o °o- tA X (^\. c) x N I 0 W- 'I (N rC c -200 o c\.* o~ X o o 000000000000 oo oo -2\.00% - *s C vq *q es \.q N N As N (NS (N ( (N CS C( OS (N (N (N -4\.00% AAAAAAA \. *^A0\. AA -6\.00% * AAA -8\.00% AAAAAAAAAAAAAAAAAAAA^ Ak~~~~~~~~~~~~~~~A -10\.00% -1100% ~ ~_ -14 6\.00% -16\.00% AAAAjL A Fator Previdenciaro \.Cornstitutional Amendment * Base Case - No reform lFigure 1: Modeling the fiscal deficits of the RGPS with the new benefit formula 4\.1\.5\.b Under the assumptions made, these simulations showed sizable fiscal savings from the new benefit formula in the short, medium and long-term\. The reformed RGPS shows a positive fiscal balance by 2003, and the surplus rises to almost 1% of GDP by 2010-2015 instead of a deficit of 2% of GDP without the reform\. The surplus is projected to continue until the year 2020\. The RGPS returns to deficit again after 2020 due to the effect of population aging\. However, the deficit with reforms (':fator previdenciario ") is only half of the deficit without any reform (base case)\. Empirical data from 1998 and 1999 confirms that deficits are approximately 1% of GDP\. 4\.1\.5\.c Fiscal savings in the new benefit system come primarily from the following: (i) a reduction of the average replacement rate from about 100% of reference salaries to about 70%-75% of current levels through the introduction of the new benefit formula; and (ii) lengthening of the reference period gradually to (almost) the full working life\. Lengthening of the reference period also reduces benefits because reduced replacement rates are applied to a reduced base\. Furthermore, increasing the reference period has the effect of flattening the extraordinarily high rates of return accruing to the richer members of the scheme and therefore makes the scheme more equitable\. Although rapid population aging would exert some serious demographic pressures on the social security system provided by the RGPS, if implemented rigorously, and if accompanied by a tightening of the other RGPS programs - Old Age and Disability - the reforms would have significant fiscal efficiency benefits\. 4\.1\.6 The primary contribution of the reform measures undertaken within the context of the Second - 8 -  S/SECAL is to improve the fiscal balances of the RGPS and, therefore, of the Government\. When the time comes, the Brazilian society will have to decide on further reform measures and on the degree of fiscal subsidy that they are willing to accept to provide an old age safety net\. 4\.1\.7 By allowing no radical changes to the Old Age Program for pensions, whose beneficiaries are mainly rural workers with fairly uncertain labor market histories, the administration has maintained an important safety net in place for Brazil's rural workers who can be assured of a standard pension when they retire from productive life\. The new benefit formula also ameliorates the impact of individual labor market uncertainty by using only the highest 80% of life time wages in the pension calculation\. This serves as an important redistribution safety net for women and men alike\. 4\.1\.8 Secondary Reforms of the RGPS\. In tandem with the primary reforms affecting the benefit formula, there were some important secondary reforms of the RGPS implemented in the context of this sector adjustment operation\. These reforms are expected to buttress the fiscal and equity implications of this adjustment operation\. They include: 4\.1\.8\.a Incentives to expand coverage among the self-employed: \.According to the old law, entrepreneurs, the self-employed and optional insured workers did not qualify for maternity benefits\. Law 9876 of 26 November 1999 eliminates this restriction\. Before the new law was enacted, the self-employed were forced to stay a minimum number of years in each level of the wage scale\. The new law introduced more flexibility, allowing contributions to increase or decrease according to the worker's income\. This measure is coherent with the new benefit formula based on 80% of the highest contribution wages, as it permits the worker to pay the highest contribution as possible in order to reach higher benefits after retirement\. Another important provision of the law involves the reduction of the contribution for the self-employed when they are rendering services to firms\. With this new rule, the worker can lower his contribution rate from 20% to 11%\. The contracting firm must pay a social security contribution of 20%, calculated over the value of the services agreed\. This change facilitates the formalization of the relation between the self-employed and companies, aiming at expanding the coverage of these emerging labor relationships\. Finally, the law reduces by 50% interest penalties on late contributions of the self- employed as an incentive for workers to regularize their situation with the INSS\. 4\.1\.8\.b Incentives for school attendance: Law 9876/99 also conditioned payment of family allowances (salario-familia) to children's school attendance thereby providing attended incentives to boost school attendance and recent government statistics suggest a welcome decrease in the incidence of child labor in Brazil\. 4\.1\.8\.c Criteria to avoidfraud in the program for disability:\. The criteria for temporary and perrnanent disability program were revised by Presidential Decree 3048 of 6th May 1999, with the objective of avoiding fraud in the concession of disability benefits\. The Decree includes new rules for medical determination of eligibility and limiting concession of disability benefits to cases where it is possible to establish a clear link between the task performed by the worker and the related disease\. Tightening of disability benefits to avoid fraud is an important but often overlooked secondary reform that enhances the positive effects of the primary reforms designed to lower overall deficits\. 4\.1\.8\.d Measures to formalize legal penal actions against perpetrators of crimes against the social security system: Law 9983 of July 14, 2000 defines crimes against the social security system and the corresponding penalties\. 4\.1\.8\.e Measures to enhance portability: Presidential Decree 3112, of July 6, 1999, regulates the financial -9-  compensation that is required to be effected between the RGPS and the RJU as a result of the transfer of workers from one system to the other, after the promulgation of the Borrower's Constitution\. 4\.1\.8\.f Measures to improve the regulatory framework and enhance institutional credibility and depth: The National Monetary Council has issued resolutions to guarantee the security and solvency in the application of the funds with social security purposes, having the Brazilian Central Bank as intermediary\. Among the subjects regulated are the ways of acquiring shares from companies that are linked to the social security funds, as well as the application of sources derived from patrimony alienation that are linked to the funds in the form of assets and rights of any nature\. 4\.1\.8\.g Measures to enhance institutional capacity of the MPAS/INSS: Recent advances in INSS restructuring add institutional depth and capacity to the institution\. They include: (i) full consolidation of all social security and labor information registers under the Unified Register of Social Information (CNIS), an important advance to improve control over work histories and collections, and to establish individual contribution accounts; (ii) adoption of a new organizational structure for INSS approved by the Executive and being implemented; (iii) initiation of a review of temporary disability pensions; and (iv) initiation of a program to improve public relations through a network of social security agencies\. A Bank learning and innovation loan supports the INSS restructuring efforts, particularly in the area of strategic planning\. The bulk of the Bank's technical advice for the second phase of the reform program is being provided directly to the state governments through a special unit in MPAS, to evaluate the fiscal health of their RJU plans, and assist in the design and regulation of the new Complementary Funds\. These funds would fall under the regulatory auspices of the SPS\. 4\.1\.9 Secondary Reforms for the Complementarv Pension System\. Funded plans are a new institutional vehicle to complement the retirement incomes of civil servants that is gaining popularity among state governments\. Despite the relative sophistication of Brazil's capital markets, present coverage of these plans is low due to the lack of transparency and a regulatory framework for their efficient operation\. Funded plans to supplement RJU benefits are being proposed, and state governments are especially keen on offering these funds to employees\. Some states such as Bahia, Parana and Rio de Janeiro have already taken steps to establish funded plans\. Santa Caterina is considering the option\. The Complementary Funds for civil servants are promising from a political economy point of view, in that they allow state governments to offer their workers a "new deal" consisting of lower but more dependable pensions, rather than simply confronting them with a cut in their benefits\. The Constitutional Amendment provided that in three months the Government had to prepare and present three key Complementary Laws to regulate the Complementary Pension System\. The Brazilian legislative process distinguishes Complementary Laws from Ordinary Laws: while there is not hierarchical distinction between the two kinds of law, the Complementary Laws require a special quorum of deputies to be present for a vote to be taken, and are, therefore, much more difficult to pass in Congress\. However, two of these laws were approved by Congress in April 2001, and it is expected that the third law will clear Congressional approval by August 2001\. Specifically, these laws address the following objectives: 4\.1\.9\. a Setting up a regulatory and governance structure: [Complementary bill of law No\. 63/99]\. This bill of law received congressional approval on April 24, 2001 and awaits formal Presidential sanction\. It establishes the rules for the functioning of the complementary pension fund system, and the operation and supervision of the complementary pension entities\. It introduces new vesting and benefit rules to protect workers' interests and allow for the portability of acquired rights\. This law regulates the whole sector of complementary pension system, both open and closed funds, replacing Law No\. 6465/77\. 4\.1\.9\.b Enhancing management parity and insulating administration from sponsors: [Complementary - 1 0 -  bill of law No\. 01/00]\. This bill of law was approved on April 25, 2001 and awaits formal Presidential sanction\. It regulates the institutional relationship between the public sector, at the federal, state and municipal level, as sponsor of pension plans and the administration of the respective pension funds\. It also sets requirements for the management of the Government Complementary Funds, establishing the principle of "management parity" between the sponsoring employer and beneficiaries of the new plans\. Furthermore, the law also introduces guidelines for the administration of the plans, to avoid conflicts of interest and misuse of the funds\. 4\.1 \.9\.c Enhancing transparency and accountability[Complementary bill of law No\. 09/99]\. This bill was submitted to Congress and is being debated in the national congress\. This law establishes the rules for the establishment and operation of complementary pension funds by the public sector at the federal, state and municipal level\. This law would require that the new government sponsored Complementary Funds, regardless of at what level of government they are established - to fall under the supervision of the Federal Secretariat of the Complementary Pension System, currently within MPAS\. The new funds would be required to meet the same actuarial and disclosure guidelines as the rest of the plans in the system\. Additionally, the law would allow organizations and entities, other than single companies, to offer pension plans, extending the right to set up a complementary plan for industry and trade associations as well as unions\. 4\.1\.10 These three Complementary Laws aim to: (i) modernize the institutional framework of the SPC, originally established in 1977; (ii) establish the institutional relationship between government bodies and complementary pension plans, as well as the governance structure of the new funds; and (iii) allow government as employer, at the federal and state level, to establish complementary funds for civil servants to supplement RJU benefits, and ensure equal regulatory requirements with those regulating existing funds for private sector workers\. 4\.2 Outputs by components: 4\.2\.1 All policy reform measures supported by this S/SECAL were implemented prior to Board presentation of the loan\. Annex 8 reproduces the policy matrix of the loan, detailing the measures taken under each policy area covered by this operation, progress made since effectiveness, and the main elements expected in the third phase of financial policy reforrns\. The measures taken prior to Board presentation were the following: 4\.2\.2 Main Reform: Entry into force of Law No\. 9876, of November 26, 1999, which introduced a new formula for the calculation of the pension benefits under the RGPS, established new rules for contribution to the RGPS by self-employed persons, created incentives for such persons to join the system, established higher fines for evasion and incentives for debt settlement, and conditioned payment of family allowances (salario-familia) to children's school attendance\. 4\.2\.3 Secondary Reforms: A) Reforms of the RGPS: Submission to the Borrower's Congress of Bill of Law No\. 9983, of July 14, 2000, which defines crimes against the RGPS, and establishes the corresponding penalties\. - 11 -  Issuance of Presidential Decree No\. 3112, of July 6, 1999, which regulates the financial compensation that is required to be effected between RGPS and the social security system for the public sector workers as a result of the transfer of workers from one system to the other, after the promulgation of the Borrower's Constitution\. Issuance by the Borrower's National Monetary Council of the following resolutions: * No\. 2651 of September 23, 1999, which regulates the acquisition by any financial institution fully owned by the Borrower of shares of sub-national companies allocated to pension funds of the States and Municipalities\. The term "sub-national companies" means companies controlled by the States and Municipalities, which are included in privatization programs; and, * No\. 2652 of September 23, 1999, which regulates investments of pension funds instituted by the Borrower, the States and the Municipalities\. Issuance of Presidential Decree No\. 3048 of May 6, 1999, which approved the new regulation of the RGPS, including, inter alia, a revised criteria for eligibility under worker's temporary and permanent disability programs\. Consolidation under one information system of all registers regarding workers under the RGPS; approval and implementation of a new organizational structure for the INSS; implementation of re-certification of worker's temporary disability pensions; and launching of a program to improve attention to the public through the establishment of new service agencies by the INSS\. B) Reforms of the Complementary Pension System: Submission to the Borrower's Congress of the following Bills of Complementary Laws: * Senate No\. 63/99, which establishes the rules for the functioning of the complementary pension fund system, and the operation and supervision of the complementary pension entities\. * Senate No\. 01/00, which regulates the institutional relationship between the public direct administration of the Borrower, at the Federal, State and Municipality level, as sponsor of complementary pension funds, and the administration of their respective pension funds; and, * House of Representatives No\. 09/99, which establishes the rules for the establishment and operation of complementary pension funds by the public direct administration of the Borrower, at the federal, State and Municipality level\. 4\.3 Net Present Value/Economic rate of return: 4\.3\.1 Not applicable\. 4\.4 Financial rate of return: 4\.41\.1 Not applicable\. 4\.5 Institutional development impact: - 12-  4\.5\.1 The institutional development impact of the operation has been high, particularly at the level of the MPAS and the INSS\. These institutions have evolved as a consequence of actions taken within the context of these adjustment operations to update their structure, human capital, and modes of operation\. The TNSS as well as the MPAS have been exposed to greater institutional accountability and transparency\. Regulations targeted at the complementary pension regimes would promote institutional diversity and development within the financial sector of Brazil as these pension funds mature\. 5\. Major Factors Affecting Implementation and Outcome 5\.1 Factors outside the control of government or implementing agency: 5\.1\.1 The policy reforms supported by this operation were implemented before Board presentation of the S/SECAL and, in that sense, implementation was highly satisfactory and not subject to factors outside the Government's control\. However, there were political factors outside the control of the Government that affected how soon the policy measures already taken produced the intended outcomes\. One such factor has been Congress' failure to approve, in a timely manner, one of the Complementary laws presented by the Government (that would regulate the Complementary Pension System for civil servants)\. 5\.2 Factors generally subject to government control: 5\.2\.1 As indicated, the policy actions supported by this operation that are subject to Government control have been implemented satisfactorily\. The implementation of the major rules and regulations that were necessary to put the wheels of reform in progress were performed satisfactorily, despite political opposition\. 5\.2\.2 The continued commitment of the Government to curtail public deficits would receive a positive boost from the expected reduction in social security deficits\. Continued labor market improvements and the continued evolution of Brazil's rapidly growing financial sector would also buttress the expected positive impacts from these reform measures\. 5\.2\.3 One of the factors that could affect the outcome of this reform is that the reform reduces the rates of return to the Length of Service Pension Scheme and thus implicitly makes it more attractive for some individuals to switch to the Old Age Pension Scheme\. To the extent that this happens, the potential benefits from the reforms to the Length of Service Pension Scheme may be compromised\. 5\.2\.4 However, recent empirical data available at the time of preparing this ICR does not confirm the presence of any significant spikes in the membership of the Old Age Pension Scheme\. This suggests that either this switching impact is irrelevant in the case of Brazil or simply not yet evident\. The technical analysis underlying the design of this scheme does, however, cautiously assume that approximately 20% of individuals who are eligible to retire under the Old Age Scheme but belong to the Length of Service Scheme would switch to the Old Age Scheme\. Future social sector adjustment operations should track the extent of this switch since it may induce the need to fine tune the parameters of the RGPS further\. 5\.3 Factors generally subject to implementing agency control: Not applicable\. 5\.4 Costs andfinancing: - 13 -  Not applicable\. 6\. Sustainability 6\.1 Rationale for sustainability rating: 6\.1\.1 The sustainability rating of the RGPS reform supported by this loan is highly likely\. Several reasons support this conclusion: * The constitutionality of the new benefit formula was challenged by opposition parties, but on March 14, 2000, the Supreme Court reaffirmed the constitutionality of this reform\. Despite this ruling, the implementation of the benefit formula could be challenged in the courts in the future\. However, Constitutional Amendment 99/20 establishes the principles of actuarially and fiscally balanced pension regimes\. In the absence of a minimum retirement age for private sector workers, the only way to reduce the imbalance of the RGPS is with the adoption of a benefit formula linking benefits to contributions\. * The Govemment is very committed to support the reform of the RGPS in order to preserve gains made in reducing fiscal deficits and restoring macroeconomic equilibrium\. In addition, the recently approved Fiscal Responsibility Law is an added incentive for the Govemment to preserve the balance of the system\. 6\.2 Transition arrangement to regular operations: 6\.1\.1 Although the RGPS reform supported by this loan is an important step in the right direction, there is a major unfinished agenda to fully reform Brazil's pension system\. Future needed reforms of the RGPS should include: * a significant reduction in the contribution rates of the RGPS, which with other payroll taxes, are among the highest in developing countries\. This reduction is necessary to improve the competitiveness of Brazil's producers and reduce the high levels of informality in the labor market; * separating the social assistance component of the RGPS (pensions for low income earners, rural workers) from the RGPS (to be funded directly from the budget), * revising reform parameters if necessary based on the incentive behavior observed in the Old Age Scheme and the Length of Service Pension Scheme, * implementation of a proposal to shift most government employees from the RJU regime to the RGPS, and, * Planning for the second round of major reforms, if necessary, to be implemented before the advent of RGPS fiscal deficits in the future\. 6\.1\.2 As the President's report suggests, by far the most important part of the unfinished reform agenda is the reform of the RJU, which continues to be a mounting burden on Brazil's public resources\. Available analyses indicate that this can be accomplished through a variety of routes as described below\. However, the most important actions to reform the RJU would be the approval of a constitutional amendment to - 14 -  change the RJU benefit formula and the Hauly Amendment\. * Increase in RJU Contributions\. Although disappointed by the Supreme Court's decision in September 1999 to overturn attempts to increase contributions, the Govermment has responded with plans for a flat increase of Federal RJU contributions from active civil servants from the current 11% to as much as 14%\. Several states such as Pemnambuco, Amazonas and Parana have adopted schemes with contribution rates around 14%\. * Constitutional Amendment to introduce pension contributions by RJU retirees\. The Administration has, with the support of 24 state governors, submitted a second constitutional amendment to Congress in November 1999, that would legalize the collection of contributions from retired RJU workers\. * The Hauly Amendment\. A recently added clause to the draft Amendment (the Hauly Amendment) would require that all new hires into the civil service accrue pension benefits under the parameters of the RGPS\. This would, over time, effectively close the RJU and unify the two pension regimes into a single system, which is one of the reform program's most important long term goals\. This is a necessary step in the reform process that will staunch the growth of new unfunded liabilities and contribute to greater equity between the pension systems of the private and public sectors\. Even so, the transition period between the time when the current generation of entitled civil servants stop receiving RJU benefits, and when the majority of government workers are entitled only to benefits under the RGPS, will be quite long\. 3 Constitutional Amendment to change the RJIJ benefit formula\. The proposal to eliminate the benefit formula for the RJU system was not approved by the Constitutional Amendment of December 1998\. However, the amendment mandates that all pension systems should be actuarially and fiscally balanced\. It is difficult to envisage how this requirement could be accomplished without a new benefit formula that links benefits to contributions\. Changing the benefit formula would require another Constitutional amendment\. 6\.1\.3 The Bank has continued to provide technical support to the Brazilian authorities through ESW on pension related issues, and through the implementation of the "Social Security Technical Assistance Learning and Innovation Loan, and the TF05825, which finances technical work on alternatives for reforming the RJU system\. This work would be the basis for a possible Third Social Security Adjustment Loan in support of a future reform of the RJU system\. The likelihood of such a reform is not high at the moment, but the mounting deficits of the RJU system and the glaring inequalities between the reformed RGPS and the unreformed RJU will be difficult to ignore for much longer\. 7\. Bank and Borrower Performance Bank 7\.1 Lending: 7\.1\.1 The Bank's lending performance was satisfactory\. The Bank devoted substantial attention to the identification, preparation and appraisal phases, with considerable dialogue with stakeholders and counterparts in Brazil\. The technical analysis underlying the reform proposals were of an exceedingly high standard with inputs and guidance from local stakeholders and counterparts\. - 15-  7\.1\.2 Identification: In identification, the Bank's performance was satisfactory, since the operation was very well timed and in accord with the objectives of the Brazilian Government, as well as with the criteria identified in the CAS documents for Brazil\. As part of a series of social security reformrn measures, this operation was well coordinated with previous reform efforts and sets up the framework for future reformns to other pension regimes\. 7\.1\.3 Preparation: The Bank's performance during preparation was satisfactory\. The Bank fielded a comprehensive mission which included expertise in financial analysis, human resources, social protection and economics\. The Bank has been congratulated for engaging its counterparts in very constructive dialogue and debate about the structural weaknesses of their pension systems\. The preparation phase was supported by very high quality analytical sector work that allowed policy makers in Brazil to work with Bank experts towards a credible and feasible reform strategy despite political economy concerns\. 7\.1\.4 Through a basket of lending and non-lending technical assistance, the Bank trained a team of core of the MPAS authorities in the use of its Pension Reform Options Simulation Toolkit (PROST), initiated the collection of data and better monitoring of state and municipal pension plans, assisted in the drafting of crucial legislative items, launched an institutional audit of the INSS, and, sustained complex policy dialogue with policy makers during very difficult socio-economic and financial conditions in Brazil\. The Bank included in its team working on social security issues a former head of the Argentine Social Security Agency and a former Acting Commissioner of Social Security in the USA, who shared their considerable experience with the MPAS authorities\. 7\.2 Supervision: Not applicable since all effectiveness conditions were satisfied prior to Board Presentation\. 7\.3 Overall Bank performance: Overall bank performance was satisfactory\. Through this operation, the Bank continued to play a supporting role in assisting the borrower to articulate policy options, evaluate proposals for action, redirect priorities, and generally formulate and implement a coherent program of social security reform\. Borrower 7\.4 Preparation: The Borrower's performance in identification and appraisal is assessed as satisfactory\. There was very close dialogue and cooperation between the Borrower and the Bank that allowed for the emergence of a feasible and credible social security reform program\. The MPAS had spent considerable human resources in acquiring the latest technical tools to analyze various reform options and prepare for the challenges of pension reform\. 7\.5 Government implementation performance: The Borrower has fully complied with the provision of the S/SECAL II\. Government performance during implementation is rated as satisfactory\. Despite the severe economic and social shocks prompted by the financial crises that prevailed in Brazil during 1997/98, the tenacity and will of the Government to reduce its social security deficits and preserve core social protection sectors is laudable\. However, the failure to mandate a minimum retirement age for the RGPS implies that future - 16 -  generations will have to be faced with constant benefit formula changes since the Government is committed, by the constitutional amendment, to preserve actuarial balance in the system\. The government signaled its willingness to continue to modernize retirement income systems in Brazil by recently approving legislation pertaining to the regime for complementary pensions\. Unfortunately, recent political economy considerations preclude any immediate progress on pension reform issues\. In terms of its own three pronged reform agenda consisting of a) reducing fiscal deficits b) eliminating disparities between public and private sector pension benefits and c) extending and modernizing complementary pension regimes, these reform efforts make commendable progress on all three fronts\. However, as indicated, the reform agenda is still incomplete and important provisions related to the RJU system need to be implemented if the government is indeed to be fully successful in its social security reform aspirations\. 7\.6 Implementing Agency: Not applicable\. 7\.7 Overall Borrower performance: Overall Borrower performance is rated as satisfactory\. 8\. Lessons Learned 8\.1 A programrnmatic approach to support pension reform could be relevant for pension reform since it allows for a series of modular or sequential reform packages\. This has direct relevance when future reforms hinge on vital, but politically difficult choices the borrower must implement\. It controls the risk of non-performance by conditioning future programs based on current performance\. Currently reforming pension regimes in sub Saharan Africa as well as the middle-east would benefit greatly from studying the mechanisms of these adjustment operations in Brazil\. 8\.2 Protecting key social protection sectors during adjustment operations may yield positive payoffs in terms of improved poverty indicators following the aftermath of economic shocks\. 8\.3 Successful pension reform requires substantial dialogue, discussion and debate with local counterparts, policy makers and experts\. Towards that end, the present pension reform agenda in Brazil took its roots through a series of seminars, debates and training sessions organized jointly by the Borrower and the Bank\. This mode of technical dissemination has very high payoffs in terms of guiding countries towards appropriate policy reforms\. 8\.4 Technical assistance and knowledge dissemination are very effective de-politicizing tools\. The widespread training of PROST - a toolkit developed by the Bank for analyzing pension reform - in Brazil stirred debate and dialogue as the structural weaknesses of these plans became evident to policy makers, experts and other relevant stake holders\. 9\. Partner Comments (a) Borrower/implementing agency: Borrower's comments are presented as Annex 9 (b) Cofinanciers: - 17 -  (c) Other partners (NGOs/private sector): 10\. Additional Information Not applicable\. - 1 8 -  Annex 1\. Key Performance Indicators/Log Frame Matrix Outcome I Impact Indicators: Indicator/Matrix Projected in last PSR Actual/Latest Estimate Not applicable because this is an adjustment operaton\. Output Indicators: Indicator/Matrix Projected in last PSR ActuaULatest Esimate Not applicable because this is an adjustment operation\. End of project - 19 -  Annex 2\. Project Costs and Financing Project Cost by Component (in US$ million equivalent) Appraisal ActualLatest Percentage of Estimate Estimate Appraisal Project Cost By Component US$ million US$ million Not applicable because this is an adjustment operation\. Total Baseline Cost 0\.00 0\.00 Total Project Costs 0\.00 0\.00 Total Financing Required 0\.00 0\.00 Project Costs by Procurement Arrangements (Appraisal Estimate) (US$ million equivalent) Procurement Method t Expenditure Category ICB NCB Other: N\._\._ Total Cost 1\. Works 0\.00 0\.00 0\.00 0\.00 0\.00 (0\.00) (0\.00) (0\.00) (0\.00) (0\.00) 2\. Goods 0\.00 0\.00 0\.00 0\.00 0\.00 (0\.00) (0\.00) (0\.00) (0\.00) (0\.00) 3\. Services 0\.00 0\.00 0\.00 0\.00 0\.00 (0\.00) (0\.00) (0\.00) (0\.00) (0\.00) 4\. Miscellaneous 0\.00 0\.00 0\.00 0\.00 0\.00 (0\.00) (0\.00) (0\.00) (0\.00) (0\.00) 5\. Miscellaneous 0\.00 0\.00 0\.00 0\.00 0\.00 (0\.00) (0\.00) (0\.00) (0\.00) (0\.00) 6\. Miscellaneous 0\.00 0\.00 0\.00 0\.00 0\.00 (0\.00) (0\.00) (0\.00) (0\.00) (0\.00) Total 0\.00 0\.00 0\.00 0\.00 0\.00 (0\.00) (0\.00) (0\.00) (0\.00) (0\.00) Project Costs by Procurement Arrangements (Actual/Latest Estimate) (US$ million equivalent) : ProcureenOt Method'30 i;;0 0 Expenditure Category ICB ProNCR entMethoder22 N\.B\.F\. Total Cost 1\. Works 0\.00 0\.00 0\.00 0\.00 0\.00 (0\.00) (0\.00) (0\.00) (0\.00) (0\.00) 2\. Goods 0\.00 0\.00 0\.00 0\.00 0\.00 (0\.00) (0\.00) (0\.00) (0\.00) (0\.00) 3\. Services 0\.00 0\.00 0\.00 0\.00 0\.00 (0\.00) (0\.00) (0\.00) (0\.00) (0\.00) 4\. Miscellaneous 0\.00 0\.00 0\.00 0\.00 0\.00 (0\.00) (0\.00) (0\.00) (0\.00) (0\.00) -20 -  5\. Miscellaneous 0\.00 0\.00 0\.00 0\.00 0\.00 (0\.00) (0\.00) (0\.00) (0\.00) (0\.00) 6\. Miscellaneous 0\.00 0\.00 0\.00 0\.00 0\.00 (0\.00) (0\.00) (0\.00) (0\.00) (0\.00) Total 0\.00 0\.00 0\.00 0\.00 0\.00 I___ (0\.00) (0\.00) (0\.00) (0\.00) (0\.00) " Figures in parenthesis are the amounts to be financed by the Bank Loan\. All costs include contingencies\. 2'Includes civil works and goods to be procured through national shopping, consulting services, services of contracted staff of the project management office, training, technical assistance services, and incremental operating costs related to (i) managing the project, and (ii) re-lending project funds to local government units\. Project Financing by C mponent (in US$ million equivalent) Percentage of Appraisal Component Appraisal Estimate Actual/Latest Estimate Bank Govt\. CoF\. Bank Govt\. CoF\. Bank Govt\. CoF\. 505\.06 505\.06 100\.0 - 21 -  Annex 3\. Economic Costs and Benefits Not applicable because this is an adjustment operation\. - 22 -  Annex 4\. Bank Inputs ) Missions: Stage of Project Cycle No\. of Persons and Specialty Perfor ce Rating (e\.g\. 2 Economists, I FMS, etc\.) hnplementation Development Month/Year Count Specialty Progress Objective Identification/Preparation 01/2000 1 Principal Operations Officer/Task Manager I Senior Economist Appraisal/Negotiation 03/2000 1 Principal Operations Officer/Task Manager 1 Lawyer I Social Protection Specialist - Pensions 1 Human Resources Economist -Social Protection (Pension Reform Sirnulation) Supervision 04/2000 One tranche loan: no supervision required ICR 05/2001 1 Principal Operations Officer I Economist (Pensions) (b) Staff\. Stage of Project Cycle Actual/Latest Estimate No\. Staff weeks US$ ('00O) Identification/Preparation Appraisal/Negotiation 13\.75 58\.48 Supervision ICR 4\.90 20\.71 Total 18\.65 79\.19 - 23 -  Annex 5\. Ratings for Achievement of Objectives/Outputs of Components (H=High, SU=Substantial, M=Modest, N=Negligible, NA-Not Applicable) Rating OMacro policies C H *SUOM O N O NA OSectorPolicies OH OSUOM O N O NA O Physical O H OSUOM O N * NA O Financial O H *SUOM O N O NA O Institutional Development O H O SU O M O N 0 NA E Environmental O H OSUOM O N * NA Social E Poverty Reduction C H * SU O M 0 N 0 NA E Gender O H *SUOM O N O NA 1 Other (Please specify) O H *SUOM O N O NA School attendance * Private sector development 0 H O SU O M 0 N 0 NA * Public sector management 0 H O SU O M 0 N 0 NA E Other (Please specify) O H OSUOM O N O NA -24 -  Annex 6\. Ratings of Bank and Borrower Performance (HS=Highly Satisfactory, S=Satisfactory, U=Unsatisfactory, HU-Highly Unsatisfactory) 6\.1 Bank performance Rating I Lending OHS OS OU C:HU * Supervision OHS OS OU OHU Z Overall O HS * S O U C) HU 6\.2 Borrowerperformance Rating Z Preparation O HS * S 0 U C) HU [ Government implementation performance 0 HS * S 0 U C) HU O Implementation agency performance O HS O S () U 0 HU Z Overall OHS OS 0 U (C) HU - 25 -  Annex 7\. List of Supporting Documents - 1998 CAS Progress Report, Report No\. 19937, May 6, 1998\. - Project Appraisal Document: Brazil, State Pension Reform Technical Assistance Loan (LIL), Report No\. 17965- BR, June 3, 1998\. - Framework Paper on the Program of Support to the Federative Republic of Brazil, SecM98-943, November 25, 1998\. - President Report for the First Social Security Special Sector Adjustment Loan\. Report No\. P7277-BR, December 10, 1998\. - ICR for the Brazil Social Security Special Sector Adjustment Loan (SSSECAL) Loan No\.4431-BR, Report No\. 19966-BR, December 2, 1999\. - Project Appraisal Document: Brazil, Social Security Technical Assistance Loan (LIL), Report No\. 19956-BR, January 19, 2000\. -"Brazil: Critical Issues in Social Security", Report No\.19641-BR, June 19, 2000\. - 26 -  Additional Annex 8\. Matrix of Policy Actions under the First and Second S/SECALs FIRST S/SECAL SECOND S/SECAL ACTIONS EXPECTED IN THIRD PHASE Reform to System for Private Sector Workers (RGPS) Congress approved constitutional Primary Reform(s) a Poverty impact of the new amendment in 12/98 that paved the Congress adopted new benefit benefit formula with way for key social security reform\. In formula for the RGPS and special attention to particular, the amendment: introduced other improvements to households headed by a Removes the definition of the pension system by entry into women\. pension benefits from the force of Law No\. 9876, of 11/99\. a Studies investigating constitution\. Regulations for this law were switching and substitution a Eliminates special pension approved in 12/99 through two between the two 'regimes'of regimes except for school presidential Decrees and old age and length of service teachers and some risky supporting administrative acts\. The pensions to determine the full occupations\. provisions of this law: impact of the reforms and the a Adopts years of contributions a Introduces a formula with a necessity for modifications if instead of years of service for Fator Previdenciario for any\. benefit eligibility\. calculating pension benefits a Sets a monthly benefit ceiling for old and new entrants to indexed to inflation at the work force\. This formula RI ,200/month\. bases pensions on years of a Permits income taxation of contribution and life pension benefits\. expectancy at retirement\. a Broadens the wage base for social a Establishes new rules and security contributions to include incentives for the self- all work related earnings\. employed to seek coverage under the RGPS\. a Conditions payment of family allowances to children's school attendance\. a Establishes fines and incentives for clearing debt settlements\. Secondary Reform(s) Enactment of law No 933/99 that defines crimes against the RGPS and establishes corresponding penalties\. Issuance of Presidential Decree No\. 3112 of 6/99, which regulates the financial compensation that is required to be effected between the RGPS and the RJUs as a result of the transfer of workers from one system to another after promulgation of the 1988 Constitution\. Issuance of Presidential Decree No\. 3048, of 5/99 which approved new regulations for the RGPS including tighter eligibility criteria for temporary and permanent disability\. - 27 -  Reforms to System for Public Sector Workers (RJU) Congress approved constitutional a Implementing the Hauly amendment in 12/98 that makes the Amendment (imposing system contribution based and contributions on mandates financial and actuarial pensioners)\. balance\. In particular, the amendment: a Increasing contributions of a Introduces retirement based on active workers\. period of contribution rather than a Requiring new entrants to period of service\. enter the RGPS\. a Introduces minimum tenure for a Adopting new benefit eligibility to pensions\. formula for RJU pensions to a Eliminates the possibility of conform to the principles of receiving multiple pensions or actuarial and fiscal balance\. both pensions and labor income\. (Would need constitutional a Fixes minimum retirement age at amendment)\. 53/48 (M/F) with a gradual a Introduction of means test transition rule to 60/55 (M/F)\. and age limit for survivor a Provides for the establishment of pensions\. complementary pension funds by a Revision of criteria for the federal government, states temporary and permanent and municipalities, disability programs\. a Eliminates early retirement provisions with transition rules\. a Permits the taxation of survivor and pension benefits of those over 65\. a Sets a maximum ceiling on benefits equal to the highest civil service salary permitted\. Congress approved General Public Pension Law that: a Ends special regimes for municipalities with less than a certain number of contributors\. a Introduces automatic adjustment of contributions when total pension payments less contributions exceeds a certain share of state and municipal revenues\. a Forbids the provision of benefits not included in the RGPS system\. a Establishes a maximum ratio of 2:1 for the share of employers and employee contributions\. a Establishes punitive measures on states, Federal government and municipalities for failure to comply with established pension regulations - 28 -  Reforms to Complementary Pension Fund System Congress approved constitutional Approval of the following bills of a Implementation of the amendment in December 1998 that: Complementary Law: provision of the Prohibits public sector entities a Senate No\. 63/99 which constitutional amendment from making higher establishes the rules for the by the establishment of contributions to complementary functioning of pension funds complementary pension pension funds than employees and sets up supervisory and funds at the federal, state, within two years of approval of regulatory arrangements\. municipal levels as well as the amendment\. a Senate No\. 01/00 which trade associations\. Eliminates fiscal subsidies to regulates the institutional a Establishment of a single complementary pension funds of relationship between the regulatory agency to regulate public enterprises\. public direct administration closed and open ended Forbids contribution of resources of the government of the pension funds in Brazil\. A bill of public sector entities to borrower as the sponsor and of law for the establishment of complementary pension funds administrator of their a new agency has been sent to except as sponsors\. respective complementary the President\. Requires complementary pension pension funds\. funds sponsored by public sector In addition to the above laws, entities to revise benefit plans House of Representatives No\. and adjust them actuarially to 09/99, awaiting approval, assets within two years of the establishes rules for the amendment\. establishment and operation of complementary pension funds instituted by the public direct administration at the federal, state and municipal levels\. Reforms to improve the INSS administration a Improved measures to increase a Consolidation of all registers a Master plan for computer compliance and contribution regarding RGPS workers based information system to collections\. under a single information be implemented\. a Adoption of new questionnaires system\. a Meet benchmarks on to collect individualized a Approval and implementation efficiency, revenue information on worker's labor of a new organizational collection, and reduction of market and contribution history\. structure for the INSS\. fraud\. a Implementation of a new system a Implementation of re- a Institute fraud control unit to track the largest 10,000 certification for temporary in INSS\. contributors\. and disability benefits, a General Previdence fund a Launching of a program to created improve customer relations a Social communication and client services through strategy implemented\. the establishment of modern a New criteria for disability service agencies\. implemented in all states\. - 29 -  Additional Annex 9\. Borrower's Comments MINISTRY OF SOCIAL SECURITY DEPARTMENT ["SECRETARIAT"] OF PUBLIC PENSIONS TECHNICAL NOTE 19/01 Brasilia, June 15, 2001 COMMENTS ON THE IMPLEMENTATION COMPLETION REPORT (REPORT NO\. 22275) PREPARED BY THE WORLD BANK ON THE "SECOND SOCIAL SECURITY SPECIAL SECTOR ADJUSTMENT LOAN" IN THE AMOUNT OF US$505\.06 MILLION FOR THE FEDERATIVE REPUBLIC OF BRAZIL This loan is part of an operation undertaken by Brazil with the World Bank, totaling US$2\.5 billion, to help the country meet its external financing needs and maintain macroeconomic stability\. This portion, amounting to US$505\.06 million, relates to support for measures already adopted by the Brazilian government in implementing the second phase of the Social Security Reform during the years 1999 and 2000, and is supplementary to the first phase, which was undertaken in the context of Constitutional Amendment No\. 20 of December 1998\. These measures have helped to strengthen the country's fiscal situation and to restore external confidence in Brazil\. The operation was not intended either for funding investments or for reimbursing expenditures already made by the Ministry of Social Security -- MPAS or the National Social Security Institute -- INSS\. The funds were used solely to cover foreign currency expenditures in order to maintain the level of international reserves\. The MPAS rates as highly satisfactory the results achieved by the Brazilian government in terms of reforming the pensions system for private sector workers-- RGPS, and reversing the previous tendency to explosive deficit growth\. According to World Bank projections, shown in items 4\.1\.5 and 4\.1\.5b of the Implementation Completion Report, the reform will allow the system to operate in equilibrium as of 2003 and to achieve a surplus of 1% of GDP between 2010 and 2015, before returning to deficit in 2020\. Without the social security reform supported by the World Bank, the deficit would have grown steadily to 4% of GDP in 2020\. Simulations conducted by MPAS are less optimistic: they project the deficit stabilizing at around 1% of GDP through to 2020, as a result of the reform\. It is clear that further reform efforts will be required if the situation is to be kept in balance after 2020, but the achievements of the last two years have provided the system with some breathing room over the medium term, during which solutions for future generations can be considered and debated\. Beyond its financial and actuarial impact, the social security policy in recent years succeeded in eliminating distributional distortions, and in fact played a key role in reducing poverty levels\. With the introduction of the new benefit calculation formula pursuant to Law 9876/99, the value - 30 -  of benefits is now directly related to the contributions, age and life expectancy of each person insured\. It, therefore, encourages people to remain in the workforce and penalizes those who opt for early pensions (which were, of course, the most costly ones)\. A further innovation lies in the fact that life expectancy is now one of the variables in the formula, and this represents an automatic mechanism for adjusting the value of benefits to demographic trends, using the mortality table updated annually by the Brazilian Institute of Geography and Statistics -- IBGE\. Another feature of the reform was to protect the poorest social groups who take retirement at age 65 (for men) and at age 60 (for women), with a reduction of five years in retirement age for designated beneficiaries in rural areas\. At the same time, the policy pursued in recent years of making real increases in the minimum wage, which sets the floor for social security benefits, has led to a gradual reduction in poverty levels, something that was not adequately addressed in the document\. In order to demonstrate the effect of the social security system on reducing poverty, an exercise was conducted using data from the National Household Survey (PNAD/IBGE), to simulate what would be the current level of poverty in Brazil, and how it would evolve, in the absence of the social security program\. Those findings are shown in Graph 1: if transfers made under the pension system are excluded, the ratio of people living in poverty would have been 45\.3% in 1999, instead of 34%\. Thus, at the present time, social security expenditure is responsible for a reduction of 11\.3 percentage points in the level of poverty, which means that it were not for the social security system, we would have 14\.2 million additional persons living in miserable conditions, a fact that shows the importance of this public policy as one of the pillars of social stability in Brazil\. This social role of the pension system has recently been reinforced to be used as anti-cyclical means to reduce the impact of economic crisis and to contribute to a virtuous circle of economic growth with social and political stability\. If we analyze poverty trends over recent years, we find that in 1988 42\.3% of the population was living below the poverty level, and if income transfers through the pensions system are excluded, the poverty level was actually 47\.9%\. Thus, in 1988 the social security system was already responsible for keeping at least 5\.6% of the population above the poverty line\. - 31 -  Graph 1: The Social Security System and Poverty in Brazil (1988 to 1999) 60,0 l p 0 0 50,1 51,2 R 00 47 9 R 47 46,1 46,4 45,3 P40,0 i2 40,3 0 407 40B 41,7 3,7 43,2 43,9 43,5 "gq 40 _ 40 ,7 T40E - '' P 3319 33,5 319 3410 Source:PNAD-1992to 1999327 P 30,0 \. U ~ ~ ~ ~ ~ ~ ;:~M L A R t 20P0 leR8 T 1'~~~~~~~' N 10,0 - , , 1988 1989 1990 1992 1993 1995 1996 1997 1998 1999 'pe Observed Poverty Line Poverty Line Excluding Social Security Source: PNAD - 1992 to 1999 Note: The PNAD was not conducted between 1991 and 1994 Preparation: IPEANDIPOS/SPS/MPAS Note: Poverty line= R$98\.0o Between 1988 and 1983, despite the persistence of chronic inflation and economic stagnation, the poverty level remained stable at between 40% and 41\.7%\. This was possible only because of nowth in social security spending, which helped to alleviate the economic crisis\. In 1993, were it not for social security transfers, the poverty level woubld have been 51\.2%, or 9\.5 percentage points higher than that observed\. Between 1993 and 1995 the impact of price stabilization on poverty reduction can be clearly obseirved\. The higher purchasing power of the poorest groups meant an immediate reduction of 7\.8 percentage points in the level of poverty between those two years\. In the post-Plan Real period, between 1995 and 1998, poverty levels stabilized at between 33\.9% and 32\.7%\. From 1998 to 1999, the poverty level rose by 1\.3%, reflecting the macroeconomic impact of the shift in exchange rate policy in January 1999\. Had it not been for the mitigating impact of social security policy, poverty would have risen by 1\.8%, which means that the impact of the new macroeconomic policy would have been 38\.4% higher\. Between 1998 and 1999 alone, social security expenditure prevented 801,700 people from slipping into poverty\. - 32 -  Between 1988 and 1999, the poverty level declined from 42\.3% to 34%\. If we look at the impact of higher social security spending post-1 988 in isolation, as in Graph 2\.6, it will be seen that 67% of the decline is explained by the expansion of social security vis-a-vis the situation in 1988, and that this alone led to a reduction of 5\.7 percentage points in the poverty level\. During this time, if the economy had stabilized without any increase in social security coverage, the poverty level would have been reduced by 2\.6 percentage points, declining from 42\.3% in 1988 to 39\.7% in 1999\. Adding the 5\.7% impact of social security, we arrive at the current level of 34%\. In short, during this time 9\.1 million people rose above the poverty line thanks to the growth of social security spending\. Graph 2: Impact of Higher Social Security Spending on Poverty Levels in Brazil (1988 to 1999) o Poverty line without increased social security spending over 1988 levels 0 R 45 r--~~~ 0 -' j [/ n\Ipact of Increased Soial Security Spending U 40 - A T Observed Poverty Line I o 35 N (%) 1988 1989 1990 1992 1993 1995 1996 1997 1998 1999 Years Source: PNAD - 1992 to 1999 Note: The PNAD was not conducted between 1991 and 1994 Preparation: IPEA/DIPOS/SPS/MPAS Note: Poverty Line= R$98\.0 These results can be corroborated by comparing poverty levels among different age groups against certain variables\. As Table 2\.1 shows, the poverty level among social security beneficiaries is 40\.6% lower than for the rest of the population, while incomes per capita are 32\.6% higher\. - 33 -  Table 1: Ratio of Beneficiary Households to Total Households, using selected criteria - 1999 Beneficiary Total % households (A) (B) (A/B) Household income per capita(R$) 395 298 32\.55 Living in poverty (percentage) 20\.2 34\.0 (40\.59) Minors (percentage) 18\.1 19\.5 (7\.18) Elderly household heads (percentage) 56\.6 20\.6 174\.76 Source: PNAD - 99 Prepared by: IPEA We feel that the World Bank should incorporate an analysis of these social impacts in its Implementation Completion Report, since combating poverty is one of the greatest challenges facing developing countries as they struggle to reconcile economic growth, social development and the prevalence of democratic institutions\. The World Bank's technical cooperation in implementing these reforms can be considered satisfactory\. Although proceeds from the loan were not applied directly to the Brazilian Social Security system, the Bank supported the reform process through two Learning and Innovation loans - LIL\. The first was contracted with the Ministry of Finance to support reforms in the social security regime for state government employees\. The second went directly to the MPAS, and has been very useful in strengthening the entire process of reforming social security for public servants at the federal, state and municipal levels, as well as the complementary pension system and the social security system for private sector workers, and for administrative strengthening of the INSS\. Among the activities planned under these LILs we should highlight the importance of the investment in training and professional qualifications for technical staff of the Brazilian government\. The World Bank has played a key role in providing Brazilian policymakers with access to international experience and state-of-the-art literature on social security reform\. Thus, instead of proposing or instigating specific reform models, the Bank has helped to create and strengthen the national technical capacity to formulate social security policies so that the government's own experts can seek out the most appropriate solutions for the Brazilian system\. Brazil's experience, indeed, shows that the best investment a country can make is in its human capital\. Similarly, the holding of seminars and the publication of reports in Portuguese are excellent vehicles for disseminating ideas and raising awareness of social security problems\. In this respect, a significant event was the preparation and publication in 2000 of the paper on "Critical Issues for Brazilian Social Security"\. We should also note the use of the software program, the Pension Reform Options Simulation - 34-  Toolkit -- PROST, as an instrument for making long-term projections\. At the same time, rather than making projections for national systems, the World Bank should transfer software development technology so that countries can build their own, customized programs to fit their specific circumstances\. Finally, as a suggestion for future operations, we believe that it is important to strengthen the social communication component\. Sound public policies alone will be of little help unless we can persuade opinion makers and the public in general of the importance and merits of those policies\. One of the persistent obstacles facing social security reform in Brazil has been the lack of public understanding about the problems that must be addressed\. Vinicius C\. Pinheiro Secretary of Public Pensions Ministry of Social Security - 35 -

REVIEW

P002977

 ICRR 11369 Report Number : ICRR11369 ICR Review Operations Evaluation Department 1\. Project Data: Date Posted : 08/19/2002 PROJ ID : P002977 Appraisal Actual Project Name : Cotton Subsector Project Costs 31\.4 28\.5 Development Project US$M ) (US$M) Country : Uganda Loan/ Loan US$M ) 14\.0 /Credit (US$M) 13\.8 Sector (s): Board: RDV - Agricultural Cofinancing 12\.5 11\.3 extension and research US$M ) (US$M) (33%), Central government administration (27%), Tertiary education (27%), General agriculture fishing and forestry sector (9%), Agro-industry (4%) L/C Number : C2609 Board Approval 95 FY ) (FY) Partners involved : IFAD Closing Date 12/31/1999 12/31/2001 Prepared by : Reviewed by : Group Manager : Group : Anthony J\. Christopher D\. Gerrard Alain A\. Barbu OEDST Blackwood 2\. Project Objectives and Components a\. Objectives Within the broader sectoral objective of increased agricultural growth and diversification, the project had an overall objective and three secondary objectives : revive cotton production and exports through increased competition in cotton processing and marketing and improved supporting services; improved performance in the cotton industry , through liberalization of cotton processing and export marketing, establishment of an efficient regulatory framework for the cotton industry, and improved managerial, technical and operating efficiency in a creditworthy ginning industry; improved efficiency and impact of supporting services through support for the national research and extension program; and improved delivery mechanisms and availability of credit and seed \. b\. Components There were three components: Restructuring the Cotton Industry (US$5\.9 million/23 per cent of base costs): : (a) revision of the legal framework , liquidation of Government regulatory and marketing agency and establishment of an industry based regulatory body, and support of operations of the regulatory body, on a declining basis; (b) transformation of Cooperative Union owned ginneries into creditworthy operators, including strengthening management and technical training to the industry; and (c) subsector policy reform and inter -agency coordination through support to the Agricultural Policy Committee (APC); Supporting Services (US$6\.7 million/26 percent) - support for national research and extension programs; and Credit and Seed Program (US$13\.1 million/51 per cent) - provision to farmers of short-and medium-term credit through intermediaries (e\.g\. ginneries and NGOs), and improved quality seed\. Project activities were restructured after the MTR to replace three unsuccessful activities with more constructive ones: the two non-performing extension subcomponents were closed and replaced with a pilot extension program implemented by the National Agricultural Research Organization (NARO); the component for rehabilitation of cattle holding grounds was cancelled as government's restocking program had failed; and a microfinance capacity -building component was added (US$1\.25 million)\. c\. Comments on Project Cost, Financing and Dates IFAD was to provide most of the funding (US$12\.5 million) for the Credit and Seed Program\. US$2\.7 million of the IFAD funds were reallocated from this component to the pilot extension program (after a year’s delay), and to research, ginnery restructuring, monitoring by CDO and project coordination \. The five-year implementation period was extended to seven years \. 3\. Achievement of Relevant Objectives: The project substantially achieved its main objectives \. The cotton industry has been revitalized, but there are some shortcomings which threaten future continued growth and sustainability \. Cotton production reached 75 per cent of the appraisal target with two years delay and export earnings increased despite depressed prices (attributable to tripling of production, an efficient processing and marketing system and the premium grade of cotton produced )\. This was despite a serious drought in one year, farm power constraints and other input shortages \. The performance of the cotton industry as a whole improved producing increased quantities of premium grade cotton in response to project activities (especially restructuring, rapid liberalization, and privatization of ginning and trading )\. Supporting services, delivery mechanisms and the availability of credit and seed were improved after slow starts and missteps in some cases, but more needs to be done \. 4\. Significant Outcomes/Impacts: Restructuring of the cotton industry was successfully achieved relatively quickly, with: appropriate sector policies and legislation; new internationally accepted premium quality standards for cotton; privatized ginneries with some expansion (including foreign investment) and an excellent ginnery training school; efficient private trading in seed cotton, seed and lint; prompt payments to farmers providing production incentives; the rehabilitation or construction of important facilities; and the formation of key industry institutions which now manage the sector (an effective industry-funded Cotton Development Organization and its offshoot, the Uganda Ginners and Cotton Exporters Association)\. Supporting services have been revived, led by cotton research, which has already had excellent results, and after weak starts, a decentralized extension service has been piloted, rural credit access is improving and the basis has been laid for a reliable seed supply system (with a model seed multiplication process delivering high quality pure varieties)\. Although poverty reduction was not an explicit project objective, the rate of rural poverty in Eastern Uganda fell from 61 per cent in 1992 to 38 per cent in 2000, and this must be partly due to increased cotton growing\. 5\. Significant Shortcomings (including non-compliance with safeguard policies): Notwithstanding the low world price for cotton, weather and disease constraints, and continued insecurity in some cotton areas, the growth of cotton production and exports was also constrained by a number of failures and shortcomings of the project: limited farm power restricted the cultivated area (the project activity to increase the supply of draught animals was not implemented ); the important seed supply and credit component (half of costs) was not adequately prepared and took time to produce results (with the delayed credit initiative only meeting half of target funding); the original extension component was designed more to fill gaps in another project than serve cotton farmers and was eventually replaced; the debt overhang problem of the ginneries was not fully resolved (a few ginneries are insolvent and many others have fragile finances and limited credit -worthiness); and, despite extraordinarily intensive Bank supervision, the absence of a monitoring and evaluation function missed the opportunity to identify and take action on these deficiencies more promptly and effectively \. These matters will require attention to ensure the continued viability and growth of the cotton sector \. The ICR states that the Borrower complied with safeguard policies\. 6\. Ratings : ICR OED Review Reason for Disagreement /Comments Outcome : Satisfactory Satisfactory Institutional Dev \.: High Substantial Although much was achieved, the crucial credit and extension activities have some way to go and there was no M&E\. Sustainability : Likely Likely Bank Performance : Satisfactory Satisfactory Borrower Perf \.: Satisfactory Satisfactory Quality of ICR : Satisfactory NOTE: NOTE ICR rating values flagged with ' * ' don't comply with OP/BP 13\.55, but are listed for completeness\. 7\. Lessons of Broad Applicability: The first lesson is of broad applicability and hope, while the other two are not new, which is a fourth lesson of broad applicability in that lessons are not being learnt : (a) even when prices and natural conditions are unfavorable, a devastated agricultural industry can be relatively quickly put back on its feet by a committed government with appropriate policies and legislation, privatization of run -down assets and commodity trading, farmer production incentives and revived research and support services (inputs, credit and extension ); (b) uneven preparation of components can show up later in implementation problems which can be hard to overcome \. Project designs should be fully complete at approval so that all components are equally ready for start up; and (c) complex undertakings of this kind require a solid M&E component, not only for accountability reasons but to ensure that implementation performance problems are quickly identified and acted on (intensive Bank supervision was not sufficient to overcome implementation problems promptly and efficiently )\. 8\. Assessment Recommended? Yes No Why? To learn positive lessons about the process and substance of institutional reform in the context of a commodity subsector approach to agricultural development \. Also, as Uganda is one of the current African showcases, an audit would be appropriate to demonstrate success \. 9\. Comments on Quality of ICR: The ICR was generally satisfactory in presenting a full and clear account of the project experience \. Two small comments: the purpose and utility of the indicator column headed "Projected in Last PSR" is not clear and the MTR is not shown in Bank inputs\.

REVIEW

P003568

Document of The World Bank FOR OFFICIAL USE ONLY Report No: 22217 IMPLEMENTATION COMPLETION REPORT (IDA-23870) ONA CREPDIT IN THE AMOUNT OF SDR 73\.3 MILLION TO THE PEOPLE'S REPUBLIC OF CHINA FOR A TIANJIN URBAN DEVELOPMENT AND ENVIRONMENT PROJECT June 20, 2001 Urban Development Unit East Asia and Pacific Region This document has a restricted distribution and may be used by recipients only in the performance of their official duties\. Its contents may not otherwise be disclosed without World Bank authorization\.  CURRENCY EQUIVALENTS (Exchange Rate Effective as of June 20, 2001) Currency Unit = Yuan Y1\.00 = US$ 0\.12 US$ 1 = Y 8\.28 METRIC SYSTEM FISCAL YEAR January I December 31 ABBREVIATIONS AND ACRONYMS CAS Country Assistance Strategy EPB Environmental Protection Bureau ERR Economic Rate of Return Fund Tianjin Industrial Pollution Control Fund GIS Geographical Information System GOC Government of China IRR Inner Ring Road MOC Ministry of Construction MOF Ministry of Finance MRR Middle Ring Road PMIO Planning and Management Inprovement (Leading Group) Office PMO Project Management Office TA Technical Assistance TMG Tianjm Municipal Government TOR Terns of Reference UPB Tianjin Urban Planning Bureau URCC Tianjin Urban and Rural Construction Comrnission Vice President: Mr\. Jemal-ud-din Kassum, EAPVP Country Manager/Director: Mr\. Yukon Huang, EACCF Sector Manager/Director: Mr\. Keshav Varna, EASUR Task Team Leader/Task Manager: Mr\. Songsu Choi, EASUR  FOR OFFICIAL USE ONLY IMPLEMENTATION COMPLETION REPORT CHINA: TIANJIN URBAN DEVELOPMENT AND ENVIRONMENTAL PROJECT CONTENTS Page No\. 1\. Project Data 1 2\. Principal Performance Ratings I 3\. Assessment of Development Objective and Design, and of Quality at Entry 2 4\. Achievement of Objective and Outputs 5 5\. Major Factors Affecting Implementation and Outcome 10 6\. Sustainability 12 7\. Bank and Borrower Performance 13 8\. Lessons Learned 15 9\. Partner Comments 16 10\. Additional Information Annex 1\. Key Performance Indicators/Log Frame Matrix 18 Annex 2\. Project Costs and Financing 19 Annex 3\. Economic Costs and Benefits 21 Annex 4\. Bank Inputs 22 Annex 5\. Ratings for Achievement of Objectilves/Outputs of Components 24 Annex 6\. Ratings of Bank and Borrower Performance 25 Annex 7\. List of Supporting Documents 26 This document has a restricted distribution and may be used by recipients only in the performance of their official duties\. Its contents may not otherwise be disclosed without World Bank authorization\.   Project ID: P003568 Project Name: Tianjin Urban Development and Environment Project Team Leader: Songsu Choi TL Unit: EASUR ICR Type: Core ICR Report Date: June 30, 2001 1\. Project Data Name: Tianjin Urban Development and Environment L/C/TF Number: IDA-23870 Project Country/Department: CHINA Region: East Asia and Pacific Region Sector/subsector: US - Urban Environment; UY - Other Urban Development KEY DATES Original Revised/Actual PCD: 02/15/1989 Effective: 11/06/1992 Appraisal\. 04/15/1991 MTR: Approval: 06/17/1992 Closing: 12/31/1998 12/31/2000 Borrower/lmplementing Agency: People's Republic of China/TIANJIN MUNICIPAL GOVT Other Partners: STAFF Current At Appraisal Vice President: Jemal-ud-din Kassum Attila Karaosmanoglu Country Manager: Yukon Huang Shahid Javed Burki Sector Manager: Keshav Varna Zafer Ecevit Team Leader at ICR: Songsu Choi Songsu Choi ICR Primary Author: Herbert Boehm 2\. Principal Performance Ratings (HS=Highly Satisfactory, S=Satisfactory, U=Unsatisfactory, HL=Highly Likely, L=Likely, UN=Unlikely, HUN=Highly Unlikely, H{U=Highly Unsatisfactory, H=High, SU=Substantial, M=Modest, N=Negligible) Outcome: HS Sustainability: HL Institutional Development Impact: H Bank Performance: S Borrower Performance: HS QAG (if available) ICR Quality at Entry: HS Project at Risk at Any Time: No The QA G did not exist at the timne ofproject approval in 1992\.  3\. Assessment of Development Objective and Design, and of Quality at Entry 3\.1 Original Objective: Background\. Since the early 1980s China has been undergoing remarkable growth and transformation\. A key feature of the development was a radical decentralization of finances and authority to local governments, especially municipal governments\. Provincial and local governments have come to control about 70% of total fiscal resources, and municipalities about 35% of it\. In addition, through their control of most state-owned enterprises, municipal governments have indirect control of even larger resources\. A major challenge has been to develop new ways to manage the economic and government systems to replace the command planning system\. GOC has largely limited itself to setting broad policy goals and guidelines and let local governments to set detailed goals and programs and implement them\. Another major aspect of China's recent development has been a rapid urban growth\. The urban population increased from about 17% of total national population in 1980 to about 29% by 1990 and to about 36% in 2000\. Urban economies have grown by more than 12% a year on average between 1985 and 1995\. By the early 1990s, the central and local governments have come to see housing, health care and other services as necessary infrastructure and incentives for economic expansion\. At the same time, serious environmental deterioration resulting from the population pressure and rapid industrialization has become a prominent policy issue in cities\. The city of Tianjin, at appraisal China's third largest city with 5 million inhabitants, has been a major industrial and transportation center in northern China\. The Tianjin Municipal Government (TMG) is a provincial level authority which manages not only the city itself but also surrounding counties and districts which include some 9 million people\. Tianjin was established as an international port in the late 19th century and developed in 8 fragmented concessions until World War II\. Since then efforts focused on rehabilitation and integration of infrastructure and the environmental improvement of the city\. A major earthquake which destroyed much of Tianjin in 1976 further spurred these efforts, which was sustained due to rapid overall economic growth in the ensuing decades\. Objectives\. The stated objectives of the project were: to help TMG improve its planning and management of infrastructure and the environment, so as to enhance its responsiveness to diverse and changing demands and constraints; and to support a set of high priority investments to meet medium-term needs in environmental sanitation, urban trasnport, and industrial pollution control\. The project objectives were in line with the policy of GOC and TMG to: improve the urban environment and infrastructure and establish an effective institutional and financial framework for infrastructure and environmental management\. The objectives were consistent with the CAS which defined the Bank Group's main assistance focuses as: facilitating the transition of the planning and management system toward one suited for a decentralized market-oriented economy, on helping to ease infrastructure constraints to economic growth, and on protecting the environment\. The objectives were broad and ambitious, but consistent with the actual record of reform and development in China as a whole and in Tianjin in particular\. 3\.2 Revised Objective: n\.a\. 3\.3 Original Components: The project would achieve these objectives through implementation of the following six components\. - 2 -  Infrastructure Planning and Management (1JS$8\.6 million)\. In order to enhance efficiency and responsiveness of its infrastructure programs, TMG was to carry out an action plan to improve its infrastructure monitoring, planning, budgeting and management systems\. The project financed technical assistance and training to introduce improved analytical and planning tools such as a geographical information systems (GIS) and multi-year capital budgeting\. The component also included various studies and training programs for the environmental santitation, transportation, and pollution control associated with institutional development actions described below\. Environmental Sanitation (US$25\.7 million)\. The project supported (a) provision of drainage and sewage collection systems in four residential, industrial and institutional areas; (b) improvements to three controlled natural drainage channels which convey storm water flows from drainage basins of about 7,600 ha of the city area; and (c) improvements in financial and operational management of drainage and sewerage services\. Solid Waste Management (US$12\.4 million)\. This component financed (a) an expansion of the fleet of waste collection and street cleaning vehicles and maintenance equipment; (b) technical assistance to formulate a plan for a sound system of solid waste treatment and disposal; and (c) implementation of the first phase of the plan\. Industrial Pollution Control (US$39 million)\. This component financed: (a) industrial pollution control subloans through a Fund to finance small-scale investments for waste minimization by undustrial enterprises; and (b) institutional strengthening of the Environmental Protection Bureau (EPB), its affiliated institutions, and the Fund in the areas of pollution monitoring, pollution control technology development, and financial evaluation and management of pollution control investments\. Urban Transport (US$33\.3 million)\. Most of Tianjin's strategic transportation assets required complementary facilities to function at potential\. The project provided for: (a) Roads: completion of the Inner Ring Road improvement by widening 3\.4 km of the Ring Road, and improvement of the Middle Ring Road by building an overpass at the intersection with the Beijing-Tianjin Highway; (b) Bus system: construction and equipment of two maintenance depots for about 90 buses, and terminals; (c) Public transport policy and management study: to help TMG evaluate travel demand and supply factors, and formulate an improved public transport management system; and (d) Traffic management: introduction of an area traffic control system in the central district of the city\. Resettlement ($34\.7 million)\. This component aimed to provide better housing for the project affected households (4,046 estimated at appraisal) through a new, more market-oriented procedures\. The new procedures would introduce quasi-market transactions for replacement housing, allowing the relocatees to choose their new housing units from a large number of apartments in diverse locations, rather than having to take those built and allocated by the government\. Assessment of Design\. The project components were consistent with the project objectives\. They were also broadly consistent with the city's own plan, but contained some significant differences\. For one, the project had fewer components than originally proposed, to limit complexity\. On the other hand, some of the components featured targets and modes different from the city's own programs\. The planning and management component was made broader than TMG's proposed focus on computerization\. The choice of solid waste disposal technology was deferred to a study instead of supporting TMG's plan for a mechanized composting plant\. The industrial pollution control component was made far larger and more demand-oriented than TMG's original program focusing on monitoring and prescribed solutions\. The - 3 -  resettlement component introduced a system that moved the housing choice from the government to affected households\. These adjustments were consistent with the main project objective of improving the planning and management of infrastructure and environment\. These on the other hand introduced considerable novelty and hence substantial risks to implementation and borrower ownership\. These risks were identified during preparation and appraisal, and various safeguards were developed\. Identification of detailed pragmatic steps toward reform and a few clearly targeted practical improvements, instead of idealistic and abstract norms, helped increase the understanding and feasibililty of the actions, as well as the strong commitment by the TMG management\. Further, TMG had a strong track record in implementation and institutional reforms, and the circumstances during preparation afforded ample time to engage local officials and reach clear understanding\. In most cases the innovations introduced proved to be feasible and effective\. In the case of planning and management improvement and industrial pollution control fund, however, unforeseen difficulties made it necessary to scale back the goals\. Still, much has been achieved even in these components, and on balance, the risks appear to have been well worth taking\. 3\.4 Revised Components: The study on solid waste management under the project (but financed with a bilateral grant rather than the Credit) recommended sanitary landfill as the best technological choice for solid waste disposal, which was then financed under the project\. Also partly as a result of another study under the project, the public transportation (bus) company was significantly restructured\. The restructuring consisted mainly in the break-up of the company into 8 competing operating companies, and involvement of private and foreign entities in the operation of buses as well as ancilliary services\. As a result, there was no longer a need for public investment in maintenance garages\. Traffic signal control center construction was not financed by the Bank as the plan changed from a stand-alone building to a part of a larger office building funded by TMG\. Rapidly changing economic framework and market conditions presented serious threats to most old state-owned enterprises, which constituted the majority of Tianjin's industries\. This in turn reduced the pool of financially sound potential borrowers of industrial pollution control subloans made available under the project\. Instead of compromising on financial or environmental standards (no financing of new production lines), it was decided to scale back the subloan facility by $10 million to $9 million\. The above three changes resulted in considerable project cost savings\. In addition, the local currency was devalued from YS\.45 to about Y8\.5 per US dollar early during the implementation, more than offsetting the escalation in civil works and resettlement costs\. These savings were utilized for four additional investment schemes that were within the original agreed (legal) definition of the project: a new pumping station in one of the areas where sewers were improved under the project; improvement of a road that connected IRR to MRR; a railroad overpass linking the bus terminal area with IRR; and an overpass in the intersection of MRR and a road to the airport\. 3\.5 Quality at Entry: The quality at entry of the project is rated highly satisfactory\. This rating is based on the project's consistency with the Bank's CAS and government priorities, and carefully designed and meaningful innovations\. The Bank's applicable safeguard policies on involuntary resettlement and environmental - 4 -  assessment were adhered to adequately\. In fact, under this project, resettlement was made a component of the project rather than a safeguard measure incidental to another component, and improvement of resettlement procedures and criteria was made an explicit project activity\. 4\. Achievement of Objective and Outputs 4\.1 Outcome/achievement of objective: Overall, the project's outcome was highly satisfactory and the project objectives have been largely achieved\. The project helped to establish new systems and approaches to plan and manage infrastructure and environmental services and facilities\. Effective new systems have been established for resettlement, public transportation, financial and institutional management of drainage and sewerage, and industrial pollution control\. These increased the demand responsiveness and sustainability of the infrastructure and environmental management in Tianjin, and by demonstration effects and incorporation in national guidelines, in other cities of China\. Introduction of improved analytical tools for infrastructure management and of the industrial pollution fund mechanism did not fully meet the ambitious appraisal targets, but still contributed significant innovations to the infrastructure and environmental management systems in Tianjin and in other cities\. Physical investments under the project have been implemented generally on time and at high enough quality to eam national recognition for quality\. They resulted in significant improvements in the quality of life for the citizens of Tianjin, meeting or exceeding appraisal targets\. The sewerage and drainage works have diminished duration and severity of flooding and health hazards, benefitting nearly half a million people\. The urban roads and traffic management components have helped to limit the increase in traffic congestion that grew along with the number of motor vehicles that about quadrupled over the last decade\. The public bus system has improved and diversified its services and has increased ridership rapidly since its restructuring in 1995\. Most of the industrial pollution control subprojects have been implemented satisfactorily and resulted in significant and efficient pollution reduction\. 4\.2 Outputs by components: This section describes only the physical outputs of investment components\. Outcomes of institutional development components, consisting of the action plan for general infrastructure planning and management improvement and subsectoral institutional development actions are discussed later under Section 4\.4\. Drainage and Sewerage: This component produced highly satisfactory physical outcomes\. Under the project drainage and sewerage facilities were built in four areas whose drainage and sewerage systems had been incomplete and therefore suffered heavy flood damages and discharged untreated sewage unto natural water courses or irrigation channels\. In addition, three major controlled natural drainage channels were cleaned and interceptors installed\. In one of the areas that used to be severely flooded, annual flooding of indoor areas was eliminated and duration of standing water was reduced from 34 days to a matter of a few hours\. Untreated sewage that used to be discharged to irrigation and natural channels from two of the areas is now conveyed to sewage treatment plants\. Three other sewage plants now under preparation would receive sewage from the other two areas\. As the population in the affected areas increased during the project period, the beneficiaries are estimated to number about 450,000\. The quality of the works was highly satisfactory, and techniques developed for the cleaning of the drainage channels is being used in works in and outside Tianjin\. Solid Waste Management\. This component is rated satisfactory\. The additional solid waste collection fleet of 191 vehicles expanded and partly renewed the old fleet, and has been effectively maintained and used\. The study led to the construction of a Shuangkou solid waste landfill with a capacity of 2,700 tons - 5 -  per day, and a leachate treatment plant with a capacity of 300 tons per day, both the largest in China\. It was constructed according to international good practice, at high quality, necessary given the flat topography and shallow aquifer of Tianjin\. The construction was delayed due to site selection and resettlement difficulties but completed in early 2000\. Operations began in early 2001 after delays waiting for completion of a transfer station and delivery of hauling trucks (not part of the project), and now used near capacity\. Industrial Pollution Control\. This component is rated satisfactory in view of the quantitative underachievement (Y 123 million financing versus the appraisal target of Y 240 million), balanced against the high quality and sustainability\. The component targeted a niche of industrial process modifications that would be financially viable but whose benefits would be primarily environmental -- neither end-of-pipe treatrnents that are fully additional costs, nor new production lines that reduce pollution but are justified on financial grounds alone\. It was however difficult to identify many sound proposals of this sort, made more difficult by rapidly deteriorating financial conditions of most old state-owned enterprises\. The Fund nevertheless refused to compromise the integrity of the original criteria\. In the end, these difficulties limited the subprojects to 42 (out of 58 pre-screened proposals), with average investment of about Y 4 million (about $500,000)\. All of the subprojects, except four in enterprises that closed, are in operation\. A survey of 24 subprojects that cost some Y 110 million in total shows a reduction of more than 7000 tons a year of COD alone, and an annual financial gain of Y 29 million, a rate of return of 21%\. Roads and Traffic Management: Highly satisfactory\. The project financed the upgrading and completion of the Inner Ring Road (3\.5 km including a bridge expansion) and construction of an overpass at the intersection of MRR and the Beijing-Tianjin highway\. Most of the Credit originally allocated for components that were later cancelled or down-sized was reallocated to expansion of a road linking IRR and MRR and construction of two key overpasses, one at the intersection of MRR and airport road, and another a railway overpass connecting the bus terminal area to the IRR\. The project also financed the procurement of traffic control signal system for 70 main intersections in the central city area, complete with self-adjusting traffic control software and control substations\. The intersections were also improved with channelization and electronic sign boards\. The project also financed equipment for detection and management of traffic violations and accidents\. These investments helped contain the growth of traffic congestion caused by increased number of motor vehicles (300,000 in 1991 growing to 1\.2 million in 2000)\. The following analysis of improvements right before and after the traffic control system installation gives an indication of the benefits: motor vehicle speed increased by about 10%, vehicle stoppage decreased by 21\.7%, and the effective road passage capacity is up by 18%\. Public Transport System: Development of commercial maintenance services and a radical restructuring of the bus company (see 4\.4 below) greatly diminished the justification for publicly owned maintenance garages\. Therefore the project investment for public transportation was limited to a passenger bus transit hub at the rear plaza of the Tianjin railway station, completed and put into operation in 1996\. The original design capacity was for three bus lines, but it now accommodates seven\. Resettlement: This component resulted in highly satisfactory outcomes as it greatly improved housing conditions of relocatees by replacing the old housing with new ones about 2\.7 times the size and equipped with plumbing that old housing lacked, while facilitating the project implementation and redevelopment of the old near-slum areas\. The scope of resettlement was expanded from about 13,500 persons to about 19,000 persons as a result of increased road construction\. 4\.3 Net Present Value/Economic rate of return: An economic internal rate of return for the entire project was not calculated at the appraisal because of - 6 -  difficulty properly quantifying certain benefits of the subprojects, such as social, institutional and environmental benefits\. The SAR, however, did estimate internal economic rates of return for: the roads improvement component; the traffic control signal system; the workshops and terminals; and the drainage improvement schemes\. For these components the SAR gave a weighted average economic rate of return of about 25% for investment components accounting for 40% of the total project costs\. For the three road components added at the late stage of implementation, the feasibility studies estimated rates of return of about 25\.1%\. Using the same methodology as in the SAR, an economic re-evaluation of these components was undertaken, and the weighted average economic rate of return has been estimated at about 23% The drainage schemes had estimated ERRs between 18%-52%, or an average of 30%, counting only the reduction in property damage from flooding\. At completion, ERRs ranged from 22%-55%, due to the higher density of properties and population and better-than-expected flood control\. Estimated ERR for the road improvement schemes was 20\.3% at appraisal and 25\.1% for additional road components\. Estimated ERRs at completion are 12\.8% and 24\.4% respectively\. The ERR for traffic management component was estimated at 25% at appraisal, and 33% at completion\. The ERRs were positively influenced by the larger increases in traffic and in time value, and negatively by the large cost overrun on roads built in the early stage\. This reduced estimate of efficiency weighed heavily on the average ERR\. 4\.4 Financial rate of return: Financial rate of return of 19% was estimated for only a small sample of industrial pollution control subprojects identified at the time of appraisal\. As indicated above, an analysis of more than half of the completed subprojects indicated a FRR of 21 %ho\. 4\.5 Institutional development impact: The project's institutional development impact is rated highly satisfactory overall, in view of the broad scope and high significance of institutional development\. The primary objective of the project was to make long-term gains in the efficiency and equity of TMG's infrastructure and environmental programs through implementation of (a) studies and training to improve analytical tools for infrastructure planning and management, and (b) institutional and financial action plans for various subsectors\. Highly satisfactory results have been obtained under the latter action plans (b), and satisfactory outcomes under (a)\. Tianjin Drainage Company (TDC)\. The project helped to improve financial and institutional framework of the drainage and sewerage operations\. The sewerage tariffs for non-residential users were raised from YO\.09-0\.12/m3 to YO\.30 in 1993; to YO\.40 in 1998; Y 0\.60 in 2000; and Y 0\.80 in 2001\. A residential tariff was introduced at Y 0\.10 per m3 in 1997, raised to Y 0\.20 in 1999, and to Y 0\.35 in 2001\. These tariffs, the highest among large Chinese cities, would not only cover full operating expenses but also considerable portion of capital expenditures for ambitious expansion of the wastewater treatment system\. As important as tariff increases were improvements in management systems, accounting, billing and collection\. At the outset of the project, cost analysis exercise was carried out and costs for storm water drainage, wastewater collection, and treatment are accounted for separately\. Tariff exemptions that used to be given at an ad hoc fashion were replaced by a system of explicit and specific exemptions matched with appropriate compensations by TMG in 1993 and abolished altogether in 1998\. The yield (combination of the billing and collection efficiencies) has increased from 43% to 95%\. TDC was established in 1995 taking over the operations and most of the staff from the Drainage Division\. While the incorporation was consistent with the government objective of separating service operations from the governnent, the Bank pushed for clarification of accountability and autonomy, common gaps in incorporation of the type in China\. This deficiency was addressed over tirme with increased autonomy of the Company, including - 7 -  capital budgeting functions, use of performance indicators, and separation of non-core businesses such as construction\. Solid Waste Management\. A Tianjin Urban Solid Waste Administration Plan and Feasibility Study, financed with a bilateral grant in place of the Credit, produced a number of useful recommendations to improve the solid waste management system\. TMG revised its environmental sanitation master plan incorporating many of the recommendations, including a shift from mechanical composting and scattered dumping sites to that of large scale transfer stations and sanitary landfills\. The first landfill was financed under the project, along with the associated equipment, leachate treatment plant, laboratory, operational planning and training\. TMG was convinced enough of the merit of the landfill to plan another landfill at the other side of the city, and established an independent operating entity to manage the landfill, to be financed from a solid waste management fee and a dumping fee\. Industrial Pollution Control Fund\. The project supported an establishment of the Fund as a way to establish a demand-oriented and sustainable alternative to the usual end-of-pipe solutions prescribed by the government and financed with a grant from pollution levy revenues\. Initially the Fund and its financial advisor (a state-owned bank) focused on technical merits with scant attention to overall financial conditions of the borrowers, consistent with investment financing practices under the planned economy\. This, however, resulted in serious arrear problems, forcing the Fund to strengthen its financial appraisal and to look for non-state sector firms\. Nevertheless the quantitative target for the component had to be reduced by more than half The Fund also strengthened the collection efforts, including legal actions through the court system, still a novel approach in China\. As a result, it nriAaged to reduce its arrears and bad debts to below 15%, a rate better than commercial banks\. The staff of the Fund have been invited by the national and several local authorities to advise on technical and financial aspects of similar operations\. TMG has decided to keep the Fund operating after the project closing with an added responsibility to manage bilaterally funded pollution control projects\. Public Transportation\. By 1995 the Public Transporat Company had been losing ridership steadily and TMG subsidies increased to Y 250 million a year\. The public transport policy and management study financed under the proejct introduced a traffic projection model which is still used extensively for various transportation planning purposes\. It also recommended a set of management improvement measures for the Tianjin Public Transport Company (PTC) ranging from financial management systems to bus deployment and to staff training\. However, the Bank team reached a different conclusion that incentive system was the most critical impediment to improving the bus services\. It therefore recommended a radical restructuring of PTC and introduction of competition and private investments as the key first step\. Senior management of TMG accepted the Bank recommendation, sent delegations to study systems in various countries, and instituted the following measures: break-up of PTC into 8 semi-autonomous operating companies, two of which formed joint ventures with outside partners, competitive award of route concessions, and limitation of TMG subsidy to a total of Y 100 million\. While these were resisted by PTC and its parent bureau at first, immediate and large benefits led to strong acceptance and extension of the measures\. At project closing, PTC as a group owned 4,484 buses, running 299 routes, with a total length of 6,822 kin, serving some 480 passenger trips a year, up by 140%, 45%, 45%, and 60% respectively compared to the end of 1995\. These measures also resulted in the reduction of bus to transport worker ratio from 1:29 in 1992 to 1:4 in 2000\. Additional 18 companies also provide bus services\. Tianjin residents expressed a satisfaction rate of 94%, up from 83% in 1996\. The experience has been studied and emulated by a large number of Chinese cities\. Resettlement\. The project's physical investments were located mostly in the densely built-up central city area, requiring resettlement of some 4,000 households\. In fact resettlement was considered a main benefit - 8 -  rather than cost, it improved the housing conditions the affected households while starting the process of redeveloping the old city areas\. The way it was implemented was, however, problematic as the government built the replacement housing and assigned the households arbitrarily\. Under the project it was agreed to experiment with a new system whereby the affected households would be given a voucher to buy housing equivalent to replacement housing that they would be entitled to\. The vouchers would be used on housing of their choosing among several developments Ihat TMG enters into agreement with\. This was at first strongly resisted by the District governments and the procedures needed fine-tuning as the implementation proceeded\. Soon, however, the procedure became popular with relocatees and developers, and the government also found them simpler and facilitate real estate market development\. The procedure was therefore made standard for most relocation programs in Tianjin, and adopted by various cities of China including Beijing\. The voucher system paved the way to cash compensation, now widely accepted due to the full development of the real estate markel\. General Infrastructure Planning and Management Improvement\. The TA program to improve the general analytical and planning tools produced a generally high quality design of the required analytical tools and information systems, comprehensive infrastructure GIS maps for selected areas, in-depth studies of actual cases such as sewerage operations and a selected area development\. It however ran out of time and stopped short of extensive training of staff in these tools and their integration in regular planning and management routines\. This was due to a long delay in the recruitment of adequate international consultants and then the delay by the latter in producing adequate results\. TMG committed considerable resources to establish a high-level organization (Planning and Management Improvement Leading Group) and its Office, equip it with adequate office facilities and full-time staff, and train a large number of staff in computing and other basic skills\. The Leading Group Office however experienced difficulties selecting and negotiating with candidates for Chief Advisor, who was supposed to help recruit and manage a large team of international and local consultants\. After considerable delay it was decided to restructure the consultancy for more conventional implementation by foreign and local consultant teams without the Chief Advisor, but with a Monitor\. In the meantime, a few consultants were invited\. to carry out some limited high priority work to develop financial management systems, a basic GIS system, and planning for coastal area development\. The main consultants were finally selected in 1996, an international team led by a national federation of municipalities and a local team combining a consulting firm and two universities\. However, the lead international consultant had difficulty with routine contractual steps and the team had to be reorganized\. Work therefore commenced only in late 1997, with a foreign engineering firm in lead\. The first phase work, completed in July 1998, however, fell far short of the mark as few analyses and recommendations went beyond generic rudimentary treatment, reflecting little understanding of unique local issues and substantial local level of knowledge\. While the team included a few experts with substantial China experience, experts in core analytical disciplines had extensive international experience but no prior experience in China\. They were handicapped also by insufficient collaboration with local experts and officials\. The delays and disappointing results severely tested the commitment of TMG, but it persisted to implement the component as planned\. The international consultant team was again reorganized, corrected some deficiencies of the first phase work and started working on the second phase in early 1999, and produced a set of adequate results by September 2000\. lThis did not leave enough time for full testing and training, but several of the analytical and information systems have been put to use\. These included: project screening procedures, some of the GIS system, partial computerization of information flow, operational monitoring and planning, life-cycle costing, some project evaluation techniques, and various specific case studies\. In view of the serious and high-level efforts, one may consider the iniitial detailed targets as too ambitious and -9-  the actual outcome as a good basis for necessary longer-term efforts\. TMG is planning the necessary follow-up work to develop further concrete procedures to apply the techniques, train the staff, and incorporate them more broadly in its operations\. It also proposes to carry out some of these under the Second Tianjin Urban Development and Environment Project, just identified in May 2001\. On balance, overall institutional impact is rated highly satisfactory given the major innovations in public transportation, industrial pollution control, solid waste management, and resettlement systems successfully introduced, sustained, and nationally disseminated\. 5\. Major Factors Affecting Implementation and Outcome 5\.1 Factors outside the control of government or implementing agency: At appraisal, the domestic inflation rate was projected at 5% a year\. However, actual inflation of general price level was 16%, 21% and 15% in 1993, 1994 and 1995, respectively\. This increased the cost of the project in local currency terms, but the government was able to manage this thanks to sound financial and fiscal measures and systems as seen below\. The inflation during the 1993-95 is believed to have been lower in Tianjin, and that in later years have been lower than 5% a year\. The reform in economic systems was initiated by the government but also brought about unintended consequences including deterioration of conditions for state-owned enterprises that constituted the major part of Tianjin's economy\. As they were the main intended beneficiaries of industrial pollution control subloans available under the project, the economic change made it difficult to identify financially secure subprojects, forcing a reduction the subloan program\. It also caused bad debt problems which required a great deal of efforts and ingenuity of the Industrial Pollution Control Fund to resolve and still resulted in considerable write-offs (4 out of 42 subloans)\. Transition toward the market also weakened the justification for bus maintenance garages, and TMG decided to cancel these instead of proceeding with the questionable investments\. 5\.2 Factors generally subject to government control: The central government devalued the local currency in 1994 from Y 5\.5 per US$ to Y 8\.5, thereby more than restoring the purchasing power of the Credit eroded by inflation of the early 1990s\. While this greatly increased the counterpart financing requirements, TMG was able to allocate sufficient local financing as the government revenues were elastic to the nominal economic output and TMG placed a high priority to the project\. TMG, through the Project Leading Group and specifically its Urban and Rural Construction Commission (URCC), also maintained strong commitment to policy and institutional improvement goals of the project\. It undertook major and usually difficult policy actions promptly against resistance, such as sewerage tariff increases, use of new resettlement procedures, restructuring of PTC, and continued work on planning and management improvement\. The URCC also maintained the Project Management Office (PMO) with competent staff and adequate budgets and it effectively coordinated and supported project preparation, implementation, and monitoring and mobilized high-level actions promptly when they were needed\. One area that PMO had some difficulty was disbursement of the Credit and local funds, subject to the control of the Finance Bureau\. Insufficient clarity regarding the disbursement procedures and eligibility slowed down the disbursement in earlier years of implementation, especially for consultant services and training, and little of the training expenditures were reimbursed\. From about 1996, further, changes in overall TMG organizations and associated personnel movements began to pose some difficulties to project implementation\. The PMO's effectiveness was reduced by three changes in top management between 1996 - 10-  and 1999, slow replacement of staff, and general tightening of URCC budgets\. 5\.3 Factors generally subject to implementing agency control\. The implementing agencies of the project were: the Municipal Engineering Bureau, Environmental Sanitation Bureau, Public Utility Bureau and the Public Transport Company, Traffic Management Institute, and Industrial Pollution Control Fund\. Their performance was highly satisfactory overall\. Conventional investment components were completed in time and at high quality, in line with the strong track record of the implementing units\. For civil works procurement, the Bank procedures were quickly mastered and managed competently\. Equipment and consultant procurement generally posed more difficulties, particularly the preparation of technical specifications involving unique issues for each package\. Procedural and technical issues significantly delayed the procurement of the signal control system (two stage bidding), and the management information technology system\. These difficulties however can hardly be attributed to the implementing agencies, but to the complicated nature of the tasks and the novelty of the contractual concepts and procedures required for the Bank-financed contracts\. Conceptual gaps and institutional inertia also gave rise to resistance to some innovations introduced under the project, such as the new resettlement procedures and PTC restructuring\. However, these gaps were eventually bridged and these significant innovations were well implemented for great benefits\. The industrial pollution control subloan scheme posed difficult challenges especially under the rapidly changing market context, but the Fund and EPB persisted with efforts to make the concept work, and have attained significant success\. One of the changes in TMG organizations was the separation of construction management function from the Municipal Engineering Bureau to the new Municipal Engineering Corporation\. This weakened the coordination with related agencies, especially regarding transportation\. Although most of the project implementation was over by about 1997, these difficulties, combined with weaknesses in PMO, resulted in delays and gaps in preparation of additional components\. This illustrates the difficulty and risk involved in even relatively small organizational changes\. 5\.4 Costs andfinancing\. The total project cost incurred, excluding duties and taxes, are currently estimated at US$229 million which is 17\.4% higher than the original SAR cost estimate of US$195 million\. As seen above, actual inflation from 1993 to 95 was far higher than the originally projected 5% per year, but at least in dollar terms, the effect was largely offset by steep devaluation of the local currency and the inflation in later years was lower than 5%\. Instead, most of the cost increase can be attributed to adjustments of component scopes described in Section 3\. A little over $20 million of Credit (over $20 million) was saved from lower cost of equipment procurement, cancellation of two bus maintenance garages and a large reduction in the industrial pollution control subloans\. This Credit was reallocated to three roads and a pumping station, which involved far more civil works (eligible for 60% IDA financing) and resettlement (only residential resettlement financed by IDA) than the preceding\. Civil works and residential resettlement were eligible for 60% IDA financing, lower than goods, and non-residential resettlement and land acquisition were not financed by IDA at all\. Even some of the residential resettlement for later road works was not financed by IDA as the PMO and the implementing agency were not able to process the necessary procedures\. Cost estimation turned out broadly accurate, except in the case of road works\. Earlier road works experienced considerable cost overruns and the last one a considerable underrun\. Large discrepanies between estimates and actual market costs of road works are known to be widespread in China, and often blamed on the standard rates established by the Ministry of Transportation, although local design institutes are responsible for adjustments to the local markets\. - 11 -  According to the SAR, the project was to be funded by TMG for US$77\.9 million, the industrial enterprises borrowing the pollution control subloans for US$17\.1 million and IDA for US$ 100 million\. According to the latest estimates, TMG funding increased greatly to US$118\.9 million equivalent, the industrial enterprises financed US$10\.2 million, and IDA's total disbursement amounted to US$99\.5 million\. A part of the increase in TMG funding is due to the increase in local financing requirements discussed inimediately above\. Another reason is that the industrial pollution control investments, which would have been financed by industrial enterprises to a substantial extent, was also reduced and the Credit reallocated to road and sewerage components that required full counterpart financing by TMG\. Internal administrative arrangements blocked disbursement for most of the training expenditures under the project, forcing full financing by implementing agencies and URCC from other resources\. Although in US$ terms the Credit disbursement fell short of the approved amount by only US$0\.5 million, but due to SDR and dollar exchange rates variation, unused balance of the IDA Credit was about SDR 2,515,000 (US$3\.14 million), which was canceled\. 6\. Sustainability 6\.1 Rationale for sustainability rating: The project achievements are highly likely to be sustained\. All physical assets have been completed and are fully operational\. Tianjin is a thriving industrial and commercial city which will make full use of the assets and require more, and which can generate sufficient resources through tax and user fees to operate and maintain the assets\. Tianjin has been maintaining the infrastructure assets at fastidious standards and schedule recommended by the Ministry of Construction, and the high construction quality of facilities created under the project should allow for sustained operation with normal maintenance efforts and expenditures\. Sewerage tariffs have been increased to levels higher than most other large cities of China, and certainly sufficient for adequate operation and maintenance as well as substantial funding of capital expenditures\. The TDC has been improving its organizational, financial, and technical capacities, including real-time monitoring of key parts of the drainage and sewerage system\. Further work to continue these improvements are being proposed for the proposed Second Tianjin Urban Development and Environment Project\. For solid waste management, recommendations from the study supported under the project have been incorporated in the city's environmental sanitation master plan\. A laboratory was established along with the landfill and the leachate treatment plant to monitor and ensure quality of operation, and operational planning and training have also been completed\. TMG has recently introduced solid waste management fees, among the first cities to do so, and established an independent landfill operating unit\. For industrial pollution control, TMG has decided to maintain the Fund established under the project with some added responsibilities\. Despite some arrears, the Fund is solvent, thanks partly to the pollution levy revenues contributed as equity, and has sufficient reflows to continue its operation\. This will allow utilization of the expertise in both technical and financial areas that the Fund staff built up during the project\. Facilities to improve management and maintenance of the bus operations were originally included in the urban transport component of the project\. While most of these were cancelled, the cancellation was not due to reduced attention to these aspects but due to restructuring of the bus operations to one based on the market mechanisms\. All indications are that the restructuring has led to larger and more efficient - 12 -  operations, an improvement which is likely to be sustained and expanded\. The traffic control signals and the traffic accident and violation systems are being operated and maintained well by the traffic police, which is planning further expansion of the systems\. The new resettlement procedures based on market transactions completely replaced the old system of administrative assignments, and are being replaced with a more market-based system using cash rather than vouchers\. Some of the systems established under the infrastructure planning and management systems improvement work have already been put to use\. 6\.2 Transition arrangement to regular operations: As discussed above, most of the facilities built under the project and the institutional innovations introduced have already been incorporated in the city's regular operations\. In some cases the new systems introduced under the project have been further modified (such as using cash instead of vouchers for resettlement) and assets have been added (such as a solid waste transfer station) by the TMG and implementing agencies themselves to make them more fully integrated in the regular programs and systems\. In the case of the infrastructure planning and management systems improvement, many of the analytical tools introduced under the project require field testing, modifications, and training to be fully incorporated in the regular procedures, as these steps could not be completed due to serious delays in the component\. This work is being proposed for support under the Second project proposed for Bank financing\. Other follow-up work proposed under the Second Project include institutional development and improved planning for sewerage and transportation sectors, and expansion of the traffic management system\. 7\. Bank and Borrower Performance Bank 7\.1 Lending: IDA's performance in lending is rated highly satisfactory\. The project was initially identified in June 1989 and appraised in May 1992\. The long preparation period, due to the slow down of overall Bank operations in China during that period, allowed a thorough and detailed preparation\. The project design was broadly consistent with policy priorities of GOC and TMG but included substantial departures from the proposal by TMG, in the form of stronger emphasis on institutional development and new approaches\. There were few conceptual changes from the initial identification to the appraisal stages, but details continued to evolve, especially for innovative approaches\. In hindsight, these efforts appear not to have been sufficient as some of the activities advocated by the team appear to have been overly ambitious or insufficiently understood by the implementing agencies, causing initial difficulties and later changes\. However, the preparation work firmly focused the project toward important institutional development, which have been followed through during implementation and resulted in significant and unusual achievements\. The project team was staffed with highly experienced specialists, effectively coordinated and represented by the task team leader (TTL)\. The team also developed strong collaborative relationship with the borrower teams\. 7\.2 Supervision: IDA's performance in supervision is rated satisfactory\. In view of TMG's strong implementation capacity and the extensive preparation work, it was projected that the project would require about 30 percent less IDA efforts than to an average Bank project on supervising investment components, but more for other aspects\. This projection turned out to be correct, but the supervision efforts required for non-physical elements tumed out to be more than projected\. The IDA management allowed normal levels of resources but various resource saving strategy was employed to meet the higher supervision requirements\. One was the substantial use of staff in the Beijing office, two hours from Tianjin\. Another was the travel cost savings by combining the visit by intemational staff and consultants with visits to other projects\. This, - 13-  however, apparently required that some mission members visit Tianjin in different times and the TTL had to consolidate their findings later\. Most important was the strategy to focus on a small number of major issues for a given period of time until adequate resolution, while devoting relatively little time and resources to other issues and to routine and technical implementation details\. On the other hand, the cost saving strategies resulted in some deficiencies in timeliness and coverage of the supervision and documentation\. The arrangement nevertheless appears to have been highly effective also due to the competence of the implementing agencies and due to the strong relationship between the TMG and IDA teams\. This relationship and efficiency appear largely attributable also to the remarkable continuity of the IDA team with a TTL involved in all stages of the project and with the same municipal engineer on board through most of the critical implementation period, forming a strong relationship with the counterpart team which also had maintained a high degree of continuity\. 7\.3 Overall Bankperformance: Overall, IDA's performance is rated satisfactory due to the high quality and innovation in preparation and flexible and effective supervision provided\. Borrower 7\.4 Preparation: The borrower's performance in preparation is rated highly satisfactory\. TMG, URCC, and the implementing agencies had established a track record and reputation of high quality preparation and strong implementation of infrastructure and environmental work through the reconstruction since the earthquake of 1976\. Consistent with this, by the time the project was identified TMG already had thoroughly prepared project feasibility reports and a well coordination organization for project preparation and implementation\. Details were discussed in a straightforward and professional manner, and most of the information requested by the mission was promptly provided\. Senior managers paid full attention and resolved issues clearly and promptly\. When it proved difficult for local design institutes to prepare final design and bidding documents to the standard asked by IDA, TMG mobilized and financed considerable foreign consultant assistance on its own resources\. 7\.5 Government implementation performance: Government's performance in implementation was highly satisfactory\. High level attention was maintained and timely and forceful intervention was provided\. Commitments were honored despite sometimes serious difficulties, in such cases as the planning and management improvement component and the implementation of new resettlement procedures\. In general, the senior management remained interested and committed to policy reforms and sought the missions' advice on a variety of issues even unrelated to the project\. These continued commitment may be partly related to the general continuity of the senior managers involved in the project\. Sometimes important actions such as the tariff increases during the inflationary period due to political and other difficulties, but they were eventually carried out as soon as the circumstances allowed\. The PMO and the Planning and Management Improvement Leading Group Office (PMIO) were maintained with an adequate number of staff fully involved and familiar with the project\. PMO hired competent specialists to ensure the quality of implementation and compliance with IDA requirements\. PMIO maintained adequate staff and offices to prepare for and support the main TA activities despite the delay of the latter\. However, it experienced considerably difficulties in mobilizing and managing foreign consultants as discussed in detail in Section 4\.4\. In the last few years of implementation, PMO experienced frequent turnover of management, weakening its coordination and monitoring functions\. However, few components were left to be implemented by then and the implementing agencies carried out most of the technical work, its negative impact on project was relatively limited\. - 14 -  7\.6 Implementing Agency: The project involved three implementing Bureaus - Municipal Engineering, Public Utility, Environmental Protection, and Environmental Sanitation -- the first accounting for the dominant share of the project\. Components were implemented by a number of operating units under them -- such as the Municipal Engineering Corporation, PTC, TDC, and the Industrial Pollution Control Fund\. The same agencies which prepared the project were entrusted with implementation of the components\. In general, their performance as a whole has been highly satisfactory during both preparation and implementation\. Even where the achievements were below appraisal targets as in the case of the planning and management improvement studies and the pollution control fund, the underachievements were not due to lack of efforts or competence on the part of the implementing agencies but various factors discussed in Section'4\. 7\.7 Overall Borrower performance: The Borrower's overall performance is rated highly satisfactory for the high levels of commitment and hihg quality of works at all levels, during preparation and most of the implementation period, on new and complex project tasks as well as physical investment components\. 8\. Lessons Learned Past record is a good indicator of the future performance; and A productive economy and competent implementing organizations make most reasonable investments productive\. -- Refer to the quality and speed of physical construction consistent with the track record of the Tianjin implementing agencies, despite new procedures that they had to work under; and -- High rates of economic return attributable to the efficient implementation and the growth of the economy and hence the demand for the facilities, even while the components are on paper similar to others in different contexts\. New systems and approaches can be greatly more rewarding, and Policy and incentive frameworks often matter more than operational and technical refinements\. - Refer to the new approaches introduced under the project with greatest benefits, especially the restructuted public transport company and new resettlement procedures\. Their main benefits were in changed incentives for improved end results, rather than refined operating procedures or improvements in technical throughputs\. Innovations, however, can be difficult and risky, and They require good preparation, flexibility, and most importantly, the committed and competent organization\. -- Refer to the great variance in difficulties and achievements between various innovations and institutional development efforts under the project\. Since almost by definition the difficulties with the innovations cannot be predicted and prepared for, the more important is to remain flexible to recognize and deal with unexpected difficulties\. This also requires persistence in the face of difficulties, which requires high-level comnritment and competent organization\. Further, only organizations that have basic competence would be able to appreciate and benefit from advanced innovations\. Understanding of local conditions and users' own motivated learning are critical to the success of institutional development, and intemational knowledge can be useful only if deployed in well-defined contexts\. - 15 -  -- Refer to difficulties experienced by international experts hired to introduce improved planning and management techniques, and the steep learning curve they experienced in gaining understanding the local context; improved productivity of a new set of experts after the PMIO was able to better define the desired product; the success in PTC restructuring based on knowledge gained by senior managers through relatively rough-and-ready study of other systems\. Flexibility is necessary to ensure high overall efficiency of the project under rapidly changing circumstances, and The project design should build in the flexibility\. -- Refer to the bus garages which could have been, but did not have to be, kept under the project\. On the other hand, the reallocation had to be accommodated within the narrow confines of the legal definition of the project, which may not have been best use of the Credit\. The usefulness of the open provision for solid waste disposal, used for a landfill, also attests to the necessity of built-in flexibility in project definition\. The procurement procedures for goods and information systems are beneficial but overly complex and time consuming even for the most competent borrowers\. -- Refer to long delays in procuring the traffic control signal system and other equipment packages, which may outweigh the resulting cost savings\. 9\. Partner Comments (a) Borrower/implementing agency: This ICR is based on detailed ICRs prepared by individual implementation agencies, listed in Annex 7\. Officials of TMG and the implementing agencies also discussed with IDA's ICR missions in November 2000 and May 2001, sunmmarized in the aide memoire listed in Annex 7\. The views of TMG and the implementing agencies recorded in these documents can be summarized as follows: The project has made an important contribution to the development of Tianjin in several ways\. First, it has been a significant and visible part of the urban construction programs under Tianjin's 8th and 9th Five-Year Plans\. Second, it has introduced or stimulated major, market-oriented reforms in all urban infrastructure sectors involved: public transportation, solid waste management, pollution control, residential resettlement and redevelopment, traffic management, and drainage systems\. Third, the project helped enhance the quality of urban infrastructure and environmental investments (winning national awards for quality) and demonstrated the value of thorough and comprehensive project preparation\. Fourth, as a result of the above, the project has contributed to enhancement of the environment for foreign and domestic investments not only in infrastructure but also in commercial and industrial activities\. TMG and the project staff also highly value the long friendship with the Bank's project team and appreciate their advice regarding broad urban development and management as well as through various assistance to facilitate project implementation\. TMG agrees with the mission's view of the various strengths and problems of the project implementation, and intends to continue to pursue various initiatives started under the project\. TMG finds that the recommendations developed under the planning and management study are useful, even though there was insufficient time to apply them broadly\. Further advances in these and other areas mission points out would be inevitable and necessary as the country as a whole moves more toward the market systems and more opening to the outside world\. TMG wishes the Bank to continue to support TMG in this endeavor through follow-up projects\. Similarly, the drainage company (TDC) appreciated the Bank's advocacy and advice for its institutional - 16 -  and financial improvements throughout the implementation period\. Also, the representatives of the industrial pollution fund (the Fund) agreed that the creation and operation of the Fund was a difficult, but worthwhile experiment that yielded a great deal of operational knowledge and experience which are essential to comprehensive efforts for pollution control\. Both the Fund and EPB expressed appreciation for IDA's strong support for pollution control and the advice and support given to develop the Fund's management and financial knowledge\. (b) Cofinanciers: Not applicable (c) Other partners (NGOs/private sector): Not applicable 10\. Additional Information - 17 -  Annex 1\. Key Performance Indicators/Log Frame Matrix Outcome / Im ct Indicators: # Beneficanes from Drainage Improve- 350,000 450,000 ments Average Increase in Vehicle Speed on Inner about 25% about 30%** Ring Road Bus passenger trips net of transfers 446 million per year 479 million Staff per Bus 8 4 Note: Outcome indicators were not fUly specified at the time of appraisal\. The targets or projections are SAR projections for 2000, where they exist\. ** Compared with scenario without project\. Actual vehicle speed declined due to increase in number of cars\. Output Indicators: _ _ _ _ _ _ _ _ _ _ _ _ _ _ _P r * t, In00 l a st P$ %i\.S _ _ _ _ _L _ _ _ _ _ _ _ _ _ _ _ _ __ _a Total Length of Road Upgrading 3,500 m 5,615 m Number of Overpasses 1 3 Traffic control signals 90 72 Number of Drainage Channels Controlled 3 3 Drainage improvement Coverage 7,600 ha\. 7,600 ha\. Pumping Stations Constructed 8 9 Pollution Control Subloans Y 143 miNion Y 123 million Landfill Capacity per Day 2,000 ton 2,700 ton Persons Resettled 13,480 18,975 Demolished Housing Floor Area 90\.883 m2 98,743 m2 Resettled Housing Floor Area 231,000 m2 247,000 m2 Bus Terminal 1 1 Bus Maintenance Depots 2 0 End of project - 18 -  Annex 2\. Project Costs and Financing Poect Cost by Component (in US$ million equivalent) ApoivkW\. A4tuaULate ft rc\.nta0Obf 15Eslimate EsUmtat Ap)^ls Prolct Cost B_y Component USS million US$ million \. Planning, Management and Technical Improvement 8\.60 9\.49 110\.3 Drainage and Sewerage 25\.70 20\.78 80\.9 Solid Waste Management 12\.40 17\.46 140\.8 Urban Transport 33\.30 89\.29 268\.2 Industrial Pollution Control 39\.00 15\.38 39\.4 Resettlement 34\.70 76\.50 220\.5 Total Baseline Cost 153\.70 228\.90 Physical Contingencies 19\.20 0\.00 Price Contingencies 22\.10 0\.00 Total Project Costs 195\.00 228\.90 Total Financing Required 195\.00 228\.90 Project Costs by Procuremet Arrangements (Appraisal Estimate) (US$ million equivalent) | Expenditure CMegory | ICB Procurement MOlhor tB\. NCB Other~ 1\. Works 0\.00 45\.10 2\.20 0\.00 47\.30 (0\.00) (27\.20) (1\.20) (0\.00) (28\.40) 2\. Goods 23\.20 3\.80 1\.60 0\.00 28\.60 (22\.50) (2\.90) (1\.30) (0\.00) (26\.70) 3\. Services 0\.00 0\.00 5\.60 9\.70 15\.30 TRG, TA, Design, SPN, (0\.00) (0\.00) (5\.60) (0\.00) (5\.60) Mgmt 4\. Miscellaneous 0\.00 0\.00 48\.70 0\.00 48\.70 Industrial Pollution Control (0\.00) (0\.00) (19\.00) (0\.00) (19\.00) 5\. Resettlement Works 0\.00 0\.00 33\.60 0\.00 33\.60 (0\.00) (0\.00) (20\.30) (0\.00) (20\.30) 6\. Land Acquisition 0\.00 0\.00 0\.00 21\.60 21\.60 (0\.00) (0\.00) (0\.00) (0\.00) Total 23\.20 48\.90 91\.70 31\.30 195\.10 (22\.50) (30\.10) (47\.40) (0\.00) (100\.00) Project Costs by Procurement Arrangements (ActuallLatest Estimate) (US$ million equivalent) Prourement Method' Expenditure Ctgory C NCO 2 K\.F\. Totl Cost 1\. Works 0\.00 93\.60 3\.00 0\.00 96\.60 (0\.00) (56\.20) (1\.70) (0\.00) (57\.90) 2\. Goods 14\.90 6\.50 0\.80 0\.00 22\.20 (14\.40) (4\.90) (0\.60) (0\.00) (19\.90) - 19 -  3\. Services 0\.00 0\.00 6\.80 11\.40 18\.20 TRG, TA, Design, SPN, (0\.00) (0\.00) (6\.80) (0\.00) (6\.80) Mgmt 4\. Miscellaneous 0\.00 0\.00 15\.40 0\.00 15\.40 Industrial Pollution Control (0\.00) (0\.00) (9\.00) (0\.00) (9\.00) 5\. Resettlement Works 0\.00 0\.00 45\.90 0\.00 45\.90 (0\.00) (0\.00) (6\.20) (0\.00) (6\.20) 6\. Land Acquisition 0\.00 0\.00 0\.00 30\.60 30\.60 (0\.00) (0\.00) (0\.00) (0\.00) (0\.00) Total 14\.90 100\.10 71\.90 42\.00 228\.90 (14\.40) (61\.10) (24\.30) (0\.00) (99\.80) " Figures in parenthesis are the amounts to be financed by the Bank Loan\. All costs include contingencies\. 2/Includes civil works and goods to be procured through national shopping, consulting services, services of contracted staff of the project management office, training, technical assistance services, and incremental operating costs related to (i) managing the project, and (ii) re-lending project funds to local government units\. Project Financing by(in US$ million equivalent) Total Project Cost 100\.00 77\.90 17\.10 99\.80 118\.90 10\.20 99\.8 152\.6 59\.6 (excluding duties and taxes) - 20 -  Annex 3\. Economic Costs and Benefits Internal Economic Rate of Return SAR ICR Roads Improvement Component 23% 18% Traffic Control Signal System 25% 32% Workshops and Terminals 24% N/A Hub Bus Terminal 23% 25% Drainage Improvement Schemes 18-52% 22-55% Weighted Average 25% 23% -21 -  Annex 4\. Bank Inputs (a) Missions: Stage of Project Cycle No\. of Persons and Speialty ~ Perfoirmance RAting (:e\.g 2 Economists, I FMS, etc\.) :Implementation Development Month/Year Count Specialty Progress Objective Identification/Preparation 06/1989 4 1 Econ, I Plan, I San, 1 PHS 8/1989 6 1 Econ, I Plan, I San, I PHS, I Trans, I Fin 3/1990 6 1 Econ, I Plan, I Env, I Fin, I Trans, 1 San 9/1990 3 1 Econ, I Fin, I Env, I San Appraisal/Negotiation 05/1991 10 1 Econ, I Plan, I Env, 1 Fin, I Operations Officer, I Trans, I Sanitary Engineer, I Procurement Specialist, I PHS, I Env 05/1992 ? I Econ, 1 Counsel, 1 Disbursement Officer Supervision 11/1992 4 1 San, 1 Trans, 1 Econ, 1 S S Env 6/1993 2 1 San, 1 Econ S HS 5/1994 2 1 San, 1 Trans, I Econ S HS 10/1994 3 1 San, I Fin, 1 Econ HS S 5/1995 4 1 San, I Fin, I Trans, I Econ, I HS S Res 11/1995 3 1 Fin, I Trans, I Econ, I Res HS S 5/1996 5 1 San, I Fin, I Chem, 1 Trans, I HS S Econ 10/1996 5 I San, 1 Econ, I Fin, I Res, 1 S HS Env 11/1997 4 1 San, 1 Econ, I Fin, I Env S HS 6/1998 6 1 San, I Econ, I Chem, I Fin, I S HS Env, I Res 11/1998 4 1 San, 1 Econ, I Fin, I San S HS 5/1999 6 1 San, 1 Econ, I Fin, I Chem, 1 S HS Res, I Trans 5/2000 1 1 Econ S HS 11/2000 4 1 Econ, 1 Fin, 1 Trans, I Env ICR 5/2001 2 1 Economist, 1 Fin S HS Acronyms: Chem - Chernical Engineer; Econ - Economist; San - Sanitary/Municipal Engineer; Env - Environmental Engineer or Specialist; Fin - Financial Analyst; Plan - Urban Planner; PHS - Public Health - 22 -  Specialist; Res - Resettlement Specialist; Trans - Transportation Planner; (b) Staff: Stage of Projcct Cycle Actual/Latest Estimate _____- __________- - No\. Staff weeks USS (L000) Identification/Preparation 134\.2 388,125 Appraisal/Negotiation 50\.4 177,875 Supervision 145\.4 654,670 ICR 6\.8 28,300 Total 335\.4 1,244,470 - 23 -  Annex 5\. Ratings for Achievement of Objectives/Outputs of Components (H=High, SU=Substantial, M=Modest, N=Negligible, NA=Not Applicable) Rating El Macro policies O H OSUOM O N * NA 3 Sector Policies *H OSUOM ON O NA M Physical *H O SU O M O N O NA 3 Financial O H *SUOM O N O NA X Institutional Development 0 H * SU O M 0 N 0 NA WEnvironmental * H OSUOM O N O NA Social O Poverty Reduction O H OSUOM O N * NA O Gender O H OSUOM O N * NA F Other (Please specify) 0 H O SU O M 0 N 0 NA Resettlement 2 Private sector development 0 H O SU O M 0 N 0 NA Z Public sector management 0 H O SU O M 0 N 0 NA E Other (Please specify) O H OSUOM O N * NA Private sector development effects: the positive contribution of the new resettlement system on the development of real estate market, the joint venture and new bus lines, initiatives given to borrowing enterprises in design of industrial pollution control measures\. -24-  Annex 6\. Ratings of Bank and Borrower Performance (HS=Highly Satisfactory, S=Satisfactory, U=Unsatisfactory, HU=Highly Unsatisfactory) 6\.1 Bank performance Rating El Lending *HSOS OU OHU Ea Supervision OHS OS OU OHU Il Overall OHS *S O U O HU 6\.2 Borrowerperformance Rating El Preparation *HS OS O U O HU I Government implementation performance * HS O S 0 U 0 HU El Implementation agency performance *HS OS 0 U O HU O Overall *HS OS 0 U O HU - 25 -  Annex 7\. List of Supporting Documents 1\. Borrower's ICR, Novemer 2000 - April 2001 2\. Resettlement Completion Report, March 2001 3\. ICR Aide Memoire, May 2001 - 26 -

REVIEW

P037079

 ICRR 11900 Report Number : ICRR11900 ICR Review Operations Evaluation Department 1\. Project Data: Date Posted : 08/25/2004 PROJ ID : P037079 Appraisal Actual Project Name : Agrarian Reform Project Costs 105\.7 105\.4 Communities Development US$M ) (US$M) Project Country : Philippines Loan/ Loan US$M ) 50\.0 /Credit (US$M) 49\.7 Sector (s): Board: RDV - Roads and Cofinancing highways (35%), Irrigation US$M ) (US$M) and drainage (29%), Water supply (21%), Central government administration (8%), Other social services (7%) L/C Number : L4109 Board Approval 97 FY ) (FY) Partners involved : Closing Date 12/31/2003 12/31/2003 Prepared by : Reviewed by : Group Manager : Group : John R\. Heath Christopher D\. Gerrard Alain A\. Barbu OEDST 2\. Project Objectives and Components a\. Objectives "The project would assist the Government in strengthening farmer organizations in the Agrarian Reform Communities to plan and undertake development activities which would raise farmers' incomes and provide further opportunities for sustainable growth\. In particular, the project would (i) assist agrarian reform beneficiaries and other farm families in the selected Communities to gain access to productive resources, social and physical infrastructure; and (ii) support Agrarian Reform line agencies, Local Government Units, NGOs, People Organizations and coordinate their activities" (Staff Appraisal Report)\. Note\. The selection of the Agrarian Reform Communities that would participate in the project depended on an expression of willingness by the Local Government Units to assume responsibility for counterpart funding, a judgment by the Department of Agrarian Reform about the "organizational maturity" of the Agrarian Reform Community (using a standardized rating scale ), an assessment of the potential for project impact (tending to favor Communities with the largest number of land reform beneficiaries ), and the local availability of suitably -qualified technical assistance providers \. Thus, while the project is described as "demand-driven" these stringent eligibility criteria circumscribed the pool of potential beneficiaries who might compete for project funding \. b\. Components (i) Rural Infrastructure (Estimated cost, US$58\.8 million; Actual cost, US$56\.7 million)\. Included farm-to-market roads, bridges, communal irrigation systems, potable water supply systems and post -harvest facilities\. (ii) Community Development and Technical Assistance (Estimated, US$7\.5 million; Actual, US$6\.1 million)\. Measures to strengthen the capacity of community groups, the Department of Agrarian Reform and local government to help plan and implement community-driven development activities \. (iii) Agriculture and Enterprise Development (Estimated, US$33\.6 million; Actual, US$37\.0 million)\. Provision of technical and small business advisory assistance, dissemination of improved farm and non -farm technology, and measures to strengthen market linkage \. (iv) Project Management (Estimated, US$5\.8 million; Actual, US$5\.6 million)\. Involved coordination of activities by the Central Project Office, assisted by the Department of Agrarian Reform's regular administrative and financial management units\. c\. Comments on Project Cost, Financing and Dates Costs, financing and scheduling did not deviate significantly from appraisal forecasts \. 3\. Achievement of Relevant Objectives: The development objective may be broken down into two elements both of which were highly relevant : (i) Increase farmers' incomes (Achieved)\. The project was well targeted, the average baseline (1997) family income of 37,800 pesos falling below the national poverty threshold (48,200 pesos)\. The real values of net household incomes in 98 of the 102 target Agrarian Reform Communities increased on average by 63 percent, compared with the project's target of 40 percent\. (Data for the other four Communities were not included because of the high rate of increase not attributable to the project )\. The observed increases in household incomes is attributed mainly to improvements in farm productivity, farm income increasing in all but nine Communities \. (Off-farm activities were a less significant source of income growth )\. The increase in household incomes is expected to be sustained in view of the crop diversification and intensification that took place, the decrease in transportation and handling costs, and the social capital and assets built through the project \. (ii) Build capacity for developing Agrarian Reform Communities (Achieved)\. The investment plans of 232 districts ( barangays ) were incorporated in the respective municipal development plans \. People Organizations were strengthened (the Department of Agrarian Reform applied each year a checklist of questions bearing on organizational maturity: 178 out of 233 Organizations achieved the highest rating on the scale )\. Funds and in-kind contributions have been mobilized at the community level to ensure that infrastructure is properly maintained \. Savings have been built up with the expansion of farm and non -farm business\. Local Government Units were strengthened, entailing improved participatory planning, design standards and supervision and increased transparency in procurement contracts and institutionalization of infrastructure maintenance \. 4\. Significant Outcomes/Impacts: 827 km of farm-to-market road were built (target 800 km); 10,028 ha were irrigated (target 10,019 ha); Average costs of irrigation per hectare were US$ 2,232 (new schemes) and US$1,078 (rehabilitated schemes), respectively 11 percent and 20 percent lower than the appraisal estimates; Cropping intensity increased by an average of 43 percent (target 50 percent); Crop yields increased significantly (e\.g\. irrigated lowland rice up by 34 percent, compared to the appraisal target of 10 percent); Business assets in Agrarian Reform Communities increased by US$ 239,774 (target US$200,000); The economic rate of return was re -estimated at 26 percent (target 20-25 percent)\. 5\. Significant Shortcomings (including non-compliance with safeguard policies): Only limited access to formal credit was achieved because most beneficiaries could not meet the Land Bank of the Philippines eligibility requirements\. (The project design was sufficiently flexible for alternatives to be found, e \.g\. NGO credit programs)\. 6\. Ratings : ICR OED Review Reason for Disagreement /Comments Outcome : Satisfactory Satisfactory Institutional Dev \.: Substantial Substantial Sustainability : Likely Likely Bank Performance : Satisfactory Satisfactory Borrower Perf \.: Satisfactory Satisfactory Quality of ICR : Satisfactory NOTE: NOTE ICR rating values flagged with ' * ' don't comply with OP/BP 13\.55, but are listed for completeness\. 7\. Lessons of Broad Applicability: The eligibility criteria for communities to participate in a project of this nature can be designed to maximize the likelihood of long-term development impact, particularly by favoring local governments willing to assume responsibility for counterpart funding --although this circumscribes the pool of potential beneficiaries (the poorest may be left out) it helps to ensure sustainability;  It is possible to simultaneously build up, in a complementary fashion, the capacity of community groups on the one hand, and local government on the other, thus avoiding the tendency of many community -driven development projects to sideline existing political institutions; Sustainability can be enhanced by using local inspectors to monitor subproject performance and by providing conditional local government grants that are converted into loans if the operation and maintenance of completed subprojects is not satisfactory; The transition to regular operations will be facilitated when, as in this case, project activities are coordinated by line agency staff in line with the government's regular program \. 8\. Assessment Recommended? Yes No Why? In order to learn more from what appears to be a case of good practice community -driven development\. 9\. Comments on Quality of ICR: The ICR is concisely and clearly written \. The data is rich and persuasively backs up the ratings \. The ICR could have provided more information on the development of the capacity of community groups to plan and implement community-driven development activities, and Annex 1 could have provided qualitative as well as quantitative indicators\.

REVIEW

P069917

Document of The World Bank Report No: ICR00001040 IMPLEMENTATION COMPLETION AND RESULTS REPORT (TF-57320 IDA-36520 TF-51022) ON A CREDIT IN THE AMOUNT OF SDR 6\.7 MILLION (US$8\.3 MILLION EQUIVALENT) AND A GRANT FROM THE GLOBAL ENVIRONMENT FACILITY IN THE AMOUNT OF US$5\.1 MILLION TO THE REPUBLIC OF ARMENIA FOR A NATURAL RESOURCES MANAGEMENT AND POVERTY REDUCTION PROJECT September 10, 2009 Sustainable Development Department South Caucasus Country Unit Europe and Central Asia Region  CURRENCY EQUIVALENTS (Exchange Rate Effective July 17, 2009) Currency Unit = DRAM 306\.63 = US$ 1 US$ 1\.00 = 366\.03 FISCAL YEAR July 1 ­ June 30 ABBREVIATIONS AND ACRONYMS BRMA Bio Resources Management Agency CAS Country Assistance Strategy CIS Commonwealth of Independent States CPS Country Partnership Strategy DCA Development Credit Agreement DPL Development Policy Loan EMP Environmental Management Plan ERR Economic Rate of Return FAO Food and Agriculture Organization FISP Forest Institution Support Project FMP Forest Management Plan FREC Forest Research and Experimental Center FSMC Forest State Monitoring Center GDP Gross Domestic Product GEF Global Environment Fund GEO Global Environment Objectives GIS Geographic Information System IBRD International Bank for Reconstruction and Development ICR Implementation Completion Report IDA International Development Association IDF Institutional Development Fund ILAP Illegal Logging Action Plan IUFRO International Union of Forest Research Organizations M&E Monitoring and Evaluation MNP Ministry of Nature Protection MOA Ministry of Agriculture MTR Midterm Review NGO Non-Governmental Organization NRMPRP Natural Resources Management and Poverty Reduction Project OP Operational Policy PAD Project Appraisal Document PDF Project Development Facility PDO Project Development Objectives PHRD Policy and Human Resource Development Fund PIU Project Implementation Unit  ABBREVIATIONS AND ACRONYMS PRSC Poverty Reduction Strategy Credit SDR Special Drawing Rights Sida Swedish International Development Cooperation Agency SNCO State Non-Commercial Organization TACIS Technical Assistance to the Commonwealth of Independent States TF Trust Fund TTL Task Team Leader USDA United States Department of Agriculture WCPA World Commission on Protected Areas WWF World Wildlife Fund Vice President: Shigeo Katsu Country Director: Asad Alam Sector Manager: John Kellenberg Project Team Leader: Peter Dewees ICR Team Leader: Ahmad Slaibi  ARMENIA NATURAL RESOURCES MANAGEMENT AND POVERTY REDUCTION PROJECT CONTENTS Data Sheet 1\. Project Context, Development and Global Environment Objectives Design \. 1 2\. Key Factors Affecting Implementation and Outcomes \. 5 3\. Assessment of Outcomes \. 9 4\. Assessment of Risk to Development Outcome and Global Environment Outcome \. 12 5\. Assessment of Bank and Borrower Performance\. 13 6\. Lessons Learned\. 14 7\. Comments on Issues Raised by Borrower/Implementing Agencies/Partners \. 15 Annex 1\. Project Costs and Financing \. 16 Annex 2\. Outputs by Component \. 17 Annex 3\. Economic and Financial Analysis \. 29 Annex 4\. Bank Lending and Implementation Support/Supervision Processes \. 33 Annex 5\. Summary of Borrower's ICR and/or Comments on Draft ICR \. 35 Annex 6: Using the Protected Area Management Effectiveness Tracking Tool in Armenia \. 40 Annex 7\. Comments of Cofinanciers and Other Partners/Stakeholders \. 42 Annex 8\. List of Supporting Documents \. 43 MAP A\. Basic Information Natural Resources Country: Armenia Project Name: Management & Poverty Reduction Project IDA-36520,TF- Project ID: P057847,P069917 L/C/TF Number(s): 57320,TF-51022 ICR Date: 09/17/2009 ICR Type: Core ICR REPUBLIC OF Lending Instrument: SIL,SIL Borrower: ARMENIA Original Total XDR 6\.7M,USD 5\.1M Disbursed Amount: XDR 6\.6M,USD 4\.9M Commitment: Environmental Category: B,B Focal Area: B Implementing Agencies: Ministry of Nature Protection Cofinanciers and Other External Partners: Swedish International Development Cooperation Agency B\. Key Dates Natural Resources Management & Poverty Reduction Project - P057847 Revised / Actual Process Date Process Original Date Date(s) Concept Review: 01/06/2000 Effectiveness: 12/27/2002 Appraisal: 02/22/2002 Restructuring(s): Approval: 06/04/2002 Mid-term Review: 10/09/2005 10/09/2005 Closing: 07/31/2008 01/31/2009 Natural Resources Management & Poverty Reduction GEF Project - P069917 Revised / Actual Process Date Process Original Date Date(s) Concept Review: 01/06/2000 Effectiveness: 12/28/2002 12/27/2002 Appraisal: 02/22/2002 Restructuring(s): Approval: 06/04/2002 Mid-term Review: 10/09/2005 10/09/2005 Closing: 07/31/2008 01/31/2009 i C\. Ratings Summary C\.1 Performance Rating by ICR Outcomes Moderately Satisfactory GEO Outcomes Moderately Satisfactory Risk to Development Outcome Moderate Risk to GEO Outcome Moderate Bank Performance Moderately Satisfactory Borrower Performance Moderately Satisfactory C\.2 Detailed Ratings of Bank and Borrower Performance (by ICR) Bank Ratings Borrower Ratings Quality at Entry Moderately Satisfactory Government: Satisfactory Implementing Quality of Supervision: Satisfactory Moderately Satisfactory Agency/Agencies: Overall Bank Overall Borrower Moderately Satisfactory Moderately Satisfactory Performance Performance C\.3 Quality at Entry and Implementation Performance Indicators Natural Resources Management & Poverty Reduction Project - P057847 Implementation QAG Assessments Indicators Rating: Performance (if any) Potential Problem Project Quality at Entry No Satisfactory at any time (Yes/No): (QEA) Problem Project at any Quality of No None time (Yes/No): Supervision (QSA) DO rating before Moderately Closing/Inactive status Satisfactory Natural Resources Management & Poverty Reduction GEF Project - P069917 Implementation QAG Assessments Indicators Rating: Performance (if any) Potential Problem Project Quality at Entry No None at any time (Yes/No): (QEA) Problem Project at any Quality of No None time (Yes/No): Supervision (QSA) GEO rating before Moderately Closing/Inactive Status Satisfactory ii D\. Sector and Theme Codes Natural Resources Management & Poverty Reduction Project - P057847 Original Actual Sector Code (as % of total Bank financing) Central government administration 2 2 General agriculture, fishing and forestry sector 85 85 Other social services 11 11 Sub-national government administration 2 2 Theme Code (as % of total Bank financing) Biodiversity 22 22 Environmental policies and institutions 23 23 Other rural development 22 22 Participation and civic engagement 22 22 Rural policies and institutions 11 11 Natural Resources Management & Poverty Reduction GEF Project - P069917 Original Actual Sector Code (as % of total Bank financing) Central government administration 78 78 General agriculture, fishing and forestry sector 17 17 Other social services 3 3 Sub-national government administration 2 2 Theme Code (as % of total Bank financing) Biodiversity 25 25 Environmental policies and institutions 24 24 Other rural development 25 25 Participation and civic engagement 13 13 Rural policies and institutions 13 13 iii E\. Bank Staff Natural Resources Management & Poverty Reduction Project - P057847 Positions At ICR At Approval Vice President: Shigeo Katsu Johannes F\. Linn Country Director: Asad Alam Judy M\. O'Connor Sector Manager: John V\. Kellenberg Marjory-Anne Bromhead Project Team Leader: Peter A\. Dewees Adriana Jordanova Damianova ICR Team Leader: Ahmad Slaibi ICR Primary Author: Ahmad Slaibi Natural Resources Management & Poverty Reduction GEF Project - P069917 Positions At ICR At Approval Vice President: Shigeo Katsu Johannes F\. Linn Country Director: Asad Alam Judy M\. O'Connor Sector Manager: John V\. Kellenberg Marjory-Anne Bromhead Project Team Leader: Peter A\. Dewees Adriana Jordanova Damianova ICR Team Leader: Ahmad Slaibi ICR Primary Author: Ahmad Slaibi F\. Results Framework Analysis Project Development Objectives (from Project Appraisal Document) The project's development objective is adoption of sustainable natural resource management practices and alleviation of rural poverty in mountainous areas where degradation has reached a critical point\. The project will help avert further deterioration of natural resources (soil, water, forest, fishery, and biodiversity) and stabilize incomes in the local communities\. Revised Project Development Objectives (as approved by original approving authority) The project's development objective and key performance indicators were not changed\. Global Environment Objectives (from Project Appraisal Document) The global environmental objective is to preserve the mountain, forest, and grassland ecosystems of the Southern Caucasus, through enhanced protected area and mountain ecosystem conservation and sustainable management\. Revised Global Environment Objectives (as approved by original approving authority) The global environment objective and key indicators were not changed\. (a) PDO Indicator(s) iv  Original Target Formally Actual Value Values (from Revised Achieved at Indicator Baseline Value approval Target Completion or documents) Values Target Years Increase in income (or expenditure) in project villages compared to non-project Indicator 1 : villages\. Average income estimated in 2008 10% increase in Value was 599,000 Annual average income at incomes in (quantitative or N/A (21\.5% increase)\. baseline is AMD 493,000 participating Qualitative) However, survey villages sampling base is small\. Date achieved 05/15/2002 01/31/2009 06/06/2002 01/31/2009 The ICR uses a survey which compares farm income in project with non-project Comments communities\. The survey found a real increase o f 17% in project villages as (incl\. % compared to a decrease of 6% in nonproject villages from 2002 to 2007\. (100% achievement) achievement) Increased crop and livestock productivity in project villages compared to non- Indicator 2 : project villages\. Comparison of yields in project versus non-project villages: Wheat Value National statistics for the +33%, Barely (quantitative or No targets defined N/A marzes +32%, Milk +31%, Qualitative) Wool +31%, Sheep weight +15% , and Cattle weight +14% Date achieved 05/15/2002 01/31/2009 06/06/2002 01/31/2009 Comments Productivity in project villages is significantly higher as compared to non-project (incl\. % villages\. Sampling base is small (100% a chievement) achievement) Increased community participation in natural resources management decisions, as Indicator 3 : perceived by stakeholders in target communiti es\. At least 20 communtities 40 Communities report participation have participated in natural and implemented resources protective activities Value Natural resource management on common natural (quantitative or management in villages decisions N/A resources in a Qualitative) negligible evidenced by participatory protection approac h\. Process activities fo r was new but of common natural significant quality\. resources (forests, pastures, etc\.) v Date achieved 05/15/2002 01/31/2009 06/06/2002 01/31/2009 Early project communities missed to develop participatory plans\. After MTR, Comments most new joining communities engaged in intensiv e participatory planning with (incl\. % the project over-achieving the target of 20 communities by 200%\. (200% achievement) achievement) Indicator 4 : Reduction in illegal activities destroying forest cover\. Illegal Logging Action Plan developed and Regulatory Value implemented\. framework in (quantitative or No baseline available\. N/A Illegal logging was place and Qualitative) reduced by up to implemented\. 50% during the lifetime of the pr oject\. Date achieved 05/15/2002 01/31/2009 06/06/2002 01/31/2009 The reduction in illegal logging was driven by improved socio-economic Comments conditions as well as project activities\. The develop ment of the legislative & (incl\. % institutional framework under the project were instrumental to this reduction\. achievement) (75% achievement) Indicator 5 : Reversal of degradation in pasture vegetation cover\. Grazing management plans in place in approximately 40 communities, access to 20,000ha Some 9,500ha of of remote pasture Value Continuing trend of community was improved and (quantitative or deterioration of pasture pastures will adopt N/A redu ced pressure Qualitative) vegetation\. best practice on nearby management overgrazed land\. Rotational grazing and temporary protection of pasture improved vegetation cover\. Date achieved 05/15/2002 01/31/2009 06/06/2002 01/31/2009 Comments No quantitative information about the changes in the vegetation cover or plant (incl\. % composition is available; however beneficiari es report significant improvements\. achievement) (75% achievement) Indicator 6 : Increased quality, quantity and productivity of forest cover in the project area\. Forest Management plans management plans have been Value for around 70,000 completed for No concept for forest (quantitative or ha completed\. N/A 128,000 ha of forest rehabilitation exists\. Qualitative) Forest area\. rehabilitation Some 7,000 ha activities covering reforested or vi  more than 1,100 protected for ha affores tation / regeneration\. reforestation implemented\. Date achieved 05/15/2002 01/31/2009 06/06/2002 01/31/2009 Forest management planning under the project significantly exceeded initial Comments targets & gained momentum outside the projec t\. However, some activities (incl\. % envisioned in the PAD were never completed (road rehabilitation & pest control achievement) measures)\. (75% achie vement) (b) GEO Indicator(s) Original Target Formally Actual Value Values (from Revised Achieved at Indicator Baseline Value approval Target Completion or documents) Values Target Years Development of protected areas management plans for Lake Sevan National Park Indicator 1 : and Dilijan Nature Reserve supported by local co mmunities, adopted by Government, implemented in year two and made subject to annual reviews\. Two management Value Two management plans developed, (quantitative or No management plans N/A plans adopted, and under Qualitative) implementation\. Date achieved 05/15/2002 01/31/2009 06/06/2002 01/31/2009 Comments Management plans were significantly delayed and were approved two years (incl\. % before project closure; no reviews have yet been don e, though management achievement) effectiveness is being regularly monitored\. (75% achievement) Stable or increasing numbers of key indicator species according to population Indicator 2 : census taken in two of the last four years of t he project\. Extensive studies of flora & fauna identified key Target value to be indicator species\. determined after Management plans the baseline is defined monitoring determined\. Value protocols, estab Impacts will only (quantitative or Baseline is not available lished conservation be visible in the Qualitative) targets, & currently long term and are biodiversity unlike ly to be monitoring is being captured through carried out\. short term surveys\. Indications are that key populations are stable Date achieved 05/15/2002 01/31/2009 01/31/2009 Comments There was no baseline established at Appraisal\. Much effort & resources were (incl\. % involved in determining key indicator speci es & establishing monitoring achievement) protocols\. Project activities served to protect & manage critical natural habitat\. vii  (70% achieve ment) (c) Intermediate Outcome Indicator(s) Original Target Actual Value Formally Values (from Achieved at Indicator Baseline Value Revised approval Completion or Target Values documents) Target Years Indicator 1 : Village micro-catchment plans implemented Up to 40 40 catchment plans Value microcatchment and 40 village (quantitative or No plans\. plans (covering as N/A resource Qualitative) many as 100 management plans\. villages) Date achieved 05/15/2002 01/31/2009 06/06/2002 01/31/2009 Comments For all proposed micro-catchments, plans were developed and designed measures (incl\. % were implemented\. (100% achievement) achievement) Indicator 2 : Community capacity for sustainable use of common resources developed\. At least 20 participating 40 communities communities have have developed and developed grazing implemented None of the participating management grazing Value communities have plans\. management plans\. (quantitative or N/A grazing management Qualitative) plans\. At least 7 of 12 7 community communities have forestry resumed management plans community forest developed\. management\. Date achieved 05/15/2002 01/31/2009 06/06/2002 01/31/2009 Implementation of the grazing management plans is not equally effective in the Comments 40 communes\. Community forestry management pl ans remained behind (incl\. % expectation in terms of numbers and management turnover to local communities\. achievement) (75% achievement) Measures for effective protection of mountain biodiversity at watershed level Indicator 3 : effectively implemented\. 24 small grants Up to 50 small Value schemes and 4 No protection activities in grants for (quantitative or N/A awareness raising place biodiversity Qualitative) grants conservation\. implemented\. Date achieved 05/15/2002 01/31/2009 06/06/2002 01/31/2009 Only about half of the originally envisioned number of schemes (50) were Comments implemented; due to the limited biodiversity focus\. After MTR, the scheme was (incl\. % changed & 4 additional grants with strong awareness building nature were achievement) implemented\. (50% achieveme nt) viii Indicator 4 : Income opportunities of rural communities increased\. Value No quantitative data (quantitative or N/A No targets defined N/A available Qualitative) Date achieved 05/15/2002 01/31/2009 06/06/2002 01/31/2009 Comments It was only after MTR that most of the Component One activities have been (incl\. % implemented directly by the beneficiaries in a par ticipatory manner; this has achievement) created temporary job opportunities under the project\. (100% achievement) Sustainable forest management practiced in selected pilot areas on state forest Indicator 5 : land\. Five state forest management plans Value No valid forest Two forest (two approved, (quantitative or management plans exist management plans N/A three in approval Qualitative) in project areas\. covering 70,000ha\. process) covering 128,000ha\. Date achieved 05/15/2002 01/31/2009 06/06/2002 01/31/2009 Significant project success, not only because it surpasses by almost 2-fold the Comments target, but also because this planning initi ative has paved the way for good forest (incl\. % planning, based on modern principles of sustainable forest management\. (200% achievement) achievement) Technical assistance for effective forest management delivered to Hyantar Indicator 6 : district branches, Department of Protected Areas, l ocal environmental authorities and communities\. Project developed Inter-ministerial or notably task force in illegal contributed to: logging National Forest established, Policy & Strategy; Number of illegal Illegal Logging logging cases Deficient legal and Action Plan; Value reduced, institutional system, National For est (quantitative or National N/A forest administration Program; new Qualitative) regulation on poorly trained\. Forest Code; community Community Forest forestry Management management in Regulation; & place, provided variety of forest staff trained training & capacity building act ivities Date achieved 05/15/2002 01/31/2009 06/06/2002 01/31/2009 Comments Project has helped enormously to move the sector forward towards instituting the (incl\. % legal and institutional framework for multi -purpose sustainable forestry\. (100% achievement) achievement) Indicator 7 : Effective management of Dilijan and Lake Sevan Parks\. Dilijan Nature Reserve Management plans Assessment of Value and Lake Sevan National completed and management plan (quantitative or N/A Park dysfunctional and under effectiveness Qualitative) existing as paper implementation; (Annex 6 to this ix  protected areas\. No supportive policy, ICR) indicates effective manage ment legal and significant progress systems in place\. regulatory changes has been achieved implemented; in both Na tional capacity fo r Park\. participatory protected area management is increased\. Date achieved 05/15/2002 01/31/2009 06/06/2002 01/31/2009 Capacity extensively improved, facilities upgraded, & equipment procured to Comments improve overall protected area management\. N ature protection legislation was (incl\. % passed such that a supportive regulatory environment provides for improved achievement) management\.100% achievem ent Enhanced planning and management capacity of protected areas and increased Indicator 8 : public awareness\. Adoption of 2 park management plans Management plans in year 2\. Reduce for 2 target illegal resource- National Parks No effective planning and use in parks, developed & management in place\. Establish bio & approved in year 5, Badly degraded office landscape administrative & Value facilities in both Dilijan monitoring (GIS), basic field (quantitative or N/A and Sevan National Carry-out training, infrastruct ure Qualitative) Parks\. No acceptable Adequately staff provided for both visitor facilities in Dilijan parks, Establish park\. \.Extensive National Park\. ranger services & measures taken to Improve public improve public awareness of awareness through biodiversity a PA campaign\. conserv ation Date achieved 05/15/2002 01/31/2009 06/06/2002 01/31/2009 Project activities transformed dysfunctional protected areas into better operated Comments National Parks with improved management sy stems\. Park infrastructure under (incl\. % development\. PA planning & zoning good practices adopted but still need achievement) refinement\.75% achievem ent x G\. Ratings of Project Performance in ISRs - Actual Date ISR Disbursements No\. DO GEO IP (USD millions) Archived Project 1 Project 2 1 11/01/2002 S S S 0\.00 0\.00 2 01/28/2003 S S S 0\.00 0\.00 3 08/14/2003 S S S 0\.37 0\.13 4 01/29/2004 S S S 0\.47 0\.20 5 06/02/2004 S S S 0\.66 0\.26 6 12/21/2004 S S S 1\.15 0\.51 7 06/01/2005 MS MS MS 1\.51 0\.81 8 07/28/2005 MS MS MS 1\.88 0\.90 9 12/08/2005 MS MS MS 2\.51 1\.10 10 07/31/2006 MS MS MS 3\.94 1\.82 11 11/21/2006 MS MS S 4\.52 2\.27 12 05/21/2007 MS MS S 5\.81 3\.15 13 07/25/2007 MS MS MS 6\.28 3\.20 14 03/07/2008 MS MS MS 8\.25 3\.79 15 05/23/2008 MS MS MS 8\.44 3\.95 16 12/24/2008 MS MS MS 9\.28 4\.41 17 04/08/2009 MS MS MS 9\.75 4\.89 H\. Restructuring (if any) Not Applicable xi I\. Disbursement Profile P057847 P069917 xii 1\. Project Context, Development and Global Environment Objectives Design Project context\. The mountain ecosystems of Armenia produce a valuable flow of goods and services of local and global significance\. When the Project was prepared, the unsustainable exploitation of natural resources in mountainous areas (largely within Tavoush and Gegharkunik Marzes) was eroding productivity due to forest loss and soil and pasture degradation, likely perpetuating rural poverty\. Armenia's mountain, forest, meadow, aquatic and steppe ecosystems also host a large share of the country's globally significant biodiversity resources, and biodiversity loss was a major concern\. Two main protected areas that are important biodiversity reserves in Tavoush and Gegharkunik Marzes are Lake Sevan National Park (1,500 sq\.km) and Dilijan State Reserve (280 km2)\. The area is also rich in cultural heritage with good potential to develop ecotourism and natural heritage tourism\. At Appraisal, Project area natural landscapes were managed by the State Forest Corporation (Hayantar) under the Ministry of Nature Protection (MNP); the national network of protected areas was managed by the Department of Bioresources and Land Protection of MNP; and Village Councils (Haymanks) had legal responsibility for community pastures, and general oversight of management of private land within village areas\. Weak natural resources management posed an increasing threat to the livelihoods of poor rural people who depend heavily on local soil, water, forest, and pasture, which were rapidly degrading\. The Project aimed to reduce rural poverty through improved natural resource management, while protecting important natural habitats\. Development objective\. The Project Development Objective is to support the adoption of sustainable natural resource management practices and alleviation of rural poverty in the mountainous areas of Armenia where degradation of natural resources was reaching a critical point\. Global environmental objective\. The global environmental objective of the proposed Project is to preserve the mountain, forest, and grassland ecosystems of the Southern Caucasus, through enhanced protected area and mountain ecosystem conservation and sustainable management\. 1\.1 Context at Appraisal Country Background: The Republic of Armenia is a mountainous landlocked country in the southern Caucasus with limited land links to international ports; some three million people occupy a territory of 29,800 km²--1\.1 million in Yerevan--and the adult literacy rate is over 99 percent\. In 1991, after independence, the economy fell into a severe recession; 1993 GDP was only 47 percent of the 1990 level\. In 1994, the economy began to recover, characterized by successful stabilization and structural reforms, and accompanied by trade and price liberalization, small and medium enterprise privatization, and the creation of a basic legal and administrative framework for a market economy\. This led to real GDP growth in 1998 of 7\.2 percent per annum\. Since 1994, Armenia has exhibited one of the highest real GDP growth rates among the CIS countries, reaching 13\.9 percent in 2005\. Sector Background: The dissolution of the former Soviet Union and the withdrawal of Soviet subsidies and markets was a serious setback for Armenia's many rural communities, especially in remote mountain and border areas; industries that had once provided employment disappeared and rural infrastructure deteriorated\. In 2002, some 55 percent of Armenians were classified as poor, and rural poverty was pronounced among high altitude mountain residents; in Tavoush and Gegharkunik Marzes, about 70 percent of rural households engaged in subsistence agriculture and bartered their small surpluses in local markets, while remittances, pensions, and day labor provided cash\. During the crisis years, the rural economy provided a safety net and absorbed a significant share of Armenia's excess labor\. As a result, many households had little cash and could not invest in productivity improvements, despite being increasingly reliant on natural resources for survival\. Thus, a vicious circle was established--local 1 people were forced to over exploit natural resources to the point of severe degradation of forests, fish stocks, pastures, and soil, which threatened their own livelihoods and important biodiversity assets\. Armenia's biodiversity resources have been recognized as globally significant\. The country is in the Caucasus Eco-Region, a Global 200 Eco-Region, at the crossroads of European, Central Asian, and Middle Eastern Zones, three bio-geographic zones that include unusually rich flora, fauna and natural landscapes and ecosystems\. Armenian habitats contain nearly every plant community found in the southern Caucasus, and 50 percent of the region's flora diversity\. Natural resource degradation was considered critical in three key areas: a) Declining soil fertility and pasture degradation\. Intensive farming around villages and inappropriate farming techniques, especially on slopes, increased soil erosion\. During Project preparation, it was estimated that more than 60 percent of Armenia's arable land was experiencing levels of degradation\. b) Forest degradation\. Rising fossil fuel cost increased rural and urban reliance on wood for heating and cooking, as did restricted gas supplies that followed the war over Nagorno-Karabahk--within a few years, Armenia lost 10 to 20 percent of its forest cover and overgrazing curtailed regeneration of harvested forests\. Forest management policy, legal, and institutional frameworks were largely ineffective, forest institutions were underfinanced, the forestry sector lacked management plans, and capacity to control illegal logging was limited\. c) Threats to critical natural habitats\. During Appraisal, Armenia's network of critical natural habitat protected areas were barely managed and poorly protected\. Park boundaries were ad hoc and poorly linked to rational designation as protected areas\. Similarly, internal zones were badly defined, and overall, institutional and legal frameworks for nature protection were weak\. Rationale for Bank Involvement: The proposed Project was consistent with the Country Assistance Strategy (CAS, July 31, 1997, No\. 16899-AM) objectives of supporting social sustainability, poverty alleviation, and mitigating environmental degradation\. The CAS identified environmental degradation as a key medium-term risk to economic growth sustainability; and emphasized environmental protection and regenerating natural resources to sustain local economies and reduce rural poverty\. 1\.2 Original Project Development Objectives (PDO) and Key Indicators (as approved) The Project Development Objective is to support the adoption of sustainable natural resource management practices and alleviation of rural poverty in the mountainous areas of Armenia where degradation of natural resources was reaching a critical point\. Key indicators described in the PAD were: increased incomes (or expenditures) in Project villages compared to non-Project villages; increased crop and livestock productivity in Project villages compared to non-Project villages; increased community participation in natural resources management decisions, as perceived by stakeholders in target communities; reduction in illegal activities destroying forest cover; reversal of degradation in pasture vegetation cover; and increased quality, quantity, and productivity of forest cover in the Project area\. 1\.3 Original Global Environment Objectives (GEO) and Key Indicators (as approved) The Global Environmental Objective was to preserve the mountain, forest, and grassland ecosystems of the Southern Caucasus, through enhanced protected area and mountain ecosystem conservation and sustainable management\. Key indicators outlined in the PAD were the following: development of protected areas management plans for Lake Sevan National Park and Dilijan Nature Reserve--supported by local communities, adopted by Government, implemented in year two, and made subject to annual review; and achieve stable or increasing numbers of key indicator species according to population censuses taken in two of the last four years of the Project\. 2 1\.4 Revised PDO (as approved by original approving authority) and Key Indicators, and reasons/justification No formal World Bank Board revision of objectives or indicators was carried out\. During the October 2005 Mid-term Review and supervision mission, some Project activities were reassessed and refined, but the Project Development Objective and indicators as stated in the PAD were unchanged\. 1\.5 Revised GEO (as approved by original approving authority) and Key Indicators, and reasons/justification The Project's Global Environment objective and indicators were not revised\. 1\.6 Main Beneficiaries During Appraisal, the two marzes focused on by the Project were among the poorest regions in Armenia\. Project beneficiaries were expected to comprise residents of around 100 villages within these two marzes and expected benefits included increased incomes from more productive cropland, pasture, and forests\. The PAD defined a broad range of Project beneficiaries including forest harvesters, agricultural product marketing agents, local and national environmental NGOs, local units of implementing agencies, academic institutions (National Academy of Sciences, universities), local marza and village governments, the private sector, and natural resource users in protected areas\. 1\.7 Original Components (as approved) Project Components: The approved Project comprised four components\. Component 1: Community-Based Watershed Management (Total US$6\.4 m\.; of which IDA US$4\.9 m\. and GEF US$0\.9 m\.) The component aimed to support preparation and implementation of community based micro-catchment rehabilitation plans in selected villages\. Plans were to be generated by each participating community, selecting from a menu of activities to improve soils, pastures, and forest management, and eligible for small grants to support small-scale local initiatives related to biodiversity conservation\. Communities could choose from the following menu of options: a) Community forest management\. Prepare and implement community forest management plans to rehabilitate and enrich forests through reforestation and afforestation, thinning; rehabilitate forest area pastures, demonstrate silvo-pastoral agro-forestry systems, and biogas production installations\. b) Small-grants for biodiversity conservation\. Participating communities were eligible for grants up to US$5,000 to support local biodiversity conservation and reduce pressure on protected areas and biological resources\. c) Community pasture management\. Rehabilitate hay meadows through reseeding, rotational grazing, and restoring degraded pasturelands; construct livestock watering points and reintroduce forage legumes into crop rotations\. d) Sustainable agricultural practices\. Demonstrate cultivation of improved varieties of rain-fed barley and wheat, fertilizer use to improve soil fertility, and improved animal husbandry and bee keeping\. e) Community infrastructure and income generation\. Invest in small water collection systems for irrigation, restore field tracks and culverts, rehabilitate road networks for management and protection of community forests, and implement measures to control landslides and gully erosion\. f) Development of Community Institutions\. Provide support for village councils, marz-level organizations and village resource user groups to implement and monitor watershed and community forest plans\. The Project was expected to finance small works, equipment, materials, and technical assistance; communities were expected to contribute labor\. The GEF funds would finance technical assistance for measures to conserve forest biodiversity and to co-finance recovery costs for alpine meadows and steppes, including reseeding with indigenous grass species, and native wild fruit trees\. 3 Component 2: State Forest Management (Total US$6\.0 m\.; of which IDA US$2\.8 m\.; GEF US$0\.17 m\.; Sida US$1\.0 m\. in parallel financing and later US$1\.3 m\. in co-financing)\. This component aimed to support rehabilitation, protection and sustainable management of state forests in the Project area; improve forest sector institutional, legal and policy framework; and enhance institutional capacity to monitor and control forest operations\. Two major sets of activities included the following: a) Demonstrate improved forest management practices\. (IDA US$2\.48 m\.) This sub-component provided support for (i) preparation of modern multipurpose state forest management plans; (ii) pre- commercial thinning and thinning of pole stands in naturally regenerated forests; (iii) measures for regeneration of over-mature, partially disintegrating stands by applying group selection felling and low-impact harvesting methods; (iv) reforestation of over-logged stands and afforestation of blanks in forests; (v) protection of forests against fires and insects; (vi) rehabilitation of the forest road network to implement approved forest management plans and efficient forest protection; (vi) strengthening forest service operational capacity and local branches; rehabilitate offices and equipment\. b) Strengthen legal and institutional frameworks and increase human resources capacity for sustainable forest management and biodiversity conservation\. (IDA US$0\.35 m\.; GEF US$0\.17 m\.; parallel financing from Sida, US$1\.0 m\.)\. This component was to be implemented largely with Sida- financed resources through the Forest Institution Support Project to increase national and local capacity to implement sustainable forest management programs\. It was expected to support: (i) review and improvement of forest-related legislation; (ii) improved marketing and pricing of forest products, including initiatives to reduce illegal logging and to undertake forest certification; (iii) organizational reform of Hayantar; (iv) development and delivery of training programs for staff of Hayantar, protected areas, extension, and inspection services; (v) rehabilitation of a national forest and biodiversity training center in Zikatar\. During the life of the Project, Sida provided an additional US$1\.3 m\. co-financing to support forest institutional capacity as a full part of the NRMPRP\. Component 3: Protected Areas Management and Biodiversity Conservation (GEF US$3\.48 m\.)\. This component was to support measures to: (i) improve the management two key protected areas (Lake Sevan National Park and Dilijan State Reserve) for the conservation and sustainable use of biodiversity; and (ii) improve the capacity of the Department of Bioresources and Land Protection of the MNP to meet its biodiversity conservation mandate, including mainstreaming biodiversity in government policies, laws, and activities of line ministries and marza governments\. a) Improve the management of Dilijan State Reserve and Lake Sevan National Park\. Project support helped to prepare and implement management plans for Lake Sevan National Park and Dilijan State Reserve, which were expected to rationalize protected area boundaries\. Specific component activities included: prepare participatory protected area management plans; develop monitoring systems and undertake applied studies to support improved management; provide professional development and training for protected areas staff and local stakeholders; build local awareness of protected areas' multiple objectives, encourage local participation in management; and establish park infrastructure and logistical support at Dilijan State Reserve and Lake Sevan National Park\. b) Build MNP capacity to administer the system of protected areas and build public awareness of biodiversity conservation\. Reform key nature conservation legislation and regulations; mainstream biodiversity conservation into central and sectoral ministries' planning and policy processes; strengthen information dissemination; undertake rapid assessment of landscape-level biodiversity conservation at selected sites; and strengthen transboundary cooperation in biodiversity monitoring and protected-area management\. Component 4: Project Management and Administration\. (Total US$1\.1 m\.; of which IDA US$0\.5 m\.; GEF US$0\.5 m\.)\. Support Project administration and management\. The Project planned to finance incremental operational costs of Project management team, essential technical assistance for Project management (e\.g\., financial management and procurement training, Project audit, institutional coordination, implementation 4 assistance to communities and public sector for capacity building, basic equipment and facilities, and PIU operating costs)\. 1\.8 Revised Components Project components were not revised\. During implementation, some delivery mechanisms were refined after Mid-Term Review discussions but all Project components were retained\. 1\.9 Other significant changes There were no significant changes to Project design, scope, or implementation arrangements\. Changes occurred in the implementation schedule, expenditure category allocations, and scale of some activities (especially forest road rehabilitation, which was reduced)\. Due to the reasons listed in Section 2\.2 below, the Bank granted a request from the Ministry of Finance and Economy to extend the Project closing date from July 31, 2008, to January 31, 2009\. During the Project, Sida provided additional trust fund co- financing of US$1\.3 m\. equivalent, supporting continued financing for institutional development activities launched under the second component\. 2\. Key Factors Affecting Implementation and Outcomes 2\.1 Project Preparation, Design and Quality at Entry The Project was prepared with a US$360,000 grant from the Policy and Human Resource Development Trust Fund, a US$180,000 Project Development Facility (PDF)-B grant from the Global Environment Facility (GEF), as well as several grants totaling US$73,000 from Consultant Trust Funds\. The Project was the first of its kind to support natural resource management in Armenia and to introduce participatory methods for Project preparation and implementation\. Preparation was intensive and took more than three years from identification to approval, which yielded an impressive number of useful reports and design documents\. Final Project design was complex and proposed numerous and multi-level activities, institutions, and stakeholders; Project designers attempted to include as many potentially relevant elements as possible, which limited their success at prioritizing and focusing Project activities, as well as strained limited local implementation capacity\. Although Project design drew on lessons learned from other projects in the region, not all of these were relevant for local Armenian institutions, legal frameworks, and low capacity\. Project design represented then-prevailing practice of the logical framework to describe project inputs, outputs, and outcomes\. However, this was too complex to be very useful during implementation\. In hindsight, some critical risks identified in the PAD were understated; local institutional capacity to provide technical assistance appears to have been overstated, as was the potential for pilot projects to be replicated countrywide: therefore, "High" risk ratings might have been more appropriate for these risks\. The PAD also fell short on identifying the critical risk of weak government capacity to support or to adopt innovation\. Given these drawbacks, the overall "Substantial" risk rating for the Project was appropriate\. 2\.2 Implementation Despite the long preparation process, the complex Project design may have hampered Project readiness for implementation after effectiveness due to the vast array of design documents, inconsistencies among them, and significantly underestimated costs, which may have contributed to some uncertainty throughout implementation\. Weak implementation capacity appeared to affect the first half of Project implementation in particular, creating significant delays, low efficiency, and sub-optimal sequencing, which compromised Project emphasis on integrated and participatory natural resource management\. In hindsight, an early-on focus to improve PIU capacity in participatory processes would have been useful because Armenia has 5 little experience, and some capacity-building for Project team members would have allowed them to progress more rapidly, even though the PIU was hampered by continuous staff turnover\. Early stages of Project implementation were affected by design complexities coupled with a lack of local experience with and understanding of integrated natural resource management\. Project activity sequencing appeared to be prioritized based on ease of implementation, rather than optimal Project progression\. For example, the biodiversity small grants program, and community forest management activities were delayed until late in the Project, minimizing opportunities to institutionalize, refine, or improve these activities and approaches\. Finally, the Project struggled to surmount inherent design problems linked to lack of component integration\. The lengthy and extensive consultation processes during preparation of protected area management plans for Lake Sevan and Dilijan National Parks delayed actual Project implementation, diminishing opportunities to assess the investment impacts\. During implementation, it became clear that costs had been significantly underestimated--road rehabilitation by some 10-fold, and forest management, about half--which required a major funding shift among planned activities at the mid-term\. Weak PIU capacity hampered the Project until the final year\. Initially, the PIU misunderstood its role and limited direct interaction with Project beneficiaries and local communities, opting instead to act merely as contract managers, which confused local people about institutional responsibilities for implementation\. The Mid-Term Review (MTR) achieved a significant turn-around when many implementation issues were resolved by detailed Bank task team guidance\. The PIU began to adopt an active role in working with communities; funds were reallocated to meet increased demands and costs for forest management planning activities; the scale of targets for severely underfinanced activities, such as road rehabilitation, were reduced; and community participation in Project implementation activities increased substantially, which significantly raised local awareness, understanding, and ownership of Project activities\. The Sida contributions were instrumental in achieving clear supportive regulatory and institutional backing for good forest management\. Sida funds were phased: first, as parallel financing for the Forest Institution Support Project; and second, as co-financing during the Project's second half\. Sida support helped establish the legal and policy framework as a foundation for many Project forestry activities, including the Illegal Logging Action Plan, the National Forest Policy, and forest legislation and regulation development\. Sida also financed training and other capacity building that strengthened institutional abilities, especially to detect and counteract illegal logging\. Throughout the Project, Government ownership and commitment was good\. At Project midpoint, institutional responsibilities for forestry shifted to the Ministry of Agriculture from the Ministry of Nature Protection\. Some coordination challenges were encountered, but overcome; solid Ministry-level ownership was not always matched by implementing agencies\. For example, Government made a commitment to community forest management, but Hayantar did not, and implementation of community forestry activities suffered from a weak enabling legal framework and lack of institutional will\. 2\.3 Monitoring and Evaluation (M&E) Design, Implementation, and Utilization The Project was designed with broad goals and ambitious indicators, with only a vague notion of methodology for monitoring progress, outcomes, or impacts\. Even though most indictors were measurable, at Project closing it was unrealistic to expect that short-term changes in some indicators could be measured over the Project life span given that: (i) some baselines were not available; (ii) short- term changes were unlikely to be detected; and (iii) changes could not be attributed unequivocally to Project interventions\.1 1 At that time, many Bank operations had Key Indicators that were less easy to monitor or track, whereas now, operations focus on monitoring progress and a results orientation\. 6 As a result, developing longer-term capacity to establish baselines and monitor biodiversity became an important Project goal\. Typically, monitoring biodiversity conservation impacts requires identifying key indicator species, establishing baseline population levels, and long-term monitoring of changes in habitat quality\. In this Project, the proposed use of indicator species to track Project impacts was unrealistic as were several indicators that had been proposed at Appraisal because they required systematic and costly data collection that was not envisaged at the outset and for which no capacity existed\. During Project preparation, at Mid-term, and prior to ICR preparation, household surveys were carried out to help assess Project impacts on household expenditures, to provide feedback to implementing agencies on the status of Project components, particularly watershed rehabilitation, and for reference during Project supervision visits\. The Project established other measures for monitoring protected area management effectiveness (Annex 6)\. The Protected Area Management Effectiveness Tracking Tool (METT) was prepared with the assistance of the World Bank/WWF Forest Alliance to provide an overarching framework for assessing management effectiveness of protected areas and systems to guide decision-making and help harmonize assessments worldwide\. The METT is organized around the assessment framework identified by the World Commission on Protected Areas (WCPA) and is a mandated reporting tool for GEF-financed biodiversity conservation operations\. It was translated into Armenian and was used by the park management teams in Sevan and Dilijan to establish performance baselines and to monitor progress in improving management effectiveness\. Project-supported forest management plans were derived from extensive inventories that also provided a baseline\. The Project improved capacity to monitor long-term forest and watershed changes, for example, strengthening the Forest State Monitoring Center (FSMC) and the Bio-Resources Management Agency (including with GIS capacity--a new tool for Armenia)\. Through these activities and the capacity created by introducing innovative forest management planning and inventory tools, the Project made a major contribution towards establishing scientific monitoring and evaluation systems and the basis of sustainable forest management\. As greater emphasis began to be placed on developing clear Project results, the Bank team worked with the implementing agencies to retrofit the original Log Frame into a `Results Framework,' providing baselines where possible, defining intermediate outcome indicators, and defining progress reporting requirements\. Outcomes against this matrix are summarized in the Data Sheet\. In some respects, the Framework is qualitative, reflecting system-wide changes in thinking and institutional approaches that the Project sought to catalyze\. 2\.4 Safeguard and Fiduciary Compliance Safeguards compliance\. During preparation, it was determined that the Project would trigger Safeguard Policies on Environmental Assessment (OP4\.01) and Involuntary Resettlement (OP4\.12) and the Project was classified as a Category B investment; an Environmental Assessment (EA) was prepared in accordance with the OP 4\.01 and in compliance with environmental regulations in Armenia\. An Environmental Management Plan (EMP) was prepared to establish adequate mitigation measures\. The Bank monitored performance against the EMP throughout Project implementation\. Overall, Project safeguard and fiduciary compliance was satisfactory throughout the Project\. The EA raised concerns about illegal logging and poor forest management\. To mitigate potential adverse environmental impacts, the EMP outlined measures including policy, institutional, and legal reforms to counteract illegal logging and pilot forest certification\. At the time of Appraisal, the Safeguards Policy on Forests (OP 4\.36) was relevant only to tropical forests, but the OP was revised in 2003 to include all forests\. Therefore, measures were included in the EMP to ensure compliance with anticipated OP revisions\. During implementation, pre-commercial thinning and low-impact harvesting were dropped 7 from the Project since the Government was not ready to set a timetable to meet international standards for forest certification\. That said, it completed two pre-certification assessments\. The Project also included provisions for forest pest control, which would normally trigger the Safeguards Policy on Pest Management (OP 4\.09), but this appears to have been overlooked at Appraisal\. During implementation, the Bank team established measures to ensure that OP 4\.09 was adhered to and sought support from USDA Forest Department to prepare an institutional capacity assessment for forest pest management\. The assessment concluded that Armenian standards were inadequate to comply with the Bank's pest management policies without substantial investments, and therefore planned investments for pesticide procurement were dropped\. The Project triggered OP 4\.12 (Involuntary Resettlement) because under the biodiversity conservation component, internal zoning of protected areas to be carried out in conjunction with preparation of the National Park Management Plans might restrict local people's access to natural resources within Park boundaries\. The Process Framework focused on how poor rural communities' needs would be addressed\. The participatory process for the Management Plan met key objectives outlined in the Process Framework\. At Appraisal, a longstanding Government decision had been in place to raise the level of Lake Sevan to address some environmental problems\. During the Soviet era, buildings had been constructed along the lakeshore, but during Appraisal, these were derelict and abandoned State properties, destined to be inundated by raised water levels in Lake Sevan\. Nothing in the EA, EMP, or Lake Sevan Management Plan suggested that any of these derelict state-owned properties was occupied, or that any scope existed for their occupation\. However, in or about 2004, some state-owned lake shore properties (in what is now the Park's Recreation Zone) were leased to investors on long-term leases, and some of these half-built, abandoned Soviet era buildings became the object of investments to expand and modernize them\. These leaseholder investments could be put at risk by the rising lake level but the question of disposition of these properties is beyond the scope and capacity of the National Park Administration to address, and will have to be resolved at the political level through sustained consultation and discussion\. Fiduciary compliance\. Overall fiduciary compliance was satisfactory; Project financial management was aligned with DCA provisions\. In general, Project procurement complied with relevant World Bank procedures, with minor exceptions\. Initially, procurement operations were slow, which sometimes slowed overall Project implementation, due primarily to procurement officers' lack of experience and high staff turnover\. Several cases of alleged misuse of Project funds that were identified during supervision were referred to World Bank Integrity Vice Presidency for investigation\. 2\.5 Post-completion Operation/Next Phase The Project was implemented by existing Armenian institutions\. A local firm was contracted to perform community-level services under the first component\. The Project established a PIU as an operational unit of the MNP and financed it until May 30, 2009, to ensure smooth closing arrangements\. Government is interested in maintaining the PIU to provide project management services for other Ministry projects\. Institutions that participated in the Project are well-placed to continue project activities\. The Project- supported national park management plans provide a roadmap to guide operations of Dilijan and Sevan National Parks and the work of SNCOs charged with their management\. Similarly, Project-supported forest management plans describe interventions for five forest enterprises, and are aligned with their financial and institutional capacity\. To remain relevant, national park and forest management plans require financing and monitoring; and the Government expressed its intention to provide funding and monitor these plans during the ICR mission discussions\. Monitoring plans are specified in the management plans\. Implementing agencies have increased capacity, staff, and equipment, thanks to Project investments and Government commitment\. During the Project, Government substantially increased budgets and salaries, and Hayantar was 8 transformed through improved salaries, working conditions, and productivity, due to completion of Project-supported forest management plans\. Some activities carried out under the watershed component could experience long-term sustainability constraints if new village administrations are not continuously engaged and funded\. A significant Project strength was using local community institutions and engaging local administrations in natural resource management activities; but Project-supported Resource User Groups, intended to empower local stakeholders, were less effective than envisaged at Appraisal\. In addition, activities such as the fertilization program for pasture and hay meadows may be unsustainable due to high input costs\. Future Bank-supported NRMPRP-type activities may be aided by a new Country Partnership Strategy that proposes a two-pillar approach for the next Bank lending cycle: to address problems of vulnerability, and promote competitiveness and growth\. Armenia will move from IDA to IDA/IBRD blend status; availability of GEF resources through the Bank is likely to decline--factors that Government must consider when seeking future Bank support for NRMPRP­type activities\. Clearly, investments in forest management and degraded land rehabilitation would benefit vulnerable populations and create jobs\. 3\. Assessment of Outcomes 3\.1 Relevance of Objectives, Design and Implementation The Project contributed to substantial improvements in Armenia's natural resources management and planning, raised public awareness, and improved institutional capacity, despite some Project design challenges\. Project global and development objectives, design components, and implementation activities are not only fully consistent with, but also helped to shape, Armenian national and global environmental management priorities\. They reflect strategic objectives and activities identified in the Bank Country Assistance Strategy (CAS) during Project preparation, and remain relevant to the current Country Partnership Strategy (CPS) priorities for environment and natural resource management, and increasing quality and effectiveness of public services\. 3\.2 Achievement of Project Development Objectives and Global Environment Objectives Rating: Moderately Satisfactory When the Project was prepared and launched, rural communities had few livelihood alternatives to over exploiting their natural resources and Armenia was facing rapid deforestation resulting from urgent demand for firewood\. Natural resources management institutions were new and had yet to develop effective policies, legislation, or capacity\. The Project was an ambitious, pioneering attempt to integrate natural resource management through technical, social, and institutional channels, and as such, a few envisioned activities were unrealistic and dropped, such as forest pest management and pre-commercial thinning, or were reduced in scope, such as forest roads\. Furthermore, several activities' sustainability may be at risk\. Nevertheless, the Project made important advances in natural resources management and therefore is rated moderately satisfactory\. Key achievements include the following: a) Improved policy, institutional, and legal framework for natural resource management\. The Project significantly improved Armenian policy, institutional, and legal frameworks for natural resource management, and piloted strategic investments in forest and protected areas, and in rural agricultural landscapes\. The country has begun to address environmental and natural resource management in a more integrated manner because the Project successfully increased local, regional, and national awareness and understanding of the socio-economic implications among policymakers and citizens\. Government is now focusing on the challenge of harmonizing socio-economic and environmental protection objectives, and will begin to use the Project-supported frameworks for further investments, and Project-supported capacity for achieving more effective outcomes\. 9 b) Introduced best practices for natural resource management\. The Project demonstrated successful sustainable natural resource management practices that have been adopted\. Mountain communities in Tavush and Gegharkunik marzes have implemented watershed management plans, reduced destructive practices on pasture and forest resources, and protected some of the most fragile lands, creating some visible improvements in vegetative cover\. The Project successfully demonstrated improved land management practices that have improved rural livelihoods\. In forestry, the first management plans since the 1980s were completed for five key forest enterprises; forest certification was piloted through two pre-assessments; community forest management plans have been piloted, setting an important precedent for advancing this critical area\. Sustainability of these good practices will hinge on adoption by local governing bodies and MNP\. c) Reduced illegal logging\. The Project catalyzed the development of important mechanisms to counteract illegal logging\. With Sida support, the Project contributed to developing and implementing an Illegal Logging Action Plan (ILAP)\. Technical assistance supported an independent Forest State Monitoring Center, and provided information on forest offenses and legal processes to the State Oversight Board for Illegal Logging\. Project activities catalyzed support to counteract illegal logging through policy and financing mechanisms, such as the PRSC Series, and PHRD and IDF grants\. These actions, plus increased rural gasification (recommended by ILAP), are helping to reduce illegal practices and stabilize forest and biodiversity resources\. Recent surveys indicate that national levels of illegal logging may have dropped as much as 50 percent during the Project life\. d) Strengthened capacity for biodiversity conservation\. GEF-funded activities mainstreamed biodiversity conservation activities into policies, regulations, and activities of line ministries and local governments\. The Project triggered inter-sectoral discussions on land use in and around protected areas and succeeded in developing protected area management plans for Lake Sevan National Park and Dilijan National Park and launching activities to transform them from so-called `paper parks,' to alignment with modern international good practice\. Zoning and management planning of the Dilijan and Lake Sevan National Parks drew on ecosystem studies, especially plant and animal species and their habitats, and detailed forest inventories\. e) Built institutional capacity\. The Project has been instrumental in supporting institutional and regulatory framework reforms for forest management and nature protection, especially new forest legislation, new National Forest Policy and Strategy, and new legislation and regulations on biodiversity conservation and protected area management\. Management plans are established and under implementation for two national parks and five forest enterprises\. Experience gained through preparing management plans has created capacity to prepare and finalize management plans in other protected areas and forest enterprises\. The Project helped clarify institutional structures, roles, and organizations among line agencies responsible for natural resource management; it strengthened the operational capacity of the State Forest Corporation (Hayantar), the Ministry of Nature Protection, the FSMC, the two SNCOs responsible for management of the Lake Sevan and Dilijan National Parks, and many associated units by providing training and facilities and by helping to clarify their roles and functions\. When the Project closed, the forestry institutional restructuring proposals were incomplete but they had fostered healthy debate on options for checks and balances in forest management\. Finally, these processes themselves have strengthened institutional capacity to tackle similar issues in the future, as has the extensive training that took place under the Project\. Much work remains to sort out conflicting legislation and the duplication of institutional responsibilities, but the Project helped Armenia advance on the legal and institutional framework needed for natural resource management, and created a national platform for stakeholders to address issues of common concern\. 3\.3 Efficiency 10 A cost-benefit analysis on Project benefits and efficiency used some assumptions from the PAD, plus actual outputs at Project closing to quantify economic and financial benefits\. Efficiency was evaluated by the extent to which non-GEF funds could be leveraged to achieve Project objectives\. See Annex 3 for a detailed ERR analysis, a summarized version appears below\. An IDA credit of US$8\.3 million was invested in Project activities in all three components; little IDA financing was used in the Protected Areas component; Government contributed some US$1\.5 million\. The benefits can be derived by examining the values of the watershed component activities (improved environmental conditions and reduced poverty), the regeneration and rehabilitation of forest areas, and benefits of reduced illegal logging\. Component 1 activities generated total benefits of US$29,269,738--some US$28,257,600 in improved local incomes and US$1,012,038 in environmental benefits (reduced sediment flows and improved water retention)\. IDA allocation for this Component was US$4,953,900 and adding Government contributions provided an allocation of US$5,473,800; therefore, the ERR is estimated at 14\.5 percent\. Component 2 activities generated an overall benefit of US$24,534,518 in reforestation/afforestation, and the ERR is estimated to be 13\.3 percent\. IDA allocation for Component 2 was US$2,833,900, and with Government contribution allocations equaled US$3,514,900; hence, the ERR is estimated at 13\.3 percent\. The total Project ERR (IDA plus Government contribution to Component 4) is estimated at 13\.0 percent\. Component 3 was financed by a GEF Grant (US$3,489,000) plus modest Government funding (US$179,500)\. Financial and economic efficiency were evaluated by the degree to which non-GEF funds could be leveraged to achieve Project objectives, a basic assumption of GEF Incremental Cost Analysis\. An estimated US$5\.1 million in non-GEF contributions anticipated at appraisal was exceeded by more than US$1000,000 after accounting for second Sida contribution\. The GEF funds were leveraged by the IDA credit, Sida contribution, and Government commitments (see Tables in Annex 3)\. In total, GEF contributed an additional US$935,200 to Component 1; US$175,500 to Component 2; and US$515,400 to Component 3\. Overall, GEF funds were leveraged in the co-financing ratio of more than 1 to 2\.3\. 3\.4 Justification of Overall Outcome and Global Environment Outcome Rating Rating: Moderately Satisfactory The Project is significant for Armenia and the results have been inspiring\. Despite a slow start due to design complexity and limited local implementation capacity, considerable improvements boosted the pace of implementation as well as project progress following the Mid-Term Review, and momentum also intensified during the final year of project implementation when PIU management improved\. As a result, improvements took place in national- and local-level implementation performance and meeting Project objectives\. Nevertheless, at project completion, all of the anticipated PAD outcomes were not attained (particularly in community forestry), and late implementation of some activities left little time to consolidate or replicate\. Therefore, overall project performance is rated Moderately Satisfactory (MS)\. 3\.5 Overarching Themes, Other Outcomes and Impacts (a) Poverty Impacts, Gender Aspects, and Social Development The Project was designed to focus on poverty alleviation in two of Armenia's poorest marzes, and during 2002-08, income increased 22 percent\. Some livelihood activities such as bee keeping and legume fodder planting have significantly raised rural incomes\. Vulnerable groups identified at Appraisal received special attention through training--refugees, households with migrant workers, users of products from protected areas--which raised their acceptance of protective resource management practices\. (b) Institutional Change/Strengthening The Project made remarkable advances in achieving clear and supportive legislative and institutional backing for good forest management, especially given the backdrop of the weak and often conflicting 11 regulatory and institutional environment in place at Appraisal\. Sida parallel financing in the first three years, followed by Sida co-financing, was crucial to support forest sector institutional reforms\. The Project, supported by associated PRSC-DPL reforms, was instrumental in supporting: (i) the development, using a highly participatory process, of a National Forest Policy and Strategy (approved September 2004); (ii) the preparation and approval of a 2004 Illegal Logging Action Plan; (iii) the development of a National Forest Program (2005); (iv) the adoption of a new Forest Code with principles of modern sustainable forest management (ratified November 2005); (v) the drafting of Community Forest Management Regulations; and (vi) substantial institutional capacity building\. The Project also supported proposals to restructure the forestry institutional framework, which is now undergoing incremental reforms\. Similar, less extensive reforms were also supported for nature protection\. (c) Other Unintended Outcomes and Impacts (positive or negative) During the Project, an unintended outcome was the dramatic increase in budgetary allocations to forest institutions, which significantly improved the performance and effectiveness of these institutions towards the end of the Project\. Originally, the institutional framework for natural resource management was extremely weak but the Project helped build awareness of the forest sector through extensive multi- stakeholder discussions about Armenia's national forest policy and legal framework; through this process, the Project also helped highlight the benefits of better forest management and the difficult financial position of Hayantar\. Project design did not anticipate the important synergies required in tackling illegal logging\. This was addressed during implementation through the following measures: Sida provided additional funds to develop a strategic approach to counteract illegal logging through FISP, which complemented FSMC establishment (a measure included in the PRSC series), technical assistance provided to the Ministry of Finance's under a PHRD grant, a second round of Sida assistance, and support for the FSMC from the Institutional Development Fund--therefore, the Project was able to take advantage of multiple opportunities to tackle this problem\. 3\.6 Summary of Findings of Beneficiary Survey and/or Stakeholder Workshops During the Project, many workshops took place ranging from discussions on national legislation to zoning of conservation areas that included stakeholders from national and local government agencies, universities, NGOs, and local communities\. No specific workshops were held for the preparation of ICR\. 4\. Assessment of Risk to Development Outcome and Global Environment Outcome Rating: Moderate The Project helped establish a solid foundation for improved watershed, biodiversity, and protected area management\. Sustainability will depend on national-level institutional ownership and support\. Indications are that project-supported activities will be sustainable: Some villages succeeded in using the Project to change practices for using agricultural land, pastures, and forest resources\. Government provided funding for state forest area management planning for all remaining forest areas in Armenia--all 19 forest enterprises aim to have management plans by 2010\. Since 2004, Government funding of the forestry sector has increased 10-fold\. Forest officers continue to receive low wages and to be poorly equipped, but their situation has improved and Hayantar is better equipped to implement its new forest management plans\. Hayantar is now voluntarily rehabilitating up to 9,000 ha per year with public funding; in 2002, during Project Appraisal, no ongoing forest rehabilitation operations existed\. Illegal logging appears to have dropped by almost 50 percent since Project inception, according to Hayantar (annual survey of individual trees cut) and by the FSMC\. 12  The Zikatar Forest Training Center, through FREC, is now fully operational and implementing business and marketing plans prepared with Project support, to ensure self-financing and sustainability\. After its 2007 opening, the Center hosted the International Union of Forest Research Organization's (IUFRO) regional meeting on forest legislation, in 2008, it hosted seven training events, and the Center has potential for regional use due to its proximity (70km) to Tbilisi\. It has been selected as a regional training center by the UN Desertification Convention\. The relatively independent FSMC, which reports to the State Oversight Board for Monitoring Illegal Logging, is compiling essential general data on Armenian forests and inappropriate forest practices\. This center continues to receive significant support from the budget and other sources and carry out a priority function specified in the Illegal Logging Action Plan\. Government adoption of the new law on protected areas provided an essential framework for improved management\. Fundamental conditions for sustaining operation of these protected areas includes legal designation of the two National Parks, mapping and registering their boundaries with land cadastre, improved capacity, and providing basic infrastructure to these Park administrations\. Two high-quality Project-supported products were the management plans for the two National Parks and a computerized biodiversity monitoring system\. Systematic and meaningful application of these useful tools for protected areas management will depend on National Parks administrations, and guidance and leadership on behalf of the MNP\. 5\. Assessment of Bank and Borrower Performance 5\.1 Bank Performance (a) Bank Performance in Ensuring Quality at Entry Rating: Moderately Satisfactory The Project was designed to introduce strategic innovations in natural resource management to Armenia, and targeted some of the most challenging environmental degradation using a multi-sectoral and community-based approach\. Significant efforts in Project preparation meant that project components were well developed, albeit overly complex\. Initial Project preparation was carried out by three consulting firms--one for each component, with little coordination among them, and financed by separate sources: a PDF-B GEF grant and TACIS grants\. This resulted in three separate designs that did not factor how, during implementation, the Project's components could be integrated\. Implementation was also hindered by overestimating government institutional management capacity, as well as underestimating the manageability of many critical issues and associated project activity costs\. (b) Quality of Supervision Rating: Satisfactory Bank staff conducted regular and frequent supervision missions during Project implementation\. After the MTR, frequent videoconferences complemented these visits and allowed the Bank team to maintain a continuous dialogue with the client and also to provide continued technical support\. Over the Project lifetime and particularly after the MTR, supervision focused on ways to address implementation constraints\. The Project had a slow start, but even before the MTR and during earlier supervision missions the Bank provided significant technical oversight and worked with the government so that needed adjustments were made to address implementation bottlenecks\. Supervision frequency was appropriate and helped keep the Project on track\. During the Project lifetime, the Bank and Project teams worked to refine the M&E framework to include measurable targets; the Bank team also provided close oversight to ensure compliance with OP 4\.09 and OP 4\.36\. (c) Justification of Rating for Overall Bank Performance Rating: Moderately Satisfactory Overall Bank performance is Moderately Satisfactory, due to noted shortcomings in Project design; at the MTR, the Bank and Government worked to identify achievable targets and outcomes to measure 13 achievement of Project objectives\. Project Task Team Leaders (TTLs) established a strong and highly supportive relationship with the PIU, which strengthened Project implementation\. 5\.2 Borrower Performance (a) Government Performance Rating: Satisfactory Performance of two key partners, the Ministries of Nature Protection, and Agriculture, is rated Satisfactory based on Government commitment to Project objectives, and support for sector reform consistent with Project objectives\. Government honored all of its commitments in a timely fashion, increased by multiple increments the budget and salaries of personnel in natural resource management institutions, resolved project issues in a timely manner, and met all fiduciary responsibilities\. (b) Implementing Agency or Agencies Performance Rating: Moderately Satisfactory The Project experienced delays in the first two to three years after project effectiveness due to an overly complex project design and innovations that made implementation difficult\. The PIU had to overcome a steep learning curve and had high staff turnover\. During the first phase of the project, the PIU did not have a full understanding of its responsibilities and its limited interaction with project beneficiaries and local communities fell far short of creating the necessary project identity in participating villages\. The MTR recommended strong continuous interaction between the PIU and villages during all phases of Project introduction, awareness building, planning and implementation; this improved understanding and ownership among local communities, but only in the Project's final year, under a newly appointed director, was the PIU exceptionally proactive in furthering project objectives\. Implementation delays lead to the revision and scaling-down of several project activities; progress reporting was weak throughout the Project prompting the Task Team to introduce regular video/audio conferences with the PIU after MTR, which helped resolve urgent implementation issues\. Action plan agreements developed during periodic supervision missions between the PIU and the Bank task team were usually implemented, though not always in a timely manner\. Project financial management was notably strong throughout implementation, as reflected in audit reports\. Because Bank procurement procedures were new to the country and PIU, initial misunderstandings and delays resulted; however, with the support of Bank procurement specialists, procurement planning and management improved substantially\. (c) Justification of Rating for Overall Borrower Performance Rating: Moderately Satisfactory Government performance is rated as Moderately Satisfactory based on commitment to and attainment of Project objectives\. Much progress was made and most Project activities were completed satisfactorily; some Project activities remained incomplete despite the momentum gained in the final year under the improved management of the new project director, who succeeded in achieving many project targets\. Concerns remain about what needs be done to fully integrate lessons learned and new practices into regular forestry and protected area planning and management\. Maintaining strong leadership and political commitment will be essential to build on Project progress in managing protected areas, biodiversity conservation, and sustainable forestry\. 6\. Lessons Learned Some key lessons learned from the project include: Project design should be based on a shared understanding of objectives and outcomes as well as an accurate assessment of local implementation capacity to achieve them\. Introducing new approaches, such as beneficiary participation in selecting activities, initially created confusion and implementation inefficiencies\. Also, project implementers were overburdened with a multitude of project subcomponents involving different institutions and stakeholders\. 14 Project design should take into consideration timing requirements if project objectives rely on policy and legal changes, or objectives should be aligned with the existing policies and legal framework if the timeframe is tight\. Several project activities hinged on legal reform, which created delays for these activities and others dependent on them, effectively compressing much of project implementation in the last two years of project life\. Sustainable Natural Resource Management requires strong beneficiary commitment: After the MTR, Project activities were funded only after villages had signed resource management agreements that committed them to managing natural resources in accordance with watershed and grazing management plans; when this process was followed, the likelihood of sustainability increased\. Early in the Project, activities were implemented in villages without this prior commitment, and as such, were largely ineffective\. Participatory approaches require extra time to introduce the concept and involve local stakeholders\. The time for developing management plans was underestimated for Lake Sevan and Dilijan National Parks because the concept was new to Government and clearance procedures took a long time\. Delays in development and adoption of management plans are common for Armenia, so developing protected area management plans should occur early in the project cycle to allow for full implementation\. The capacity of Bilateral donors to supervise parallel financed activities should be assessed during design\. Institutional and legal reforms in a sector such as forestry, characterized by multiple conflicting interests, require time and continual oversight\. Parallel grant financing from Sida (the FISP support) was essential to Project achievements; however, its monitoring was complex\. The second Sida grant (i\.e\., co- financing) was more successful in mainstreaming project activities in the Ministries because it was directly managed by the PIU, and had clearer TORs and monitoring\. Donor coordination and collaboration are essential to tackle complex problems such as illegal logging that benefit from harmonizing experiences and funding potential\. Collaborating early on is important, as is coordinating funding from multiple outside sources, as in this Project\. In Armenia, an Illegal Logging Action Plan was developed early on using a participatory process as well as applying funds and expertise from, inter alia: the PRSC-DPL (a prior action); PHRD grant (technical assistance to the FSMC); Sida (financing for advancing legislative and institutional reforms and training); IDF grant (strengthening monitoring capacity) and this Project (ensuring an overall, cohesive approach)\. 7\. Comments on Issues Raised by Borrower/Implementing Agencies/Partners (a) Borrower/implementing agencies The Draft ICR was shared with the Armenian Government for their comments\. Overall, the Government was satisfied with its quality and they believe that the ICR assessed the project with consideration of both achievements and omissions\. The Ministry finds that there is no need to place any limitation whatsoever on the publication of the evaluation results\. (b) Cofinanciers The Draft ICR was shared with Sida for their comments\. Overall, Sida was satisfied with its quality and they believe that the ICR conveyed the picture on the ground\. (c) Other partners and stakeholders N/A 15 Annex 1\. Project Costs and Financing (a) Project Cost by Component (in US$ Million equivalent) Natural Resources Management & Poverty Reduction Project - P057847 / P069917 Actual/Latest Appraisal Estimate Percentage of Components Estimate (US$ millions) Appraisal (US$ millions) COMMUNITY-BASED WATERSHED 5\.68 6\.14 108 MANAGEMENT STATE FOREST MANAGEMENT 4\.32 5\.64 131 PROTECTED AREAS MANAGEMENT 3\.33 3\.68 111 & BIODIVERSITY CONSERVATION PROJECT MANAGEMENT AND 1\.04 1\.79 172 ADMINISTRATION Total Baseline Cost Physical Contingencies 0\.66 0\.00 0\.00 Price Contingencies 0\.97 0\.00 0\.00 Total Project Costs PPF 0\.00 0\.00 0\.00 Front-end fee IBRD 0\.00 0\.00 0\.00 Total Financing Required 16\.00 17\.25 108 (b) Financing P057847and P069917 - Natural Resources Management & Poverty Reduction Project Appraisal Actual/Latest Type of Percentage of Source of Funds Estimate Estimate Financing Appraisal (USD millions) (USD millions) Borrower Budget 1\.51 1\.49 99 International Development Association SIL 8\.30 8\.26 99 (IDA) Global Environment Facility (GEF) Grant 5\.12 4\.89 96 SWEDEN: Swedish Intl\. Dev\. Grant (total) 2\.36 1\.83 78 Cooperation Agency (Sida) Forest Institution Support Project Grant 1\.06 0\.90 85 (FISP) parallel financing Armenia Forest Development Grant 1\.30 0\.93 71 Project (AFDP) co-financing 16  Annex 2\. Outputs by Component Progress was mixed on Project components--considerable achievements in some areas and less satisfactory performance, outputs, and outcomes for others\. Component 1: Community-based Watershed Management Overall, Component 1 outcomes have been substantial, but short of fully meeting expectations at Appraisal\. The Project generated substantial awareness and understanding of improved natural resource management\. Many communities used the Project to implement sustainable improvements in their use of natural resources; some villages have successfully demonstrated improved and comprehensive natural resource management and have pioneered examples for sustainable watershed management\. Outcomes on biodiversity conservation through the small grants scheme and community forest management remain behind appraisal expectations\. Watershed Management Plans and Village Agreements were implemented only in the fourth and fifth groups of villages (some 40 of the 100 project villages that entered the Project after the Mid-Term Review (MTR)\. They entailed detailed resource management plans, including specific actions for grazing and fodder management\. Reference maps and detailed management measures for individual village areas have been carried out in some villages but must still be posted at mayors' offices and discussed in village meetings, in particular with village shepherds, who need to understand and adopt grazing management arrangements\. Project visibility remains in the villages with signboards and documentation materials posted in the field and the mayor's offices\. Using existing institutions to engage the local administration in natural resource management activities was a Project strong point, but not without shortcomings\. For example, not all villages had strong and engaged local leaders, and sustainable management practices depend to some extent on future engagement of active village mayors and village administrations to maintain continuity of Project natural resource management achievements\. New village administrations are often less familiar with the Project and therefore less committed\. Resource User Groups created under the Project were intended to organize local stakeholders but were less powerful and effective than envisaged at Appraisal\. Common Natural Resource Management/Protection Activities\. Each village received US$15,000 for tree planting, fencing, and demarcation for protection and natural regeneration of degraded land and gully protection works\. Some 1,554 ha of multipurpose trees were planted, 69 km of fences and 14 gully protection measures were implemented\. In general, tree planting was carried out on highly degraded community pasture land and on slopes sensitive to soil erosion, using a mixture of local indigenous forest and fruit species, and horticulture trees, such as walnut, plum, apricot, apple, pears or cherries\. Most plantings are protected by Project-supported fences\. These activities were implemented with community participation\. Survival rates and plantation conditions were generally satisfactory especially after additional efforts to water seedlings and/or replant\. Most plantations are expected to provide protection and generate income from fruit and nut harvesting but lack of resources to maintain plantations after Project closing could erode sustainability\. Several villages have already contracted out plantation management or plan to do so, which would increase the likelihood that this investment is sustainable\. Natural Resource Management for Livelihood Improvement\. Under the Project, each village received US$35,000 to invest in their choice from a list of livelihood improvement activities that included constructing stock watering points, restoring field tracks, fertilizing community pastures, improving and rehabilitating village hay meadows, reintroducing forage legumes into crop rotations, improved wheat and spring barley technology demonstrations, and bee keeping for honey\. Contractors implemented these activities, supervised by villagers and the PIU\. 17 The Project provided support for stock watering points and field tracks, which facilitate access to remote pasture and fodder, promote more rational resource use, and reduce pressure on the land\. Under the Project, some 782km of field tracks were improved and 102 stock water points were constructed, which facilitated access to over 20,000ha of pasture and hay meadowland and some 3,200ha of crop land; an estimated 30,000 head of livestock use the stock watering points\. Villagers were highly appreciative of these activities, which reduced pressure on local overgrazed land and forest resources\. Project-supported grass and fodder production introduced legumes and fertilizing of hay meadow and pasture areas, which increases pasture fertility and the availability of winter fodder so that early and late grazing can be curtailed, thereby reducing pressure on overgrazed land\. Some 6,000ha of community pastures and 2,900ha of hay meadows were fertilized and 2,340ha of legumes were planted; fodder production is well established in the communities and has gained momentum\. Some communities are expanding legume production by producing seed from Project areas\. Combines, provided under other projects such as the World Bank-financed RESCAD project, have supported commercial legume seed production\. Leguminous fodder production is also important and expected to expand post-Project\. However, sustainability of the fertilization program for pasture and hay meadows remains questionable despite implementation changes introduced at the MTR that called for gradual cost-sharing arrangements\. The effect of pasture fertilization on biodiversity was assessed due to concerns that Alpine pasture areas with a rich composition of indigenous plant species may have been affected by fertilization\. However, the impact appears to be small and temporary, although no precise data are available\. The Project provided 2,260 beehives to villagers up until June 2007, an income-generating activity that was enthusiastically received\. Local farmers report a good market for honey in Armenia, where one beehive can produce 10-20kg that sells for US$10 per kg, yielding some US$70-140 per beehive per year\. The initial number of bee families has been substantially increased, for example, in Agahvnavank, from 60 Project-provided beehives to around 250 at the time of the ICR\. Early during the Project, 12 biogas production demonstration units were installed in Project villages; these use livestock manure to produce methane gas for cooking or heating\. In winter, some methane gas is required to heat the digester to sustain methane production\. The biogas units, at about US$2,200, were fully Project-financed and given to larger households with access to sufficient livestock dung (from 8-10 head) to keep the units operating\. Most units have successfully produced biogas and some are still in use, but the investment costs did not justify the potential gas production so this activity was discontinued after the MTR\. The Project demonstrated that this technology is feasible, but farmers declined to adopt it if they had to use their own funds to build biogas units\. Demonstration Villages\. Three villages-- Vaghashen, Berdavan and Agahvnavank--were selected from the first round of Project villages, based on strong local leadership and commitment to comprehensive natural resource management\. An extra US$50,000 was provided to these villages to demonstrate that sustainable resource management is feasible and could increase local incomes\. Overall, in the demonstration villages, improved resource management benefits were clear and visible, and in at least two villages, the Project contributed new ideas that enabled local leaders to develop their strategies for livestock production, grazing management, and community-owned land resource use\. In Vaghashen, the Project's visible impact on key village area land resources include increased grass coverage of protected and managed grazing land, and well-managed stands of fruit trees and shrubs that are expected to provide additional income\. The village mayor has proposed using lessons learned from the Project to help restructure village livestock production by introducing improved breeds, adopting more fodder cut and carry, and reducing overall grazing--intentions that demonstrate changed thinking about land resource use\. 18 In Agahvnavank, some Project activities were delayed by lack of clarity on borders and land access rights involving village authorities and the nearby Dilijan National Park, but the Project is now fully implemented and results exceeded expectations\. The village established a comprehensive resource management plan: pastures have visible demarcation for improved grazing management; several highly degraded areas are fully protected for regeneration and most of these are planted with trees and shrubs for faster re-vegetation\. Local people now collect wild berries, which have begun to grow back on these lands\. At Project end, two of the three demonstration villages have become public outreach tools--they model more sustainable natural resource management so the larger audience of other villagers in Armenia can understand and commit to better natural resource use\. Government organizations, NGOs, and the public can learn from Project villages and scale up their activities\. Community Small Grants Scheme for Biodiversity: The Project provided US$250,000 for financing small community-driven investment projects, up to US$5,000 per project, awarded through competition\. Funds were supported under the GEF grant to assist Armenia to meet its commitments under the Convention on Biological diversity\. Implementation of this activity was delayed such that it was delinked from the remaining watershed management component\. However, the sub-component was implemented in three rounds of applications with 28 proposals executed\. Most of the early proposals failed to show a clear biodiversity conservation impact, but over the three rounds, improvements were noticeable toward measurement of the biodiversity conservation objective\. The importance of conserving biodiversity was not well understood among local villagers, who were expected to be the source of investment proposals\. As a result, the approach was changed toward the end of the Project\. It was decided that the subcomponent would be supported by professional inputs from Government, research institutions, and NGOs working in biodiversity conservation\. Four additional proposals were implemented involving the two local universities that undertook training and awareness building, and two proposals that included video documentaries for training and awareness-raising in schools, local communities, and civil society\. These four proposals have potential to raise awareness of biodiversity well beyond the Project areas\. Community Forest Management: This sub-component was intended to support three key activities to be implemented in phases, each step depending on successful implementation of the previous one: 1) develop community forestry management plans for former kolkhoz and sovkhoz forest areas; 2) legally transfer forest areas management rights and responsibilities to local communities or village-level organizations; and 3) invest in rehabilitation, reforestation, enrichment planting, or other improvements\. This sub-component was a key element of the overall Project objective of improved natural resources management, since these forests are crucial village natural resources assets that suffer from severe deforestation and damage inflicted by grazing\. Contract management issues in community forest management plan preparation delayed implementation of this sub-component\. Only seven of 12 planned forestry management plans were prepared, but at the time of the ICR, none had yet been approved\. Late in the Project, some physical plantation and forest rehabilitation works were implemented, but were not fully completed\. Community forest management planning, though significantly delayed and not completed to a stage of full transfer of management rights, has established an important precedent and prepared the ground for a new concept of forestry management in Armenia\. Under the Project, seven community forest management organizations were set up to be in charge of implementing physical works for the community forest rehabilitation financed under the Project\. These were intended to initiate establishment of other community forest management organizations as envisaged under national law\. Based on this Project, discussions on more formal arrangements with communities about forest management have progressed steadily over the past years\. Based on the above discussion, overall, this component is rated Moderately Satisfactory\. Component 2: State Forest Management\. 19 Management planning\. The Project aimed to demonstrate improved management practices by providing resources to prepare and initiate implementation of forest management plans for a targeted 70,000 ha of Armenia's 334,100 ha of forests\. To date, management plans are complete for 128,000 ha of forest, for the Forest Enterprises of Ijevan, Sevqar, Tsambarak, Artsvaberd and Novemberyan\. The first two (i\.e\., from original targets) are approved, while the last three (introduced during Mid-Term Review) have passed the environmental assessment process and are ready for Ministerial approval--doubling projected targets, and paving the way for mainstreaming modern principles of sustainable forest management\. Pre-commercial thinning and thinning of pole stands in naturally regenerated forests\. This proposed Project activity was never implemented\. The Project Environmental Management Plan specified a forest certification process before initiating forest management with Bank financing, to avoid environmental risks and ensure sustainable forest management\. Therefore, in October 2006, the Project financed a pre- certification exercise for the Sevqar Forest Enterprise and for the Zikatar Training Forest\. The pre- assessment, carried out by the UK-based Soil Association, provided an independent third-party view of the quality of the Sevqar Forest Management Plan, management practices on-the-ground, and the legal and regulatory framework within which the management plan was to be implemented\. It also specified measures needed to complete the certification process and provided Hayantar management with a more informed basis for decision-making and strategic planning\. The certification process is more valuable to clarify the scope for development and implementation of standards for sustainable forest management, than as a means for producing marketable quantities of certified timber; certification is key to the Government Illegal Logging Action Plan\. Armenia does not yet have forest certification and is unlikely to achieve it without substantial additional investment to improve forest management practices\. Forest rehabilitation activities\. The original target was reforestation and rehabilitation of some 1,100 ha of high elevation, degraded forest lands, but when works were initiated, weaknesses were detected in the original designs\. Some sites were inappropriate for rehabilitation as well as fencing and maintenance costs had been underestimated; therefore, the contract was revised as per Table 1 in Annex II\. These changes increased the contract value by about 12 percent from AMD 231 million to AMD 258 million\. The total area of forest that benefited from natural regeneration due to the fencing was increased to 6,822 ha (Table 2 in Annex II), surpassing the original target of 1,100 ha reforested or rehabilitated forests\. During the ICR Mission, Hayantar SNCO had accepted the project-financed forest rehabilitation and fencing works in both Ijevan and Sevqar Forest Districts, accepting management and budgetary responsibility for replanting on these sites\. The level of survival, noted in Table 1 (i\.e\., less than 25 percent and greater than 25 percent) is a contracting and community relations issue, as noted below\. This activity have been completed successfully; it not only exceeded Project targets, but resulted in a Hayantar commitment to rehabilitate between 4,000 to 9,000 ha annually, using similar technologies\. Protection against Forest Fires and Insects: Forest fire fighting tools and equipment were purchased and delivered to five of Hayantar's Forest Enterprises; pest control measures were never implemented due to environmental safeguard risks\. In 2004, Government requested the Bank to finance procurement of pesticides to counteract a brown-tailed moth infestation\. The Bank mobilized assistance from a USDA Forest Service pest management specialist, who visited project sites and reported low capacity for environmentally sound forest pest management; the expert report noted that only substantial additional investments would achieve sufficient human and physical capacity to justify additional project funding for forest pest management\. Moreover, the Task Team recognized that there was insufficient capacity to ensure that Project-financed pest management would comply with Bank Operational Policies\. As a result, due to environmental safeguard risks, Project pest control measures were not undertaken Rehabilitation of road network\. Originally, some 70km of forest roads were to be rehabilitated to implement the approved forest management plans and facilitate efficient forest protection\. However, 20 during the MTR, it was recognized that costs for many activities had been significantly underestimated; for example, the cost of forest management planning was US$5\.33 per ha rather than the PAD estimate of US$2\.00 per ha, the number of management plans to be prepared was greatly increased, and the actual cost of road rehabilitation was about 10 times original estimates\. Moreover, the Bank team recognized that without a forest certification process, rehabilitated roads risked being used for unsustainable logging\. As a result, this activity was scaled back to 7km for an access road to the Zikatar Forest Training Center, and some savings went to expand forest management planning\. Strengthening operational capacity of the forest service (Hayantar), the Ministry of Nature Protection, and the Forest Research and Experimental Center (FREC)\. This activity was successfully completed, including a wide range of civil works--construction or rehabilitation of three Hayantar forest enterprise offices (Ijevan, Sevqar, and Novemberyan 2 ), rehabilitation of the Novemberyan forest nursery, rehabilitation of the Zikatar training facility, including access road and bridge--and office furniture, equipment, and vehicles were provided for those field offices\. This activity also strengthened the capacity of the Bio-Research Management Agency (BRMA) of the Ministry of Nature Protection (MNP) by providing seven GIS workstations, plus software and training--a first in Armenia\. Similar training was provided to six other institutions, including FREC and the Monitoring Center, to build institutional and technical capacity to use this powerful planning and monitoring tool\. A follow-up practical training helped BRMA assemble compatible data sets for incorporation into the overall GIS database\. GIS has been integrated in some forest operations and is now used in ongoing forest management operations\. The Project supported Hayantar's change of status to a State Non-Commercial Organization (SNCO), and helped it improve financial management capacity, which included a new Financial Management Manual, accounting software, and property register that allowed project-financed equipment to be delivered to the field offices\. The Project helped develop a financial stabilization plan for Hayantar, which included commercialization and marketing studies\. Strengthen Legal and Institutional Framework: The Forest Institutional Support Project (FISP) proved most successful at: (i) developing, through a highly participatory process, a National Forest Policy and Strategy (approved by Government in September 2004); (ii) drafting and promoting Government approval (October 2004) of an Illegal Logging Action Plan, to counteract illegal logging; (iii) developing the National Forest Program (gazetted in 2005); (iv) instituting a new Forest Code (ratified in November 2005) with the principles of modern sustainable forest management; (v) drafting a Community Forest Management Regulation; and (vi) providing a large variety of training and capacity-building activities\. At the conclusion of FISP, Sida initiated a follow-up trust fund (under direct Bank supervision) to support (i) Project priority actions to prepare key legal and regulatory instruments (called for in the Forest Code); (ii) community forest management planning and implementation; (iii) improved forest management and supervision; and (iv) improved organizational and institutional development\. Through this support, the Project generated proposals to clarify forest sector institutional structure, roles, and organizations\. This includes the units linked to the MOA--for policy and legal function, for forest management function (Hayantar), and for monitoring, regulation and law enforcement\. When the Project closed, restructuring proposals were incomplete but they fostered a healthy debate on options for checks and balances in the sector\. Much work remains to sort out conflicting legislation and duplication of functions, but the Project helped advance the legal and institutional framework required for multi-purpose sustainable forestry\. Given the stage of development of the Armenian forestry sector in 2002, a `big bang' approach to 2 Rehabilitation works on the Novemberyan Forest Enterprise office were only around 70% complete by the Project's Closing date\. Alternative financing, such as Hayantar's regular budget, will be needed for any work completed after Project closing\. 21 institutional reforms would have been impossible; incremental reforms of the type undertaken with the help of this Project were, and continue to be, the most appropriate\. The ICR mission identified the following additional lessons learned in the forestry component\. Certification could play a critical role in counteracting illegal logging\. Although it did launch the first steps toward forest certification, Armenia has otherwise made little progress in completing the process\. Certification was a key measure identified in the Illegal Logging Action Plan, and could also help identify improvements to overall management practices\. Public consultations help identify issues but only Government intervention can resolve disputes and eliminate contradictions\. Consultations during the planning process with local villagers were essential to reach common understanding of land ownership, land use, and forest functions\. Despite this, approval of management plans have run into cadastre problems due to overlapping claims for forest land\. Better stakeholder consultation would have helped resolve contradictory management decisions resulting from unclear or conflicting laws and regulations, such as protection of water bodies (no harvesting allowed) and production forests\. Before approval, management plans should be assessed by qualified independent reviewers\. Guidelines for management planning have been developed and tested, but require an independent review of completed plans, similar to that for civil works\. To avoid potential conflicts of interest, the oversight functions should be located in MNP or the Monitoring Center\. Reforestation should rely on planting seedlings to improve monitoring of outcomes\. The Project lifetime was too short to evaluate direct seeding germination rates, therefore, seedlings are better\. Successful Project information strategies and participatory approaches should convince stakeholders of the value of protecting reforested areas\. Some percentage of Project seedling mortality in Armenia was due to livestock grazing, which the agency or the community could have been prevented\. Livestock managed to breach fenced areas, raising questions about (a) the value of fencing for forest regeneration; (b) whether villagers see the fencing as protecting future shared assets or an externally imposed barrier to their traditional grazing lands; and (c) whether Hayantar could have developed a closer working relationship with villagers and provided them with alternate pastures\. Based on all the above, this component has therefore been rated as Moderately Satisfactory\. Table 1: Changes in contracted services for forest rehabilitation Forest Survival / Survival / Original Revised District (FD)/ Activity Change germination germination contract contract Community < 25 % > 25% Hovk Forest rehabilitation (ha) 40\.5 9 -31\.5 9 Community Support for natural 52\.9 34\.2 -18\.7 3\.6 30\.6 regeneration (ha) Fencing (meters) 1,375 1,375 0 Enokavan Forest rehabilitation (ha) 18\.2 13\.5 -4\.7 13\.5 Community Support for natural 23\.6 17\.2 -6\.4 17\.2 regeneration (ha) Fencing (meters) 3,460 3,450 -10 Aygehovit Forest rehabilitation (ha) 101\.6 126\.5 24\.9 8\.2 118\.3 FD Support for natural 219\.9 113\.4 -106\.5 62\.8 50\.6 regeneration (ha) 22  Table 1: Changes in contracted services for forest rehabilitation Forest Survival / Survival / Original Revised District (FD)/ Activity Change germination germination contract contract Community < 25 % > 25% Fencing (meters) 12,150 12,150 0 Gandzakar Forest rehabilitation (ha) 27\.3 deleted -27\.3 FD Support for natural 124\.3 deleted -124\.3 regeneration (ha) Fencing (meters) 5,000 deleted -5,000 Ijevan FD Forest rehabilitation (ha) 42 4\.4 -37\.6 4\.4 Support for natural 148\.5 42\.6 -105\.9 42\.6 regeneration (ha) Fencing (meters) 6,900 6,900 0 Khachardzan Forest rehabilitation (ha) 56\.3 24\.8 -31\.5 23\.5 1\.3 FD Support for natural 31\.2 31\.2 0 31\.2 regeneration (ha) Grove establishment 31 31 0 31 Fencing (meters) 4,265 4,060 -205 Achajur FD Forest rehabilitation (ha) 26\.7 22\.9 -3\.8 22\.9 Support for natural 97\.5 24\.7 -72\.8 24\.7 regeneration (ha) Fencing (meters) 5,777 5,750 -27 Getashen FD Forest rehabilitation (ha) 19 28\.5 9\.5 4\.2 24\.3 Support for natural 67\.7 3\.5 -64\.2 3\.5 regeneration (ha) Fencing (meters) 5,286 5,250 -36 Kirants FD Forest rehabilitation (ha) 16\.8 7\.4 -9\.4 7\.4 Support for natural 80\.4 10\.1 -70\.3 6\.6 3\.5 regeneration (ha) Fencing (meters) 1,724 1,725 1 Sevqar FD Forest rehabilitation (ha) 23\.5 35\.6 12\.1 17\.5 18\.1 Support for natural 72\.1 11\.8 -60\.3 11\.7 0,1 regeneration (ha) Fencing (meters) 4,975 5,000 25 Total Forest rehabilitation (ha) 371\.9 272\.6 -99\.3 53\.4 219\.2 Support for natural 918\.1 288\.7 -629\.4 200\.4 88\.3 regeneration (ha) Fencing (meters) 50,912 45,660 -5,252 Grove establishment 31 31 0 31 Table 2: Area of improved natural forest regeneration due to fencing N Forest District (FD) hectares 1\. Ijevan 1,348 23  Table 2: Area of improved natural forest regeneration due to fencing N Forest District (FD) hectares 2\. Aygehovit 1,619 3\. Khachardzan 850 4\. Sevqar 1,196 5\. Achajur 912 6\. Kirants 240 7\. Getashen 581 8\. Hovk 36\.5 9\. Enokavan 26\.9 Total 6,822 Component 3: Protected Areas Management and Biodiversity Conservation The general outcome of this component is positive, though not all milestones have been achieved\. Project impact was most tangible on the two target protected areas, Lake Sevan and Dilijan National Parks, for which the objective was to align their management with modern international good practice\. Although the Parks have yet to mature, they now represent an up-to-date model for replication throughout the country\. Armenia's network of protected areas is forming and the Project provided useful technical assistance for several MNP units engaged in protected areas management\. However, the existing institutional framework needs adjustment before it can handle a holistic approach to protected areas planning and development, maintaining functional linkages among them, and managing various categories of protected areas as an integrated system\. Mainstreaming biodiversity conservation in Government policies, line ministries' activities, and local government activities is a challenge among countries with an economy in transition and a developing democracy\. The Project duration was insufficient to achieve multi-sectoral planning, but it triggered inter-sectoral dialogue on balancing multiple interests in and around protected areas\. Preparing participatory protected area management plans\. Protected area management plans for 2007-11 were prepared for the first time for the Dilijan and Lake Sevan National Parks, using modern standards, and were approved by Government in 2007\. It was anticipated that the management plans would be adopted during the earlier stages of the Project, but it took longer because such documents are completely new to Armenia and cover critical issues such as use of land, forests, and fisheries\. The delay left little time to provide Project support to implement the plans\. Development of management plans set a precedent of multi-sectoral planning, because the process involved reconciling diverse interests through consultations with central and local government agencies, businesses, and local communities\. Although consensus was possible only with major compromises on conservation needs, the hard-won achievements do have tangible biodiversity value\. After Project closing, several issues raised concerns regarding the quality and effectiveness of the management plans, in particular for Lake Sevan National Park\. Over many decades, Lake Sevan's level had fallen considerably as water was abstracted for irrigation and hydropower\. Studies suggested that lake ecology would improve if the level were raised and this has been Government policy since the late 1950s\. In 2001, Government prepared a program to counteract the lake's ecological problems by raising the water level by around 6\.5 meters over 30 years to raise the level to 1903\.5m above the level of the Baltic Sea (ABSL), which local scientists calculated would improve lake conditions\. This was to be achieved primarily by reducing abstractions for irrigation and using interbasin water transfers\. 24 The Management Plan noted some "half-built, abandoned" derelict Soviet-era buildings that would likely be submerged as the water level rose; it called for a detailed inventory these derelict buildings and a program for their deconstruction/removal\. The Plan included a provision for "possible upgrading" of buildings found within the Park or the buffer zone and indicated that unregulated construction within the National Park's buffer zone was a significant negative anthropogenic influence\. The Management Plan contained no mention of any of the derelict state-owned properties being occupied, or implied any scope whatsoever that they could be\. However, sometime during 2004, the state-owned lakeshore property that is now the Park's Recreation Zone, was leased long-term to investors who expanded and modernized the "half-built, abandoned" derelict Soviet-era buildings\. Other properties were acquired as greenfield sites for new development, and parts of the lake were filled in to extend the land area on which buildings could be constructed above the 1903\.5 m level\. After the Management Plan, the Ministry of Nature Protection completed the inventory of illegal buildings; it identified 1,062 buildings within the boundaries of the National Park and its buffer zone that do not comply with current regulatory frameworks\. The Chamber of Control has inventoried buildings that fall below the 1903\.5m water level, and identified around 150 buildings that will be inundated by a raised lake water level\. At Appraisal, World Bank OP 4\.12 on Involuntary Resettlement was triggered by the Project; a Process Framework was prepared that focused on potential loss of access to resources by poor communities living near the National Park\. The highly participatory preparation of the Management Plan met the key objectives outlined in the Process Framework, although neither the Framework nor the Environmental Assessment that was prepared before Appraisal explicitly addressed potential issues related to the inundation of derelict state-owned buildings, a Management Plan shortcoming that will have to be resolved through ongoing review processes\. Developing monitoring systems and undertaking applied studies in support of improved management\. The zoning and management planning of the Dilijan and Lake Sevan National Parks drew heavily from the ecosystem studies, especially those on plant and animal species and their habitats, and the detailed forest inventory\. This research enabled the Project to identify and map Red Book species inhabiting the area and biodiversity hot spots--a substantial contribution to establishing the National Parks\. However, continuous monitoring of key ecosystem indicators will be crucial to manage protected areas\. To facilitate biodiversity monitoring in protected areas, special software was developed to record, store, and systematize monitoring data, and a users' manual was published for the software\. Information collected from individual protected areas will flow to the MNP for inclusion in a master database\. Providing professional development and training for protected areas staff\. Institutional capacity building comprised an important part of assistance to Project beneficiary protected areas\. During the Project life, the Lake Sevan and Dilijan National Parks administrations acquired adequate staff and established park ranger services\. Professional training was delivered to 47 MNP staff and park administrations\. Some 40 park rangers acquired new knowledge and skills to deliver their services\. The Project helped develop training modules for protected areas staff, which the MNP is expected to use in scaling up human resources capacity in the national system of protected areas\. Developing environmental education and programs to build public awareness of protected areas' multiple objectives and encourage local participation\. Overall understanding of ecosystem balance, conserving biodiversity, and sustaining natural resource use is weak at the level of rural communities\. Protected areas are generally perceived as a constraint to local livelihoods\. Therefore, the public awareness campaign faced tremendous challenges; it began with the affected population participating in protected area planning, followed by information disseminated through print and television documentaries\. Over the 25 Project life, public outreach efforts changed local peoples' perceptions of the National Parks\. A 2008 independent survey found that 100 percent of respondents in a focus group knew about the Dilijan and Lake Sevan National Parks and were aware of the regime of resource use inside the Parks; however, less than 25 percent understood the concept of sustainable resource use, or saw the need for it\. Establishing infrastructure and logistical support at Dilijan State Reserve and Lake Sevan National Park\. The Project invested substantially in physical infrastructure for selected protected areas\. Both Dilijan National Park and Sevan Lake National Park now have premises for administrations and their branches, and Dilijan National Park has a visitor center\. Overall, premises of both Parks are satisfactory but the visitor infrastructure needs further development\. Protected area administrations understand future needs for servicing visitors, such as walking trails, campsites, shelters, bird watching towers, and information displays; visitor interpretation needs significant strengthening and follow-up\. The Project helped provide both Park administrations with furniture; office, laboratory, and field equipment; transportation (vehicles, boats, and horses); a fire engine and construction machinery for maintenance works; and uniforms\. Reforming legislation and regulations for flora and fauna conservation in protected areas to strengthen the role of MNP management, and mechanisms for revenue retention\. In 1991, Armenia passed the first law on protected areas but changes in the country make updates to the legal framework essential\. The Project supported a new iteration of the Law of the Republic of Armenia on Specially Protected Natural Areas, adopted in December 2000\. However, effective enforcement required several new bylaws to regulate aspects of governance and Project technical assistance helped develop regulations for monitoring, land registry, and use\. Regulations on monitoring and land registry are approved, but the Ministry of Justice is reviewing regulations on land use\. The new legislation permits protected area administrations to generate and retain income--significant progress to diversify financing to sustain operations\. Project achievements in reforming regulations for managing protected areas are remarkable, although some legal gaps still need to be closed\. Most importantly, the MNP role should be reconsidered, perhaps planning, developing, and managing the national network of protected areas should be consolidated under this agency\. Mainstreaming biodiversity conservation into planning and policy processes of central and sectoral ministries\. This was among the overly ambitious Project outputs in the original design\. Conservation interests are low priority on the national agenda and Armenia had no experience mainstreaming conservation needs in sectoral policies\. Therefore, it was impossible to expect this level of transformation during the Project life, since it would have required altering entrenched governance patterns\. However, the Project did succeed in engaging sectoral ministries and local governments in dialogue about the protected area planning, and negotiations on natural resource use, which led Park administrations and local administrative authorities to sign bilateral agreements on land use\. This important progress provides a foundation for future mainstreaming of biodiversity conservation in sectoral and spatial planning\. Strengthening information dissemination\. The Project's local and national dissemination of information increased public awareness and support for protected areas and biodiversity conservation\. The Project information strategy used a range of outreach methods and tools targeted to various audiences including print media such as leaflets, brochures, and catalogues of species; electronic media such as Web pages for the Lake Sevan National Park and the Dilijan National Park, and several televised documentaries\. The Project also helped strengthen the existing system of information dissemination by increasing the capacity of the MNP public information unit through developing guidelines on dissemination of environmental information through mass media, and publishing a local language version of the Aarhus Convention\. Rapid assessment for biodiversity conservation at landscape level by establishing PC-based GIS for integrated resource management and mapping\. The Project introduced and established GIS, a modern and effective tool for protected area management and monitoring by providing the hardware and software to National Parks, MNP, Biodiversity Management Agency, Analytical Information Center, FREC, and 26 Hayantar; and providing training for a critical mass of professionals in GIS use\. This innovation created an excellent cadre of users, and workable databases, and thematic maps, and GIS use made possible precise delineation of protected area boundaries and specific internal zones within\. Strengthening transboundary cooperation in biodiversity monitoring and protected areas management\. Transboundary cooperation for biodiversity conservation in the Caucasus was supported primarily by GTZ and WWF\. Work is most advanced in planning a transboundary protected area in partnership with Georgia to cover an ecosystem of high altitude lakes and wetlands that is an important avian habitat\. Since existing efforts financed from alternate sources appeared sufficient, the Project did not invest directly in supporting the transboundary work\. In conclusion, the ICR mission is convinced that the Project succeeded in strengthening significant aspects of planning and management for protected areas in Armenia\. Some delays in delivering critical outputs, combined with generally limited resources and time meant that the Project closed with some issues of concern, which are highlighted below for future consideration by the client\. Protected area management plans\. Because the management plans for the two National Parks were delayed, the Project covered less than two years of their implementation so support is required for the Protected Area administrations to sustain their motivation and capacity to adhere to the management plans\. Conservation within the National Parks\. Planning of the two National Parks was challenging because it required reconciling competing interests\. Since land designated for protected areas is typically decided through consensus, insufficient size of strictly protected zones within the National Parks is understandable but problematic since small fragmented habitats cannot sustain key species over the long term\. Dialogue among park administrations, resource users, and other interest groups should continue to explore the potential for revising existing boundaries of some zones within National Parks to align sizes and functions\. Overall, definition and management regimes assigned for types and zones of protected areas should more closely align with internationally accepted IUCN categories\. Managing the national system of protected areas\. Under existing institutional arrangements, protected area administrations are discrete legal bodies subordinated to institutions such as MNP, Ministry of Agriculture, and Hayantar\. Within the MNP, several departments and agencies cover aspects of protected areas, such as managing natural resources and biodiversity, monitoring, public information, and inspection\. Consolidating leadership in policymaking, planning and development is required to develop and run an effective connected network of protected areas, although autonomy and diverse affiliations among departments and agencies are not incompatible with effective functioning\. A systemic approach is essential to amplify conservation roles of individual protected areas and achieve national- and global- level outcomes\. Based on the above discussion, this component is rated Moderately Satisfactory\. Component 4: Project Management and Administration Component 4 was envisioned to support Project administration and implementation\. The Project was intended to finance incremental operational costs of the Project management team and essential technical assistance for Project management (e\.g\., financial management and procurement training, project audit, institutional coordination, implementation assistance to communities, and public sector training for capacity building, basic equipment and facilities, and 85 percent of PIU operating costs)\. The Project experienced delays, especially in the first years after Project effectiveness\. The complex project design and innovations made implementation difficult\. The PIU was slow to become proficient 27 and experienced a high staff turnover, and initially misperceived their role resulting in limited direct interaction with Project beneficiaries and local communities; this failed to create the necessary Project identity in participating villages\. The MTR recommended strong and continuous interaction between the PIU and villages during project introduction, awareness building, planning and implementation, which was successfully achieved under the watershed management component, and improved Project understanding local ownership\. Only in the Project's final year, with the appointment of new project director, did the PIU adopt a more proactive role to further Project objectives\. Progress reporting was weak throughout the Project; reports were often of limited value\. Regular video/audio conferences between the PIU and the Bank were introduced after the MTR to solve immediate implementation issues and address the reporting gap\. During Project implementation, PIU capacity to manage contracts was limited, which delayed many contracts, meaning several project activities had to be revised or scaled back\. The considerable momentum gained in the final year under a proactive Project director could not completely recoup Project objectives from earlier shortcomings\. As a result, there are concerns that much remains to be done to ensure that lessons learned and new practices are fully integrated into regular protected area planning and management, and forestry sector administration\. Strong leadership and political commitment are essential to build on Project achievements and benefit the national protected area and forestry sectors and promote stronger national support for biodiversity conservation in a sustainable development agenda\. Financial management throughout the Project lifetime was fully satisfactory, reflected by financial Audit reports\. Bank procurement procedures were new to Armenia and some initial challenges caused misunderstandings and delays; but this improved as the Project progressed\. Based on all the above, this component is rated Moderately Satisfactory, a higher rating might have been possible if PIU capacity had been stronger earlier during the Project\. 28  Annex 3\. Economic and Financial Analysis A cost benefit analysis was conducted to quantify Project benefits and to evaluate efficiency\. The following analysis used some of the assumptions discussed in the PAD together with actual outputs at Project closing to estimate economic and financial benefits\. Efficiency was evaluated to the extent to which non-GEF funds could be leveraged to achieve Project objectives\. Around $8\.3 million were invested as an IDA credit in the Project activities\. These investments were made in all three components and no IDA financing was used in the Protected Areas component\. On the other hand, the Armenian government contribution in this Project was around $1\.5 million\. The investments made in first two components can be valued by examining the benefits of the watershed component activities, the regeneration and rehabilitation of forest area, and the benefits associated with the reduction in illegal logging\. Watershed component activities had an immediate impact on the livelihoods of rural people in the Tavoush and Gegharkunik Marzes\. These activities can be divided into those that (a) reduced poverty or (b) improved environmental conditions\. Category (a) will value all activities that introduced or improved local agricultural practices that helped reduce poverty and improve economic conditions; Category (b) will include all the economic valuation of environmental benefits (reduced sediment flows and improved water retention) related to pasture and forest rehabilitation and regeneration\. In the PAD, each activity in the watershed component is evaluated separately, but to evaluate all activities combined would more accurately capture the overall impact\. Project benefits relating to sustainable natural resource practices and improving incomes in local communities can be evaluated by comparing average incomes from Project and non-Project villages, which were estimated (based on a Baker-Tilly Armenia 2008 survey) for the Tavoush and the Gegharkunik Marzes\. The 2007 survey estimated incomes as part of the Government-prepared ICR and the results are in Table 1 below and in their report\. Table 1: Average annual income in Armenian Dram Total Farm & non-Farm Income Project Village Non-Project Village Gegharkunik Marz 480,000 437,000 Tavoush 719,000 631,000 Project activities were carried out in 40 villages--20 in the Tavoush and 20 in Gegharkunik Marzes, including 100 households in the Tavoush Marz and 200 in the Gegharkunik Marz\. The average Project village household in the Tavoush Marz had an annual income of AMD 719,000 compared to AMD 631,000 in a non-Project village household\. The average 2007 exchange rate was 345 AMD per US$ and the income difference of US$255\.2 was projected over the Project lifetime of 30 years for a total benefit on households in the Tavoush Marz equivalent to US$14,291,200\. The analysis was replicated for the Gegharkunik Marz where the average 2007 household income was AMD 480,000 in Project Villages and AMD 437,000 in non-Project villages\. In Gegharkunik Marz, the income difference was US$124\.7, smaller than in Tavoush Marz, however, the villages had almost double the number of households\. Repeating the previous analysis yields an overall benefit of around US$13,966,400\. 29 Over the lifetime of the Project, 307\.5 ha of forest were regenerated and 6,746 ha of pasture land were rehabilitated\. Similar to the assumptions used for the PAD, the environmental benefits (reduced sediment flows and improved water retention) related to pasture and forest rehabilitation and regeneration were valued (in 2002) at $5 and $10 respectively\. Generally speaking, economic values of watershed protection services of forests range from $7 - $20 per hectare and therefore the above estimates are reasonable\. Assuming these were achieved in a linear function during 2002-08, the overall undiscounted benefit value is around US$1,012,038 over the Project lifetime\. Overall, Component 1 activities generated total benefits of US$29,269,738--some US$28,257,600 in improved local incomes and US$1,012,038 in environmental benefits\. The IDA allocation for Component 1 was US$4,953,900, together with the Government contribution, the total cost was US$5,473,800; therefore the ERR of economic benefits would be 14\.5 percent\. Component 1 and 2 activities contributed to some extent to the same outcomes, but for this analysis, efforts to rehabilitate and regenerate forest areas also reduced sediment flows and improved water retention, which was included in the valuation above\. However, it also helps regenerate and rehabilitate pasture and forest areas, which in turn contribute to forest regeneration and development and can be anticipated to help sequestrate carbon and create a sustainable fuel wood harvest\. The Project regenerated oak, beech, and pine species, which can support a sustainable harvest of around 40 m3/ha every thirty years\. Assuming that regenerated and rehabilitated areas will experience a 6 m3/ha of annual growth and that after 2012, 2 m3/ha/yr can be sustainably harvested, then 14,107 m3 of sustainable wood can be harvested annually, beginning in 2012 and until 2032 (some 40 m3/ha in 30 years)\. The Project area forest consists of beech (70 percent), oak (20 percent), and pine (10 percent); based on their carbon density, around 0\.3 tons of carbon can be sequestrated in one cubic meter of wood (see Table 2)\. In addition, the weighted average of a cubic meter was based on international wood prices presented in Table 3, based on the UNECE/FAO roadside price series\. Typically, local Armenian prices are lower than international prices, so the weighted average was halved to correct for harvesting and transportation costs\. The 2008 price was assumed to be the average of six previous years, which was used as a basis for all future years\. Table 2: Carbon Content in Oak, Beech, and Pine Project Wood Specific % tons C / lbs/ft3 Kg / m3 Composition % Density Carbon m3 Oak 20\.0 0\.61 38\.1 609\.8 48 0\.29 Beech 70\.0 0\.61 38\.1 609\.8 50 0\.30 Pine 10\.0 0\.41 25\.6 409\.9 52 0\.21 Numbers are based on Birdsey 1996\. Based on the above, over the Project lifetime, the economic value of sustainable wood harvested from rehabilitated and regenerated areas would be about US$13,326,508\. Assuming US$19\.25 per ton of sequestrated carbon over the Project lifetime, the discounted value of sequestrated carbon would be US$6,073,208, based on April 27, 2009 carbon futures, European carbon market closing assessment\. 30  Table 3 : Average international prices of wood (USD per m3) Weighted Average Year Pine Beech Oak Price in our Area 2002 $42\.88 $72\.38 $80\.95 $35\.57 2003 $45\.11 $73\.97 $81\.55 $36\.30 2004 $53\.30 $88\.93 $100\.82 $43\.87 2005 $58\.02 $98\.96 $124\.84 $50\.02 2006 $59\.96 $99\.05 $129\.42 $50\.61 2007 $76\.04 $98\.44 $152\.72 $53\.53 Average $55\.89 $88\.62 $111\.72 $44\.98 Table 4: Closing assessments Carbon Market Daily April 27, 2009 for European carbon market Euros US$ Spot 13\.1 $ 17\.29 Dec-09 13\.48 $ 17\.79 Dec-10 14\.17 $ 18\.70 Dec-11 14\.87 $ 19\.63 Dec-12 15\.81 $ 20\.87 Average 14\.58 19\.25 In addition, this component and other Project activities have contributed to substantially reducing overall illegal logging in Armenia, estimate at 34,194 m3 of wood in 2002\. Based on Hayantar forest enterprise estimates, around 13\.2 percent of illegal logs were used for construction and the rest for fuel wood\. In 2008, illegal logging estimates dropped to 19,852 m3\. A conservative assumption is that 50 percent of the reduction resulted from Project-related activities and that future illegal logging rates will decline at half that experienced during the Project lifetime\. Thus, using the above carbon and wood prices, the economic value of the protected wood is about US$4,148,597, and the value of sequestrated carbon, US$986,464\. The IDA allocation for Component 2 was US$2,833,900, together with the Government contribution, the total cost was around US$3,514,900\. Component 2 activities generated an overall benefit of US$24,534,518, and the ERR is estimated to be 13\.3 percent\. Total economic benefits of the Project are US$53,804,255; the final ERR is 13\.0 percent\. A more conservative carbon-pricing scenario would reduce economic valuation of environmental benefits\. If the assumed price per ton of sequestrated carbon is US$5, the ERR would be 11\.95 percent\. The overall Project ERR estimate in the PAD is 20 percent\. Component 3 was financed via a GEF Grant of US$3,489,000, and Government funds, US$179,500\. Financial and economic efficiency were evaluated above as the degree to which non-GEF funds could be leveraged to achieve Project objectives, basic to GEF Incremental Cost Analysis\. GEF funds were leveraged with the IDA credit, Sida contribution, and Government commitments (Tables 3 & 4 below)\. In total, GEF contributed an additional US$935,200 to Component 1; US$175,500 to Component 2; and US$515,400 Component 3\. Overall, GEF funds were leveraged in the ratio of 1:2\.3\. 31 Table 5: Commitment distribution by source and component\. (excluding first Sida Grant) Comp IDA Sida GEF Govt\. Value of onent Contribution Contribution Contribution Contribution Estimated Costs 1 $ 4,953\.9 $ - $ 935\.2 $ 519\.9 $ 6,409\.0 2 $ 2,833\.9 $ 1,081\.4 $ 175\.5 $ 681\.0 $ 4,771\.8 3 $ - $ - $ 3,489\.0 $ 179\.5 $ 3,668\.5 4 $ 518\.9 $ - $ 515\.4 $ 132\.7 $ 1,167\.0 Total $ 8,306\.7 $ 1,081\.4 $ 5,115\.1 $ 1,513\.1 $ 16,016\.3 Table 6: Total commitments and disbursements\. (excluding first Sida Grant) \. Allocated Disbursed IDA (& Govt\.) $ 9,898,714\.00 $ 9,747,653\.11 Sida $ 1,119,945\.18 $ 925,733\.83 GEF $ 5,120,000\.00 $ 4,889,769\.62 Total $16,138,659\.18 $ 15,563,156\.56 32 Annex 4\. Bank Lending and Implementation Support/Supervision Processes (a) Task Team members Responsibility/ Names Title Unit Specialty Preparation Program /Task Team Adriana Damianova ECSSD Task Team Leader Leader Natural Resource Environmental and Natural Paavo Eliste ECSSD Economist Resource Economist Gerhard Dieterle Lead Forestry Specialist ECSSD Forestry Specialist Senior Biodiversity Phillip Brylski ECSSD Biodiversity Specialist Specialist Social Development Julian Lampietti ECSSD Social Development Economist Economist Agricultural and Forestry Agricultural and Forestry John Fargher ECSSD Economist, Consultant Economist Financial Management Sandro Zanus Michei ECSSD Financial Management Specialist Specialist Jose Martinez Procurement ECSSD Procurement Daria Goldstein Legal Counsel LEGEN Legal Counsel Gayane Minasyan Operations Analyst ECSSD Operations Analyst, Yerevan Operation Analyst Project Rohan Selvaratnam ECSSD Operations Analyst Costing Irene Bomani Program Assistant ECSSD Program Assistant Nedred Durutan Peer Reviewer ECSSD Peer Reviewer Juergen Voegele Peer Reviewer ECSSD Peer Reviewer Supervision/ICR Adriana Jordanova Lead Environment ECSSD Task Team Leader Damianova Specialist Senior Rural Frauke Jungbluth ECSSD Task Team Leader Development Economist Lead Environment Peter A\. Dewees ECSSD Task Team Leader Specialist Environmental and Natural Gayane Minasyan Environmental Economist ECSSD Resource Economist Artavazd Hakobyan Operations Officer ECSSD Operations Officer, Yerevan 33  Responsibility/ Names Title Unit Specialty Josef Ernstberger Consultant ECSSD Watershed Specialist Alexander Procurement Officer ECSSD Procurement Astvatsatryan Plamen Stoyanov Procurement Specialist ECSSD Procurement Kirov Sr Financial Management Arman Vatyan ECSPS Financial Management Specialist Specialist Environmental and Natural Ahmad Slaibi Young Professional ECSSD Resource Economist Robert Kirmse Consultant ECSSD Forestry Specialist Protected Areas Management Darejan Kapanadze Environment Specialist ECSSD Specialist (b) Staff Time and Cost Staff Time and Cost (Bank Budget Only) Stage of Project Cycle US$ Thousands (including No\. of staff weeks travel and consultant costs) Lending FY99 0\.00 FY00 18\.4 38 FY01 19\.6 92 FY02 30\.7 148 FY03 0\.2 0 Total: 68\.9 308 Supervision/ICR FY02 0 FY03 21\.7 71 FY04 24\.4 70 FY05 36\.8 93 FY06 31\.3 91 FY07 24\.8 83 FY08 24\.1 96 FY09 13\.1 99 Total: 176\.2 604 34 Annex 5\. Summary of Borrower's ICR and/or Comments on Draft ICR This Implementation Completion Report on behalf of Government is an overall assessment of Project objectives, design, implementation, and operational experience; it summarizes Project impacts, achievements, and Lessons Learned\. A summary of this 25-page report follows below\. The Project changed natural resource management policy and attitudes within Armenia\. Only a decade ago, awareness of environmental protection was limited and rural poverty resulted in unsustainable forest and land use\. Through the Project, attitudes toward the environment have shifted and the country has begun to address environmental and natural resource issues in a new, holistic manner that is creating visible socio-economic impacts, and behavior changes\. Although it is difficult to isolate Project impacts on poverty reduction, the Impact Evaluation Report finds that participation in the Community-based Watershed Management component contributed to increasing crop and livestock productivity and farm incomes: during 2002-07, among Project communities, total average annual income rose by 21\.5 percent, compared to 8\.3 percent for non-Project communities\. Government is pleased to note that Armenia's 2006 poverty rates declined to 26\.5 percent from 34\.6 percent in 2004, and extreme poverty rates dropped to 4\.1 percent from 6\.4 percent, surpassing PRSP projections,3 and creating conditions conducive for Project implementation\. The Project introduced a new approach and attitudes toward the environment\. The Social Assessment4 carried out during Project preparation reveals the level of despair in rural communities regarding forest protection, loss of livelihoods, illegal logging, and environmental damage\. Now, in 2009, Government is addressing the challenge of harmonizing socio-economic and environmental protection objectives, recognizing the strength of public consultation to support top-down decision-making with bottom-up strategies, and promoting acceptance and sustainability of environmental policies\. Armenia is developing a long-term vision to manage natural resources so that future generations will have a homeland that is richly endowed and pleasant place to live\. The country has signed 14 international environmental conventions, signaling commitment to attaining international standards; Armenia is the leader among all CIS countries in pursuing best practices and innovative approaches and is on the path to environmental recovery\. Key Project performance indicators agreed during Project pre-appraisal were met and progress was made in line with the Government Strategy to: i) reduce rural poverty; ii) reverse declining soil fertility and degradation of pastures; and iii) conserve biodiversity and strengthen protected areas\. While acknowledging considerable progress, Government recognizes that much remains to be done, including committing resources to maintain, consolidate, and deepen Project gains\. Component 1: Community-based Watershed Management By the late 1990s, Armenia was overexploiting its natural resources in large part because of the economic crisis\. The collapse of state industries led to mass unemployment; land privatization encouraged many who had little agricultural knowledge to seek land ownership for their livelihoods, including an influx of urban refugees from Azerbaijan\. In the face of scarce resources, people with inadequate knowledge and skills resorted to `mining' their environment, and even people who understood the result would be long- term resource degradation, felt they had few alternatives\. 5 Community participation and sustainable 3 PRSP ­ II (October 2008)\. 4 Hranush Kharatyan et al\. Report on Qualitative Social Assessment\. (2000)\. 5 Arcadis Report, October 2001 35 management of shared natural resources, forests, and pastures are concepts that did not exist prior to the Project\. People felt little responsibility for community decision making\. Component 1 Project activities encouraged active community participation; raising awareness and living standards helped communities understand that managing their resources is essential to achieve short- and long-term benefits\. The participation rate was satisfactory and some communities became enthusiastic about the Watershed Management Plan, Community Forest Management Plan, and the formation of Resource User Associations (RUAs)\. Local people began to understand that unmanaged tree cutting would leave nothing for the next generation, which resulted in independent decisions and implementing activities independently\. Community Forest Management Plans were developed to introduce communities to accredited management of forests within the administrative boundaries of each community\. These were developed in a participatory manner for 5-6 Project villages, covering approximately 2,100 ha of community forest area--a first in Armenia\. For each Community Forest Management Plan, a Memorandum of Understanding agreement was signed with the MoA\. Restricted grazing provided by fencing, and planting fruit trees, forest trees and leguminous fodder crops in overexploited communal areas helped reverse the degradation\. Fencing land, combined with adopting rotational grazing principles reduced pressure on adjacent pastures, maintained newly planted trees and shrubs, improving the grazing system on community land and the quality, quantity, and productivity of pastures\. There were visible increases in fodder grasses and trees in 220 ha of degraded communal areas in the 40 Project villages\. Livestock owners could travel farther to graze their animals, which significantly improved the community pastureland vegetative cover, the quality and productivity of forest cover, and reduced pastoral conflicts\. Community-based watershed management activities demonstrated how quantifiable short-term socio- economic benefits could be harmonized with long-term environmental protection\. Evaluations confirmed economic benefits for Project communities, and Project impacts were broadly welcomed, but these pilot activities raise questions about the sustainability of these gains, since community mayors report that few communities have sufficient resources to replicate and expand Project activities\. This is true even in model communities with high rates of revenue collection, such as Aghavnavank\. Component 2\. State Forest Management During the 1990s, Armenian forests were affected by rapid transformation from a centrally planned to a market-oriented economy\. The concept of a Forest Management Plan was foreign and most forestland was not managed productively\. State Forests were not fenced; illegal logging was persistent and widespread among commercial interests and individuals and large areas of forest were heavily cut, often in a non-sustainable manner\. Sida forestry consultants predicted that in the longer term, forested areas would be destroyed or eliminated, damaging the economy and reducing biodiversity\.6 The same report on the Armenian forest sector revealed that local people did not feel responsible for the forest; therefore, well-intentioned forest laws would not always have the desired effect\. During the Project lifetime, Armenia progressed significantly toward a multi-purpose approach to forest management\. National program policy and strategy documents are being developed with the potential to strengthen sustainable forestry management and clarify roles and responsibilities\. The Forest Code was drafted and passed\. 7 Forest Management Plans were prepared and related project interventions have improved the forest cover\. In Project areas, illegal logging, and grazing and fencing conflicts with local 6 Forest Reserves Assessment (financed by SIDA 1998-99) 7 Under SIDA Trust Fund\. 36 communities have been reduced, while timber volume has improved\. Drafting is underway for five sub- legal acts to regulate activities such as management planning, although the institutional framework remains incomplete and contradictory\. Until forest legislation is revised to eliminate gaps and overlaps and clarify responsibilities among ministries, the Armenian forest sector will remain at risk\. Coherent legislation must be discussed, agreed, explained, and accepted, followed by a period of monitoring to ensure that new practices are entrenched and aligned with the new policies\. Illegal logging, measured by number of trees cut and volume of wood in cubic meters, has significantly declined from 2003 levels\. This is due to several factors: (a) better forest sector monitoring (forestry officials are now more forthcoming in providing data on illegal activities); (b) cooperation from local communities; (c) newly developed capacity for independent forest inspection services; and (d) overall economic improvements\. In addition, Project-installed fencing helped protect over 5,000 ha of forest from excessive grazing and illegal logging, which improved forest cover and supported natural regeneration of forest vegetation\. Public participation in the preparation of State Forest Management Plans reduced conflicts with local communities on grazing and fencing issues\. Project staff provided local and international training courses to ministry and agency staff, including on GIS, forest operations, management planning, inventory assessment\. These trainings improved performance because some 90 percent of forest sector staff lacked specialized knowledge, especially chief foresters and Hayantar department\. Civil works included rehabilitating offices, construction of the Zikitar training center, and 7 km of forest roads\. Trucks, excavators, and vehicles were purchased, improving guards' ability to build forest roads, harvest trees, and reconstruct forest areas\. Component 3: Improved Management of Protected Areas and Biodiversity Conservation There are many unaddressed legal and regulatory issues for two key protected areas, Sevan and Dilijan National Parks: a Bio and Landscape Monitoring System (GIS), as well as systematic process of recording indicator species of flora and fauna (as per Red Book indicator species) are urgently needed\. Inventory and control is difficult and time consuming without adequate vehicles, equipment, or systematic training programs for the staff of MNP, PAs, and Park Rangers\. Study area community participants were aware of Sevan National Park, resource locations, and ways of obtaining them, but most knew little about sustainable use of natural resources, or conservation and management of wildlife, due to poor information\. The Project helped convert two National Parks into functional and well-managed protected areas (PAs)\. Dilijan NP and Sevan NP can no longer be described as `paper parks'\. Management Plans were updated and facilities and equipment were completely upgraded\. Revised PA legislation, passed in January 2007, replaced the 1991 law\. The PIU was instrumental in overcoming bureaucratic resistance and successfully lobbied for a new law\. Legal and regulatory changes were implemented to facilitate boundary and zoning changes, retain revenue in protected areas, and strengthen economic activities\. The PA facilities were upgraded and equipped and defunct structures removed\. Staff working conditions, salaries, motivation, and sense of responsibility have all improved, especially compared to pre-Project conditions\. Management plans and capacity building in MNP to administer the system of protected areas, and public awareness for biodiversity conservation have contributed to population stabilization or increases in several key indicator species of the Red Book in the Sevan and Dilijan National Parks\. The Plans were developed through local community participation and professional training\. A detailed survey of indicator species of flora and fauna was carried out as part of the Management Plan, the first of its kind since the 1990s\. The national parks administration is transformed\. These positive steps are a prelude to much more that remains to be done, for example, visitor information centers and services are rudimentary, and Project activities need to be extended to all Armenian PAs to achieve Global Environmental Objectives\. 37 Assessment of the Objective, Design, Implementation, and Operation Experience Despite weaknesses, Government is satisfied with Project achievements\. Adapting the Project midway through its lifespan based on Lessons Learned, and completing most Project activities in spite of setbacks, is a testament to World Bank responsiveness and excellent cooperation with PIU staff\. The Project could have achieved more if serious delays in launching NRMPR activities could have been avoided; bureaucratic procedures limited some achievements\. Some delays were due to: i) incomplete preparation at Project effectiveness; ii) the vast scope of activities; iii) PIU inexperience and staff turnover; iv) Armenia's lack of experience with environmental projects; v) procurement delays; and vi) Ministry bureaucracy\. The initial lengthy delay resulted in six years of Project activities being condensed into the final 2-3 years\. Many Project goals were revised downward at the Mid-term Review; time for institutional learning and development was insufficient\. Several activities that were only partially realized are urgent and must be continued\. It is important to build on the Project momentum before it dissipates\. Follow-up Project design and scope are open to discussion, but Government strongly believes in expanding and deepening the work begun under NRMPRP to extend Project activities, build on Project gains, and promote sustainability\. The condensed Project implementation period did not allow sufficient time to nurture and communicate with local stakeholders and institutions\. Coherent policies still need to be developed, addressing gaps in legislation, a clear ministerial mandate, and an incentive structure for responsive management\. The Armenian public is realizing only now the importance of environmental protection\. Sustained public awareness needs to be built and there is a pressing need to expand program activities beyond Tavush and Gegharkunik marzes in line with NEAP-2, PRSP, and CAS priorities\. Government is satisfied with the Project as implemented by the PIU, an essential component of Project architecture\. The PIU flexibility due to its independent status outside of the Ministries, general quality of the PIU staff, and smooth relations between the PIU and Ministries, were key to achieving results\. As the implementing agency, the PIU is more familiar with Bank procedures, better informed about the Project, better remunerated, less bureaucratic, and uniquely positioned to resolving contradictions among Ministry priorities\. The NRMPRP had a large and diverse program that the Ministry alone could not have managed, due to its narrower focus\. However, PIU implementation was initially very slow because the staff lacked experience and familiarity with some issues, staff turnover was high, and staff tended to focus on logistical issues, with a corresponding inattention to Component activities and results\. However, late in the Project, the PIU began to function extremely well under new leadership and Project team guidance\. Therefore, Government is satisfied with World Bank cooperation\. Flexibility to make design adjustments to Project components mid-way and closer engagement, especially assessing conditions `on the ground' was crucial to Project outcomes\. In the future, it would be beneficial if the World Bank engages more fully during Project preparation with lower-level stakeholders, a process that was insufficiently handled during NRMPRP preparation, creating a lack of awareness and misunderstandings among stakeholders on some issues, including a miscalculation about the applicability of what was done in other countries, but unsuitable for Armenia\. Furthermore, despite lengthy and expensive Project preparation, key practical elements, such as the Operations Manual and Terms of Reference, were not ready at Project effectiveness and took several years to complete\. During Project preparation and Project launch, the World Bank was slow to respond, Bank procurement rules were unfamiliar, and PIU performance was below par, creating severe delays\. Mid-way through the Project, the Bank became more responsive, and managerial changes noticeably improved implementation and results\. The Armenia World Bank office was responsive and supportive\. 38 World Bank procurement guidelines were valuable for their strict control but some flexibility would have speeded procurement and implementation because aspects of Bank procurement guidelines are inappropriate for countries like Armenia\. For example, requirements for separate 14-day periods for advertising, presentation, and proposals slow procurement considerably, particularly if insufficient bids are received and the process must be repeated\. In addition, waiting for World Bank `no objection' ruling at every phase necessitates considerable correspondence\. A significant brake on Project implementation was slow World Bank responsiveness on even minor procurement issues\. While it is desirable to consistently follow correct procedures, addressing irregularities, errors, or unforeseen issues delayed Project implementation, and in the future, improved communications between procurement officers in Washington and Armenia would be welcome\. Project procurement had some design weaknesses which required revisions before implementation\. First, the Project was originally designed to hire individual consultants, but in the event, procurement had to be revised to hire firms to supervise individual consultants\. Second, a lengthy revision process resulted when it was discovered that costs for many goods and services had been underestimated, the basis for the original estimates was unclear, and inflation had not been taken into account\. International experts who supported all three components were extremely helpful and were instrumental in raising the knowledge and competency levels of staff at various agencies\. Government recognizes and greatly appreciates the significant impact of foreign expertise in setting Armenia on the path to a better environmental future\. However, there were exceptions: sometimes the competence of consultants and firms did not match their CVs or credentials; one firm, apparently competent, appeared to have outsourced tasks to poorly qualified individuals, resulting in some unusable outputs\. In the Forestry component, coordination was so poor that it was unclear to newly contracted consultants which tasks had been completed; a Sida-supported consultant arrived only to find that his assigned tasks had already been completed\. A team leader should have reviewed completed outputs and provided direction\. Furthermore, consultants working on institutional issues should report to an inter-ministerial committee to avoid the risk that recommendations reflect the interests of only one institution\. Inter-ministerial consensus is essential to effective institutional reforms\. Finally, the Government expresses satisfaction for the many significant achievements made under the four Project components, and is grateful for invaluable support and spirit of cooperation among the World Bank and international experts\. The Government is eager to continue its cooperation with the World Bank in nature protection, forestry, biodiversity, and other environmental concerns\. 39 Annex 6: Using the Protected Area Management Effectiveness Tracking Tool in Armenia The Protected Area Management Effectiveness Tracking Tool8 was prepared with the assistance of the World Bank/WWF Forest Alliance to provide an overarching framework for assessing management effectiveness of both protected areas and protected area systems, to give guidance to managers and others and to help harmonize assessment around the world\. It is organized around the assessment framework identified by the World Commission on Protected Areas (WCPA), which is summarized in Table 1\. It has been mandated as a reporting tool for GEF-financed biodiversity conservation operations\. Table 1\. WCPA Framework for Assessing Management Effectiveness Elements of Focus of Explanation Criteria that are assessed evaluation evaluation Where are we now? - Significance Assessment of importance, - Threats Context threats and policy - Vulnerability Status environment - National context - Partners - Protected area legislation and policy Where do we want to be? - Protected area system Planning Assessment of protected area Appropriateness design design and planning - Reserve design - Management planning What do we need? Assessment of resources - Resourcing of agency Inputs Resources needed to carry out - Resourcing of site management How do we go about it? Assessment of the way in - Suitability of Efficiency and Processes which management is management processes appropriateness conducted What were the results? Assessment of the - Results of management implementation of Outputs actions Effectiveness management programmes - Services and products and actions; delivery of products and services What did we achieve? Impacts: effects of Assessment of the outcomes Effectiveness and Outcomes management in relation to and the extent to which they appropriateness objectives achieved objectives The Tracking Tool comprises 30 questions, scored on a basis of 0 to 3, which address the six themes in the WCPA framework\. It was introduced and piloted in Armenia during the MTR in 2005, when baseline 8 Sue Stolton, Marc Hockings, Nigel Dudley, Kathy MacKinnon and Tony Whitten (2003)\. Reporting Progress at Protected Area Sites: A simple site-level tracking tool developed for the World Bank and WWF\. 40 evaluations were carried out of the four pilot sites with the full involvement and engagement of the project teams\. The Tracking Tool was introduced as a self-assessment tool, to help management teams understand where progress had been good, where more progress was needed, and to provide a frank assessment of park management team performance\. The Tool was not originally intended to be a reporting mechanism, though GEF later chose to use it as such\. However, the aim of presenting the results here is to show that progress was being self-monitored, not that particular performance targets were being set and assessed using the Tracking Tool\. Rather than using the gross total scores that were produced by the Tracking Tool, a series of spider graphs have been created to compare baseline performance against each of the six WCPA criteria over time\. The results from the two pilot sites are summarized in the charts\. 41  Annex 7\. Comments of Cofinanciers and Other Partners/Stakeholders The ICR team shared a Draft ICR with the Armenian Government and their comments are attached below: MINISTRY OF NATURE PROTECTION OF THE REPUBLIC OF ARMENIA No\. 1/37/11142 September 9, 2009 Mr\. Aristomene Varoudakis Country Manager World Bank Armenia Office Your Excellency Mr\. Varoudakis, On January 27 - February 6, 2009, the World Bank carried out a Mission on Implementation Completion Report for Armenia Natural Resources Management and Poverty Reduction Program (P057847, P069917)\. The purpose of the Mission, headed by Ahmad Salibi, was to review the overall progress in achieving program development and global environmental objectives, as well as to collect data for the Final Activity Report\. The evaluation team was diligent and impartial in carrying out its mission, as a result of which the project was assessed with consideration of both achievements and omissions\. The report has been discussed in relevant services and agencies of the Ministry of Nature Protection\. The Ministry finds that there is no need to place any limitation whatsoever on the publication of the evaluation results\. Meanwhile, I would like to thank you, your colleagues, as well as our partners in the WB Washington D\.C\. Office for their support of the program and effective collaboration\. I look forward to working with you again in near future\. Sincerely Yours, A\. Harutyunyan 42 Annex 8\. List of Supporting Documents PAD Armenia Natural Resource Management and Poverty Reduction Project, 2002\. Aide memoires, ISRs and Midterm Review\. Borrower's ICR Report\. Aide-Memoire ICR supervision January-February, 2009\. Site (Park and Forest) Management Plans\. 43

REVIEW

P007022

 ICRR 10108 Report Number : ICRR10108 ICR Review Operations Evaluation Department 1\. Project Data : OEDID : OEDID: L3350 Project ID : P007022 Project Name : Fifth Roads Rehabilitation and Maintenance Project Country : Dominican Republic Sector : Highways L/C Number : 3350-DO Partners involved : Prepared by : Antti P\. Talvitie, OEDST Reviewed by : Hernan Levy Group Manager : Roger H\. Slade Date Posted : 06/30/1998 2\. Project Objectives, Financing, Costs and Components : Objectives : (a) Bring the highway network to acceptable operating standards; (b) improve the institutional capacity of the Secretariat of Public Works and Communications (SEOPC); (c) increase the availability of road maintenance equipment; (d) improve the quality of pavements and pavement construction techniques; and (e) strengthen the domestic construction industry \. Components : (i) Rehabilitation of 830 km of roads; (ii) a program of periodic maintenance executed by private contractors; (iii) a workshop reconstruction program; (iv) equipment rehabilitation including purchase of spare parts; (v) road signs and markings and vehicle weight control; (vi) technical assistance and training in pavement technology, equipment operation, road maintenance and project management and studies for road inventories, urban transport and construction industry \. Costs : The total project costs were US$ 126\.8million (US$105\.5million at appraisal) of which the Bank financed US$79million\. The project was approved in FY 91 and closed fully disbursed in FY98 one year later than scheduled \. 3\. Achievement of Relevant Objectives : The project objectives were achieved \. The highway network was brought to much higher operating condition; the percentage of asphalt roads in good condition rose from 53% to 81%, and the percentage of the total network in good condition, paved and unpaved, doubled to 65%\. Institutional capacity of the SEOPC improved markedly \. This is evidenced by the increased road user charges that now cover the road costs, successfully implemented private sector entry to road maintenance market, and improved planning, project management and contracting practices \. Equipment availability did improve despite difficulties and occasional setbacks \. Pavement quality became better through successfully implemented "Program for the Transfer of Technologies Using Surface Treatments and Thin Asphalt Overlays\." Finally, the construction industry was strengthened by the ICB -based technology transfer initiatives and improved prequalification process \. The cost overrun was due to shortcomings in initial designs and delays in project effectiveness \. The higher costs reduced the reestimated ERR to 19 percent vs\. 43 percent estimated at appraisal\. Travel time savings were not quantified in the ERR estimates \. 4\. Significant Achievements : The project's most significant achievement was to begin transforming SEOPC into a competent professional organization and led to outstanding project implementation, construction and pavement quality, technology transfer, and project management\. The plan for future operations includes consolidation of the institutional gains and the technical improvements achieved in the project as well as extending the institutional development strategy \. 5\. Significant Shortcomings : None 6\. Ratings : ICR OED Review Reason for Disagreement /Comments Outcome : Satisfactory Satisfactory Institutional Dev \.: Substantial High Sustainability : Likely Likely  Bank Performance : Satisfactory Highly Satisfactory The upgrading is made on account of project supervision which was continuous, relevant, client-oriented and effective\. Borrower Perf \.: Satisfactory Satisfactory Quality of ICR : Satisfactory 7\. Lessons of Broad Applicability : There are two transferable lessons \. First, the importance of supervision \. Not unlike in any project, there were setbacks, difficulties and delays during implementation\. But unlike many projects, these difficulties were investigated, addressed, learnt from and corrective actions taken \. This seems to have rested on the fundamentally sound relationship that was developed between the Bank and the borrower \. Second, consultant assignments and foreign contractors can, and should, be used as a means for training local professionals \. 8\. Audit Recommended? Yes No Why? To learn from the supervision processes and techniques used in order to "mainstream" the (above) lessons learned\. Another issue is project sustainability after the eventual change in the task manager or when the project(s) end; the effects of termination merit observation and study \. 9\. Comments on Quality of ICR : The ICR is of good quality\. Its most interesting parts relate to project supervision which would have deserved a more thorough discussion of why it succeeded so well \. The ICR laments too much the delays (for whatever reason) and shortcomings in road designs and their effects on costs rather than seeing them as reflections of prevailing institutional capacity that needed corrective actions (which were eventually taken)\.

REVIEW

P060132

Document of The World Bank Report No: 27440 IMPLEMENTATION COMPLETION REPORT (IDA-31680) ON A CREDIT IN THE AMOUNT OF SDR 35\.6 MILLION TO THE REPUBLIC OF YEMEN FOR A SECOND PUBLIC WORKS PROJECT December 24, 2003  CURRENCY EQUIVALENTS (Exchange Rate Effective November 1, 2003) Currency Unit = Yemeni Rial YR 1 = US$ 0\.005397 US$ 1 = YR 185\.3 FISCAL YEAR January 1 to December 31 ABBREVIATIONS AND ACRONYMS PMU :Project Management Unit MIS :Management Information System NGO :Non-Govermental Organization CAS :Country Assistance Strategy CPPR :Country Portfolio Performance Review MOPIC :Ministry of Planning and International Cooperation PWP-I:Public Works Project (the first project) PWP-II :Second Public Works Project (the Project) SSR :Staff Service Rule MoP :Manual of Procedures SC :Steering Committee Vice President: Christiaan J\. Poortman Country Director Mahmood Ayub Sector Manager Hedi Larbi Task Manager: Ali Khamis  YEMEN, REPUBLIC OF RY-PUBLIC WORKS II CONTENTS Page No\. 1\. Project Data 1 2\. Principal Performance Ratings 1 3\. Assessment of Development Objective and Design, and of Quality at Entry 2 4\. Achievement of Objective and Outputs 4 5\. Major Factors Affecting Implementation and Outcome 10 6\. Sustainability 11 7\. Bank and Borrower Performance 12 8\. Lessons Learned 14 9\. Partner Comments 14 10\. Additional Information 16 Annex 1\. Key Performance Indicators/Log Frame Matrix 17 Annex 2\. Project Costs and Financing 18 Annex 3\. Economic Costs and Benefits 20 Annex 4\. Bank Inputs 23 Annex 5\. Ratings for Achievement of Objectives/Outputs of Components 24 Annex 6\. Ratings of Bank and Borrower Performance 25 Annex 7\. List of Supporting Documents 26 Annex 8\. Beneficiary Survey Results 27 Annex 9\. Stakeholder Workshop Results 29 Annex 10 Borrower's Contribution to the ICR 32  Project ID: P060132 Project Name: RY-PUBLIC WORKS II Team Leader: Ali Khamis TL Unit: MNSIF ICR Type: Intensive Learning Model (ILM) of ICR Report Date: December 24, 2003 1\. Project Data Name: RY-PUBLIC WORKS II L/C/TF Number: IDA-31680 Country/Department: REPUBLIC OF YEMEN Region: Middle East and North Africa Region Sector/subsector: Other social services (23%); General water, sanitation and flood protection sector (23%); Roads and highways (23%); General education sector (23%); Central government administration (8%) Theme: Rural services and infrastructure (P); Water resource management (P); Civic engagement, participation and community driven development (P); Other financial and private sector development (P); Social risk reduction (S) KEY DATES Original Revised/Actual PCD: 07/15/1998 Effective: 03/03/1999 03/03/1999 Appraisal: 10/24/1998 MTR: 02/19/2002 02/19/2002 Approval: 01/28/1999 Closing: 06/30/2003 06/30/2003 Borrower/Implementing Agency: GOVERNMENT/MINISTRY OF PLANNING AND INTERNATIONAL COOPERATION Other Partners: STAFF Current At Appraisal Vice President: Christiaan J\. Poortman Kemal Dervis Country Manager/Director: Mahmood A\. Ayub Inder K\. Sud Sector Manager: Hedi Larbi Jean-Claude Villiard Team Leader at ICR: Ali Khamis A\. Amir Al-Khafaji ICR Primary Author: Ali Khamis; Somin Mukherji 2\. Principal Performance Ratings (HS=Highly Satisfactory, S=Satisfactory, U=Unsatisfactory, HL=Highly Likely, L=Likely, UN=Unlikely, HUN=Highly Unlikely, HU=Highly Unsatisfactory, H=High, SU=Substantial, M=Modest, N=Negligible) Outcome: HS Sustainability: L Institutional Development Impact: SU Bank Performance: S Borrower Performance: HS QAG (if available) ICR Quality at Entry: S Project at Risk at Any Time: No  3\. Assessment of Development Objective and Design, and of Quality at Entry 3\.1 Original Objective: The development objective of the Project was to help mitigate the adverse effects of the economic adjustment through poverty alleviation measures targeted to the country's poor communities\. These measures included: (a) the creation of jobs; and (b) the provision of needed infrastructure to improve services and environmental conditions\. To ensure sustainability of these measures, community involvement in project selection, preparation, and implementation was to be promoted, as was the development of local contracting and consulting firms\. The objective was consistent with the Country Assistance Strategy (CAS) of 1996 and the Government of Yemen's First Five Year Plan (1996-2000) both of which focused on, amongst other issues, social development by supporting social protection measures\. In this respect, the main objective was consistent with the poverty alleviation measures mentioned above, as it supported the efforts initiated by the government to mitigate the impact of the adjustment program on those most likely to be affected\. These objectives are still relevant with respect to the current CAS of 2002\. Also, through cost effective and efficient management measures, the Project was well aligned to the main pillars of the Poverty Reduction Strategy Paper (PRSP) - viz\., developing human resources, improving infrastructure, achieving economic growth and granting social protection\. Thus, while the Project was extremely responsive to Borrower circumstances and development priorities, it was also relevant to the latest CAS and the PRSP\. In addition to the above, the success in implementation of the first Public Works Project (the first project) had encouraged both the Bank and the Government to support a follow on operation, to capitalize on the success, experience, and momentum gained\. Other positive indications included: (i) retaining the services of the agency that executed the first project for another term; (ii) facilitating the continuation of donors' support which was promising; and (iii) bidding documents were ready which meant that disbursement would be possible immediately upon effectiveness\. The experience in implementing the first project reduced the risk of implementation and except for increased volume of activities, implementation was not too demanding\. At the time of preparation, with unemployment rate close to 20 percent, real growth was almost stagnant and the number of households living below the food poverty line was near 18 percent, generation of basic infrastructure services (with high labor content) proved extremely effective as it significantly improved the availability of basic services while generating short term employment for the poor\. With an average cost of US$60,822 per subproject, the reach of the project expanded to include more beneficiaries who traditionally live in small, dispersed and isolated settlements\. The expansive mandate of the Project to cover water, education, health care, etc\. enabled it to accommodate the priority needs of the target communities\. The impact of these services on poor households proved to be both immediate and cost-effective, since the overall cost of the infrastructure services delivered did not exceed US$15 per head\. As indicated in the Bank's annual review of 2000, the effectiveness of this measure in helping to mitigate poverty in the short term was significant and, it concluded that, provision of access to basic services such as clean water, improved living conditions more than employment generation\. Another feature of the Project design was the involvement of communities in subprojects selection, preparation, and implementation\. Upfront community participation facilitated the accommodation of local needs and reduced the issues normally encountered with subprojects selection and implementation\. Active community involvement promoted a strong commitment of ownership which facilitated not only successful completion but also continual community involvement in the future operation of subprojects\. For subprojects in remote areas, the level of isolation of some of the beneficiary communities and the - 2 -  government's inability to provide a sustained financial commitment to the future operations and maintenance (O&M), close community involvement was crucial\. Finally, community involvement also served to reduce the overall costs associated with subproject preparation and implementation\. The continued development of small local contracting and consulting firms and individuals proved to be beneficial and appropriate, and resulted in continued quality improvements\. Apart from the financial benefits, small contractors and engineers gained valuable experience from working with the Public Works Program (PWP); this resulted in steady improvements in the quality of workmanship of the infrastructure developed under the Project\. 3\.2 Revised Objective: The Project objectives were not revised 3\.3 Original Components: To achieve its objectives the project was to finance three components: Component (a)-Community Infrastructure - (Appraisal estimate US$53\.0 million)\. This component comprised building of small-scale civil works in areas where the unemployment rate was above average\. On the whole, this was the major component of the Project and it fit well with the local labor market environment, country geographical conditions, and dispersed site locations\. The successful implementation of this component was therefore central in achieving the development objectives of the Project\. However, during implementation, unfavorable SDR vs\. US$ exchange rate resulted in reduction of IDA's contribution and, as a result, total amount (US$) available for this component was less than as estimated during appraisal\. Actual cost of this component at the end of the Project was US$52\.12 million\. Component (b)-Technical Assistance/Consultant Services- (Appraisal estimate US$4\.0 million)\. This component provided necessary financing for consultancy services, mainly for project preparation, design and implementation of the small scale civil works included under component (a) above\. As explained earlier, budgetary provisions were revised following decreased availability of US$ from the Credit\. Adjustments were also necessary because of dispersed locations of subprojects making it difficult to package a large number of supervision contracts for subprojects at different locations\. As a result of these revisions/adjustments, actual cost of this component at the end of the Project was US$3\.76 million\. Component (c)-Project Management- (Appraisal estimate US$3\.0 million)\. This component covered the expenses of the Project Management Unit (PMU) and was crucial in ensuring satisfactory implementation of the Project\. At the end of the Project, total cost of this component was about US$3\.21 million including IDA contribution of about US$2\.39 million\. The management cost as a percentage of the overall cost was close to 2\.8 percent which is on the lower side of international standard\. As mentioned earlier, the Project was designed to facilitate the government attract additional funding from the donor community and other financing agencies\. The government was remarkably successful in attracting about US$52\.0 million from the donor community\. Of this, as of the end of October 2003, total of about US$33\.8 was already disbursed as parallel financing for works similar to component (a)\. The break-down of this parallel financing (by source) is shown in Table-1 below: - 3 -  CONFINANCING (PARALLEL) Financing OPEC USA Dutch French Italian Total Est\. At appraisal 8\.2 19\.6 22\.0 1\.6 0\.6 25\.0 Disbursed 5\.9 14\.6 12\.3 0\.4 0\.6 33\.8 Table -1: Break-down of the Project financing (in US$ millions) by source 3\.4 Revised Components: The Project components were not revised\. At the time of preparation, it was envisaged that financing of furniture for schools built under the Project (and the first project) would be made available by the Second Social Fund for Development Project (SFD-II)\. Due to the shortage of funds, the SFD-II was unable to provide the necessary funds and legal agreements of the Project had to be amended to include the financing of school furniture\. 3\.5 Quality at Entry: The Project was not reviewed by QAG at entry\. The ICR rates the quality at entry as satisfactory\. Some of the important features on which this rating is based are highlighted below: The overall objective of the Project was consistent with the country's development priorities and the CAS\. A basic project design feature was the involvement of key stakeholders and the communities in subproject identification, selection, preparation and implementation\. This facilitated successful completion and resulted in strong ownership of the subprojects delivered\. The subproject selection criteria were designed to ensure that only cost effective subprojects were selected for implementation\. Also, as the investment programs were already approved and bidding documents finalized, the Project was well prepared for implementation immediately after effectiveness\. Critical risks were adequately addressed at the time of appraisal and mitigative measures adopted - throughout implementation, the Project was never at risk\. Performance indicators established during appraisal were calculated based on actual data collected under the first project\. As such, these were more realistic and monitorable compared with those that were set for the first project\. Finally, implementation of small scale infrastructure projects suited well with the overall local needs and conditions\. In accordance with the agreements reached between the Bank and the GOY, work contracts were maintained below the prior threshold of US$0\.20 million\. This facilitated minimum interventions from special interest groups and provided greater opportunities for the nascent construction industry to develop and generate employment for local unskilled workers\. 4\. Achievement of Objective and Outputs 4\.1 Outcome/achievement of objective: The ICR rates the outcome of the Project as highly satisfactory\. On the efficacy dimension, baring a few minor shortcomings, the Project's impact (outcome and output) was significant (Annex-1)\. The few shortcomings relate to ensuring total community participation and performance of the local consulting/contracting industry\. In both these aspects, Project impact has been outstanding and the room for improvement as alluded to in subsequent paragraphs (para\. 4\.1(iii), 5\.3), merely provides the PMU with challenges to be overcome during the next operation (proposed PWP-III)\. - 4 -  The overall rating of the key performance indicators was based on the findings of the Socioeconomic Impact Assessment Study (Study) that was conducted towards the end of the Project\. The Study team benefited from the initial data collected by the PMU on each of the targeted communities at the start of subproject implementation\. The achievement of the outcomes is based on the Study that was conducted on a representative sample population of 123 (out of 827) subprojects, of which 81 were completed and 42 were nearing completion\. The sample size comprised 15% of the total population, selected at random and distributed between ten governorates\. The following criteria were used in selecting the subprojects - poverty level, number of subproject types and community type\. A summary of the Study findings is included in Annex-8\. Selective improvements in the key performance indicators are highlighted below: (i) Improved poverty indicators, especially for women and children: The infrastructure subprojects delivered by the Project contributed substantially towards poverty alleviation in the target areas and a number of improved poverty indicators in the Study area are summarized as follows: enrollment rates for children increased by 141% for both basic and secondary education; vaccination against the six diseases increased by 113%; immunization against tetanus (women) increased by about 36%; immunization against hepatitis increased by about 20%; and child birth under medical care increased by more than 30%\. (ii) Improved access to basic infrastructure services: Apart from the benefits in the education and health sub-sectors mentioned above, the Study indicated that access provided by the various infrastructure services in the Study areas resulted in the following improvements: pedestrians using newly built paved roads increased by more than 80%; vehicles using newly built paved roads increased by more than 75%; number of trainees in social centers increased by 115%; about 50% of households connected to the water supply network of which close to 30% were provided with public stand taps; and about 370 households were connected to a sewage network (in the study area)\. Close to 5000 communities corresponding to more than 3\.1 million people are benefiting today from the basic infrastructure services delivered by the Project\. Improved access has reduced the time and effort (such as bringing in water from long distances across difficult terrains) usually taken to reach the nearest service provider\. These resulted in improved living conditions of the beneficiaries and, in particular, women and children\. (iii) Level of community involvement: Community participation was strengthened\. On subprojects selection, about 60 percent of the population interviewed confirmed their direct participation, 26 percent reported that subprojects were selected by their Sheiks and 12 percent indicated that subprojects were initiated/selected by their representatives in the parliament\. At the time of preparation, required level of community contribution was set at 5% of subproject cost\. By the end of Project, this reached a level of about 9\.6% (US$5\.68 million) of the total cost of infrastructure services built\. Except for building of schools, mobilization of community contributions was sometimes time consuming and, in many instances, led to unexpected delays in starting up the implementation process\. Community contributions in cash were used primarily to procure classroom furniture for the schools built under the Project\. - 5 -  The Study concluded that community involvement at the various subprojects cycle contributed to strengthening of social ties and increasing community awareness of their existing problems and needs\. It improved their capacity and understanding about issues like management of public institutions\. Through formation of various committees, communities had become more involved in accomplishing various tasks such as collecting community contributions, following up on the implementation progress, ensuring availability of future funding for O&M expenses, and helping resolve implementation issues\. (iv) Overall development of local consulting and contracting firms\. As opportunities were provided, local consulting firms/individuals benefited professionally and financially from the Project\. About 90 percent of the sample population confirmed that they had gained considerable experience from working with the Project\. In addition to those contracted, a substantial number of site supervisors/technicians had benefited indirectly as part of the consultants' teams\. Financially, monthly income of the consultants had increased by about 240 percent\. Similarly, contractors had benefited from the Project both - professionally and financially\. About 90 percent of the contractors confirmed professional advancements while 66 percent indicated healthy financial return\. 4\.2 Outputs by components: As appraised, the Project had three components and the ICR rates the output of these components as highly satisfactory\. Overall, the output attained were more than what was envisaged\. The status of the individual components is described below: (i) Creation of jobs: Against an appraisal estimates of creating 95,000 person-months (and due to reduced availability of funds, revised to 85,313 person months during the mid-term review), a total of about 94,883 person months of direct labor was generated\. Other relevant indicators were also met satisfactorily as confirmed by some of the key indicators\. Distribution of jobs between unskilled to skilled laborers was 60 percent as compared to a target of 54 percent; cost of investment to create a person-month of employment - US$490 vs\. US$515 as estimated during appraisal; and the average labor content of each subproject built was 33 percent compared to 28 percent as envisaged during preparation\. On generating permanent employment, excluding transfer of civil servants, 43 new job openings were created in the 81 completed facilities covered under the Study\. (ii) Cost effective provision of needed infrastructure services: The target was to deliver cost-effective infrastructure services comprising 800-900 subprojects\. Despite reduction in availability of US$ (because of adverse exchange rate between SDR and US$), 827 subprojects were delivered at a total cost of about US$50\.30 million\. Thus, the average cost of subprojects was US$60,822; this compares well with the average cost of US$60,000 as estimated at appraisal\. As compared to similar subprojects delivered by individual line ministries, the unit rates of the subprojects were low and very competitive\. The cost per square meter of schools built by the Project was around US$139 and this compares favorably with US$ 250 and above for similar facility built by the Ministry of Education\. Despite these lower rates, quality of workmanship was not adversely affected mainly because of: (i) strict supervision and monitoring of the civil works construction; (ii) application of transparent and speedy procurement procedures, efficient contract management, and quick payment procedures; and (iii) improved performance over time of both contractors and consulting firms working with the Project\. The reduction in the unit rate (which reached in most cases to 30% or more) combined with the increased amount of labor content (about 33%) enabled the Project to deliver the target number of basic infrastructure services while generating short term employment opportunities\. Distribution of the subprojects on a sectoral basis is shown in Table-2 below\. - 6 -  Sector 1999 2000 2001 2002 2003 Total US$ % Education 151 103 200 61 9 524 26\.14 57\.3 Health 9 10 22 7 0 48 2\.24 4\.9 Water 18 38 60 13 3 132 6\.51 14\.3 Sanitation 9 5 5 0 0 19 1\.90 4\.2 Roads/paving 4 11 9 8 2 34 3\.60 8\.0 Agriculture 1 4 11 5 0 21 1\.55 3\.4 General/Env\. 2 2 4 0 16 24 1\.22 2\.7 Social 10 3 9 3 0 25 2\.48 5\.4 Total 204 176 320 97 30 827 45\.64 100 Table-2\. Distribution of subprojects by sectors (iii) Development of small scale contracting and consulting firms: The target was to develop small-scale consulting and contracting industry and, at the time of preparation, it was envisaged that about 100 contractors and 150 consulting engineering firms would be used for project implementation\. Against this target, a total of 478 contractors were used which is significantly higher than the target set\. However, for the consulting services, a total of only ten consulting firms and 370 self-employed individual consultants were engaged by the PMU\. Although the aggregate number of consultancy assignments (380) were far greater than the target set (150), the number of engineering firms engaged was significantly lower than the appraisal estimate of 150\. This anomaly was noted during preparation of the ICR which concludes that the target of 150 for consulting firms was unrealistic; the total number of engineering consulting firms in Yemen is far less than 150 and current socioeconomic conditions do not encourage such a rapid growth of this industry\. Additionally, most line ministries/agencies have in-house engineering departments that provide necessary consulting/advisory services\. (iv) Improved Project Management: Support to this component was meant to strengthen the Project Management\. The PMU's capacity has improved remarkably as it was able to manage the sudden increase in workload from US$30\.00 million under the first project to more than US$100\.00 million under the Project including the financing made available by the other donors\. To cope with the expanded workload and complete them on time, the PMU had to increase its disbursement capacity from an average of US$1\.2 million per month prevailing at the time of project preparation to US$3\.2 million at the time of project completion without any corresponding increase in staff strength\. Except for retaining a community development specialist, most staffing needs were met through the use of long term consultants (LTC)\. This approach proved to be extremely practical and cost-effective and provided adequate flexibility and less administrative burden on the management of the PMUs\. Similarly, the extensive and continuous upgrading of the Management Information System (MIS) proved to be cost-effective\. Missing environmental assessment reports for the sub-projects delivered under the first project and this Project for example (Investment Programs 1 to 4) were retroactively produced based on which measures were carried out to mitigate any possible adverse impact on the environment\. The overall cost for managing the Project was within the low range of international standard of about 2\.8 percent\. 4\.3 Net Present Value/Economic rate of return: The appraisal report rightly argued that most of the subprojects do not have an easily quantifiable benefit stream and, therefore, are better suited for a cost-effectiveness analysis\. The latter relied on the eligibility/selection criteria designed to screen subprojects in various sectors\. The analysis was then narrowed to water and sewerage subprojects (representing 15% of the subprojects) some of which were to be operated by the water utility (NWSA)\. The analysis argued that, on the basis of some assumptions - 7 -  about one "typical" water scheme, that one would expect the returns to be high and robust\. The ICR considers that a better approach is provided in the recently completed Study (Annex-8) which analyzed a sample of several subprojects in several sectors and assessed the improvement of services delivery as a result of the Project\. The Study has documented evidence of the significant impact that the Project had in improving the quality of lives of the people, particularly the poor\. At the aggregate level, women and girls have been the primary beneficiaries of the improved infrastructure and services delivery (particularly in the water, health and education sub-sectors) that were created under the Project\. The economic analysis in Annex-3 of this report provides further evidence with regard to cost effectiveness in school construction\. Project impact on the improvement of services delivery The Project provided infrastructure services throughout the country, mostly in areas where these facilities did not exist\. For the variety and geographical spread of sub-projects, the evaluation of the net benefits of the entire Project would be a costly undertaking\. However, a sample of about 123 subprojects in various sectors was recently evaluated to assess the impact of the Project\. The distribution of subprojects by sub-sectors is shown below: New Addition/ Rehabilitation Total Sub-sectors Extension Health 5 3 8 Education 51 26 3 80 Water supply 13 6 1 20 Sanitation 3 3 Road paving 4 1 5 Agriculture 2 1 3 Other social works 3 1 4 Total 81 37 5 123 Source: Second Public Works Project - Socio-Economic Assessment-Draft Final Report, September 2003 The Study identifies several beneficial impacts on the beneficiary communities\. These include: (a) Reduction in the cost of services (including time and cost to access to services); (b) Improvements in the quality of services; and (c) Improvements in the environment\. These are detailed below: a) Reduction in the cost of services (including time and cost of access to services) The Study reveals that the distance between the village and the service facility (school, health center, water facility, etc\.) which was about 17 km before the project was reduced, on average, to about 4\.5 km\. This has led to a reduction in time spent to access these services\. This time saving has benefited women in particular because they were mostly in charge of getting water and taking children to health facilities and also children going to schools\. The time gained is being put to more profitable pursuits (animal husbandry, household chores, the education of children, etc\.)\. Furthermore, the cost to access basic services has been reduced which allows poor people to allocate the money thus saved to other higher value uses\. The time saving and the reduction in the cost of access to services both contribute to poverty reduction\. - 8 -  b) Improvement of service quality In education for example, the number and quality of educational facilities has improved\. Female and male enrollments increased by about 182% and 113%, respectively, compared to the situation that prevailed before the Project was implemented\. Class density in basic and secondary education has decreased by about 22% and 10%, respectively\. In addition, the availability of educational equipment has vastly increased (chairs, desks, laboratory equipment, etc\.)\. The average student to teacher ratio has decreased from 28 to 27\. In the health sector, there has been, over the sample that has been examined, an increase of about 217% in the number of rooms\. Some facilities, such as those providing simple surgery, have increased by more than 50%\. This has led to a safer baby delivery and enlarged vaccinations programs particularly for children\. This is expected to result in the reduction of diseases in the future and to a healthier and more productive population\. All other sectors analyzed show the same improvement in quality of service\. In addition to education and health, water supply and sanitation and rural roads have provided much improvement in the life of the poor in Yemen in terms of time saved, health benefits and improvements in quality of daily life\. c) Improvements in the environment The quantity and quality of drinking water was improved following the implementation of the Project\. The increase in the average household water consumption from about 110 liters/day to about 163 liters/day led to an improvement in personal and home cleanliness\. Sanitation projects (and paved roads) improved the environment through the drainage of storm water thereby diminishing or eliminating breeding grounds for mosquito and flies, prevented soil erosion and water contamination\. Health statistics confirm the reduction in the number of water borne diseases (malaria, schistosomiasis, typhoid, diarrhea, skin and eye diseases and respiratory diseases)\. The benefits of the program are understated because the benefits of additional spin-offs of the project have not been taken into account\. These benefits include: building the capacity of communities to manage their own affairs, strengthening local governments and other institutions; driving down the cost of construction of schools, health facilities and rural roads through competition; empowering women - women have greatly benefited from both the first project and the Project through the construction of schools, health facilities and water supply schemes\. They were saved time and drudgery and improved their health and education; and Developing private contracting capacities\. Compared to other alternatives such as direct transfers, the Project has been an efficient instrument in accomplishing the Project objectives\. The Project has been designed to enhance cost-effectiveness and sustainability\. Efficiency gains, due to increased relevance of investment decisions, arise from the decentralized decision making and implementation of sub-projects\. Experience shows that communities generally select investments that have high rates of return, such as water supply schemes, building and rehabilitation of roads and schools, etc\. In addition, decentralization of decision making not only creates incentives to keep investment costs low and the quality of service delivery high, it also increases the likelihood of investment sustainability\. The design simplicity has encouraged participation by poorer - 9 -  communities and further strengthened sustainability\. 4\.4 Financial rate of return: An economic and financial analysis was conducted on a typical water supply scheme financed by the Project\. The analysis confirms the results obtained under the first project on financial viability of the water supply schemes managed by NWSA\. The summary results are shown in the table below and details are included in Annex-3: NPV IRR Economic 747,000 20% Financial 400,000 17% 4\.5 Institutional development impact: The institutional development impact (IDI) on targeted communities, the local consulting/contracting industry and the sector ministries was substantial\. As indicated earlier (paras\. 4\.1 and 4\.2), the impact on targeted communities was significant as it facilitated creation of strong bondage between community members towards pursuing a common goal\. Also, through active participation and increased responsibilities in most aspects of subproject processing cycle, communities gained practical experience in being able to articulate their needs and develop skills in ensuring that their needs were met satisfactorily\. Through the experience gained in successful completion of two similar projects, the PMU has evolved as a stronger entity capable of satisfactory implementation of small infrastructure projects spread all over the country\. Local consultants and contractors acquired additional capacity through direct interaction with the PMU and also through formal and informal training sessions organized periodically\. The impact on the PMU was modest and limited to reinforcing the capacity already developed during implementation of the first project\. The PMU staff also gained good experience that helped them develop professionally\. For implementation of similar small sized infrastructure projects, the PWP model could easily be considered for adoption by the government, and the public sector, in particular\. The impact on the sector ministries was indirect yet significant\. Line ministries are now encouraged by the success of the PWP and are adopting the PWP model as an example of best practice\. Under a separate financing source (the Netherlands), the PMU carried out a capacity building program for 14 districts (nascent decentralized local governments) from six governorates\. The main focus of the program (Participatory District Development Plan (PDDP)) was to help the participating districts develop their skills to prepare their own development and investment plans\. With a total cost of about US$0\.40 million, assisted by an international consultant, it took the PMU six months to complete the program\. The outputs of the program were to prepare: (a) PDDPs for the 14 participating districts; (b) a national PDDP manual; and (c) skills development for 120 individuals to be able to use the PDDP manual\. 5\. Major Factors Affecting Implementation and Outcome 5\.1 Factors outside the control of government or implementing agency: Implementation impetus was disrupted when a number of contractors were affected by a steep increase in - 10 -  the price of reinforcement steel from US$300 per ton to US$500 in early 2001\. As a result, construction activities in a number of subproject sites slowed for some time before resuming back to their normal pace\. Through invoking provisions of contractual agreements (no price escalation clause for small-scale contracts), the problem was handled effectively by the PMU and the contractors' demands of price increase were not entertained\. Thus, disruption of the workflow that is usually caused by similar problems was avoided\. 5\.2 Factors generally subject to government control: None 5\.3 Factors generally subject to implementing agency control: During finalization of the ICR, it was noted that 24 subprojects, excluding eight schools completed in the middle of the school year (expected to be functional starting January 2004), experienced delays in start-up mainly due to non-availability of necessary equipment and furniture\. Based on the latest information available, procurement of these has already been initiated by the various agencies and delivery is expected soon\. This was not supposed to happen if rigorous screening procedures were applied at the subproject selection stage\. In case any of these subprojects remained idle by the time the proposed PWP-III is effective, an operational plan should be provided by the PMU to be used as the basis to monitor the status of these subprojects during implementation of the proposed PWP-III\. Quality of workmanship has indeed improved under the Project, but there is still room for further improvements\. This can be better achieved by introducing qualifying criteria in the bidding documents that would help minimize the incidents of contracts being awarded to non-performing contractors and consulting firms/ individuals\. Outcome/achievement of objective should be identifiable through the adoption of quantifiable measures\. This can be better achieved by establishing appropriate base-line data on the targeted communities before a subproject is implemented\. The data for major indicators, can be collected by a joint effort between the communities and the PMU and should be organized in a manner that is easy to interpret\. 5\.4 Costs and financing: The overall Project cost was US$59\.1 million of which US$50\.30 million was for civil works, US$3\.76 million for technical assistance, US$3\.21 million for project management and US$1\.82 million for school furniture\. These amounts were shared by IDA (US$46\.46 million), the Government (US$6\.95million), and communities (US$5\.68 million)\. The later figure (community contribution) includes contribution in cash US$0\.80 million, and the remaining in-kind and labor\. There were no instances of cost over-runs and counterpart funding was provided regularly on an agreed basis\. On the whole, the financing arrangements were satisfactory\. 6\. Sustainability 6\.1 Rationale for sustainability rating: The overall sustainability rating of the achievements made is considered likely\. Despite the few shortcomings as indicated in para 5\.2, all physical infrastructure built have been handed over to the c ommunities which have been involved from early stages of identification, preparation, design and somewhat of an oversight during implementation\. Communities had to compete amongst themselves for their - 11 -  subprojects - only 827 subprojects were ultimately selected out of 8,000\. And, since the communities are required to share part of subproject costs, the issue of ownership is easily addressed\. For schools and health centers, the selection criteria called for confirmed commitments from the Government on provision of necessary resources for future operations and maintenance (O&M) of the facilities developed\. Finally, as communities get more and more empowered and involved in the process of securing funding needed for future O&M (of their newly owned facilities), the ICR justifiably considers the sustainability of subprojects, in general, as likely\. Sustainability of completed subprojects has been confirmed through site visits during regular bank supervision missions\. During such missions, it has been noted that the maintenance performance of individual facilities differ from one another and these are dependent on the management of individual facilities built\. There are however very few instances where sustainability remains as an issue\. Water wells drilled by communities are generally not backed by adequate hydro-geological studies; some of these became dry soon after investments were made and, in a few instances, the well water became brackish\. Such instances and in cases of financing of costly repairs of mechanical spares, puts the communities in difficult situation\. The PMU needs to put in additional effort in assisting the communities so that such instances can be avoided\. On the institutional side, the Project has had a significant impact on capacity building of the construction and consulting industry\. As such, sustainability rating of the capacity building effort is considered as substantial\. Throughout the implementation period, the PMU has continuously nurtured the consulting/constructing industry through carrying out of periodic workshops and training sessions followed by opportunities to perform through implementation of contracts in a timely and satisfactory manner\. With the solid experience in building small-scale infrastructure schemes, it is envisaged that this sector is well prepared to take part in the country's construction sector which is poised for significant growth in the near future\. As a part of the entire process, the individuals in the PMU have also developed\. The sustainability of the institutional aspects of the communities is difficult to assess but the overall impact as reported in the Study is very positive\. Finally, as mentioned earlier, the IDI on sector ministries is indirect yet significant\. The PWP has demonstrated best practice methods of implementing small infrastructure projects\. With the passage of time, it is envisaged that the sectoral ministries will gradually align themselves with the more cost effective and efficient manner in which the PWP has implemented over 2000 small infrastructure projects\. 6\.2 Transition arrangement to regular operations: All the subprojects delivered were handed over immediately upon completion to the communities/relevant line ministries and/or their local branch offices\. Subprojects in the water and sanitation are the exceptions\. Subprojects in rural water were handed over to the water user associations at the community level whereas those in the secondary cities were handed over to the branch offices of the National Water and Sanitation Authority (NWSA)\. The PMU continues to monitor the satisfactory operation of completed subprojects for a few years after their formal hand-over\. In general, their findings are satisfactory\. 7\. Bank and Borrower Performance Bank 7\.1 Lending: The Project was a natural continuation of the first Project which had 18 months to complete when the Project was identified in May 1998\. Project preparation had appropriately taken into account lessons learned from the first project and as a result, the selection criteria used was more effective\. The excellent - 12 -  relationship developed with the Borrower, facilitated easy resolution of any differences during project processing\. Any differences in opinions were resolved through participatory dialogue with a matured implementing agency\. By the time of effectiveness, bidding documents for the first years' investment program were finalized and the Project was ready for implementation\. The Bank performance during the lending stage was thus highly satisfactory\. 7\.2 Supervision: The Project was implemented in 42 months, as planned\. During this period, the implementation was generally smooth except for minor problems which the Bank Task Team and the PMU managed to overcome without any adverse impact on the outcome\. Some of the issues that the PMU had to encounter included: (i) initial delays in implementation due to difficulties faced in mobilizing community contribution; (ii) sudden increase in the price of building materials in particular that of reinforcement steel; (iii) delays encountered in supporting the PMU with the TOR for the impact assessment study\. The excellent cooperation between the Bank Task team and the PMU helped resolve all the difficulties encountered\. Throughout the implementation period, the Project was supervised by Bank implementation teams on a regular basis and implementation progress reported adequately\. Regular site visits were conducted and issues on implementation, quality of workmanship, community participation/contribution etc\., were resolved through discussion with the PMU\. Through discussions, a Post Project Environmental Impact Assessment (PPIA) for all subprojects completed under the first project was also completed and mitigation measures were designed and financed under the Project\. Sufficient attention was given towards assessing the development impact and a well documented socioeconomic impact assessment study was prepared towards the end of the Project\. The skill mix of the Bank Task Team was appropriate with significant inputs from staff at the Country office\. In view of the above, the ICR rates the Bank's performance during supervision as satisfactory\. 7\.3 Overall Bank performance: Based on the above and the achievements attained by the Project, the overall performance of the Bank was satisfactory\. Borrower 7\.4 Preparation: During the preparation stage, the Borrower demonstrated a strong sense of participation and commitment which was instrumental in shortening the preparation phase to six months (usually 18-24 months)\. Against the usual norm in Yemen of 6-14 months, it took only two months to declare the project effective after Board approval\. The transition of activities from the first project was effortless\. In view of the above, performance of the Borrower during preparation is considered highly satisfactory\. 7\.5 Government implementation performance: Continuous guidance and support provided by the Government both at the policy and the operational level proved to be instrumental in successful and timely implementation of the Project\. Strict adherence of local requirements and consistent application of transparent procurement procedures by the PMU helped it gain the desired support from the government\. In view of the above, the implementation performance of the government was highly satisfactory\. - 13 -  7\.6 Implementing Agency: Despite significant external pressures, the PMU maintained good working relationship with those directly related with the Project, the business community (contractors and consultants), line ministries, NGOs and the Bank\. In a business environment where supply (construction and consulting) by far outnumber demand (construction and consulting) opportunities, consistent application of rules and equal treatment has kept the PMU out of difficult situations created mostly by unhappy suppliers who, over time have realized the efficacy of transparent procedures that were adopted\. In terms of complying with legal covenants, the PMU never defaulted\. Strong performance of the PMU also resulted in high quality supervision efforts by the Bank Task team\. Thus, the performance of the PMU can be considered highly satisfactory\. 7\.7 Overall Borrower performance: In general, the performance rating of the Borrower was highly satisfactory\. 8\. Lessons Learned (i) Performance Indicators: Baseline data on the key performance indicators that help in measuring outcome and outputs should be gathered for each area to be targeted by the Project\. This will help first establish good practices for regular and reliable data collection; provide baseline data against which performance can be better measured and help reduce the cost for carrying out the usual impact assessment studies; (ii) Risk mitigation: Through confirmation of upstream and downstream activities, upfront mitigative measures should be adopted\. For water supply subprojects proper assessment of aquifer resources need to be addressed; for wastewater/sanitation subprojects, existence of downstream facilities (wastewater treatment facilities or other appropriate disposal facilities) should be verified\. (iii) Strengthening of M&E: An effective MIS system on monitoring M&E is already in place\. The systems and procedures developed for monitoring, evaluation and control will need to be expanded further to evaluate the periodic social impact and beneficiary assessment surveys\. (iv) Environmental mitigation: During subproject selection, strict screening of environmental impacts is necessary which will also determine investment needs to provide appropriate mitigation measures\. (v) Sustainability through: (a) Financing - In order to ensure sustainability, subproject selection should be based on confirmation of adequate sources of funds needed from government's budgetary allocation for operations and maintenance of completed facilities\. Also, in cases where functioning of completed infrastructure is dependent upon external support (other agencies, charitable trusts providing equipment, furniture etc\.), necessary confirmation should be sought prior to start of implementation; (b) Community participation - community involvement is crucial in subproject identification and preparation and in securing community contribution in cash or kind\. This helps build a sense of ownership which provides additional assurance on sustainability for future operations and maintenance\. 9\. Partner Comments (a) Borrower/implementing agency: - 14 -  - 15 -  (b) Cofinanciers: Not applicable (c) Other partners (NGOs/private sector): Not applicable 10\. Additional Information Draft Final report for Socio -Economic Impact Assessment - A Study for Assessing Project Impact on Poverty Reduction, Employment and Community livelihood - Study conducted by Dr\. Ali Kasim Ismail Al-Baseir, National Socio-Economic Consultants, Yemen - 16 -  Annex 1\. Key Performance Indicators/Log Frame Matrix Outcome / Impact Indicators: Indicator/Matrix Units Appraisal estimate/ Actual/Latest Variance % Before the Project Estimate Indicators used to measure performance in attaining this objective include: (a)Improvement in poverty indicators speciall for women and children Education: Increased enrollments in basic and secondary Number 10900 26317 141 education Health: (i) Vaccination against the six diseases (Children) Number 728 1551 113 (ii) Immunization against: - Tetanus (Women) Number 350 475 35 - Hepatitis (All people) Number 678 812 20 Water: Household connections Percentage 12\.5 50\.0 300 Improved access: Distance reduced (average) km 17\.34 12\.81 26 Time decreased minute 230 170 57 Transport cost reduced YER 1648 659 40 (b)Improved access to basic infrastructure services Education: increase in classrooms Number 367 825 124 Health: increase in rooms Number 29 92 217 Water: Increase in reservoir capacity cum 2193 18636 750 Increase in distribution network meter run 22105 119092 439 Roads: Users increased by Number 6128 10750 80 Vehicles increased by Number 374 680 75 (c)Level of community participation (in subproject Percentage Not assessed 60 60 selection Note: The above figures relate to the Sample population of the Study area\. Output Indicators: Indicator/Matrix Units Appraisal estimate Actual/Latest Estimate Variance % Indicators used to measure performance in attaining this objective include the number of: I(a) Job creation in Person-months 90000-95000 92000 0\.0 person-months (b) Subprojects delivered Number 800-900 827 0\.0 In(c) Development of local: Consulting firms and individuals Number 150 10 (firms) + 155 Small scale contractors 370(individuals) Number 100 480 370 Note: The above figures relate to the entire Project - 17 -  Annex 2\. Project Costs and Financing Project Cost by Component (in US$ million equivalent) Appraisal Actual/Latest Percentage of Estimate Estimate Appraisal Component US$ million US$ million Community Infrastructure 53\.00 52\.12 94\.5 Technical Assistance 4\.00 3\.76 93\.3 Project Management 3\.00 3\.21 79\.7 Total Baseline Cost 60\.00 59\.09 Total Project Costs 60\.00 59\.09 Total Financing Required 60\.00 59\.09 Project Costs by Procurement Arrangements (Appraisal Estimate) (US$ million equivalent) 1 Procurement Method Expenditure Category ICB NCB 2 N\.B\.F\. Total Cost Other 1\. Works 0\.00 53\.00 0\.00 0\.00 53\.00 (0\.00) (43\.00) (0\.00) (0\.00) (43\.00) 2\. Goods 0\.00 0\.00 0\.50 0\.00 0\.50 (0\.00) (0\.00) (0\.50) (0\.00) (0\.50) 3\. Services 0\.00 0\.00 4\.00 0\.00 4\.00 Design and (0\.00) (0\.00) (4\.00) (0\.00) (4\.00) Supervision+Training+Oth er studies 4\.Operating expenses 0\.00 0\.00 2\.50 0\.00 2\.50 (0\.00) (0\.00) (2\.50) (0\.00) (2\.50) 5\. Miscellaneous 0\.00 0\.00 0\.00 0\.00 0\.00 (0\.00) (0\.00) (0\.00) (0\.00) (0\.00) 6\. Miscellaneous 0\.00 0\.00 0\.00 0\.00 0\.00 (0\.00) (0\.00) (0\.00) (0\.00) (0\.00) Total 0\.00 53\.00 7\.00 0\.00 60\.00 (0\.00) (43\.00) (7\.00) (0\.00) (50\.00) - 18 -  Project Costs by Procurement Arrangements (Actual/Latest Estimate) (US$ million equivalent) 1 Procurement Method Expenditure Category ICB NCB 2 N\.B\.F\. Total Cost Other 1\. Works 0\.00 50\.30 0\.00 0\.00 50\.30 (0\.00) (39\.31) (0\.00) (0\.00) (39\.31) 2\. Goods 0\.00 0\.00 0\.26 0\.00 0\.26 (0\.00) (0\.00) (0\.26) (0\.00) (0\.26) 3\. Services 0\.00 0\.00 3\.76 0\.00 3\.76 Design and (0\.00) (0\.00) (3\.76) (0\.00) (3\.76) Supervision+Training+Oth er studies 4\.Operating expenses 0\.00 0\.00 2\.95 0\.00 2\.95 (0\.00) (0\.00) (2\.13) (0\.00) (2\.13) 5\. Miscellaneous 1\.82 0\.00 0\.00 0\.00 1\.82 (1\.00) (0\.00) (0\.00) (0\.00) (1\.00) 6\. Miscellaneous 0\.00 0\.00 0\.00 0\.00 0\.00 (0\.00) (0\.00) (0\.00) (0\.00) (0\.00) Total 1\.82 50\.30 6\.97 0\.00 59\.09 (1\.00) (39\.31) (6\.15) (0\.00) (46\.46) Note: Goods and Equipment totalling US$0\.26 million was procured for the PMU and considered as a part of PMU cost\. 1/ Figures in parenthesis are the amounts to be financed by the Bank Loan\. All costs include contingencies\. 2/ Includes civil works and goods to be procured through national shopping, consulting services, services of contracted staff of the project management office, training, technical assistance services, and incremental operating costs related to (i) managing the project, and (ii) re-lending project funds to local government units\. Project Financing by Component (in US$ million equivalent) Percentage of Appraisal Component Appraisal Estimate Actual/Latest Estimate IDA Govt\. CoF\. IDA Govt\. CoF\. IDA Govt\. CoF\. 1\.Civil Works 43\.00 10\.00 0\.00 39\.31 6\.95 4\.04 91\.4 69\.5 0\.0 2\.Goods & Equipment 0\.50 0\.00 0\.00 0\.26 0\.00 0\.00 52\.0 0\.0 0\.0 2\.A Furniture 0\.00 0\.00 0\.00 1\.00 0\.00 0\.82 0\.0 0\.0 0\.0 3\.Consultancy Services 4\.00 0\.00 0\.00 3\.76 0\.00 0\.00 94\.0 0\.0 0\.0 4\.Operating Cost 2\.50 0\.00 0\.00 2\.13 0\.00 0\.82 85\.2 0\.0 0\.0 Note: Goods and Equipment totalling US$0\.26 million was procured for the PMU and considered as a part of PMU cost\. - 19 -  Annex 3\. Economic Costs and Benefits 1\. The project, like any poverty alleviation scheme, can be thought as having both transfer benefits and stabilization benefits to the poor\. The transfer benefits can be both direct and indirect\. The former comprises the gross benefit to poor workers less any cost they incur in participating, while the latter includes the share of the poor in the extra income generated by the scheme's output (i\.e\. the assets created by the project), and any other second-round effects on income from other sources\. 2\. The project also generates significant but difficult to measure positive externalities such as improved health, better education and enhanced competition in the construction industry\. Transfer Benefits 3\. Direct Transfer: The direct transfer benefit is equal to the wage rate, net of any costs of participation incurred by the worker\. In Yemen, where there is a very high unemployment rate, transfer benefits help prevent a worsening of poverty\. 4\. Indirect Transfer: The project also helps construct much needed infrastructure and produce goods and services that poor families value\. Some of the durable assets created by the project will generate additional second-round employment benefits to the poor\. Stabilization Benefits 5\. The consumption-smoothing or stabilization benefits arise mainly from the scheme's effect on the risk of a decrease in consumption by the poor, typically during agricultural slack seasons\. The benefits of any policy which allows those at the edge of survival to avoid down-side risks have a high social value\. Positive Externalities 6\. These include the following: The impact of improved access to social infrastructure (e\.g\. safe water, education and health facilities, etc\.) has both short-term and long-term (generational) effects in terms of improved health, nutrition and labor productivity\. They contribute to poverty reduction in the short term by improving the quality of rural life, and in the long-term, through a more productive work force, to overall economic development\. Access to clean water, by improving the health of rural population and reducing the time spent (especially by women) in transporting water, will contribute to poverty alleviation and significant improvement in the productive and income generating capacity of the rural population\. The benefits of improved water supplies (quantity and quality) on health outcomes are well documented\. These health benefits will in turn result in improved labor productivity and income generating opportunities via a variety of direct and indirect channels\. Better health also leads to direct improvements in schooling outcomes\. the benefits of reduced risks to the poor due to consumption smoothing\. The cost to the poor of certain coping mechanisms, such as indebtedness and distress, are reduced by the project\. Extra income at a crucial time may well save a household from a far more costly adjustment (selling of land, house, over-indebtedness, withdrawing children from school and other social bads of a community under stress, etc)\. - 20 -  The benefits of additional spin-offs of the project: building the capacity of communities to manage their own affairs, strengthen local governments and other institutions\. driving down the cost of construction of schools, health facilities and rural roads through competition (see below for some cost comparisons in Yemen)\. empowering women\. Women have greatly benefited from the first and the second public works projects through the construction of schools, health facilities and water supply schemes\. They were saved time, drudgery and improved their health and education\. The proposed project expands on these achievements; and Developing private contracting capacities\. Driving down the cost of construction of schools, health facilities and roads across the country­ some comparisons (Yemeni Rials million)* Facilities General budget cost 2nd Public Works Project Schools 12 classes 40 25\.2 6 classes 18 6\.36 3 classes 12\.17 6\.38 Health Facilities Health center 15\.4 7\.13 Health Unit 6\.5 4\.2 Road paving Rials/m2 5125 3485 * The quality of infrastructure is similar and built according to government standards of construction This is further confirmed by data on school cost released recently for schools financed by the Social Development Fund (SDF), the Public Works Project (PWP) and the Basic Education Expansion Project (BEEP): Project Average cost per School Classroom Student M2 SFD 69837 11347 301 142 PWP 49293 9562 189 139 BEEP 55634 12172 376 158 Source: Analysis of School Construction 1997-2003, The World Bank Sept 2003 The same situation prevails in the water and sanitation sector, especially in the rural areas where, for example, a water supply scheme designed to supply 7,200 inhabitants would cost the Rural Water & Sanitation Authority the equivalent of US$135,945 while the same project undertaken under the Public Works Project would only cost US$120,246, a savings of about 13%\. This becomes significant when one considers the number of such schemes involved in the project\. - 21 -  Economic and Financial Analysis of a typical Water Supply subproject managed by NWSA: Hypotheses: Average number of households 400 Capital cost 140,000 US dollars Operation & Maintenance 5% of capital costs cost of water produced 10 YR/m3 Water tariff 15 YR/m3 Water losses 20% Daily production 430 m3/day Average saving on Water from Tanker 150 YR/household/year Operation Production Total Sales Avoided Total Net Economic Net Fin\. Invest\. & Mainten\. Costs Costs costs (tanker)Benefits Benefits Benefits 1 56000 56000 -56000 -56000 2 84000 7000 1569500 1660500 0 -1660500 -1660500 3 7000 1569500 1576500 1883400 60000 1943400 366900 306900 4 7000 1569500 1576500 1883400 60000 1943400 366900 306900 5 7000 1569500 1576500 1883400 60000 1943400 366900 306900 6 7000 1569500 1576500 1883400 60000 1943400 366900 306900 7 7000 1569500 1576500 1883400 60000 1943400 366900 306900 8 7000 1569500 1576500 1883400 60000 1943400 366900 306900 9 7000 1569500 1576500 1883400 60000 1943400 366900 306900 10 7000 1569500 1576500 1883400 60000 1943400 366900 306900 11 7000 1569500 1576500 1883400 60000 1943400 366900 306900 12 7000 1569500 1576500 1883400 60000 1943400 366900 306900 13 7000 1569500 1576500 1883400 60000 1943400 366900 306900 14 7000 1569500 1576500 1883400 60000 1943400 366900 306900 15 7000 1569500 1576500 1883400 60000 1943400 366900 306900 16 7000 1569500 1576500 1883400 60000 1943400 366900 306900 17 7000 1569500 1576500 1883400 60000 1943400 366900 306900 18 7000 1569500 1576500 1883400 60000 1943400 366900 306900 19 7000 1569500 1576500 1883400 60000 1943400 366900 306900 20 7000 1569500 1576500 1883400 60000 1943400 366900 306900 Economic NPV 746,719 Economic IRR 20% Financial NPV 399,955 Financial IRR 17% - 22 -  Annex 4\. Bank Inputs (a) Missions: Stage of Project Cycle No\. of Persons and Specialty Performance Rating (e\.g\. 2 Economists, 1 FMS, etc\.) Implementation Development Month/Year Count Specialty Progress Objective Appraisal/Negotiation 10/24/1998 11/05/1998 Supervision 06/02/1999 3 Operations Officer (1); Fin\. Mgnt S S Spec\. (1); Projects Officer (1) 11/20/1999 3 TTL (1); Operations Officer (1); S S Financial Analyst (1) 06/10/2000 3 TTL (1); Projects Officer (1); S S Fin\. Mgnt Spec\. (1) 12/10/2000 3 Fin\. Mgnt Spec(1); Projects S S Officer (1); TTL (1) 05/07/2001 3 Implementation Spec\. (1); Fin\. S S Mgnt Spec\. (1); TTL (1) 02/19/2002 5 Fin\. Mgnt Spec\. (1); TTL (1); HS HS Implem\. Spec\.(1); Economist (1); Environmental Spec\. (1) 11/04/2002 3 TTL (1); Fin\. Mgnt Spec\. (1); HS HS Implementation Spec\. (1) 05/28/2003 3 TTL (1); Fin\. Mgnt Spec\.(1); HS HS Implementation Spec\. (1) ICR 09/16/2003 3 TTL (1) Sr\. Financial HS HS Analyst (1) Sr\. Economist(1) (b) Staff: Stage of Project Cycle Actual/Latest Estimate No\. Staff weeks US$ ('000) Appraisal/Negotiation - 133\.0 Supervision - 257\.0 ICR - 25\.0 Total - 415\.0 Note: (a) The total amount excludes US$8,000 made available through TF during project preparation; (b) The amount indicated as of negotiations, includes amounts spent during Identification/Preparation\. - 23 -  Annex 5\. Ratings for Achievement of Objectives/Outputs of Components (H=High, SU=Substantial, M=Modest, N=Negligible, NA=Not Applicable) Rating Macro policies H SU M N NA Sector Policies H SU M N NA Physical H SU M N NA Financial H SU M N NA Institutional Development H SU M N NA Environmental H SU M N NA Social Poverty Reduction H SU M N NA Gender H SU M N NA Other (Please specify) H SU M N NA Private sector development H SU M N NA Public sector management H SU M N NA Other (Please specify) H SU M N NA - 24 -  Annex 6\. Ratings of Bank and Borrower Performance (HS=Highly Satisfactory, S=Satisfactory, U=Unsatisfactory, HU=Highly Unsatisfactory) 6\.1 Bank performance Rating Lending HS S U HU Supervision HS S U HU Overall HS S U HU 6\.2 Borrower performance Rating Preparation HS S U HU Government implementation performance HS S U HU Implementation agency performance HS S U HU Overall HS S U HU - 25 -  Annex 7\. List of Supporting Documents l Project Appraisal Document l Credit Agreement l Project Supervision Reports l Socio-Economic Beneficiary Impact Assessment l ICR of Public Works Project-I l ILICR of the Secondary, Tertiary and Rural Roads Project-Morocco l Guidelines for Preparing ICRs issued June 1999 - 26 -  Annex 8\. Beneficiary Survey Results I\. Introduction The intensive learning ICR requires that a beneficiary impact assessment be carried out and use the results as part of the report\. In compliance with requirement, a study was carried out between May-July 2003 to find out the impact of the Project on different aspects of the lives of the beneficiaries targeted\. The TOR was prepared by both the Bank and the Project\. A sample size of 123 subprojects, 81 completed and 41 were under implementation, was randomly selected\. This number represents 15% of the total population of 826 subprojects distributed between ten governorates\. The sector distribution of sample was 8 health, 80 education, 20 water, 3 sanitation, 5 roads, 3 agriculture, and 4 social\. The sampled population were selected in accordance with the following criteria: l poverty level; high, medium, and low l number of subproject types l community type; urban, rural, remoteness Nine survey teams consisted of 27 members carried out the field survey\. Each team included three members 2 male and one female\. Prior to commencing the field works, the teams were trained for a consistent and reliable data collection\. II\. Summary of Findings 1\. Number and quality of education facilities had improved\. Enrollment rate in basic and secondary education has increased for both sex by (141%), total average increase was (181\.5%) for females versus (113\.4%) for males\. 2\. Improvement of education environment: Average of students' number to teachers declined from 28\.4 student/teacher to 27\.7 student/teacher\. 3\. Health room facilities increased by 217\.2% as compared with situation before implementation of sub-projects by PWP-2\. 4\. Various services provided by health facilities has increased and improved; clinical birth delivery increased by 31%, improvement for children immunization against six diseases increased by 113%, liver infection immunization increased by 19\.8% and women's tetanus increased by 35\.9%\. 5\. Health staff and assistants increased by 69\.2% and 109\.1%, respectively\. 6\. Water reservoir capacity increased by 749\.8%, main and branches distribution network by (438\.8%)\. 7\. Physical and psychological burden on women have improved\. 8\. Easy access to water improved environment and health status considerably\. 50\.0% of families who benefited from water sub-projects connected to water network to houses, (28\.6%) public stand tape\. Family average water consumption increased from 110\.0 to 162\.5 liter/day (47\.7%), community's daily average water supply quantities increased by 69%\. Average roads area 111,303\.5 square meters, supporting walls 575 cubic meters, and bridges 287 square meters\. 9\. Pedestrian and vehicles using the roads daily increased by 81\.8% and 75\.4%, respectively\. Goods and commodities transport costs reduced by 1\.2%\. Various benefits gained: roads destruction, cut roads, elimination of sluggish water and mosquitoes, improved land and stores values surrounding the area\. Training rooms increased by (51\.7%), the rooms for other purposes (65\.3%), number of trainers (5\.9%), administrative staff (50%), and assistant staff (57\.1%)\. This led to positive impact in - 27 -  improvement of services delivered by these social centers and increased number of female trainees by 115\.9%\. 10\. Capacity of agricultural reservoirs totaled 9000 cubic meters\. Agricultural sub-projects will have a positive impact on beneficiaries, regarding harvesting of water to be utilized in drinking and irrigation purposes and recharge ground and surface water and improvement of water resource use\. 11\. Positive impacts of sanitation services on beneficiaries: Average distance between sanitation service and closest point to drinking source of water increased by (83\.3%), which eliminated drinking water source contamination risks caused by wastes water, problems: prejudice affecting soil, air pollution, and unpleasant smell, diseases infection; Malaria, diarrhea, and skin diseases\. Women and children benefited considerably from waste-water elimination\. 370 houses connected to sanitation network registered in the sample\. 12\. Benefits to women: at the aggregate level, women and girls have been the primary beneficiaries of improved infrastructure and services in these sectors\. Increased enrollment rates of girls were observed in rural areas\. Women have also found employment opportunities in the sub-projects established by the PWP-2\. At the sample level, female trainees trained at Women Productive Center increased by 166\.7%\. 15% of them obtained job as trainers at the centers or governmental agencies\. Some other, who own sewing machines weaving tools, worked at their homes as micro-scale handicraft projects, generated incomes (about 10,000 Yrs/month)\. 20 % of secondary jobs created were staffed by women as teachers, nurses, and cleaners\. Enrollment in basic and secondary education significantly increased\. Women and female children the most benefited groups of facilities especially, water, health, and education sub-projects\. - 28 -  Annex 9\. Stakeholder Workshop Results Under the auspices of the vice Prime Minister, Minister of Planning and International Cooperation a one day workshop was carried out by the Project at Sheraton Sana'a\. About 71 people were invited for the workshop and 61 managed to be there\. The workshop was attended by high ranking government officials (for opening ceremony) and representatives from local communities, donor community, NGOs, parliamentarians, and the Work Bank\. Attendees' name and title are listed in Annex 9\.1\. The main purpose of the workshop was to discuss, in addition to the findings of the beneficiary impact assessment, the following topics (i) Community participation; (ii) Sustainability of subprojects and; (iii) Policy and procedures adopted under the Project\. The workshop was structured as follows: Opening speech from the Project Manager A speech from the vice Prime Minister, Minister of Planning A speech from the World Bank delivered by Mr\. Robert Hindle, Manager Yemen Country Office A speech representing beneficiaries delivered by the General Manager of the Deft and Dum Sociaty Beneficiary impact findings presented by the consultant who prepared the study Discussions on the findings Coffee Break Lunch break Group discussions on the strengths, weaknesses, and possible improvements: Group 1 Community participation Group 2 Sustainability of subprojects Group 3 Policy and procedures adopted under the Project\. With the help of a moderator in each group (provided by the consultant) the three groups presented their findings in a plenary as follows: Group 1: Community participation Strengths\. It builds consensus to define priorities; nurtures the feelings of ownership for the project and the need to protect it; plays a major role in the operation and maintenance Weaknesses\. Use of tribal status to influence in defining priorities; lack of confidence based on earlier experience; existing traditions and habits which prohibit engaging community as a whole; difficulty in understanding concept of community participation; difficulty in collecting community contribution to the subproject cost Suggestions for improvements\. Introduce measures to minimize the use of power/influence in subproject selection; awareness campaign to explain the importance of community participation in the decision making process; reinforce woman role the participation process; reinforce the role of local councils in planning and need assessment process; understanding of local government law by the communities Group 2: Sustainability of subprojects (in rural areas) Strengths\. strong sense of ownership; presence of leadership and prominent/ political figures; good management with sufficient income would ensure sustainability of water projects Weaknesses\. Lack of interest from local government in giving support to projects; interventions of - 29 -  powerful people in running income generating subprojects; lack of administrative and technical skills at the community level to run water projects Suggested recommendations\. Improve coordination between the Project and local councils and relevant sectors/line ministries; more transparent in electing members to beneficiary committees involving local councils; capacity building and training of the admin and technical to operate and run projects Group 3: policies and procedures Strengths\. They help to ensure that a project is feasible (through availability of operation plan); the allocation of 20% of the investment budget for subprojects in remote areas was appropriate; mandatory community contribution was also a strength; carrying out field survey to verify the eligibilty and other fudiciary aspects; established selection criteria; taking environment into account in the project design Weaknesses\. Not enough supervisory staff in bigger subprojects; not providing enough budget for financing studies in dam projects; financing extensions to existing facilities reduce the chance for remore communities to get projects; use of standard designs without taking into account of specific location; awarding contracts to non-performing contractors; not employing labor from the communities Suggested recommendations\. increase number of supervisory staff for bigger projects; make reasonable budget for studies in dam projects; empasize priority of projects in the remote areas; ensure that designs are in tune with the local environment; avoid awarding contracts to non-performing contractors; priority fpr employment to be given to local labors\. - 30 -  Appendix 1\. List of Workshop Participants Name Title Ahmed M\. Sofan Vice Prime Minister, Minister of Planning and International Cooperation Hamoud Khaled Alsofi Minister of Civil Service and Dr\. Abdulsalam Mohamed Al Jawfi Minister of Education Dr\. Abdulwahab Raweh Minister of Higher Education AbdulKarim Al Arhabi Minister of Social Affairs and Labor Hans Van Hufel Dutch Embassy Martin De La Dutch Enbassy Sha'if Alhamdani USA Embassy Robert Hindle World Bank Yemen CO Ali Khamis World Bank Yemen CO Jean-Francoise Barres World Bank Yemen CO Mikael Mengesha World Bank Yemen CO Jamil AlAnesi World Bank Yemen CO Brigadier Abdulwahid AlBukheiti Governor of Sana'a Ahmed Mohamed AlKahlani Minister AlJalil Gajim Member of Parliament Sheikh Zeid Abu Ali Member of Parliament Abdulhamid Farhan Member of Parliament Sultan AlBarakani Member of Parliament Ahmed Ahmed AlEqari Member of Parliament Ahmed AlAkwa Deputy of AlJawf Governor Amin Ali Alwarafi Vice Governor of Ibb and head of Local Council Abdullah AlShater Deputy Minster Ministry of Planning Dr\. Mutahar AlAbbasi Deputy Minster Ministry of Planning Dr\. Tareq Sinan Abu Lahum Head of AlIslah Charity Society Representatives (3 members) Deft and dum Society Mohsen Abdulla Bahtili Head of Community Water Association, Shabwah Saleh Mubarak AlFaqeish Finance Officer Community Water Association Shabwah Qasem Abdulla Abdu Head of Community Water Association, Monirah Mohamed Husain Abdulla AlAhdal Finance Officer Community Water Association Monirah Three women Representative AlZahra Woman Association Eng\. Yasmin Al awadhi Ministry of Public Works Contractor Yahya Hujairah Contractor Contractor Ahmed Dhahbash Matari Contractor Contractor Hasan Abdo Fatah Contractor Contractor Husain Jessar Contractor Contractor Mansoor AlAthwari Contractor Contractor Mohamed ALshaibani Contractor Eng\. Saeed AlHuraibi Consultant Eng\. Abdu Saeed AlShaibani Consultant Eng\. Mohamed AlMutawakkil Consultant Eng\. Abdurahman AlSalwwi Consultant Eng\. Abdulhameed AlJawiyah Consultant Eng\. Abdulbari Albarakani Consultant - 31 -  Additional Annex 10\. Borrower's Contribution to the ICR - 32 -  1\. Assesment of Development Objectives and Design and Quality at Entry 1\.1 Original Objectives: The Second Public Works Project was an extension of the Public Works Project (Cr\. 2878-YEM) with the same overall development objective to mitigate the adverse effects of the Economic adjustment through poverty alleviation measures targeted to the country's poor communities\. 1\.2 The specific objectives are: (i) creation of jobs; (ii) provision of needed infra-structure to improve services and environmental conditions particularly those affecting women and children; The Project also seeks to ensure sustainability through: (iii) community involvement in project selection, preparation andimplementation; implementation; (iv) Development of local contracting and consulting firms; The project's objectives are consistent with the Bank's Country Assistance Strategy CAS of 1996 which focused on supporting stabilization, structural reforms and social protection measures, improving portfolio implementation and sustainability of investments, and promoting sustainable natural and human resource development\. The PWP-2 objectives are considered to be a cornerstone in IDA's support to the country, in particular social protection measures through targeting of employment opportunities to low-income areas\. Specific reference is made in the CAS to PWP-2\. The project would implement relatively small labor intensive projects in deprived areas with high poverty and would ensure sustainability through community involvement in project selection, preparation, implementation and subsequent operation of completed works\. The design of the Project was also to play a catalytic role in attracting donor financing\. In this respect the Project was able to attract significant donor financing US$ 52\.1 million amounting to more than 100% of the Credit, and exceeded estimates projected at time of appraisal (PAD estimates US$ 40-50 million) This accomplishment can be attributed to exhaustive efforts of the Minister of MoP&IC and Chairman of the Steering Committee in mobilizing additional resources; the PMU's track record in efficient implementation and transparent procedures and the World Bank's supervision mission reports acknowledgment by rating PMU's performance as Highly Satisfactory which encouraged donors to fund PWP activities\. The complexity of the project derives from management and supervision of contracts that have a diverse geographic distribution in order to reach out to extreme remote and deprived areas, and quantity of contracts to be managed at the same time\. In addition, managing funds from six different donors ( IDA, OPEC, Netherlands, USA, French, Italian) requires complex arrangements in distribution of funds, different kind of interventions, reporting methods, financial recording and reports, replenishments, etc\. 1\.3 Revised Objectives: Due to the fact that PWP-2 was an extension the original objectives were tuned and well defined and thus did not need to be revised during course of implementation of project\. During the MTR it was noted that due to the unfavorable exchange rate of the SDR against the US dollar, the credit amount will decrease from US$ 50\.0 million at the time of appraisal to US$ 45\.5 million according to estimations at time of MTR\. (At time of closing credit, the final amount was actually reduced to US$ 46\.456 million)\. - 33 -  Accordingly all performance indicators were adjusted so that the project could be evaluated on a realistic basis as follows: No Description Original Projections Revised Projections Actual at end of during MTR project 1 Jobs Created (person-month) Approx\. 95,000 85,313 94,883 2 Cost-Effective provision of 800-900 S\.P completed 728-800 827 infrastructure 3 Disbursement US$ 50\.0 US$ 45\.5 (US$ 46\.45 at US$ 45\.6 million closing of Credit) 4 Dev\. of small-scale consulting and 150 consult\. Eng firms Contracted with contracting industry and 100 contractors, 380 Engineers 478 Contractors 5 Improved Project Management No \.of PMU personnel - 16 trained\. 1\.4 Critical Assumptions and Risks involved: 1\.4\.1 Maintaining a high labor content- through selection of sub-projects with high labor content This assumption was met and sub-projects selected achieved the revised projections for labor content\. This risk has been minimized or eliminated through the PMU's strict compliance with selection of projects that have high labor content in addition to improvement in monitoring and recording labor on site\. 1\.4\.2 Low unit rates- All assumptions in the PAD were realized\. In spite of the fact that significant numbers of sub-projects were implemented in remote and extreme remote areas, low unit rates were still maintained\. This can be attributed to various factors such as:- - Timely payment of dues to contractors:- Once submitted and after verification payment certificates are processed at the MoF and CBY by PMU staff and the contractor receives his dues directly and within a period of one week to ten days\. - Contractors' learn from experience:- Small scale contractors have participated in implementation of almost 2000 sub-projects with the PWP since its establishment, which has generated adequate experience for contractors to enable them to better manage works and thus maintaining low unit rates\. - Competitive bidding practices:- All sub-projects are procured through competitive bidding giving all contractors equal opportunities and adequate time to bid\. Transparent procedures for award and ease of access to information all contribute to build contractors trust\. - Communities' put forward needed infrastructure for funding:- Demand for infrastructure by communities is much more than available funds\. The PWP has been able to fulfill less than 20% of requested sub-projects\. 1\.4\.3 Economy provides enough opportunities to support a growing contracting industry\. In total during 1999 to 2003, the PWP contracted with 713 contractors out of which 478 for IDA Credit alone\. Compared to Phase I, where by the year 2000, 174 contractors had been contracted\. This increase supports the assumption that the overall economy has augmented the contracting industry to a very large extent\. - 34 -  1\.5 Original Project Components: The Project has three components: i Community Infra-structure Small scale civil works for construction, rehabilitation, and / or extension of infra-structure works\. These will be selected from requests submitted by local communities and local government according to set selection criteria\. They will cover sectors of health, education, urban & rural water supply and sanitation, storm water drainage, flood protection, road paving with an average project size of US$ 60,000\. ii\. Technical Assistance:- technical assistance and consultant services for project preparation and implementation\. iii\. Project Management:- Maintaining & further strengthening the PMU that was established for PWP\. Civil works component accounted for 86\.3% of total project cost reflecting its relevance in meeting project objectives of both job creation and provision of community infra-structure\. The PWP reputation established during Phase I of speed of delivery, fulfilling its commitments with communities who have responded positively and good quality works, have all led to increase in demand for projects\. In achieving its objectives, the PMU was assisted by numerous consultants mainly for i- preparation of designs and tender documents for non-typical projects such as water harvesting structures, ii- conducting EIAs for environmentally sensitive projects, iii- undertaking training for PMU staff and local consultants on various issues such as increase environmental awareness, community participation, supervision of projects to improve quality of works\.etc iv- supervision of works on site, v- auditing both financial and for quality control of works\. Experience gained by PWP staff during Phase I greatly enhanced its performance during this phase\. Systems and procedures have been further fine-tuned to improve implementation, monitoring, financial procedures \.etc, which all contributed to the PWP's increase in its disbursement capabilities from about US$ 1\.5 to just over US$ 3\.0 million\. 1\.5\.1 Revised Components: The DCA was amended three times for various reasons as elucidated below: \. Ist Amendment: The DCA was amended on August 2, 1999, to allow PWP to disburse right from the beginning according to the new procedures for disbursement based on Project Management Reports (PMR) instead of March 2000\. Accordingly Section 4\.01 and 4\.02 were amended\. Also in the same amendment, the Authorized allocation of the Special Account was increased from US$ 4\.0 million to US$ 7\.0 million\. - 35 -  2nd Amendment: To allow schools to be operational and provide students with minimum facilities, it was agreed that PWP will procure basic school furniture in the form of combined desks for all schools implemented\. Thus on September 22, 2000 the DCA was amended to re-allocated budgets in Schedule 1 as shown in table below to allow procurement of School furniture\. It was estimated that in total, US$ 1\.78 million would be needed out of which 1\.0 million would be financed from community contributions and US$ 0\.78 from the Credit\. Category Original Credit Amended amount of the Allocated in SDR Credit SDR Civil Works 30,200,000 30,100,000 Goods & Equipment 350,000 350,000 Furniture 0 600,000 Consultants' services 2,900,000 2,400,000 Operating Costs 1,800,000 1,800,000 Unallocated 350,000 350,000 Total 35,600,000 35,600,000 3rd Amendment: Due to speed in delivery of services and hence disbursement, the authorized allocation, which was increased initially from US$ 4\.0 million to US$ 7\.0 under amendment 1 was still not adequate\. On January 30, 2001 it was again increased to US$ 10\.0 million Paragraph 1 © of Schedule 5\. * These figures will be finally closed before October 31,2000\. Disbursement as of September 30,2003 Category In PAD Actual (Latest Estimates) IDA Govt C\.P Total IDA Govt C\.P Total Civil Works 43\.0 6\.0 4\.0 53\.0 39\.088 6\.9 4\.04 50\.1 Goods & 0\.5 0 0\.5 0\.261 0 0\.26 Equipment School furniture 0 0 0 0 0\.99 0 0\.82 1\.81 Operating Costs 2\.5 0 0 2\.5 2\.13 0 2\.13 Technical 4\.0 0 0 4\.0 3\.73 0 3\.73 Assistance Total 50\.0 6\.0 4\.0 50\.0 46\.431 6\.8 4\.86 58\.03 Fluctuations in the exchange rate of the SDR V US$ since appraisal of project has led to reduction in total value of the Credit from US 50\.0 million to US$ 46\.45 million\. Exchange rate fluctuated on average between 1999 to 2003 as follows: 1\.4 ; 1\.31; 1\.26 ; 1\.29: 1\.36 Disbursement from all donors as of September 30, 2003: Category IDA Cr\. OPEC USA Dutch French Italian Local Total 3168 Fund Grant Grant Civil Works 39\.088 5\.076 12\.596 10\.439 0\.396 0\.576 8\.007 + 82\.95 6\.77 * Goods&Eqpt 0\.261 0 0\.086 0\.057 0 0 0 0\.327 School Furniture 0\.999 \.032 0\.583 0\.042 0 0 0\.728 2\.386 Consultants 3\.701 0\.303 0\.890 0\.956 0\.022 0\.025 0 5\.899 Oper Cost 2\.130 0\.152 0\.165 0\.45 0 0 0\.231 2\.723 Total 46\.181 5\.563 14\.32 11\.944 0\.418 0\.601 15\.736 94\.285 * Community Contributions in Kind - 36 -  IDA Cr\. All Donors Percentage of Civil Works to Total Project Cost: 86\.3 % 88% Percentage of Operating Cost to Total Project Cost: 3\.7 % 2\.8 % Percentage of Consultant Services 6\.4 % 6\.3% Percentage of Goods, Equipment & Furniture 3\.6 % 2\.9% 100% 100% 1\.6 Quality at Entry: The objectives of the project were consistent with the CAS of 1996\. The Project was designed to achieve the objectives in simple procedures taking into account experience gained during phase I\. Risks and assumptions were all realistic and measures taken to minimize them were appropriate\. As for compliance with Bank's safeguards policies, the project had a comprehensive environmental management plan and took into account need for training and awareness for staff and consultants involved\. 2\. Achievement of Objectives and Outputs: 2\.1 Outcome / Achievement of Objectives: The project substantially achieved its objectives as follows: (i) No of work-months generated for direct Labor: Actual number of work-months generated by project for direct labor is 94,883 work-months at a cost of US$ 15,943,000\. The objective was achieved at 109%; (ii) Investment cost: US$ 486 per work month; (iii) Overall Labor Content: 31\.8 %; and (iii) No\. of Beneficiaries: Female 1,739,118; Male:- 1,512,641 Total :- 3,251,759\. (iv) Investment cost per beneficiary: US$ 15\. (Investment of US$ 20 attained the highest scoring in the selection Criteria)\. During implementation period of the Project i\.e 1999 to 2003, there was a significant increase in cost of some building materials mainly steel and cement, leading to increase in cost of civil works; while daily wages of skilled and unskilled labor did not increase\. Thus cost of labor, although above 30%, compared to number of jobs created should have been higher\. Job opportunities have been created in areas with high Poverty whereby high levels of unemployment prevailed\. These have generated income for poor families and hence contributed to a certain extent in Poverty Reduction\. 2\.2 Delivery of infrastructure to improve services and environmental conditions particularly those affecting women and children: Original estimation in the PAD was delivery of 800-900 sub-projects for an investment of US$ 53\.0 million\. This was revised to 728-800 during MTR\. In actual, the Project delivered 827 sub-projects, at an investment of US$ 50\.14 million (including Community Contributions in Kind) spread all over the country especially in remote and extremely remote areas\. An important criterion for selecting project sites was targeting areas that are deprived from basic services\. This resulted in more than 80% of sub-projects being implemented in Rural Areas\. Average cost of Sub-Project was US$ 60,628\. The most deprived segment of rural communities are the women and children who suffer the most - 37 -  from lack of services, yet bear the highest burden of providing the basic amenities of daily life\. Improving access to basic services especially health, education and water benefits the whole segment of the community, but in particular women and children accrue highest benefits from such services\. Besides the economical advantages gained from reduced cost of traveling, increase in incomes due to increase in level of education (long-term benefit) improved health thus better output; there are significant improvements in the general quality of rural communities especially women and children\. Selection of sub-projects took into consideration benefits for girl\. Thus higher priority was given to girls schools and water projects\. 2\.3 Community Participation in Sub-Project Selection, Preparation and Implementation: Within the first phase, community participation was one of the objectives with the main purpose of introducing the concept in IDA financed projects as well as spread awareness of its importance within communities benefiting from services\. Positive experience gained in working closely with local communities during Phase I which resulted in improved sustainability of completed projects led to imposing a minimum of 5% community contribution as a Rejection Criteria for selecting projects\. During this phase the PWP further consolidated the experience, procedures and mechanisms for dealing with communities at the various stages of the project cycle\. 2\.3\.1 Identification Phase: Requests for sub-projects come from communities, local NGO's and local authorities\. After initial desk screening, the PWP conducts a thorough verification process with local communities to ensure that there is a consensus on prioritizing their needs and selection of appropriate site\. This was done through meetings and discussions directly with members of communities, election of beneficiary committees who are later in-charge of follow-up project implementation, mobilization of contributions and O&M\. 2\.3\.2 Preparation Phase: As for Phase I, communities get involved in preparation of designs and documents for some of the projects that are non-typical, in preparation of site (leveling), and in improving of road access to difficult sites, which result in significant reduction in cost of civil works\. 2\.3\.3 Implementation Phase: As the PWP strictly abides by the World Bank Procurement Guidelines of tender announcement etc, contracting with local communities for implementation is permissible in cases where local NGO's participate in tendering process and fulfill all requirements\. Numerous contracts have been awarded to eligible contractors from beneficiary communities to implement sub-projects in their own locality\. Communities have been involved in the supervision of sub-projects on site on an informal basis and are encouraged to report to the PMU on any shortfalls by the contractor or supervising engineers\. 2\.3\.4 Operation & Maintenance Phase: The PWP has deeply consolidated its practice with local communities for smooth O&M of sub-projects and to ensure sustainability\. This is especially the case for water & sanitation projects that are not handed over to NWSA but to local communities\. A comprehensive procedure is followed whereby a committee is elected through general elections ensuring all segments are represented including women before commencement of project\. This general committee is officially registered with the Min\. of Social Affairs to give it a legal status\. Designs and technical issues are discussed with all members\. A special agreement between the PWP and the beneficiary committee, endorsed by the Local Council and Governor has been adopted, which specifies obligations of each party\. The agreement spells out in details the scope of the work to be undertaken, community's contributions to the project, its role in facilitating implementation and obligations for - 38 -  operation & maintenance\. Signing and endorsing the agreement is pre-conditonal to commencing implementation\. A sub-committee comprising of 4 members is elected from the general committee who are trained on financial issues such as accounting, setting tariffs, maintaining bank account \.etc, and technical aspects for operation & maintenance\. 2\.3\.5 Coordination with Local Councils: In view of the responsibilities and functions of Local Councils established by Decree No\. 4 for the year 2000, which include representing communities in identifying, prioiritizing, financing, implementing and sustaining development projects, the PWP initiated procedures in order that L\.C's could start undertaking responsibilities and functions entrusted upon them, especially in the role of representing communities\. These were approved by the Steering Committee\. In brief the procedures including informing all L\.C's officially of available funds, project objectives and selection criteria\. All L'C's would be aware of requests either applications being submitted through them or by endorsing investment programs prepared by PWP\. 2\.4 Development of Local Contracting and Consulting Firms\. In total the PWP-2 contracted with 713 contractors out of which 478 are for IDA financed sub-projects\. Average ratio of sub-projects per contractor is 1\.7 for IDA Cr\. and 1\.9 with all donors\. This indicates that awarding was not restricted to limited numbers but new contractors especially entrepreneurs were attracted to participate\. These contractors have received vigorous on job training for adhering to World Bank procedures, compliance with adequate bid bonds improved quality through strict supervision and insistence on complying with specifications and best practices\. In addition, they are more acquainted with transparent award and payment procedures\.The PWP contracted with 492 supervision consultants out of which, 348 are IDA financed sub-projects\. Average number of sub-projects per consultant is 2\.4 for IDA Cr\. and 2\.9 with all other donors\. This indicates that a balance has been maintained between giving opportunities to significant number of consultants while at the same time maintaining cost benefit of awarding more than 2 sub-projects to be supervised at the same time\. 3\.0 Output by Components: 3\.1 Community infra-structure: In total 827 sub-projects were implemented distributed geographically among all the twenty governorates and in almost all the 332 districts\. Funds available were distributed between the governorates in accordance with the set criteria in the PAD, i\.e 50% according to population census, 30% to the CSO Poverty indicators (Upper Poverty Line) and 20 according to remoteness and deprivation\. After discussions with the S\.C it was agreed to distribute the 20% for remoteness according to the following criteria: 30% for No\. of Poor districts in each Governorate ( according to the Min\. of Local Authority), 30% for surface area of the governorate; 20% again for Population and 20% average of the three indicators\. - 39 -  3\.1\.1 Multi Sector distribution of Sub-Projects: Sector No\. of S\.P Investment in US$ % Health 48 2\.24 4\.9 Education 524 26\.14 57\.0 Water 132 6\.51 14\.3 Sanitation 19 1\.9 4\.2 Road Paving 34 3\.6 7\.9 Agriculture 21 1\.55 3\.5 Public Buildings * 9 0\.54 1\.3 Social/Vocational Trng 25 2\.49 5\.4 Env\. Mitigation 15 0\.68 1\.5 Measures Total 827 45\.64 100 * Note: such as public toilets, cultural center, building for fishing port, vet nary center, slaughterhouse Again as was the case for PWP-I, number of schools was significantly high\. This was due to the high demand for schools especially for girls in rural areas\. All schools have been provided with school desks (50,746 combined desks) and administrative office furniture for 117 schools at a cost of US$ 1\.8 million\. Percentage for health facilities was significantly reduced due to ensuring operation\. The PWP limited its activities to providing building for a health facility that was already operational under in informal shelter but staff from Min\. of Health payroll were already functioning and basic equipment available\. Percentage in water and water harvesting schemes increased significantly due to high demand and their benefit to women & children\. Sanitation significantly reduced due problems with locating suitable site for treatment and disposal\. Social & vocational training increased, as commitment form concerned agencies to equip and operate was high\. 3\.2 Technical Assistance: The PWP has effectively used technical assistance in the form of local consultants for numerous activities such as verification of projects and site visits, community mobilization, preparation of designs, conducting training workshops, environmental assessments and supervision of sub-projects on site\. 3\.2\.1 Support to Local Contractors and consultants: The PWP had contracted with 713 contractors out of which 478 are for IDA financed sub-projects\. In most cases performance of contractors has been satisfactory\. Diligent supervision of implementation had resulted in satisfactory quality of works\. A few cases of poor performance were encountered\. These were dealt with either by terminating contracts and or enhancing supervision until quality is improved\. Similarly the PWP had contracted with with 492 supervision consultants out of which, 348 are IDA financed sub-projects\. By affording opportunity to large numbers of contractors and consultants to have access to deal with institutionalized procedures and familiarizing with World Bank Guidelines, the PWP has significantly contributed to the development of local consultants and contractors industry\. In addition, before opening each tender contractors were explained on PWP procedures and W\.B guidelines, methods preparing bids, submission of effective bid bonds, good practice in implementation of different stages of works, quality of material (specimen are normally demonstrated) ensuring satisfactory quality of finishings etc\. Continuous efforts in improving contractors capabilities has led to significant improvement in the - 40 -  preparation & presentation of bids by the contractors during PWP-2\. Less arithmetical errors, random discounts and scribbling of figures were committee\. Several workshops were held for consultants for improving supervision and quality of works, environmental awareness and on community participation\. 3\.3 Project Management Unit: The PMU continued to function in an efficient and cost-effective mechanisms\. Its operating costs have been maintained at low levels reaching 2\.8% only including financing from all donors\. Staff have maintained high levels of motivation and diligence in project implementation and monitoring Systems and experienced gained over the years have enabled it to increase its disbursement capacity from US$ 1\.2 million to US$ 3\.0 million\. The PWP has built high credibility, confidence and trust among all stakeholders\. The PMU continued to further develop its MIS\. A new version has been developed for PWP-2 and various new programs and improvements have been included to facilitate better data management, reporting and coordination of data with the financial system\. In addition the system was developed to enable reconciliation of disbursements in the MIS and accounting, a requisite for PMRs, To enable the PWP to comply with PMR requirements a Manual of Procedures for compliance was prepared by Consultant during March 1999\. 3\.3\.1 Assistance to other PMU's: PWP staff have assisted a number of other projects in such matters as (i) establishing MIS and implementing PMR disbursement procedures for Sanaa Water & Sanitation Project; (ii) establishing MIS for Southern Governorates Rural Development Project; (iii) developing ToR's for MIS consultancy for Rural Roads Access Improvement Project; (iv) developing Manual of Procedures for the Port City Development Program\. 3\.3\.2 Geographic Information System (GIS): Due to the increased number of sub-projects implemented by the PWP and involvement of many other projects in similar activities, the need for developing a GIS was inevitable\. Availability of a GIS would enable the PWP to distribute resources better, demonstrate its activities visually, and avoid duplication of interventions with other projects\. Information already available with the SFD and other agencies using GIS has been added\. Different applications and queries for analysis were developed\. In addition, the PWP in coordination with the World Bank Consultant and other projects are working on unifying database for the GIS, which will eventually enable ease of exchanging information\. - 41 -  3\.3\.3 Coordination meetings between Projects: Projects with similar activities started an initiative to coordinate periodically (every quarter) to discuss all issues of common concern, actions taken to resolve problems etc\. The main objective of these meetings is to ensure full coordination of each project's implementation programs\. Recent focus was on the issue of sharing experiences on methods for coordinating with Local Councils to develop common strategy\. Some projects' experience is more positive than others\. 3\.3\.4 Strengthened its capacity in Environmental and social mobilization aspects\. The PWP diligently took to enhancing environmental awareness of its staff and consultants working on sub-project preparation & supervision through conducting of various workshops, and involving them in preparation of EIA and mitigation measures\. These activities were undertaken through an environmental specialist consultant who was approved by the Bank\. In addition, the PWP appointed a social mobilization specialist who, with a team including female, undertakes formation of beneficiary committees and training on different aspects including environmental awareness for local communities, health and hygiene, accounting and operation and maintenance especially for water & sanitation projects\. 3\.3\.5 Audit Reports: Since its establishment the PWP has submitted timely audit reports\. No significant discrepancies have been reported by auditors in management and accounting procedures, including internal controls, and all other aspects\. All Audit reports are unqualified\. Since its establishment four different auditors have been appointed to audit IDA Cr\. In addition, PWP activities are periodically audited by COCA\. 3\.3\.6 Procurement of Goods and Furniture for the PMU :- The following items were procured -Main Server ; One Laser Printer, Software systems; 9 Vehicles to replace the old ones\. In compliance with World Bank Guidelines for establishment of PMU's, all vehicles that were replaced were officially handed over to the Ministry of Finance\. 3\.3\.7 Bid Documents: In compliance with the Government laws of Finance and Tendering, all revenues from selling of bid documents including works, goods, furniture and stationery are being deposited in the MoF account at the CBY\. So far an amount of YR 40,986,626 has been deposited\. 3\.4 Attracting Donor Financing: During Phase II, the Project with support of the Minister of Planning & Int\. Cooperation, Chairman of Steering Committee has managed to attract several potential donors and has increased its portfolio from US$ 28\.0 million in 1996 to approximately US$ 111\.2 million as follows: US Commodity Grant US$ 19\.7 million, Dutch Grant US$ 22\.0 million, French US$ 1\.6, Italian US$ 0\.6; beneficiaries US$ 6\.3 and Government US$7\.23\. 3\.5 Economic rate of Return: Economic analysis for sub-projects implemented by PWP can be broken down into two categories (i) for those that do not have quantifiable benefits are subject to cost-effective analysis such as schools, health facilities, stone paving community operated water schemes and (ii) those subject to cost-benefit analysis such as water and waste water handed over to NWSA for operation\. For category (i) sub-projects selected met the main selection criteria of high cost- effectiveness represented by :- high labor content (overall 31\.8) , investment cost per work month of US$ 486 ( > US$ 500 rejection criteria) , community participation of 10\. % ( minimum required was 5% ) and investment cost per - 42 -  beneficiary of US$ 15 ( up to US$ 20 attained highest scoring)\. For category (ii) Almost all water supply projects implemented are in rural areas and community-operated\. The projects have proved to have a high IRR due to variuos reasons as follows: - (i) communities and or other agencies contribute to significant cost of these projects (supplying pumps, pipes and digging wells)\. Investment undertaken by PWP is for labor intensive components (ii) communities pay adequate tariffs per m3 that have cost recovery of investment of 4\.3 years with a relative low tariff of 23YR / m3\. A detailed analysis is attached as annex 1\. Number of NWSA operated water schemes were minimum as these are restricted mainly to urban schemes\. main parameters for ensuring high IRR are maintained i\.e NWSA national tariff is applied as soon as the project is handed-over on an incremental basis (the first 5 m3 are charged at YR 175/m3 and rates increase with consumption) \. House connections are borne by beneficiaries as their contributions\. These projects have high rate of return and cost recovery is within 6 years\. Analysis attached as annex 2\. For waste-water the rate of return is even higher as NWSA charges water tariff + 80% of water tariff for waste water and 13% fixed charges\. The average rate is YR 356 / m3 which yields a cost recovery of 3\.9 years\. Analysis attached as annex 3\. 3\.6 Institutional Development Impact: The project has had significant Institutional Development ýimpacts at various levels\. At the central level, Ministry of Finance, MoP&IC and Central Bank of Yemen have all streamlined their procedures for processing and making payments to a minimum\. (2-3 days at each)\. These were achieved in agreement with the PWP\. These actions have highly enhanced disbursement capacity of the PWP\. Contractors and consultants improved their capabilities in bid preparation, supervision of works, improved quality, abiding by specifications, timely delivery etc\. Improved performance of PMU staff through experience gained, training exposure demand for efficiency\. 4\. Imlementation Record and Major Factors Affecting the Project: In general there were no major factors that adversely affected implementation\. The Project was completed on time and Credit was closed as per schedule on June 30, 2003\. In total the PMU advertised Thirty-eight (38) tenders for all donors out of which fourteen (14) are for IDA Credit\. In total 1425 sub-projects were contracted for a total amount of US$ 88\.0 million, out of which 827 for an amount 50\.14 are from IDA Cr\. Regular site visits were conducted by World Bank staff to verify varoius aspects of sub-projects implementation such as compliance with criteria in terms of (i) urgent need i\.e represent communities priority, (ii) are well targeted i\.e in high poverty areas, (iii) are sustainable and improve environmental conditions\. In addition, quality of works are monitored so as to meet the required specifications\. All these aspects were recorded as highly satisfactory in Aide-memoires\. Risks encountered during Phase ­I such as (i) Geographic Distribution of projects being too dispersed and in extremely remote areas posed high safety risk, (ii) dealing with numerous non-institutional contractors and having to impose strict regulations such as forfeiting of bid and performance bonds, imposition of liquidated damages, (iii) competitive construction industry led to low prices that could undermine quality of works; did continue to a certain extent but with less severity due to experience gained and fine tuning of procedures to overcome difficulties\. Responsiveness of governorates to such issues as community contributions, resolving issues, requesting eligible projects to be financed, etc which facilitate speed of delivery of projects, varied tremendously between governorates\. This led to non-utilization of all funds allocated for some governorates (in particular AlBeida and ALMahra), and due to decrease in credit amount from US$ 50\.0 million to US$ 46\.4 million, and time available, these governorates affected more than others whereby all funds allocated were fully - 43 -  utilized\. The Prospect of compensating these governorates within Phase III will be considered for approval and discussion with concerned governors to take steps to improve matters\. The PWP gave particular attention to the issue of compliance with all requirements of the EMP\. A detailed procedure was developed including screening checklists, matrices for EMP \.etc\. An Environmental Consultant was appointed to undertake EIA's of all sub-projects that are environmentally sensitive, before submission of Quarterly Investment Plans to IDA for No-Objection\. Mitigation measures for each are taken into account in sub-project design, construction and operation\. Such measures mainly addition of incinerators to health facilities, addition of boundary walls to the same wherever economically feasible, upgrading of water collection points and improvements to outlets of some water catchment ponds\. 5\. Sustainability: Plan for sustainability is one of rejection criteria in selecting projects\. Different measures were taken for each sector to ensure sustainability\. In general coordination with all concerned agencies at the local level is established at the very early stages of sub-project identification and preparation\. For schools: Almost all schools selected were to replace existing schools functioning in temporary shelter or under trees\. In these cases operational budget is already available\. The Ministry of Education branch office is involved in site selection and handing-over to contractor\. Health Facilities: Difficulties encountered during Phase I in ensuring operation of health facilities led to rigorous scrutiny to ensure sustainability\. This led to significant reduction of numbers of health facilities implemented, (from 12\.8 % in Phase I to 5% ) except for those that are replacing currently operational facilities in temporary shelters where staff and equipment is already available, or rehabilitation and extension to operational facilities\. 16 Non-Operational Health Units built under PWP-1\. The PWP followed up with the Min\. of Health to include them in the MoPH operational budget for the year 2000 and 2001\. Eventually all were provided with staff and equipment\. Water Supply/Harvesting: Ensuring that each water project has an elected water user committee from the beneficiaries who are trained to operate and maintain as a pre-condition to implementation, has greatly improved sustainability of water projects Except for a few water projects all completed are operational\. Those non-operational (approx\. 6 ) are pending completion of other components by either beneficiaries or Rural water\. Three of these need alternative source of water as the wells have become saline\. The PWP branch offices are rigorously following up these issues\. Sanitation: Due to problems encountered with local communities on sites for disposal and treatment number of sanitation projects selected decreased significantly (from 8\.4 % in Phase I to 4\.2 %)\. This problem is manifested in the Lawder Sanitation Project, whereby the PWP completed the main sewer lines and could not commence work on the disposal sites due to disputes among landowners\. The negative environmental situation of the city, which was supposed to be solved prevailed and became a nuisance\. Eventually the Governor resolved the issue of land ownership and have undertaken to implement works\. These experiences have led the PWP to impose implementation of disposal and treatment sites as community contribution and pre-condition to selection\. - 44 -  Vocational training / social buildings: Concerned agencies undertake operation of facility as soon as completed\. In one case Min\. of vocational training has delayed in providing equipment, which are currently under tendering\. Coordination and involving local councils in the process have acted as facilitators in ensuring operation of completed facilities\. 6\.0 Bank & Borrowers' Performance 6\.1 Bank's Performance: The project's objectives are consistent with the Bank's CAS of 1996 and Government's development strategy, the PRSP which focus on supporting stabilization, structural reforms and social protection measures, sustainability of investments, and promoting sustainable natural and human resource development\. The PWP-2 objectives are considered to be a cornerstone in IDA's support to the country, in particular social protection measures through targeting of employment opportunities to low-income areas\. The appraisal took in consideration lessons learned from previous phase\. Realistic targets were designed in terms of performance indicators, financial management systems and monitoring\. Supervision missions were conducted on a regular basis by staff of the World Bank\. All issues of concern raised by the PMU, were addressed promptly, decisions and necessary actions were taken that supported and facilitated the smooth implementation of the Project\. Agreed actions were thoroughly followed-up\. Support and guidance was given as and when needed to PMU staff project to establish PMR based disbursement procedures\. The overall performance of Bank staff was Highly Satisfactory\. 6\.2 Government's Performance: As for Phase I, the Borrower's performance has continued to be highly satisfactory\. The MOP&IC has continued to facilitate & streamline procedures, for prompt payment of dues (contractors payments go directly to Min\. of Finance) \. Counterpart funds were made available on time\. Serious efforts were taken to facilitate successful implementation of the Project\. The Min\. of Finance & CBY were cooperative\. Arrangements established during Phase I with Min\. of Finance and CBY to reduce lengthy procedures for payments for counterpart funds still prevail and time taken to process payments significantly reduced and no major bottlenecks were encountered\. The S\.C role has been very constructive\. Deputy Prime Minister & Min of P&IC, Chairman of the SC played a pivotal role in mobilizing parallel finance from other donors\. Meetings were held regularly,major issues were presented and discussed and practical decisions were reached that facilitated the efficient functioning of the PMU\. 6\.3 PMU Performance: The PMU complied with all covenants in DCA and World Bank Guidelines\. Progress & Audit reports reports of the required standards have been submitted on time\. Staff performance has been highly satisfactory, with minimum numbers and minimum operating costs\. The PMU continued to build its credibility with all stakeholders\. Trust and confidence built helped in resolving a lot of conflicts and that could have impeded progress\. Economy and efficiency have been the essence of performance\. - 45 -  7\.0 Lessons Learned: i Government agencies can be supportive and play a positive role of facilitiator to PMU's that have proven to be efficient, transparent, built trust and deliver tangible results\. ii Use of MIS and GIS improves management of projects, efficiency and administrative costs\. iii In procuring Consultants' services increasing weightage for technical and financial proposals to 80 / 20 instead of 70 / 30 yields better quality output for supervision\. iv Transparent procedures for selection of contractors and consultants satisfies all parties concerned and reduces pressure and unqualified claims on the PMU\. v Non Institutional contractors can perform satisfactorily and abide to procedures given the right set-up that can enforce these procedures\. vi Transparent procedures and timely payment has had a significant impact on reducing unit rates\. vii Communities have proved to be well capable of managing operation and maintenance of water supply projects if properly trained\. This aspect should be further consolidated for all future projects\. viii Coordination with Local Councils at early stages of project cycle yields positive results in avoiding duplication of services provided by various implementing agencies, enhances their institutional development, consolidates decentralization and improves sustainability of projects\. ix To avoid major problems during implementation of sanitation projects, works should commence with treatment and disposal sites x Effective implementation can be achieved through PMU's\. 8\.0 Additional Information : 8\.1 Participatory District Development Plans: The PWP was requested by The Ministry of Planning and the Royal Neterlands Embassy in Sanaa, who had inititated a new exercise for preparation of Participatory District Development Plans as a pilot project in six governorates i\.e Hajja, Shabwa, Taiz, Albeidha, AlJawf and Hadhramut\. As a pilot phase two districts were selected in each governorate in accordance with set criteria agreed upon with the local authority\. Main objective of PDDP is to empower through capacity building, local actors (local executive agencies , local councils, NGO's and communities including women represantatives ) in preparing their development plans\. Main outputs of the Pilot Project were: 1 Establishment of a methodology and process for PDDP; 2 Training of 6 staff of executive agencies at Governorate level, thirteen members at district level (including members from local councils, community representatives and staff of executive agencies) from each governorate\. 3 Prepare 12 District Plans 4 A training Manual that will enable replication 5 Plan and estimated budget for formulating DDP's for the whole Republic\. The budget allocated was US$ 440,000 financed under the Netherlands grant to be completed over a period of six months\. The assignment was successfully completed on time and at 75% of budget allocated\. 8\.2 Al-Luhiya Fishing Port: The PWP was requested to undertake design of Al-Luhiya Fishing Port through specialized consultants finances by the Netherlands Grant\. 9 III Assessing Performance in Selected Thematic Areas - 46 -  9\.1 Poverty Alleviation and other social Objectives: On the event of project completion, the PWP undertook a Socio-Economic Impact Assessment (Summary attached as annex 4)\. The major outcomes indicated the following: Sub-projects implemented have been targeted in areas of high poverty; over 80 % of projects implemented are in rural areas, where highest poverty prevails in Yemen\. Districts with highest poverty were targeted within the governorates\. The Project did not adversely affect indigenous people, nor cause involuntary resettlement\. All Bank's safeguard policies were adhered to\. Gender Concerns: In selecting any sub-project, the PWP gave highest priority to those benefiting women, such as schools for girls, for all water projects the main beneficiaries are women & children, women training centers for income generating activities\. Environmental objectives: The project diligently undertook environmental issues through enhancing awareness of staff, consultants working with PWP and local communities benefiting from projects\. Screening of sub-projects led to only those with positive impacts to be implemented\. Mitigation measures were seriously implemented and included in all future designs and monitoring is still being undertaken\. Private Sector Development Objectives: The PWP contributed to private sector through capacity building of local contractors and engineers, in many aspects of project implementation such as : tender preparation, understanding and complying with World Bank Guidelines, complying with specifications and delivery of good quality on time and at minimum costs\. - 47 -  - 48 -

REVIEW

P072654

 ICRR 13027 Report Number : ICRR13027 IEG ICR Review Independent Evaluation Group 1\. Project Data: Date Posted : 02/24/2009 PROJ ID : P072654 Appraisal Actual Project Name : Second Small US$M ): Project Costs (US$M): 7\.50 7\.42 Enterprises Project Country : Timor-Leste Loan /Credit (US$M): Loan/ US$M ): 7\.50 7\.42 Sector Board : FPD Cofinancing (US$M ): US$M): 0\.52 0 Sector (s): Micro- and SME finance (67%) General industry and trade sector (15%) Other domestic and international trade (13%) Central government administration (5%) Theme (s): Other financial and private sector development (29% - P) Small and medium enterprise support (29% - P) Infrastructure services for private sector development (28% - P) Regulation and competition policy (14% - S) L/C Number : Board Approval Date : 09/28/2001 Partners involved : Closing Date : 07/01/2004 12/31/2007 Evaluator : Panel Reviewer : Group Manager : Group : Marcelo J\. Bueno Jorge Garcia-Garcia James Sackey IEGCR 2\. Project Objectives and Components: a\. Objectives: The main Project Development Objectives (PDO) of the Second Small Enterprise Project (SEP II) were to: (i) generate employment; (ii) accelerate economic growth; and (iii) improve small and medium enterprise (SME) competitiveness, by providing an SME line of credit, capacity building focused on private sector development (PSD), and rehabilitation of marketplace infrastructure \. b\.Were the project objectives/key associated outcome targets revised during implementation? Yes If yes, did the Board approve the revised objectives /key associated outcome targets? No c\. Components (or Key Conditions in the case of DPLs, as appropriate): SEP II's original components included the following: Component 1 - SME Line of Credit (SLOC) (planned, US$4\.0 million, actual, 0-Cancelled)\. The SLOC was for small and medium enterprise (SME) loans on commercial terms in the range of US$ 1,000-US$50,000 of which 50% was earmarked for agribusiness\. In late 2003, almost 1\.5 years after the Project's approval, the SLOC was cancelled with no funds having been disbursed, owing to the cross -condition of high levels of non -performing loans under the First SEP (SEP I)\. The PDO in the legal document was not formally changed despite the cancellation of the SLOC; nonet heless, the objectives in SEP II were expanded to encompass a wider set of activities in Component 2, Private Sector Development (PSD) and Capacity Building, Component 3, Marketplace Rehabilitation, and Component 4, Project Implementation Unit (PIU)\. In addition, two other activities were added to include the establishment of an investment and export promotion agency, and the development of an economic opportunity zone (see Additional Activities below)\. The US$4\.0 million from the cancelled SLOC was re-allocated to fund the expanded and new activities and key output/outcome indicators were revised for these activities \. Component 2 - Private Sector Development Capacity Building (planned, US$2\.24 million, actual, US$3\.315 million)\. It had three sub-components: (i) Business Development Services (BDS) which were to be provided from four business development centers (BDC) targeted to both existing and potential SEP I and SEP II borrowers, generally in the districts around Dili; (ii) Civil Servant Training (CST) in PSD theory and practice for 15-30 civil servants; and (iii) development of an enabling Business /Regulatory Environment (BRE)\. From the cancelled SLOC, funding for Component 2 was increased by US$1\.08 million to cover the additional activities subsequently built into the Program including: (i) a newly added sub-component on Government-Business Dialogue Promotion (GBDP) to foster better and more regular consultation between the government and business sectors; (ii) one additional Business Development Center in Maubisse; (iii) improvements in the legal and regulatory environment for businesses through consulting services to the Department of Economic Affairs; (iv) the provision of services to private microfinance providers and borrowers under other credit projects (e\.g\. credit unions under the Asian Development Bank project ); and (v) training to business associations and market management groups \. Component 3 - Marketplace Rehabilitation (planned, US$1\.0 million, actual US$1\.69 million)\. US$1\.0 million was for grants to the 13 districts of Timor-Leste to: (i) rehabilitate marketplaces based on proposals from community -based market management groups; and (ii) training for capacity building for market cooperatives under the BDS sub-component in Component 2\. The additional US$0\.69 million was for the construction of new markets and market infrastructure based on the demand proposals from the 13 districts\. Component 4 - Project Implementation Unit Technical Assistance (TA) (planned US$0\.26 million, actual US$1\.2 million)\. The TA was for consultant services, training, audit services, and incremental operating costs \. The additional funds of US$0\.94 million was for expanded activities in each of these areas including travel costs, salary increases, and miscellaneous items for the PIU office \. Additional Activities - With the restructuring of the Project in mid -2004, two activities were added to the Program, the Investment and Export Promotion Agency (IEPA) and the preparation of an Economic Opportunity Zone (EOZ) (planned US$ 0, actual US$0\.98 million)\. US$0\.80 million was for the creation of the IEPA, later re -named TradeInvest Timor-Leste (TITL), while US$0\.18 million was for TA on the feasibility work of creating an economic opportunity zone\. d\. Comments on Project Cost, Financing, Borrower Contribution, and Dates: Planned co-financing of US$0\.08 million and US$0\.44 million at appraisal from the Borrower and from unidentified foreign commercial resources, respectively, did not materialize at Project's end \. With the re-allocation of the SLOC for new activities after the mid-2004 SEP II restructuring, the Project's main focus shifted from private sector investment to institutional development, mainly to capacity building and systems development, while continuing public investments in marketplace development \. The Project's closing date was extended twice to 12/31/2007 for a total of 42 months, in the second instance, due to delays in the GBDP sub -component (new) in Component 2\. 3\. Relevance of Objectives & Design: Relevance of Objective The PDOs of generating employment, accelerating economic growth, and improving SME competitiveness were highly relevant to Timor-Leste's economic development priorities and consistent with the country's National Development Plan (NDP) and the Bank's 2006 country assistance strategy (CAS)\. To achieve these, certain key issues needed to be addressed for which the PDOs were designed \. They included: (i) improving Timor-Leste's economic performance; (ii) controlling the high underemployment and unemployment levels; (iii) accessing the many unavailable essential services which had a limiting effect in restoring private sector activities; (iv) preparing Timor-Leste for advancing toward an industrial /service economy; (v) improving key enabling frameworks to enhance private sector development (e\.g\. rule of law, preservation of peace and security, sound government administration, etc\.); (vi) addressing issues related to the business environment which needed government's attention; (vii) managing the recurrent budget /fiscal issues; and (viii) preparing for future negative demand shocks resulting from the withdrawal of large international presence in Dili where expatriate spending is mostly concentrated \. The expanded set of activities in capacity building and marketplace rehabilitation under Components 2 and 3, respectively, were also considered highly relevant development objectives consistent with the NDP and CAS \. Relevance of Design The relevance of the main design feature which was the SLOC for SMEs (Component 1) is moot\. In the absence of a detailed assessment on the availability of funds for SMEs from other financial sources, the SLOC's relevance could not be assessed as the outcome that would have been attributable to it did not materialize \. Additionally, the relevance of the Project's design was highly questionable owing to major design flaws inter alia : (i) not adequately taking into account lessons learned from SEP I (which led in part to the cancellation of Component 1); (ii) insufficient knowledge of the local financial market and the projected demand and supply of credit; (iii) omission of a needs assessment to establish rehabilitation priorities and cost; (iv) weakness in the PIU design in not strengthening the PIU's limited implementation capacity; and (v) issues attendant to sub-loan disbursement delays\. 4\. Achievement of Objectives (Efficacy): Overall, the achievement of the PDOs is rated Modest \. The objectives attributable to the SLOC (which accounted for 53\.3% of the IDA Grant) did not materialize while the outcomes in civil service training and PIU technical assistance (which jointly accounted for 18% of the IDA Grant) had unsatisfactory outcomes \. The lack of a logical explanation of the linkage between the Project components and the development objectives, and between the achievement indicators and (non-existent) baseline values casts strong doubts on the efficacy of the Project and of the individual PDO achievements\. Thus there was no strong basis for IEG to compare what the Project achieved with the resulting outcome, as no plausible evidence was advanced in the ICR to substantiate or verify the PDO achievements\. Despite these limitations, the ICR made note of several results which help prepare the groundwork for private sector development in a post -conflict country with low implementation capacity and non -existent private sector\. Employment Generation \. Achievement in employment generation was modest \. Under the employment sub-projects, new jobs were generated which helped stimulate the economy and improved social structures \. The results against employment targets were reasonable given the cancellation of the SLOC which was earmarked for SME expansion and job generation through financial intermediation and new investments \. Due to weaknesses in the M&E structure, however, (see Section 10), the conversion into outcomes of some of the employment indicators was difficult \. Employment targets, nevertheless, were realized through : (i) local employment created by the BDC -supported businesses where the employment target of 400 was marginally surpassed at 428; (ii) local employment generated from new foreign direct investments /FDI estimated by the TradeInvest Timor -Leste to be around 15,300 jobs over three years against a target of 400 jobs during the same period; and (iii) marketplace construction where 1,090 short-term jobs were created which was equivalent to about 3 times the target of 120 full-time jobs\. Acceleration of Economic Growth \. Contribution to accelerating economic growth was modest \. Achievement in this area was set more at the sectoral level than at the project level, and this created attribution problems with respect to achievements and impacts\. Notwithstanding its high-level and broad objective, acceleration of economic growth, as an objective, was deemed appropriate for an SLOC where achievements could have been measured by the actual economic and financial performance of enterprises which the SLOC would have supported\. With the cancellation of the SLOC, measuring contributions to economic growth was considered impractical in the absence of a direct impact on SME expansion\. Although not verifiably linked to achievement indicators, the types of investments subsequently made in tourism, infrastructure, fishery, and agribusiness from the expansion of activities in the Program, pointed to contribution to economic growth in terms of employment generation, foreign direct investments, private sector development, and marketplace investments and rehabilitation \. Improved SME Competitiveness \. Achievement in SME competitiveness was modest \. This was realized through four activities under Component 2: (i) capacity building in the business community through SME training and training of trainers\. Output targets were mostly met (i\.e almost 4,000 people trained, about 4 times the target, and 55 trainers trained versus the target of 33), including achievements in the social objectives of training women (45% vs the target of 40%) and the youth (48%); (ii) capacity strengthening in the Government through SME training of 65 civil servants, which while exceeded the target of 15-30, was likely to have had only a marginal impact due to the low quality of the training; (iii) increased foreign direct investments estimated by the TradeInvest Timor -Leste to be US$128\.2 million for inward investments at end-November, 2006 and US$202\.2 million by mid-2007, as compared to the modest US$2 million target estimate; and (iv) improvement in the business environment through business regulatory initiatives, business-government dialogue, and improved market infrastructure \. Additionally, marketplace infrastructure was improved with 69 markets rehabilitated and constructed accounting for about 50% of the total number of markets rehabilitated and built in Timor-Leste\. With the establishment of market management committees for these markets, the achievements in terms of market usage was generally positive with female participation rate of 45%, close to the 50% target\. 5\. Efficiency (not applicable to DPLs): There was no actual rate of return, economic or financial, as a measure of efficiency, that can be attributed to the Project at appraisal\. At completion, data was insufficient to carry out such an analysis as well \. This is attributable to the weak and unsatisfactory performance of the Bank and the M&E design, monitoring, and implementation of the Project (see Sections 8 and 9 below)\. ERR )/Financial Rate of Return (FRR) a\. If available, enter the Economic Rate of Return (ERR) FRR ) at appraisal and the re- re -estimated value at evaluation : Rate Available? Point Value Coverage/Scope* Appraisal % % ICR estimate % % * Refers to percent of total project cost for which ERR/FRR was calculated\. 6\. Outcome: Overall, the Outcome of SEP II is rated as Moderately Unsatisfactory \. This rating is based primarily on: (i) unrealized outcomes attributed to the cancellation of the SLOC \. The support for SLOC accounted for 53\.3% of the IDA Grant, and the expected outcomes assoicated with economic growth and competition were not necessarily realizable through the reallocation of funds; and (ii) the modest and unsatisfactory outcome ratings of the Civil Servant Training sub-component (Component 2) and PIU Technical Assistance (Component 4), respectively, which jointly accounted for 18\.0% of the IDA Grant but were largely associated with the objective of improving SME competitiveness through the services the sector provided \. While project outcomes were clearly unsatisfactory before component restructuring, moderately satisfactory outcomes were achieved thereafter through : (i) modest contribution to employment; (ii) increased private sector competitiveness through improved private sector capacity development, contributions to business -regulatory reform, better business -government dialogue, and facilitation of foreign direct investments; and (iii) improved trade and marketplace infrastructure \. Other Outcomes and Impacts \. SEP II exceeded, albeit marginally, the employment target despite the cancellation of the SLOC and thus contributed in part to alleviating poverty \. Over the long run, the institutional strengthening and capacity building achievements would possibly lead to increased job creation \. While the Project was also designed to enhance the role of women in private sector development, participation in decision -making by women was lower than expected\. The acceptance of resettlement, when development so required, was an unexpected positive feature of the Project, especially in a country where land ownership is controversial owing to weaknesses in land titling and registry\. On the basis of the above, the overall project outcome is rated moderately unsatisfactory \. a\. Outcome Rating : Moderately Unsatisfactory 7\. Rationale for Risk to Development Outcome Rating: The risk to development outcome of SEP II is rated Significant given the low capacity of the government and the limited financial resources of the Ministry of Economy and Development to fund ongoing development programs and capital development, and to strengthen existing institutions and staff capacity with business sector and direct fiscal support from Government\. Beyond SEP II, direct fiscal support from Government budgetary allocations are doubtful which could result in the loss of momentum and impacting on the sustainability of the Project's achievements \. a\. Risk to Development Outcome Rating : Significant 8\. Assessment of Bank Performance: Overall, the Bank's performance is rated Moderately Unsatisfactory for reasons of design flaws (see Section 3, Relevance of Design) but with some effort made at rectifying the weaknesses during supervision \. At Quality of Entry , IEG agrees with the ICR rating of Unsatisfactory given the failure of the Bank Team to : (i) identify implementation capacity issues and to provide the PIU with the necessary tools and information to overcome implementation weaknesses; (ii) strengthen the ineffective management and reporting structures both within the Bank team and in-country counterparts which were evident as early as SEP I; (iii) carry-out and provide for a needs assessment; (iv) design the SLOC with a thorough study of the financial market in Timor Leste and the lessons learned from the severity of SEP I's credit problems to which the activation of the SLOC was linked, subsequently resulting in its cancellation; (v) provide for baseline surveys and strengthen a poorly -designed M&E system; and (vi) provide the needed Bank supervision resources to support weak local capacity \. Quality of Supervision \. IEG rates the Quality of Supervision as Moderately Satisfactory \. The Bank made continuous efforts to bridge differences with Government counterparts, reinforce Government's commitment to project activities, intervene in helping to strengthen PIU capacity, organize better private /public dialogues for actionable proposals, and regularly interact with other donors on PSD \. There were however some shortcomings : management problems (high staff turnover, a constrained Bank budget, etc \.), weaknesses in upgrading performance indicators, inflated progress ratings, slow recognition of credit needs of BDC trained entrepreneurs, and delayed awareness of environmental safeguard issues \. But overall, the project was rescued by effort at improved supervision under trying environment \. at -Entry :Unsatisfactory a\. Ensuring Quality -at- b\. Quality of Supervision :Moderately Satisfactory c\. Overall Bank Performance :Moderately Unsatisfactory 9\. Assessment of Borrower Performance: The overall performance of the Borrower is rated Moderately Unsatisfactory \. Government Performance \. Government's performance was beset with: (i) constant changes in emphasis across components from four governments notwithstanding the Borrower's commitment to the Project activities to ensure progress, and (ii) differing political considerations and pressures in project priorities and staffing decisions \. Implementing Agency Performance \. The PIU's weak capacity to implement and supervise project activities could not be completely overcome by TA or by supervision assistance and inputs \. Severe financial management and procurement issues during the earlier stages of the Project could not be effectively resolved by the Borrower (and the Bank) causing major implementation delays \. The PIU lacked the range of skills to match the demands of project activities, and was unable to overcome resource shortages for some sub -components, including the lack of day-to-day management direction and oversight which hampered training at the needed level \. In addition, PIU staff were not trained on M&E and despite Bank urging, and the PIU did not conduct baseline surveys before rehabilitating or building large marketplaces \. a\. Government Performance :Moderately Unsatisfactory b\. Implementing Agency Performance :Moderately Unsatisfactory c\. Overall Borrower Performance :Moderately Unsatisfactory 10\. M&E Design, Implementation, & Utilization: Overall, M&E was weak and made little contribution to improving project results \. The on-going social unrest in Timor-Leste made it more difficult to collect the appropriate data and information further exacerbating the already weak M&E structure\. On Design \. The M&E: : (i) miscalculated SEP I's credit operation to meet the agreed target (80% performing loans) for activating a second line of credit under SEP II (Component 1) which later led to the latter's cancellation, and (ii) wrongly concluded the availability of financial resources for SMEs from alternative sources which affected the implementation timeframe by the lengthy efforts on the part Government and the Banco Nacional Ultramarino to divert the needed financial support early in the Project to the lagging SEP II componen ts\. On Implementation \. Weaknesses in the management and operations of the PIU hampered its capacity to monitor all the dispersed and widespread activities of the Project \. In addition, the lack of discussion and training on the use of achievement indicators exacerbated the above weaknesses including the already weak M&E skills and training amongst the consultant and staff of the PIU \. The absence of baseline surveys prior to the rehabilitation and the building of large marketplaces constrained the tracking of progress and the assessment of results, as well, making it difficult to assess the impact of works on market efficiency and to estimate the benefits accruing from business expansion and job creation \. On Utilization, IDA staff assisted in strengthening the PIU's M&E capacity and supported the staff in M&E design and utilization, delivering some results in the process \. Such improvements included better M&E practices for the marketplace rehabilitation component (Component 3), and some strengthening measures to the PIU's capacity to conduct the Rapid Market Usage Assessment which was designed by the Bank's Task Team \. These assessments were conducted jointly by the PIU and the Task Team during 3 supervision missions\. a\. M&E Quality Rating : Modest 11\. Other Issues (Safeguards, Fiduciary, Unintended Positive and Negative Impacts): Safeguards and fiduciary compliance requirements under the Project were strong\. With regard to resettlement, marketplace rehabilitation could not be undertaken with involuntary resettlement issues or disputes with land ownership\. While no provisions were made for voluntary and temporary resettlement during the rehabilitation work of kiosks and vendors, nevertheless, provisions were written by the PIU for such eventualities into the market and construction rehabilitation manual \. On issues associated with the environment, projects classified as category B, i \.e\. projects that could have a potentially adverse effect on the environment, a negative list was established for the SLOC for which an independent review was required prior to funding \. The environmental issue, however, later became irrelevant as the SLOC was eventually cancelled \. At Project restructuring, environmental management plans and standards were required for the new markets \. 12\. 12\. Ratings : ICR IEG Review Reason for Disagreement /Comments Outcome : Moderately Moderately Project outcome was clearly Satisfactory Unsatisfactory unsatisfactory prior to restructuring but became moderately satisfactory thereafter, resulting in an overall moderately unsatisfactory rating \. Risk to Development Moderate Significant The low capacity of Government and Outcome : the limited financial resources of the Ministry of Economy and Development to fund on-going development programs and capital development casts strong doubt on direct fiscal support from Government and budgetary allocations beyond SEP II \. Bank Performance : Moderately Moderately Unsatisfactory Unsatisfactory Borrower Performance : Moderately Moderately Unsatisfactory Unsatisfactory Quality of ICR : Unsatisfactory NOTES: NOTES - When insufficient information is provided by the Bank for IEG to arrive at a clear rating, IEG will downgrade the relevant ratings as warranted beginning July 1, 2006\. - The "Reason for Disagreement/Comments" column could cross-reference other sections of the ICR Review, as appropriate \. 13\. Lessons: Lessons learned include the following : In Project preparation : (i) where a line of credit is the major source of funding, there needs to be built -in sufficient knowledge of the local financial intermediation market, and the projected demand and supply of credit; (ii) there needs to be sufficient preparation of the business environment for financial intermediation; and (iii) a needs assessment is required to establish priorities, sequencing, and costs \. In Design : (i) Project design must include adequate inputs from associated and similar operations to overcome weak implementation and supervision capacity; (ii) design and M&E systems must be flexible to adjust to implementation needs; and (iii) well functioning markets are essential for peace and recovery in fragile post conflict states\. In Project Management : (i) where there are low or weak capacity constraints, Bank in -country staff needs to be assigned in managing the project while being recognized in supervision budgets; and (ii) an independent monitoring system should be in place where Bank supervision and oversight are impractical \. 14\. Assessment Recommended? Yes No 15\. Comments on Quality of ICR: The quality of the ICR is Unsatisfactor y\. While the ICR was candid in its assessment of the different aspects and the performance of the operation in terms of achievements of targets, outcomes and shortcomings, and presents considerable information on all important actions taken associated with the expansion of the Project's components \. The ICR ignored, nevertheless, the evidence that 73\.3% of the Project produced unsatisfactory achievements and outcomes associated with: (i) the cancellation of the SLOC (Component 1) which accounted for 53\.3% of the Grant and the achievements and outcomes associated with it did not materialize; and (ii) the Civil Servant Training sub-component and PIU Technical Assistance component which jointly accounted for 18\.0% of the IDA Grant produced modest and unsatisfactory rating outcomes, respectively \. In addition, the ICR failed to link the Project components with the development objectives, and the key issues that needed to be addressed (see Section 3) to Project outcomes, thus creating attribution issues on the Project, overall \. The ICR could have also been improved with more elaboration on the M&E structure, Efficiency, and a more in -depth discussion of PDO outcomes and impacts on poverty issues and social development resulting from the expansion of activities in the Program \. a\.Quality of ICR Rating : Unsatisfactory

REVIEW

P009057

Document of The World Bank FOR OFFICIAL USE ONLY Report No\. 16659 IMPLEMENTATION COMPLETION REPORT TURKEY SECOND SMALL AND MEDIUM-SCALE INDUJSTRY PROJECT LOAN 3067-TU June 9, 1997 Industry, Trade and Finance Operations Central and Southern Europe Departments Europe and Central Asia Region This document has a restricted distribution and may be used by recipients only in the performance of their official duties\. Its contents may not otherwise be disclosed without World Bank authorization\.  CURRENCY EOUIVALENTS Currency Unit = Turkish Lira (TL) 1989 US$1 = TL 2,027\.0 1990 US$1 = TL 2,930\.1 1991 US$1 = TL 5,079\.9 1992 US$1 TL 8,564\.4 1993 US$1 = TL 14,472\.5 1994 US$1 TL 38,726\.0 1995 US$1 = TL 59,650\.0 1996 US$1 = TL 94,756\.0 April 1997 US$1 = TL 130,566\.0 WEIGHTS AND MEASURES Metric System ABBREVIATIONS AND ACRONYMS EU European Union ETC Export Trading Company FE Foreign Exchange FERIS Foreign Exchange Risk Insurance Scheme FSAL Financial Sector Adjustment Loan GOT Government of Turkey THB Turkiye Halk Bankasi TSKB Turkiye Sinai Kalkinma Bankasi (Industrial Development Bank of Turkey) SYKB Sinai Yatirim ve Kredi Bankasi (Industrial Investment and Credit Bank) TVB Turkiye Vakiflar Bankasi EB Emlak Bank EXIMBANK Export Credit Bank of Turkey SIS State Institute of Statistics TSE Turkish Standards Institute SMI Small and Medium-Scale Industries SSI Small Scale Industnes MSI Medium Scale Industries ERR Economic Rate of Retum FRR Financial Rate of Return PCI(s) Participating Credit Institutions(s) SMI II Second Small and Medium-Scale Industry Project TURKEY FISCAL YEAR January I to December 31 Vice President: Johannes F\. Linn, ECAVP Director: Kenneth G\. Lay, EC1DR Division Chief: Franco Batzella, EC1IT Responsible Staff: Gurhan Ozdora, Financial Sector Project Officer George Zaidan, Project Adviser Rohit Mehta, Sr\. Disbursement Officer Tunc Uyanik, Financial Specialist  FOR OFFICIAL USE ONLY IMPLEMENTATION COMPLETION REPORT TURIEY SECOND SMALL AND MEDIUM-SCALE INDUSTRY PROJECr (Loan No\. 3067-TU) Contents Preface \. i Evaluation Summary \. ii Part I\. Project Implementation Assessment \. \. 1 A\. Statement/Evaluation of Objectives \.1 B\. Achievement of Objectives\. 2 C\. Major Factors Affecting the Project\. 4 D\. Project Sustainability \.5 E\. Bank Performance\. 6 F\. Borrower Performance\. 6 G\. Assessment of Outcome \. 7 H\. Future Operation\. 7 I\. Key Lessons Learned\. 7 Part II\. Statistical Table \. 9 Table 1: Summary of Assessments \. 9 Table 2: Related Bank Loans/Credits \. 11 Table 3: Project Timetable \. 12 Table 4: Loan/Credit Disbursements: Cumulative Estimated and Actual \. \. 12 Table 5: Project Financing \. 12 Table 6: Economic Costs and Benefits \. 12 Table 7: Compliance with Operational Manual Statements \. 13 Table 8: Bank Resources: Staff Inputs \. 14 Table 9: Bank Resources: Missions \. 14 Table 10: Covenant Report: Latest Status of Covenant Compliance \. \. 15 Part III Borrowers Contributions to the ICR \. \. 19 STATISTICAL ANNEXES MAP NO\. 24903R This document has a restricted distribution and may be used by recipients only in the performance of their official duties\. Its contents may not otherwise be disclosed without World Bank authorization\.   i IMPLEMENTATION COMPLETION REPORT TURKEY SECOND SMALL AND MEDIUM SCALE INDUSTRY PROJECT (LOAN NO\.3067-TU) Preface This is the Implementation Completion Report (ICR) for the Second Small and Medium Scale Industry Project (SMI II), Turkey, for which Loan 3067-TU in the amount of US$ 204\.5 million equivalent was approved on June 28, 1989 and made effective on October 26, 1989\. The loan was closed on December 31, 1996, compared with the original closing date of June 30, 1995\. Total disbursements amounted to $202\.3 million equivalent, including funds credited to the Special Account\. Final disbursement under the loan component took place on 03/13/1997\. US$2\.2 million is being cancelled\. Any funds in the Special Account already disbursed and not accounted for will have to be refunded, and subsequently cancelled\. This issue is being addressed as of this writing\. The draft ICR was prepared by Gurhan Ozdora, Task Manager, RMT\. It was reviewed by Franco Batzella, Division Chief (EC 1 IT)\. Written contributions were provided by Undersecretariat of Treasury; Sinai Yatirim ve Kredi Bankasi (SYKB); Turkiye Halk Bankasi (THB); Turkiye Vakiflar Bankasi (TVB); Turkiye Sinai Kalkinma Bankasi (TSKB); Turkish Standards Institute (TSE); State Institute of Statistics (SIS) and the Export Credit Bank of Turkey ( EXIMBANK), and are included as appendixes to the ICR\. Preparation of this ICR started during the Bank's final supervision mission in September 1996\. It is based on material in the project files and data collected after the loan closing date\. The Treasury and the implementing agencies contributed to preparation of the ICR by providing views and evaluation reports on the Project's execution\.  ii IMPLEMENTATION COMPLETION REPORT TURKEY SECOND SMALL AND MEDIUM SCALE INDUSTRY PROJECT (LOAN NO\. 3067-TU) Evaluation Summary Introduction: 1\. The US $ 204\.5 million IBRD loan for The Second Small and Medium Scale Industry Project was approved in June 1989 and made effective in October 1989\. The Bank provided this loan to the Govemment of Turkey for supporting GOT's program for small and medium scale enterprise (SMI) development by providing financial, technical and marketing support to promote efficient SMI investments\. The Executing Agencies were five Participating Credit Institutions (PCIs) for the loan; Turkish Standards Institute (TSE), State Institute for Statistics (SIS) and the Export Credit Bank of Turkey (EXIIMBANK) for the technical assistance program\. The loan was closed on December 31, 1996, 12 months after the planned completion date of June 30, 1995\. Project Objectives: 2\. The project objectives were: (i) to further assist in the expansion and diversification of small-and-medium scale industries (SMIs), and to this end; (ii) to improve SMI's access to credit to finance their investment needs by involving an increasing number of financial intermediaries in providing such credit; (iii) to provide technical and marketing services to SMIs to assist them in improving their product quality and in competing in local and export markets; and (iv) to improve understanding of SMIs problems and prospects through the availability of more reliable statistics for better policy and project formulation\. The project built on the initiatives started under two previous projects: Labor Intensive Project (1952-TU) and SMI I Project (2647-TU); it was designed to complement the financial sector restructuring efforts of FSAL II (2694-TU)\. It supported the Bank's sectoral strategy for: (i) strengthening the international competitiveness of the industrial sector; (ii) increasing the production and export capacity of the SMI sector; and (iii) strengthening the financial intermediaries\. 3\. The project's main institutional development objective was to strengthen the PCIs with particular focus on improving their project appraisal and supervision capabilities\. The project also had a technical assistance component which included: (a) an Export Promotion program administered through EXIMBANK, to assist small Export Trading Companies (ETCs) to expand their exports to new markets, (b) a Quality Improvement component administered through TSE, which aimed at helping SMIs improve quality standards to enhance market acceptance for their  iii products, and (c) Sector Statistics component, administered by the SIS, aimed at providing more reliable and accurate data on SMIs for future policy formulation\. Achievement of Objectives 4\. The credit component of the project was to provide financing for SMI investments and operations in order to support their production capacities, financial structures and market competitiveness\. These objectives were achieved\. Overall, the Loan of $200 million financed 250 sub-loans with an average size of $0\.8 million, compared to 900 sub-loans at an average size of $0\.2 million envisaged in the SAR\. At appraisal, it had been envisaged that PCIs would contribute $100 million and sub-borrowers $200 million\. In reality, the PCIs' contribution was negligible, but the sub-borrowers provided $610 million, with the net result that total investment in sub-projects amounted to $810 million, some 62% higher than the $500 million envisaged at appraisal\. These investments were generally viable, yielding real FRRs and ERRs exceeding 30% on average\. Incremental output resulting from these investments is estimated at $716 million and incremental exports at $442 million at full capacity utilization\. 5\. The objective of assisting PCIs in improving their project appraisal-supervision capabilities, information systems and operating procedures related to SMI lending, was not realized through the use of loan funds\. Apart from an early hardware purchase made by Emlakbank, the funds earmarked for this purpose, upon the PCIs, request were added to their credit allocations\. Nevertheless, the requirements of the loan agreement relating to project preparation and appraisal and to the PCI audits contributed substantially to the institutional improvement of the PCIs and their portfolio quality\. Average collection ratios on medium and long term loans had improved significantly at the closing of the loan\. 6\. The Export Promotion component administered by the EXIMBANK was to finance marketing consultants specialized in product lines predominantly produced by the firms in the SMI sector\. The program was only partly successful\. It helped increase the awareness of the related agencies to the export marketing issues faced by the SMI sector and the need for policy coordination\. However, only 43% of the funds allocated to this component were utilized\. 7\. The Quality Improvement component administered by the Turkish Standards Institute (TSE), aimed at increasing the SMIs' awareness of the importance of standards through training programs, workshops and promotional literature\. To achieve these objectives, training programs for TSE staff and SMIs were organized\. Also, the procurement by TSE of calibration equipment, hardware and software, was financed by the loan\. Some of these programs were also supported by other related agencies\. 8\. The objective of the SMI Statistics component was to help improve the statistical database on the SMI sector in Turkey\. The program, administered by the State Institute for Statistics (SIS) institutionalized an annual survey of manufacturing industries to collect performance and structure data according to various size definitions\. In addition to this, SIS staff attended various training programs to increase their technical expertise\.  iv Major Factors Affecting the Project 9\. The loan disbursed successfully during the first three years (1990 - 1992) of implementation\. However, starting with 1993 there was a drastic decrease in the disbursements, and in 1994 commitments came to a virtual standstill\. The reasons for this were: (i) weak market demand for investment credits due to uncertain macro-economic environment; (ii) extremely high and fluctuating real rates for foreign exchange risk insurance scheme (FERIS), the applicable pricing mechanism for SMI II funds; and (iii) the fact that many potential subprojects were receiving subsidized credits from the Government which made them ineligible for financing under the loan\. In 1993 the Bank agreed with the GOT not to review and approve sub-loans which were to be used in a blend with subsidized credits from the Treasury\. 10\. As a result of this situation and in response to the GOT's request, some amendments were made in the loan agreement in December 1994\. The loan was restructured to allow the financing of permanent working capital, pre-shipment export finance and leasing\. In addition, following the amendment, loan proceeds could be on-lent on a single-currency basis in US Dollars as well as DMs with an adequate premium over their respective LIBOR rates\. 11\. Following this restructuring, there was a significant acceleration in loan utilization\. Commitments made by the PCIs was 98% of the total loan amount and cumulative disbursements amounted to $202\.3 million, with the final disbursement made in March 13, 1997\. The 1994 restructuring was followed by an improved investment climate which gradually developed throughout 1995\. This improvement was due to reactivation of investment decisions which were postponed because of the economic crisis and also due to new expectations arising from the customs union with EU\. Another aspect of the restructuring was that numerous sub-borrowers availed themselves of the option to prepay subloans (which was not permitted under the previous FERIS arrangement), thus made additional funds available to the PCIs for recycling\. 12\. In addition to the improvements in the investment climate, another reason for increased demand for the loan funds, was the unavailability of other sources of medium and long-term finance\. Due to the uncertain macroeconomic environment and high rates of inflation, the prospects for the banking system and foreign creditors to provide medium and long-term finance to the private sector was very weak\. Given this situation, project funds proved to be very attractive to investors\. Project Sustainability 13\. Due to the high public sector borrowing requirement (PSBR) since 1990, the GOT has continued to finance its deficit mainly through the sale of government securities\. The banks invested heavily in these instruments, which crowd out medium and long-term lending to private industry, especially SMIs\. Another constraint for the banks is the unavailability of medium-to- long term funding resources\. Under these conditions, it would be unrealistic to expect commercial banks to provide MLT credit on a sustained basis as envisaged in the project objectives\. However, the success of the credit component in a narrow sense can be considered as sustainable because loans made in foreign exchange can be recycled: the PCIs can re-lend the foreign exchange repayments from their sub-borrowers which exceed their repayment obligations  v to GOT\. The current interest rates make project lending profitable for the PCIs, by providing protection against capital erosion\. 14\. The other three components of the project, funded by the TA portion of the loan, will require further financial and technical support to be sustainable\. The export promotion component also needs clear definitions of objectives of the relevant national agencies\. The level of staff quality and technical capabilities of both TSE and SIS has improved remarkably as a result of the project; however, continued infusion of funds are needed in order to maintain these results\. Bank Performance\. 15\. The Bank's performance at preparation and appraisal was satisfactory\. Bank missions drew on the experiences of the two earlier SMI projects one of the Labor Intensive Project (1952- TU and 2647-TU)\. The number of PCIs involved in the project increased\. The selection of PCIs was made according to their SMI loan portfolios and to their technical expertise in project lending\. The Bank's performance during the implementation phase was also satisfactory\. Supervision missions were fielded at regular intervals twice per year and the relationship of Bank staff with the Treasury and implementing agencies' staff was excellent\. Treasury and the PCIs also rate the project implementation as highly satisfactory\. Borrower Performance 16\. The performance of the GOT and the implementing agencies was highly satisfactory in some aspects, satisfactory in others and deficient in some\. The performance of the PCIs in carrying out the credit operations, and their compliance with the financial covenants agreed under the Project, was satisfactory in general\. Treasury also contributed to a smooth operation of the credit line\. Two of the PCIs, Emlakbank (EB) and Halkbank (THB) had some problems in meeting the eligibility criteria of the loan agreement and EB was suspended from participation in the project in 1992\. THB's participation after the 1994 restructuring of the project was made conditional on a favorable review of its eligibility; this remained in suspense until end 1996 (when the loan was fully committed), due to strong qualifications in its audit reports and weakening of its capital base and portfolio quality\. The performances of both TSE and SIS were highly satisfactory, and the technical assistance and training programs financed by the loan for these two agencies were successful and consistent with the objectives of the loan\. The export promotion component administered by the EXIMBANK was unsatisfactory due to deficiencies in the design of the consultancy programs\. Assessment of Outcome and Future Operation 17\. The Project achieved most of its objectives\. Its outcome is satisfactory, despite the delays in implementation caused to a large extent by the economic environment\. A plan for the project's future operation is attached as Annex A\.  vi Key Lessons Learned 18\. Several lessons have been learned: (i) entrepreneurs like predictable debt service obligations and prefer assuming the foreign exchange risk rather than covering it at the cost of fluctuating relative and high interest rates; (ii) in economies with a high rate of inflation, sound economic and financial retums can be obtained if lending activities are sheltered from the effects of inflation through appropriate interest rate mechanisms; (iii) free-standing permanent working capital loans with long-term maturities, can be vital for the enterprises in economies where banks are reluctant to provide medium-to-long term financing, due to macro-economic uncertainty; (iv) for export- oriented enterprises, borrowing in foreign exchange does not entail the same degree of FX risk as is the case for non-exporting firms; (v) lending mechanisms should be simple so that sub-borrowers understand their obligations; (vi) when problems arise between the Bank and the Borrower, solutions should be sought right after the emergence of the problems; (vii) a credit line can be highly satisfactory even in an inflationary environment if negative real interest rates are avoided by lending in foreign exchange or indexing of sub-loans to foreign currencies; (viii) sub-project performance can be improved substantially through close ex-ante and ex-post review and supervision of the Bank; and (ix) the success of technical assistance programs for SMIs, implemented through government agencies, depend greatly on the degree of cooperation between these agencies and acceptance of the program by the private sector beneficiaries\.  IMPLEMENTATION COMPLETION REPORT TURKEY SMALL AND MEDIUM SCALE INDUSTRY PROJECT (LOAN NO\.3067-TU) Part I\. Project Implementation Assessment A\. Statement/Evaluation of Objectives 1\. In the Loan Agreement, the project objectives were stated as follows: (i) to further assist Turkey in the expansion and diversification of small-and-medium scale industries (SMIs) and, to this end; (ii) to improve SMI's access to credit to finance their investment needs by involving an increasing number of financial intermediaries in providing such credit; (iii) to provide technical and marketing services to SMIs to assist them in improving their product quality and in competing in local and export markets; and (iv) to improve the understanding of the SMIs' problems and prospects through the availability of more reliable statistics for better policy and project formulation\. The project aimed to achieve these objectives by channeling the equivalent of US$200 million through Participating Credit Institutions (PCIs) to finance eligible investments of SMIs, and by financing technical assistance and training in the amount of US$4\.5 million equivalent for the PCIs and other agencies supporting SMI development, EXIMBANK, TSE and SIs\. 2\. The project was intended to support the Bank's strategy by: (i) assisting the GOT to achieve its "base case" macro-economic framework by focusing on priority sectors; (ii) strengthening the international competitiveness of the industrial sector by supporting export and technological development as the critical agenda for the long term; and (iii) developing a stronger and more diversified financial sector to facilitate the growth of a dynamic, competitive and export-oriented private industry\. It was considered to be supplementary to the two previous SMI projects (1952-TU and 2647-TU) and to the Second Financial Sector Adjustment Loan (2964-TU) because it supported the financial sector adjustment effort at the institutional level, and assisted the PCIs in strengthening their operational policies, procedures and information systems\. 3\. While the two previous SMI projects helped increase the SMIs' access to financial, technical and marketing assistance, the institutional mechanisms to deliver these services effectively had to be expanded and improved with a view to enable the SMI sector to increase output, exports and employment opportunities in line with its growth potential\. Therefore, continuation of Bank's assistance was needed to assure flow of funds to the PCIs to expand their SMI portfolio, and to provide technical assistance to make them more effective and efficient at SMI financing\. 4\. The project's main institutional development objective was to strengthen the effectiveness of the PCI's with particular emphasis on improving their appraisal and supervision methods, systems and procedures, through staff training and improvement of the software and hardware used for the evaluation of SMI investments\. These objectives supplemented those of previous Bank operations, particularly FSAL II with respect to the institutional strengthening of the PCIs\.  2 5\. The project's other institutional development objectives were to improve the effectiveness of the agencies responsible for assisting the SMIs in the areas of export promotion, quality standards, and statistical support\. These objectives were flushed through technical assistance and training program, targeted to EXIMBANK, TSE and SIS\. 6\. The technical assistance program for export promotion administered through EXIMBANK was intended to assist the small Export Trading Companies (ETCs) to expand their exports to new markets, and also help increase cooperation among organizations involved in various aspects of SMI exporting\. The Quality Improvement component administered through TSE was aimed at assisting the SMIs to achieve quality standards that would improve the market acceptance for their products, and at increasing the quality certification capacity of TSE\. The Statistics component was aimed at improving the statistical database on the SMI sector and at developing a nationwide system for data collection, processing and analysis for SMI enterprises\. Administered by the SIS, this component was designed to institutionalize and improve the annual survey capabilities of SIS in order to provide more reliable and accurate database for future policy formulation for the SMI sector\. B\. Achievement of Objectives 7\. The project aimed at expanding the financial, technical and marketing support for the SMIs to enable them to increase their contribution to industrial employment, exports and output through: (i) improving their access to credit to finance their investment needs; (ii) provision of technical and marketing services to SMIs to assist them in improving their product quality and competitive standing in local and export markets; and (iii) improving the understanding of SMIs problems and prospects through the availability of more reliable statistics\. 8\. The credit component of the project aimed to support efficient SMI investments and operations by improving SMIs access to credit through increasing the number of financial intermediaries for SMI finance and the volume of project financing channeled by them to the SMI sector\. These objectives were fully achieved\. The amount of the loan allocated for PCI subloans, which was $200 million originally, was increased to $201\.5 million and later to $202\.3 million, as a result of PCIs' request to use the TA portion allocated to them for subloans\. Although the loan was 100 % committed, disbursements, amounted to 99% of the allocation due to some cancellations by the subborrowers at the end of the year\. Overall, the Loan of $200\.3 million financed 250 sub-loans with an average size of $0\.8 million, compared to 900 sub-loans at an average size of $0\.2 million envisaged in the SAR\. At appraisal, it had been envisaged that PCIs would contribute $100 million and sub-borrowers $200 million\. The actual results were that the PCIs' contribution was negligible, but the sub-borrowers provided $610 million, with the net result of total investment in sub-projects of $810 million, some 62% higher than the $500 million envisaged at appraisal\. Incremental output resulting from these investments is estimated at $716 million and incremental exports as $442 million, at full capacity utilization\. ERRs and FRRs were calculated for individual sub-projects\. The appraisal reports prepared by the PCIs for individual sub-projects showed ERRs ranging from 14% to 189% and FRRs ranging from 16% to 162%\. A post-evaluation exercise carried out by the PCIs on a sample of 14 sub-projects revealed that  3 actual ERRs range from 32 % to 41% and FRRs from 39 % to 44%\. According to these reports, the Loan helped to finance $810 million in incremental investment and created 19,700 full-time jobs\. 9\. The original allocation of loan funds to TA to PCIs for improving their project appraisal and supervision capabilities, information systems and operating procedures, was not utilized\. However, the procedures for appraisal and supervision of subloans agreed under the project contributed substantially to the institutional strengthening of the PCIs and to the improvements in their portfolio quality\. Financial objectives related to the financial performance of PCIs, were fully achieved, i\.e\., debt-to-equity and capital adequacy as well as collection ratio covenants were complied with\. Two of the PCIs had some problems with the eligibility criteria described in the financial covenants of the loan agreement\. EB's participation in the project was suspended in 1992\. THB's participation was suspended in 1994 and made conditional on its meeting the eligibility criteria\. This was still in question when the loan was fully committed in December, 1996\. In both cases these difficulties were brought out in the audit reports required by the loan covenant\. 10\. The Export Promotion Component administered by the EXIMBANK was designed to finance marketing consultants specialized in product lines predominantly produced by the firms in the SMI sector\. These consultants were expected to bring expertise and information about the market demands and product specifications directly to the SMIs and work with Export Trading Companies (ETC) and their domestic suppliers to assist in developing their product design and competitiveness\. This component was only partially successful, of the US$1\.5 million equivalent allocated for this component, 43% was used for financing various surveys and studies by the foreign and local consultants and for training seminars and programs, designed to bring the related government agencies and representatives of SMI firms together for discussions and brainstorming sessions\. The remaining 57% was transferred to a pool to be utilized for the credit component of the project\. 11\. The Quality Improvement Component was administered by the Turkish Standards Institute (TSE)\. This component aimed at increasing the awareness of the SMI sector to the importance of standards through training programs, workshops and promotional literature\. To achieve these objectives TSE organized various training programs for the SMIs some of which were also supported by other public agencies\. The other important aim of this component was to establish mobile certification capability for SMI standards\. This was also achieved by procuring mobile calibration laboratories, tools, hardware and software equipment for TSE and KOSGEB which were financed through this loan\. The allocation for this component was $1\.0 million and almost all was disbursed\. 12\. The objective of the SMI Statistics Component was to improve the statistical database on the SMI sector in Turkey\. Administered by the State Institute for Statistics (SIS) the program aimed to institutionalize an annual survey of manufacturing industries which would collect performance and structure data according to various firm size definitions\. In addition to this, various training programs were organized to train the SIS staff and to institutionalize the program within the SIS\. The allocation for this component was $0\.5 million and almost all of the funds have been disbursed\. The program has made substantial contribution to increasing the technological level of SIS and professional expertise of its personnel\. Introduction of higher  4 technology has shortened the processing time, increased the quality of surveys and has enabled the SIS to collect and process more detailed and relevant data from the industry groups, thus enabling the SIS to create an accurate and wider database for the SMIs\. The project has been most useful in increasing the level of awareness and technology orientation of the SIS as an institution\. C\. Major Factors Affecting the Project 13\. The loan had disbursed successfully during the first three years (1990 - 1992) and cumulative disbursements were $122 million at end- 1992, 60% of the loan amount, which was in excess of the original disbursement estimates\. However starting with 1993 there was a drastic decrease in the disbursements\. Only 17% of the planned yearly disbursements could be realized in 1993, and only 11% in 1994\. New commitments came to a virtual standstill\. The reasons for this were: (i) The abundance, in the banking system of funds from roll-over foreign currency financing which, when blended with subsidized loans by the Treasury, proved to be a more attractive alternative until foreign exchange credit dried up with the financial crisis of 1994; (ii) weak market demand for investment credits due to uncertain macro-economic environment; (iii) extremely high and fluctuating real rates for FERIS, the applicable pricing mechanism for SMI II funds; and (iv) the fact that many potential subprojects benefitted from subsidized credits from the Government, which made them ineligible for financing under the Bank's project\. In 1993, the Bank, in agreement with the GOT, stopped reviewing and approving sub-loans which were to be used in a blend with subsidized credits from the Treasury\. 14\. In addition, project implementation was also influenced by the macro-economic factors\. The inflation rate which was 70% in 1988 persisted at high levels through the 1990s, averaging over 60% and reaching a level of 80% at the end of 1996\. The exchange rate developed at a similar pace until early 1994, then skyrocketed with the financial crisis of April, 1994\. From TL 1,875 for one US dollar in January 1989, it reached TL 17,204 in January 1994 and TL 33,408 in April 1994, to jump to TL 126,600 at the end of March 1997\. Project loans initially, were made at the FERIS rate which was based on the three-month Treasury bill rate\. Due to high inflation and irregularity of auctions for these bills, there were large fluctuations in the FERIS rates because in absence of three-month bills, the six-month Treasury bill rates were used, and since these rates were generally higher than the three-month bills, FERIS rates increased accordingly\. Another flaw of the FERIS mechanism was the inadmissibility of prepayments\. With very high real rates, debt financing for investments became unattractive, even though FERIS allowed for capitalization of half of the interest during the grace period\. These factors, combined with the ineligibility of the projects benefiting from the GOT's incentive program, brought commitments to a standstill\. 15\. As a result of this situation and in response to the GOT's request in 1994, GOT and the Bank agreed to restructure the loan to take into account the new circumstances\. Accordingly, the loan agreement was amended on December 29,1994 as follows: (i) the FERIS scheme was discontinued; (ii) onlending of loan funds was allowed on a single currency basis, in US dollars or Deutsch Marks at market-oriented interest rates no longer tied to the World Bank pool rate; and (iii) free-standing permanent working capital loans, and loans for pre-export financing and equipment leasing, were permitted\.  5 16\. Following this restructuring, the loan utilization and commitments resumed at a brisk pace\. The disbursements by the PCIs was 98% of the total loan amount and cumulatively amounted to $202\.3 million, with the final disbursement made in March 13,1997\. The 1994 restructuring was followed by an improved investment climate due to reactivation of investment decisions which were postponed because of the economic crisis and also due to new expectations arising from the customs union with EU\. Another aspect of the restructuring was that many subprojects availed themselves of the option to prepay the subloans (which was not allowed under the FERIS scheme)\. This increased the availability of funds to the PCIs for further lending\. 17\. In addition to the improvements in the investment climate, another reason for increased demand for the Bank funds, was the unavailability of other means of medium and long-term sources of finance after the financial crisis of April, 1994\. Due to uncertain macro-economic environment and high rates of inflation, the prospects for the banking system and foreign creditors to provide medium-and-long term finance to the private sector was very weak\. Given this situation, Bank loans proved to be very attractive to investors\. D\. Project Sustainability Project Sustainability 18\. Due to high public sector borrowing requirement (PSBR) since 1990, the GOT has continued to finance its deficit mainly through the sale of government securities\. The banks, attracted by their high-yield and low-risk profile, have been investing heavily in these instruments\. This development in turn has resulted in a crowding-out of medium and long-term lending to industry, especially SMI, by the banks\. Another constraint for the banks is the unavailability of medium-to-long-term funding resources\. Under these conditions, it would be unrealistic to expect the credit component to be sustainable as envisaged in the project\. However, the successful utilization of the credit component in itself can be considered as sustainable\. This is because, unlike under the FERIS scheme where repaid funds could not revolve, for the sub-loans made in foreign exchange can\. The PCIs have the opportunity to re-lend part of the foreign exchange repayments from their sub-borrowers which exceeds their repayment obligations to GOT\. Funds recycled in this way, can be used for the same purposes and since the subloans are denominated in foreign exchange\. Demand for these funds is expected to continue\. The current interest rates make project lending profitable for the PCIs, by providing protection against capital erosion\. 19\. From the point of view of recoveries and in terms of the financial viability of the PCIs, the Project can be considered as sustainable\. The interest spread of 3% to the PCIs under FERIS and the flexible margins for foreign exchange loans, are adequate\. All amounts disbursed are being recovered and the PCIs, except THB and EB, met all of the financial covenants\. THB, after the restructuring in 1995 was not able to participate in the lending since it could not meet the number of eligibility criteria due to the deterioration of its financial condition as highlighted by strong qualifications in audit reports of the independent auditors\. The Project is also sustainable for the sub-borrowers\. They have greatly benefited from the investments made under the Project by expanding and modernizing their plants, increased their outputs and capacity utilization rates and have developed good sense of financial discipline\.  6 20\. The capabilities of the PCIs in the appraisal, supervision and monitoring of the lending activities are satisfactory and their credit and project evaluation departments deal efficiently with the sub-projects using recycled funds\. Sub-loans under FERIS carried sufficiently high interest rates to cover for the inflation losses and foreign exchange sub-loans have to be paid in foreign currency\. 21\. The Quality Improvement and Statistics components has been successful in supporting institution building and increasing the technical capabilities of TSE and SIS\. To maintain these achievements, however, further financial and technical support will be required by the two agencies in the future\. The export promotion component has been only partially successful\. EXIMBANK's effectiveness has benefited somewhat from the TA financed under the loan\. However, it would need clearer definitions of objectives and enlistment of support from related public agencies\. E\. Bank Performance 22\. The Bank's performance at preparation and appraisal was satisfactory\. Bank's missions had the necessary expertise to draw from the experiences and results of the two earlier SMI projects; The Labor Intensive Project (1952-TU) and SMI I project (2647-TU)\. The number of PCIs involved in the project was increased on the basis of sound criteria: SMI portfolio, financial strength; and project financing expertise, in line with OD 8\.30 of the Bank's Guidelines\. 23\. Bank performance during the implementation phase was also satisfactory\. Supervision missions visited participating banks, at regular intervals twice per year, and the relationship of Bank staff with the Treasury and with implementing agencies staff was excellent\. Treasury and PCIs maintain that the Bank could have been more flexible in permitting the utilization of loan funds in a blend with subsidized credit and that if this had been the case, project implementation could have been much faster\. Although the possibility of improving project implementation through a compromise on this issue had been explored, Bank management adhered to the principle of not supporting subsidized credit\. The Bank was flexible, however, in restructuring the loan at the end of 1994, which permitted the PCIs to make subloans denominated in US Dollars or Deutsche Marks, rather than based on the FERIS scheme, charging interest at market rates\. F\. Borrower Performance 24\. The performance of GOT and the implementing agencies were highly satisfactory in some aspects, satisfactory in others and deficient in some\. The performance of the PCIs in carrying out the credit operations and meeting the financial covenants agreed under the Project was satisfactory\. Treasury also contributed to a smooth operation of the credit line\. Two of the PCIs, Emlakbank (EB) and Halkbank (THB) had some problems in meeting the financial covenants of the loan agreement\. As a result of this, EB was excluded from participation in the project in 1992 and THB's participation was suspended after the restructuring in 1994 subject to its restoring  7 compliance with the eligibility criteria\. THB's financial status had deteriorated considerably, as also indicated by their independent auditors\. 25\. The performance of both TSE and SIS were highly satisfactory and in both cases the performance of the implementing agencies and the consultancy and training programs financed by the loan proved to be consistent with the objectives of the loan\. The export promotion component administered by the EXIMBANK was partly satisfactory due to deficiencies in the design of the consultancy services\. 26\. The major covenants related to the institutional development and financial strength of the PCIs were met and therefore compliance with the loan covenants must be rated as satisfactory\. G\. Assessment of Outcome 27\. The project achieved nearly all of its objectives, but its implementation took longer than planned\. The delay was caused by the difficult economic environment and problems by disagreement between the Bank and the Borrower concerning subsidized credit\. The project would have been rated as unsatisfactory in November 1994, but it made a significant turn around due to the successful restructuring and to the improved investment climate\. Since then, the performance of the project has been highly satisfactory\. This leads to an overall rating of satisfactory\. H\. Future Operation 28\. A plan for the future operations has been agreed with the GOT, PCIs, TSE and the SIS\. It contains the following arrangements: (i) the reflow of funds will be used in lending for similar purposes until all funds have been repaid to the GOT as specified in the legal agreements; and (ii) TSE and the SIS have agreed on ways and means to make use of the findings and results of the studies and surveys and to contribute to the SMIs development in the future\. I\. Key Lessons Learned 29\. Several lessons have been learned: (i) entrepreneurs like predictable debt service obligations and prefer assuming the foreign exchange risk rather than covering it at the cost of relative and high interest rates; (ii) in economies with a high rate of inflation, sound economic and financial returns can be obtained if lending activities are sheltered from the effects of inflation through appropriate interest rate mechanisms; (iii) free-standing permanent working capital loans with long-term maturities, can be vital for the enterprises in economies where banks are reluctant to provide medium-to-long term financing, due to macro-economic uncertainty; (iv) for export- oriented enterprises, borrowing in foreign exchange does not entail the same degree of FX risk as is the case for non-exporting firms; (v) lending mechanisms should be designed simple so that sub- borrowers understand their obligations; (vi) when problems arise between the Bank and the  8 Borrower, solutions should be sought right after the emergence of the problems; (vii) a credit line can be highly satisfactory even in an inflationary environment if negative real interest rates are avoided by lending in foreign exchange or indexing of sub-loans to foreign currencies; (viii) sub- project performance can be improved substantially through close ex-ante and ex-post review and supervision of the Bank; and (ix) the success of technical assistance programs for SMIs, implemented through government agencies, depend greatly on the degree of cooperation between these agencies and acceptance of the program by the private sector beneficiaries\.  9 Part II: Statistical Annexes Table 1\. Summary of Assessments Table 2\. Related Bank Loans/Credits Table 3\. Project Timetable Table 4\. Loan Disbursements: Cumulative Estimated and Actual Table 5\. Project Financing Table 6\. Economic Costs and Benefits Table 7\. Compliance with Operational Manual Statements Table 8\. Bank Resources: Staff Inputs Table 9\. Bank Resources: Missions Table 10\. Status of Legal Covenants Table 1: Summary of Assessments A\. Achievement of Obiectives Substantial Partial Negligible Not applicable ('4) ('v4) ('4) ('4) Macro Policies OI Cj C F Sector Policies D D n Z Li Financial Objectives i Institutional Development W LI] Physical Objectives F] [ 2 iI Poverty Reduction [ I [2] Gender Issues [m1] Other Social Objectives F l] Environmental Objectives [2 D 1 I Public Sector Management 4 Private Sector Development m LI] Foreign Exchange earnings 2]C [1] B\. Project Sustainability Likely Unlikely Uncertain ('4) ('4) ('4) z CG z~~LI  10 Hi&hft C\. Bank Performance Satisfactory Satisfactory Deficient (v) (4) (4) Identification Z W Preparation Assistance m E] Appraisal FT ] K Supervision m K E Highly D\. Borrower Performance Satisfactory Satisfactorv Deficient (4) (4) (4) Preparation LI E] K Implementation [ E: o Covenant Compliance [] E K Highly Highlv E\. Assessment of Outcome Satisfactorv Satisfactory Unsatisfactorv unsatisfactory (4) (4) (4) (4) oI K] oII o  11 Table 2: Related Bank Loans/Credits Loan/Credit Title Purpose Year of Status Approval Preceding Operations Loan 1754-TU and 1755-TU To assist financing of 09/04/79 Closed on 12/31/85\. Private Sector Textiles Project subprojects to contribute to ICR Issued the development, modernization, increase in productivity and expect capacity of the private textiles sector of the country Loan 1952-TU Labor Intensive To provide credit to support 03/03/81 Closed on 06/30/86\. Industry Project the development of Labor ICR Issued Intensive Small and Medium Scale Enterprises Loan 2714-TU First Financial To create a more efficient 06/10/86 Closed on 06/30/91\. Sector Adjustment Loan financial sector by developing ICR Issued\. a greater variety of financial instruments which would contribute to a revival of private investment Loan 2901-TU Industrial To support the efforts for 03/22/86 Closed on 06/30/93\. Export Development Project expanding industrial export ICR Issued\. by providing financial support to private export-oriented projects' and improving the institutional framework for export finance\. Loan 2964-TU Second To support the development 06/21/88 Closed on 121131/92\. Financial Sector Adjustment of a more efficient and deeper ICR Issued\. Loan financial sector which would mobilize and allocate funds more efficiently thus generating a higher level of investments as well as a higher rate of return\. Following operations Loan 3346-TU To assist the GOT in its 06/28/91 Closed 06/30/97\. Private Investment Credit efforts to increase the capacity Project to produce tradable goods and services through activities in which the Borrower is economically efficient, especially export --- activities\. Bank support and guarantee 1997 Under preparation Guarantee for Development to assist the Development (expected) Banks (SYKB-TSKB) Banks SYKB and TSKB issue bond for equivalent of $200 million\. Funds to be used to finance private sector I industrial enterprises\.  12 Table 3: Project Timetable Steps in Project Cycle Date Actual Identification 01/15/88 Preparation 02/08/88 Appraisal 11/05/88 Board Presentation 05/23/89 Signing 06/28/89 Effectiveness 10/26/89 Project Completion 04/30/97 Loan Closing 12/31/96 Table 4: Loan Disbursements: Cumulative Estimated and Actual (US$ thousands) FY90 I FY91 | FY92 I FY93 I FY94 I FY95 I FY96 FY97 Appraisal estimate 10,000 36,000 82,000 135,000 172,000 194,500 204,500 204,500 Actual 21,170 87,100 121,660 130,530 134,750 137,510 188,980 202,280 Actual as % of 212 242 148 97 78 71 92 99 estimate Date of final disbursement: March 13, 1997 Table 5: Project Financing Appraisal estimate Actual/atest estimates (US$ million) (US$ million) Item Local costs Foreign Total Local costs Foreign costs Total costs 1\. IBRD - 204\.5 204\.5 202\.3 202\.3 2\. Financial intermediaries 100\.5 - 100\.5 - 3\. GOT 0\.5 0\.5 0\.5 0\.5 4\. Sub-borrowers 200\.5 - 200\.5 610\.0 - 610\.0 Total 301\.5 204\.5 506\.0 610\.5 202\.3 812\.8 Table 6: Economic Costs and Benefits Economic Rates of Return (ERRs)\. Specific estimates of the project's ERR were not made at appraisal; PCIs were required to demonstrate the economic viability of individual projects which had to show ERRs in excess of 15% (except for projects specifically aimed at environmental amelioration)\. An analysis of the ex ante rates of return on investment projects for SYKB, TSKB and VB which accounts for 85% of Investments indicated a weighted average ERR from 163 projects of 34%\. Ex post evaluation on 14 of these (which had ex ante ERRs of 36%) resulted in an average ERR of 33%\.  13 Ex Ante ERRs and FRRs for investment Projects in SYKB and VB (represents 79% of Loan & 85% of Project investment) No Investment Av\. ERR at Range Av\. FRR at Range l (US$'OOO) Appraisal I Appraisal SYKB 81 372,754 32% 14%-77% 44% 190/6-134% VB 79 303,410 36% 18%/-,189% 42% 170/%-162% TSKB 3 15,529 30% 170/6-39% 28% 160/6-49% Total 163 691,693 34% 42% Ex Post ERRs and FRRs for Sample Investment Projects In SYKB, TSKB and VB (represents 26% of Loans for Investment) No Investment Av\. ERR at Av\. ERR Av\. FRR at Av\. FRR l I(USS'000) Appraisal ex Post Appraisal Ex Post SYKB 7 19,394 41% 37% 44% 38% VB 4 6,376 35% 33% 41% 32% TSKB 3 15,529 32% 30% 39% 35% Total 14 41,299 36% 33% 42% 36% Employment Impact\. At appraisal, the project was expected to invest in relatively labor intensive projects with an incremental cost per job usually not exceeding US$15,385\. Estimates of additional jobs made at the time of PCI appraisal was for a total of 19,700 jobs from the Investment Projects at a cost per job of $41,165\. Estimates of Full Time Job Creation (at Sub Project Appraisal) No\. Disbursement Investment Jobs Cost/Job l (US$'000) (US$'000) (US$'000) SYKB 81 71,979 372,754 6,385 58,380 TSKB 3 5,470 15,529 564 27,534 VB 79 79,747 303,410 6,684 45,393 THB 68 27,367 113,385 5,733 19,778 EM 6 2,948 5,902 334 17,650 Total 237 187,509 810,980 19,700 41,165 Ex post analysis indicated slightly more employment creation than had been expected at sub project appraisal\. On the 14 projects reviewed, 1734 full-time jobs were created at a cost per full-time job of $41,642, compared with sub-project appraisal expectations of 1148 jobs at US$64,226 per job\. Table 7: Compliance with Operational Manual Statements Basically, there was compliance with the applicable Bank Operational Manual Statements\.  14 Table 8: Bank Resources: Staff Inputs Planned Inputs Actual Stage of project cycle SWS USS'ooo SWS US$'000 Through Appraisal 140\.8 332\.7 140\.8 332\.7 Appraisal Board 8\.4 22\.4 8\.4 22\.4 Board Effectiveness N/A N/A Supervision 202\.6 403\.5 199\.3 399\.1 Table 9: Bank Resources: Missions Stage of Project Month No\. of Days Specialization(l) Performance Rating Cycle / Persons in Year Field Through Appraisal 11/88 5 14 E,F,T Appraisal Board 06/89 1 - F Supervision I 05/89 1 - OA NR NR Supervision II 06/89 2 - OA,F 1 1 M Supervision III 06/89 2 - OA,F 1 1 - Supervision IV 03/90 5 21 F,F,F,T,RA 1 1 - Supervision V 03/90 1 - AC,E,Fi,N 1 1 - Supervision VI 04/91 1 - F 1 1 - Supervision VII 12/91 4 20 F,E,E,C 1 1 - Supervision VIII 06/92 1 - F 1 1 M Supervision IX 5/93 1 14 F 1 3 - Supervision X 12/93 3 20 E,F,C 2 3 - Supervision XI 12/93 4 14 F,E,C,AD U S - Supervision XII 12/94 2 14 C,F S S - Supervision XIII 09/95 2 14 AC,F S S - Supervision XIV 02/96 2 22 AC,F S S - Supervision XV 09/96 2 20 AC,F S S - 1- Key to Specialized staff skills: 2- Key to Performance Ratings: 3- Key to Types of problems AC= Agricultural credit 1= Minor problems F= Financial Spec\. 2= Moderate problems T= Technical E = Economist 3= Major problems M= Managerial F = Financial Analyst RA= Research Assistant C = Consultant AD= Advisor  Covensnt Report: Latest status of Covenant Compliance ECA - Europe & Central Asa RegInal 0 Table 10 EC1 - ECA: Country Department I EC1IT - Idustry, Trade & Finance Op\. Div\. Project ID: TR-PE-9057 - SMI II Covenant Status Original Revised Description of Covenant Comnients Class (s) Fulfll Date Fulfill Date Aereement: LOAN No: IBRD -30670 Text Reference: LA Sec\. 4\.02 01 c 01/28//1991 Audit of Special Account Complied widL Text Reference: LA Sec\. 5\.01 13 CP 01/28/1991 Acquisition ofanother entity requires prior Violated by Halkbank in 1992; admonished Bank consent by Bank Aereement: L30670 Loan Number: IBRD -30670 Text Reference: LA Sec\. 4\.01 01 c 01/28/1991 Operations conducted on sound and Complied with\. consistent accounting practices\. Text Refeence: PA Sec\. 3\.01 -b 01 c 01/28/1991 Audit undertaken by auditors acceptable Complied with to Bank\. Text Reference: LA Sch\. 4\.3 03 c 01/28/1991 SSIsat least 30%ofall credits\. Compliedwith\. Text Reference: PA 3\.03(a) 02 CP 01/28/1991 Maximum SYKB debt/equity ratio of 10:1\. Legal agrments amended to replace this covenant with minimum 10% capital adequacy ratio for TSKB and SYKB\. Status: C - Complied with CD - Compliance after Delay NC - Not Complied with SOON - Conpliance ExpeAed in Reasonably Short Time CP - Complied with Partially NYD -Not Yet Due  Lega Covenant Report: Latest status of Covenant Compliance ECA - Europe & Central Asia Regional 0 Table 10 EC1 - ECA: Country Department I EC1lT - Industry, Trade & Flnance Op\. Div\. Project ID: TR-PE-9057 - SMI If Covenant Status Original Revised Description of Covenant Comments Class (s) _ Fulfill Date Fulfill Date Text Reference: PA Sec\. 3\.01(b) 01 c 01/28/1991 Submission of audited statement within Complied with\. 6 months after year end\. Text Reference: PA 3\.04 02 CP 01/28/1991 Deb-service-soverageratioSYKB&TSKB Compliedwith\. Text Reference: PA 3\.05 02 CP 01/28/1991 Adequate capital adequacy ratios\. Substantial compliance\. Text Reference: PA 3\.06 02 CP 01/28/1991 Adequate provisions\. Substantial compliance\. Text Reference\. PA 3\.07 02 C 01/28/1991 Minimum collection ratio of 75% for Complied with\. MT & LT loans\. Status: C - Complied with CD - Compliance after Delay NC - Not Complied with SOON - Compliance Expected in Reasonably Short Time CP -Comp NYD -Not Yet Due  TURKEY SECOND SMALL AND MEDIUM SCALE INDUSTRY PROJECT (Loan 3067-TU) Plan for Proiect Overation after Closine on June 30, 1997 Project Objective 30\. The project objectives as stated in the loan agreement were: (i) to further assist in the expansion and diversification of small-and-medium scale industries (SMIs), and, to this end; (ii) to improve SMI's access to credit to finance their investment needs by involving an increasing number of financial intermediaries in providing such credit; (iii) to provide technical and marketing services to SMIs to assist them in improving their product quality and in competing in local and export markets; and (iv) to improve understanding of SMIs problems and prospects through the availability of more reliable statistics for better policy and project formulation\. 31\. The institutional development objectives for the PCIs were to improve their project appraisal and supervision methods, systems and procedures through training and software and hardware improvements\. Covenants in the Project also related to strengthening of the PCIs' financial structures and the continuation of organizational and human resource development \. 32\. It was a sector policy objective specified in FSAL II to bring about positive interest rates\. For the SMI II Project, positive real rates were to be attained by using the Foreign Exchange Risk Insurance Scheme (FERIS) mechanism\. Under FERIS, the Government converted the proceeds of foreign loans into TL-denominated loans with a variable rate set at the average of the three-month Treasury bill rate over the preceding three months\. Additionally, the option of lending in foreign exchange through the Bank's pool rate was offered\. Since there was no use of the foreign exchange option under the pool rate, GOT agreed in 1994 to convert the pool of currencies to single-currency sub-loans to the PCIs\. 33\. The technical assistance was designed to support export product and market development of SMI enterprises by selected Export Trading Companies (ETC); develop a product quality assurance program for SMI units by the Turkish Standards Institute (TSE); and help finance the effort of the State Institute of Statistics (SIS) to improve SMI data gathering, processing and analysis to increase reliability and accuracy of sector statistics\. 34\. These objectives remain valid after the implementation of the project and the full disbursement of the project funds\. Since the PCIs have the opportunity under foreign exchange lending (not under FERIS) to roll over the funds obtained for a certain number of years, the backflow of funds will be used to support lending operations for similar purposes until all funds have been repaid to GOT as stated in the Loan Agreement\. Equally important, the institutional development of the PCIs will continue along the lines that were started in this and other projects supported by the World Bank\. The objectives of the technical assistance components related to the improvements in the technical capabilities of the TSE and SIS should be complemented by the cooperation of the agencies, public and private, in policy formulation for the SMI sector\.  18 Future Proiect Overations 35\. The Loan was made to the Government of Turkey (GOT) for 17 years including five years of grace period\. On-lending maturities to the PCIs depend on the type of investment financed\. Under FERIS, sub-loans are made for periods up to ten years including three years of grace and repayment by the PCIs to GOT is at identical terms, i\.e\., no possibility of revolving the funds exist\. For sub-loans made in foreign exchange, maturities to sub-borrowers are up to eight years including three years of grace for investment projects, up to eight years with no grace period for permanent working capital\. The PCIs have thus the opportunity to revolve the part of the foreign exchange repayments from client that exceeds their repayment obligations to GOT\. 36\. The legal agreements stipulate that the backflows of funds will be used for similar purposes\. The PCIs confirm that they intend to follow this agreement and make loans to individual sub-borrowers for similar purposes until all funds have been repaid to GOT\. It is likely that the bulk of funds to be reinvested will be used to finance investment loans\. In this sense, this Plan of Operation foresees that the Loan will continue to benefit the SMI sector\. PCIs intend to supervise the portfolio of sub-loans outstanding in accordance with the agreed procedures until all fiunds have been repaid\. 37\. Institutional development will remain one of the PCIs' main objectives\. They will aim to further strengthen their financial position and to maintain compliance with the financial covenants set out in the legal agreements\. Annex B PCI Actual as of Total Allocation Allocation in 04/3011997 04130/1997 Percentage of (USS'000) (USS'000) Total SYKB 81,029,209 81,029,209 40 TSKB 5,470,000 5,470,000 4 THB 29,095,077 29,095,077 14 TVB 81,726,157 81,726,157 41 EB 2,947,988 2,947,988 TA 2,032,304 2,032,304 Sub-total 202,300,735 202,300,735 100 Guha Ozdora n:AWAey\icrfina2\.doc May 22,1997 4:04 PM  PART III REPUBLIC OF TURKEY PRIME MINISTRY THE UNDERSECRETARIAT OF TREASURY Ref: B\.02\.1\.HM\.O\.DEI\.01\.04\.155 /t , Mr\. Franco BATZELLA Chief, Industry, Trade and Finance The World Bank Dear Mr\.Batzella, Please see attached Part III of the Implementation Completion Report of the Government of Turkey for Second Small and Medium Scale Industry Project(Loan 3067- TU)\. - S N0USTR) T\.R\.AOiE & NA i i9 ¢ ? ¢ --: - : Sincerely, t\.-;- --- -L\.l\.-- he AK Acting Dixector General cc\. Frederick Temple Gurhan Ozdora   GOVERNMENT OF TURKEY SECOND SMALL AND MEDIUM SCALE INDUSTRY PROJECT (3067-TU) IMPLEMENTATION COMPLETION REPORT (ICR) 1\. This report presents the overall view of the Government of Turkey (GOT) as represented by the Undersecreteriat of Treasury on the outcome of Second Small and Medium Scale Industry Project(3067-TU)\. Comments on the Project results have been prepared with input from the participating agencies which are the State Institute of Statistics (SIS), Turkish Standards Institute (TSE), Export Credit Bank of Turkey (EXIMBANK); and from the participating credit institutions (PCIs) which are Emlakbank, Halkbank, SKYB, TSKB and Vakyfbank\. 2\. The US $ 204\.5 million IBRD loan for The Second Small and Medium Scale Industry Project was approved in June 1989 and made effective in October 1989\. The Bank provided this Loan to the GOT for supporting its program for small and medium scale enterprise (SMI) development by providing financial, technical and marketing support to promote efficient SMI investments\. The executing agencies were Turkish Standards Institute (TSE), Sate Institute of Statistics (SIS) and EXIMBANK for the technical assistance program\. The Loan was closed on December 31, 1996, 12 months after the planned completion date of June 30, 1995\. 3\. The project objectives as stated in the loan agreement were to: (i) further assist in the expansion and diversification of SMIs, and to this end; (ii) improve SMI's access to credit to finance their investment needs by involving an increasing number of financial intermediaries in providing such credit; (iii) provide technical and marketing services to SMIs to assist them in improving their product quality and in competing in local and export markets; and (iv) acquire a better understanding of SMI's problems and prospects through improving the availability of more reliable statistical data for better policy and project formulation\. 4\. Initially subloans made in local currency turned out to be unattractive for investors starting in 1992\. This was because the FERIS rates, which were based on the rates of three-month Treasurv bills, reached very high levels in the wake of the Gulf crisis\. Consequently lending through the PCIs came to a virtual standstill due to lack of demand\. To remedy the situation, GOT, in 1992, announced an investment incentive program offering a range of financial benefits to investors which included small amounts of subsidized credit\. As a reaction, the World Bank decided to stop approving sub-loans which were to be used in a blend with subsidized credit from GOT, despite the fact that no reference to such an event existed in the Loan Agreement\. 5\. In 1994, due to reasons of fiscal policy, GOT excluded subsidized credit from benefits given through investment encouragement certificates\. It was at that time that GOT and the World Bank agreed on restructuring the Loan with the objective to accelerate Loan disbursements\. In the amendment of December 29, 1994 to the Loan Agreement: (i) the interest rate base for single-currency US dollar or Deutsche Mark foreign exchange loans was made more market-oriented; (ii) free-standing working capital loans were allowed; and (iii) loans for equipment leasing and pre-export financing were also permitted\. These changes, together with a more favourable business climate in 1995, contributed to a full commitment of the funds by the end of 1996\. The necessary amendments should have been made long before, but The Bank's rigid posture prevented such flexibility\. The standstill situation as a result of the Bank's irresponsiveness to the prevailing market and investment conditions lasted more than two years and costed GOT dearly in terms of commitment fees and opportunity losses\. It also impeded an effective support scheme for SMIs\. It was an opportunity loss to the Bank, as well\.  6\. Following this long due restructuring, there was a significant acceleration in the loan utilization and commitments which totaled $203 million or 98 % of the total loan amount, with the final disbursement made in March 13, 1997\. 7\. During implementation a total number of 250 subloans were financed with the proceeds of the loan\. The economic impact of the credit component of the Project has been very positive\. It provided much- needed long-term funds to sub-sectors in need of investment capital, benefiting both the sub-borrowers and the financial structure of PCIs handling the Project\. PCIs benefited by making adequate spreads on the Loan and have been successful in loan collections under the Project\. Although it was implemented in difficult economic situations, the Project clearly supported investment in niches of high export and development potential through sound financial institutions\. This project makes it clear that the Bank should be ready to revise its fanatic concern for macroeconomic variables, when the circumstances necessitate\. Otherwise the Bank will miss many opportunities to help develop efficient export-oriented SMIs in the developing nations\. Even under some macroeconomic instability, promoting competitive SMIs can financially be viable and helps the process of economic development\. 8\. The PCIs were effective in achieving their objectives\. They improved their appraisal capabilities and complied with the legal requirements of sound financial structure and reporting\. The supervision missions of the World Bank were fielded at regular intervals twice per year and they reached a good working relationship with the implementing agencies that were conducive to the attainment of the Project objectives\. In this regard, we would we like to express our appreciation to the staff of the World Bank including the Resident Mission in Ankara\. 9\. Quality Improvement and Statistics components have been successful in supporting institution building and increasing technical capabilities\. Technical assistance portion of the loan will require further financial and technical support to become sustainable\. In the case of export promotion component, SAR should have been designed in such a way to set more clear goals and a better strategy to get commitment from interested parties to augment the positive effects of the project\. For the other two components, there has been a significant contribution in increasing the level of staff quality and technical capabilities of both the TSE and the SIS\. The performance of both TSE and SIS were highly satisfactory and in both cases the performance of the implementing agencies and the consultancy and training programs financed by the loan proved to be very conducive to the objectives of the loan\. However for both agencies, continued infusion of funds and investment is needed, if they are to meet the future demands of the SMI sector\. 10\. The export promotion component administered by the EXIMBANK was unsatisfactory due to deficiencies in the design of the consultancy services\. 11\. Overall, we would consider the perfornance of the Project as highly satisfactory despite the delays in implementation caused mid-way by economic factors and bureaucratic impediments of the Bank\. The following lessons have been learned: (i) entrepreneurs prefer to borrow in foreign exchange at relatively stable interest rates in an inflationary economy; (ii) a credit project, if designed properly, can achieve its objectives in terms of economic and financial benefits even under relatively instable macroeconomic environment; (iii) FERIS is not an effective and sustainable mechanism to smoothen exchange risks\. 12\. Finally, it is extremely hard to understand after the completion of such a successful project, (and also taking into consideration the similar success of the Agro Industry Project), why the Bank is so irresponsive and reluctant to consider further lending of this kind\. The Bank should reconsider its rigid posture, especially in the case of Turkey, that lending to competitive industries and sectors, contributes substantially to the industrial base of Turkey, as well as to the attainment of macroeconomic stability even under some macroeconomic impediments\. Despite reiterated indications of interest by GOT for a repeater credit line, the Bank appears never to have considered inclusion of such projects in its lending program\.  IBRD 24903R ,,~~~~~~~~~~~~~~~~~~~5 4^ LG&sPRVN E CAITL 5O: MDTRAENSA> MAOBLACK SEARAADS OZER SEVAN GREECE~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ '~~~~~~~~~RPO SEA @ NATIONAL CAPITAL MEDITERRANEAN SEA - MAJOR ROADS - PROVINCE BOUNDARIES - ---a- - - _____O_50_ 100___________- INTERNATIONAL BOUNDARIES zb\.'40 = ry\. _ lOtOMEOTS 0 50 100 1lO 260 250 CYPRUS Province n-mes are the some on provicre capitols\. 30 35- 30' MARCH 1994    IMAGING Report No\. \. 16659 Type: ICR

REVIEW

P003560

 ICRR 10498 Report Number : ICRR10498 ICR Review Operations Evaluation Department 1\. Project Data : OEDID : OEDID: C2242 Project ID : P003560 Project Name : Henan Agricultural Development Project Country : China Sector : Other Agriculture L/C Number : C2242-CHA Partners involved : Prepared by : Madhur Gautam, OEDST Reviewed by : Helen Abadzi Group Manager : Gregory K\. Ingram Date Posted : 08/17/1999 2\. Project Objectives, Financing, Costs and Components : Objectives : Overall objective was to assist Henan province in its development plan, which aimed to alleviate poverty and increase farmer incomes by increasing the productivity of agriculture, animal husbandry and fisheries, and by developing agroprocessing and agroindustry \. Specifically, the project sought to (i) provide additional irrigation water; alleviate soil salinity and water logging problems through improved drainage and flood protection measures; and improve management of water resources; (ii) increase productivity of low-yield farms through crop intensification and diversification; (iii) expand livestock production; (iv) develop low-lying areas for fish production; (v) support investment in agroprocessing and agroindustry; and (vi) strengthen research, extension and environmental protection programs\. Components : To pursue the above objectives, in addition to strengthening overall project management, research, extension, and environmental protection by providing equipment, technical assistance and training, the project had five components corresponding to (i) Irrigation and drainage; (ii) agriculture; (iii) livestock; (iv) aquaculture; and (v) agroprocessing and agroindustry Costs and financing : At appraisal (1991), project costs were anticipated to be US$ 196\.03 million, with IDA providing US$110 million (revised to US$ 117\.9 million at the time of the mid-term review as a result of the depreciation of the SDR relative to the US dollar)\. The project closed one year behind schedule on December 31, 1998, with actual costs being US$245\.6 million, of which IDA's share was US$116\.5 million\. 3\. Achievement of Relevant Objectives : The project substantially achieved all of its major objectives \. The physical production targets were either exceeded or fully achieved\. The project has had substantial positive economic, social and environmental impacts : female participation in project production activities and training was over 45%; farm households gained not only through increased incomes but also through assimilation of advanced production techniques; and poverty status of project areas has significantly improved \. All components have financial rates of return that are higher than anticipated at appraisal and the overall economic rate of return is estimated to be about 40%, higher than the 36% estimated at appraisal\. The project substantially contributed to human resource development, in line with the design intent \. Overall, there are few areas where implementation was not fully successful : there were some delays due to lack of timely allocation of counterpart funds and the delayed delivery of equipment for agroprocessing factories; the non-routine heavy maintenance and repair needs of canals is not well attended to, although routine maintenance is satisfactory; and the institutional development objectives of the irrigation and drainage component were only partially achieved\. The seed processing component was not well identified and was subsequently reduced in scope \. All seed processing plants supported, however, are either in commercial operation or in the process of being commissioned \. 4\. Significant Achievements : Most project activities were located in poor counties, and have had a significant impact : the annual growth rate of incomes, at 26%, has been above the provincial average of 21\.5%\. The establishment of an integrated system linking production, processing and marketing is noted by the ICR as the "cornerstone" of the project's success \. All agroprocessing plants have been constructed to a high standard and are in profitable commercial operation \. The project successfully introduced aquaculture to some areas in the province, and the agriculture component introduced improved technologies in tree crops \. Livestock production far exceeded its targets (although alfalfa production was canceled at mid-term review stage following heavy floods in the production areas, low profitability and lack of farmer interest)\. Research supported under the project produced high quality outputs, many of which have received awards and have been applied in production practice \. 5\. Significant Shortcomings : The project had few shortcomings as most of the objectives have been met \. The shortcomings include: institutional development in the irrigation and drainage component was only partial, resulting in a moderate improvement in water resources management capabilities \. The non-routine maintenance of canals is less than satisfactory and tree crop yields are lower than expected \. 6\. Ratings : ICR OED Review Reason for Disagreement /Comments Outcome : Satisfactory Satisfactory Institutional Dev \.: Substantial Substantial Sustainability : Likely Likely Bank Performance : Satisfactory Satisfactory Borrower Perf \.: Satisfactory Satisfactory Quality of ICR : Satisfactory 7\. Lessons of Broad Applicability : 1\. An integrated approach linking production, processing and marketing can be highly beneficial in agricultural projects\. 2\. The project demonstrates the benefits of stable project management and good coordination among the project management offices and concerned technical agencies \. 3\. Development of local management capabilities is critical for a successful decentralization of implementation responsibility and subsequent O&M, requiring substantial support from provincial authorities \. 4\. Good project design and equipment of a high standard are key factors in attracting private sectors partners in agroprocessing 8\. Audit Recommended? Yes No 9\. Comments on Quality of ICR : The ICR is well written and provides the relevant information in significant detail \. It should, however, have included a discussion of the on-lending terms and issues, including the performance of the portfolio, for the loans financed under the project for the various components \.

REVIEW

P065715

Document of The World Bank Report No: ICR00001061 IMPLEMENTATION COMPLETION AND RESULTS REPORT (IDA-33470 TF-23752) ON A CREDIT IN THE AMOUNT OF SDR 5\.5 MILLION (US$ 7\.6 MILLION EQUIVALENT) AND A GLOBAL ENVIRONMENTAL FACILITY GRANT IN THE AMOUNT OF SDR 1\.8 MILLION (US$ 2\.5 MILLION EQUIVALENT) TO GEORGIA FOR AN AGRICULTURAL RESEARCH, EXTENSION AND TRAINING PROJECT June 23, 2009 Sustainable Development Department Europe and Central Asia Region  CURRENCY EQUIVALENTS Exchange Rate Effective June 22, 2009 Currency Unit = Lari Lari 1\.00 = US$ 0\.60 US$ 1\.00 = Lari 1\.66 FISCAL YEAR January 1 ­ December 31 ABBREVIATIONS AND ACRONYMS ADP Agricultural Development Project ADPCC Agricultural Development Project Coordination Center AKS Agricultural Knowledge System ARET Agriculture Research, Extension and Training ARS Agricultural Research System BGD Biogas Digesters CAS Country Assistance Strategy CGB Competitive Grant Board CGS Competitive Grant Scheme DO Development Objective EPC Environmental Pollution Control GDP Gross Domestic Product GEF Global Environment Facility GEO Global Environmental Objective GOG Government of Georgia ICR Implementation Completion Report IDA International Development Association IMC Inter-Ministerial Commission IVHO Institute for Viticulture, Horticulture and Oenology M&E Monitoring and Evaluation MoA Ministry of Agriculture NGO Non-Governmental Organization PAD Project Appraisal Document PDO Project Development Objective PMU Project Management Unit TF Trust Fund WB World Bank Vice President: Shigeo Katsu Country Director: Asad Alam Sector Manager: Dina Umali-Deninger Project Team Leader: Darejan Kapanadze ICR Team Leader: Daniel Gerber  GEORGIA Agricultural Research, Extension and Training Project CONTENTS Data Sheet A\. Basic Information B\. Key Dates C\. Ratings Summary D\. Sector and Theme Codes E\. Bank Staff F\. Results Framework Analysis G\. Ratings of Project Performance in ISRs H\. Restructuring I\. Disbursement Graph 1\. Project Context, Development and Global Environment Objectives Design\. 1 2\. Key Factors Affecting Implementation and Outcomes \. 7 3\. Assessment of Outcomes\. 14 4\. Assessment of Risk to Development Outcome and Global Environment Outcome 22 5\. Assessment of Bank and Borrower Performance \. 22 6\. Lessons Learned \. 24 7\. Comments on Issues Raised by Borrower/Implementing Agencies/Partners \. 26 Annex 1\. Project Costs and Financing\. 27 Annex 2\. Outputs by Component \. 29 Annex 3\. Economic and Financial Analysis\. 35 Annex 4\. Bank Lending and Implementation Support/Supervision Processes \. 38 Annex 5\. Beneficiary Survey Results\. 40 Annex 6\. Stakeholder Workshop Report and Results\. 42 Annex 7\. Summary of Borrower's ICR and/or Comments on Draft ICR \. 44 Annex 8\. Comments of Cofinanciers and Other Partners/Stakeholders\. 53 Annex 9\. List of Supporting Documents \. 54 Annex 10\. Additional Information\. 55 MAP  A\. Basic Information Agricultural Research, Country: Georgia Project Name: Extension & Training Project Project ID: P065715,P064091 L/C/TF Number(s): IDA-33470,TF-23752 ICR Date: 06/23/2009 ICR Type: Core ICR GOVERNMENT OF Lending Instrument: SIL,SIL Borrower: GEORGIA Original Total XDR 5\.5M,USD 2\.5M Disbursed Amount: XDR 5\.5M,USD 2\.5M Commitment: Environmental Category: C,C Focal Area: I Implementing Agencies: Ministry of Agriculture Cofinanciers and Other External Partners: B\. Key Dates Agricultural Research, Extension & Training Project - P065715 Process Date Process Original Date Revised / Actual Date(s) Concept Review: 02/10/1999 Effectiveness: 02/05/2001 Appraisal: 09/26/1999 Restructuring(s): Approval: 05/11/2000 Mid-term Review: 04/25/2003 Closing: 12/31/2005 06/30/2008 Agricultural Research, Extension and Training GEF Project - P064091 Process Date Process Original Date Revised / Actual Date(s) Concept Review: 02/10/1999 Effectiveness: 02/19/2001 02/05/2001 Appraisal: 09/26/1999 Restructuring(s): Approval: 05/11/2000 Mid-term Review: 04/25/2003 Closing: 12/31/2005 06/30/2008 C\. Ratings Summary C\.1 Performance Rating by ICR Outcomes Moderately Satisfactory GEO Outcomes Moderately Satisfactory Risk to Development Outcome Moderate i  Risk to GEO Outcome Moderate Bank Performance Moderately Satisfactory Borrower Performance Moderately Satisfactory C\.2 Detailed Ratings of Bank and Borrower Performance (by ICR) Bank Ratings Borrower Ratings Quality at Entry Moderately SatisfactoryGovernment: Moderately Satisfactory Quality of Supervision: Satisfactory Implementing Agency/Agencies: Satisfactory Overall Bank Borrower Performance Moderately SatisfactoryOverall Performance Moderately Satisfactory C\.3 Quality at Entry and Implementation Performance Indicators Agricultural Research, Extension & Training Project - P065715 Implementation QAG Assessments Performance Indicators (if any) Rating: Potential Problem Project Quality at Entry at any time (Yes/No): No (QEA) None Problem Project at any Quality of time (Yes/No): No Supervision (QSA) None DO rating before Closing/Inactive status Satisfactory Agricultural Research, Extension and Training GEF Project - P064091 Implementation QAG Assessments Performance Indicators (if any) Rating: Potential Problem Project Quality at Entry at any time (Yes/No): No (QEA) None Problem Project at any Quality of time (Yes/No): No Supervision (QSA) None GEO rating before Closing/Inactive Status Satisfactory D\. Sector and Theme Codes Agricultural Research, Extension & Training Project - P065715 Original Actual Sector Code (as % of total Bank financing) Agricultural extension and research 91 92 Central government administration 9 8 ii  Theme Code (as % of total Bank financing) Participation and civic engagement 25 Rural markets 25 9 Rural services and infrastructure 25 21 Technology diffusion 25 70 Agricultural Research, Extension and Training GEF Project - P064091 Original Actual Sector Code (as % of total Bank financing) Agricultural extension and research 37 52 Central government administration 9 Micro- and SME finance 54 48 Theme Code (as % of total Bank financing) Infrastructure services for private sector development 25 Pollution management and environmental health 25 35 Rural services and infrastructure 25 30 Technology diffusion 25 35 E\. Bank Staff Agricultural Research, Extension & Training Project - P065715 Positions At ICR At Approval Vice President: Shigeo Katsu Johannes F\. Linn Country Director: Asad Alam Judy M\. O'Connor Sector Manager: Dina Umali-Deininger John A\. Hayward Project Team Leader: Daniel P\. Gerber Iain G\. Shuker ICR Team Leader: Daniel P\. Gerber ICR Primary Author: Daniel P\. Gerber Agricultural Research, Extension and Training GEF Project - P064091 Positions At ICR At Approval Vice President: Shigeo Katsu Johannes F\. Linn Country Director: Asad Alam Judy M\. O'Connor Sector Manager: Dina Umali-Deininger John A\. Hayward Project Team Leader: Daniel P\. Gerber Jitendra P\. Srivastava ICR Team Leader: Daniel P\. Gerber ICR Primary Author: Daniel P\. Gerber iii  F\. Results Framework Analysis Project Development Objectives (from Project Appraisal Document) The Overall Development Objective of the Project is to assist the Government of Georgia develop an efficient and cost-effective agricultural knowledge system to demonstrate, disseminate and promote the adoption of appropriate technologies that increase sustainable agricultural production and reduce pollution of natural resources\. In support of this objective, the Project would assist the Government of Georgia to: (i) put in place a Competitive Grant Scheme for agriculture; (ii) support Reform of the Agricultural Research System; and (iii) invest in Environmental Pollution Control (manure storage and handling facilities and biogas digesters, as well as soil and water quality monitoring programs) on a pilot basis to reduce agricultural nutrient pollution of the Black Sea\. Revised Project Development Objectives (as approved by original approving authority) While indicators were modified, the PDO was not revised Global Environment Objectives (from Project Appraisal Document) The Project will initiate measures aimed at improving on-farm environmental practices, which, over the long-term, would reduce nutrients entering the Black Sea\. Revised Global Environment Objectives (as approved by original approving authority) PDO was not revised (a) PDO Indicator(s) Original Target Formally Actual Value Indicator Baseline Value Values (from Revised Achieved at approval Target Completion or documents) Values Target Years Adoption of improved agricultural technologies (disseminated technologies Indicator 1 : being adhered to by beneficiaries after completion of grant financing and/or successfully replicated by non-beneficiaries) 60% of 0% - No improved beneficiary 73\.2% of Value technologies being 20% of farmers in farmers beneficiary farmers (quantitative or extended to and adhered project areas adopt continue continue Qualitative) to by the project improved using/benefitinusing/benefiting beneficiary farmers technologies g from from extended extended technologies technologies Date achieved 02/05/2001 02/05/2001 12/31/2005 06/30/2008 Comments 122% of achievement of revised target value\. Information on use of technology (incl\. % obtained through an independent evaluation of project outcomes performed by an achievement) NGO consortium\. Indicator 2 : Competitive Grant Scheme for technology dissemination operates successfully with representation of all major stakeholders, pe er review and monitoring iv  systems in place\. Competitive Grant Scheme Competitive Competititive grant Grant Scheme scheme adopted at Value established with sustained post- national (quantitative or No Competitive Grant peer review and project with leveloperating Qualitative) Scheme in place monitoring systems in place government sucessfully with sufficient for self and/or donor government sustainbility financing funding Date achieved 02/05/2001 02/05/2001 12/31/2005 06/30/2008 Comments 100% achievement of revised target value\. Competititive grant scheme for (incl\. % financing priority reasearch fields as operated by the National Science foundation achievement) under the Ministry of Education and Science\. Institute of Horticulture, Viticulture and Oenology achieves sustainability, Indicator 3 : allowing to lead a full-scale research work, cov er essential recurrent costs and maintain qualified staff\. Institutional reform Institutional reform plan Implemenatiton of and rehabilitation Value for the Institute of institutional of the Institute of (quantitative or Horticulture, Viticulture reform and none Horticulture Qualitative) and Oenology under investment plans Viticulture and development completed Oenology has been sucessfully successfully imple mented Date achieved 02/05/2001 02/05/2001 12/31/2005 06/30/2008 Comments (incl\. % 100% achievement of target value\. Beneficiary institute restructured, refurbished achievement) and operating\. Main target outcomes of ref orm succesfully delivered (b) GEO Indicator(s) Original Target Formally Actual Value Indicator Baseline Value Values (from Revised Achieved at approval Target Completion or documents) Values Target Years Indicator 1 : Adoption of sound manure management practices (disseminated technologies being adhered to by beneficiaries) 80% of 98% of 10% of farms in beneficiaries beneficiaries of Value project areas adhere to the biogas digesters (quantitative or 0% - No technologies adopting manure extended and manure storage Qualitative) disseminated management plans manure facilities operated and biogas units management and used as practices intended Date achieved 02/05/2001 02/05/2001 12/31/2005 06/30/2008 Comments (incl\. % 123% achievement of revised target outcome achievement) v  Indicator 2 : Decrease of nutrient pollution (N and P containing pollutants) to the selected rivers of Environment Pollution Control Progra m target area Minor River Choga Value = N - 43% and P- (quantitative or 0% n/a 5% 58%\.Larger River Qualitative) Khobistsakali = N- 46% and P-23\.5% Date achieved 12/31/2005 02/05/2001 06/30/2007 06/30/2008 Comments Measurements were taken in small rivers in project areas since establishment of (incl\. % system at watershed level was not possible\. Figures have no base line data nor achievement) control sampling to compare project to non project areas (c) Intermediate Outcome Indicator(s) Original Target Formally Actual Value Indicator Baseline Value Values (from Achieved at approval Revised Completion or documents) Target Values Target Years Indicator 1 : Reform of the overall agricultural research complex accelerated Successful A model for completion of the reorganizing Value No vision for reforming reform and agricultural (quantitative or of agricultural research rehabilitation plan none research complex Qualitative) system in place for the project developed and beneficiary stakeholder institute consensus reached on its outline Date achieved 02/05/2001 02/05/2001 12/31/2005 06/30/2008 Comments (incl\. % achievement) Indicator 2 : Number of responsive, high quality proposals received and approved under the Competitive Grant Scheme 130 (target was increased to 180 upon MOA decision Value to run an (quantitative or 0 at least 40 grants additional 155 approved and Qualitative) CGS cycle andcompleted grants is now back to the original number as MOA decided to drop it) Date achieved 02/05/2001 02/05/2001 06/30/2007 06/30/2008 Comments 119% achievement of revised target, and four times achievement of original vi  (incl\. % target\. achievement) Indicator 3 : Number of the CGS grant recipient institutions (research institutes, universities, NGOs, businesses) 220 (target was increased to 270 upon MOA decision Value to run an (quantitative or 0 at least 40 additional 237 institutions Qualitative) CGS cycle and is now back to the original number as MOA decided to drop it) Date achieved 02/05/2001 02/05/2001 06/30/2007 06/30/2008 Comments (incl\. % 108% of revised target value achievement) Indicator 4 : Number of farmers directly and indirectly benefiting from the Competitive Grant-funded sub-projects Value 650 direct and direct and (quantitative or 0 2400 19,500 indirect903 20,090 indirect Qualitative) beneficiaries beneficiaries Date achieved 02/05/2001 02/05/2001 06/30/2007 06/30/2008 Comments (incl\. % 139% of revised target value achievement) Indicator 5 : Number of the improved manure storage facilities constructed in the Environment Pollution Control Program target area Value (quantitative or 0 700 540 540 Qualitative) Date achieved 02/05/2001 02/05/2001 12/31/2007 12/31/2007 Comments (incl\. % 100% achievement of revised target value achievement) Indicator 6 : Number of biogas digesters installed in the Environment Pollution Control Program target area Value (quantitative or 0 196 290 292 Qualitative) Date achieved 02/05/2001 02/05/2001 12/31/2005 06/30/2008 Comments (incl\. % 101% achievement of original target achievement) vii  G\. Ratings of Project Performance in ISRs - Actual Disbursements No\. Date ISR Archived DO GEO IP (USD millions) Project 1 Project 2 1 09/18/2000 S S S 0\.00 0\.00 2 12/06/2000 S S S 0\.00 0\.00 3 06/15/2001 S S S 0\.30 0\.13 4 12/27/2001 S S S 0\.40 0\.13 5 03/28/2002 S S S 0\.47 0\.13 6 10/17/2002 S S S 0\.91 0\.28 7 12/19/2002 S S S 0\.91 0\.28 8 06/13/2003 S S S 2\.24 0\.41 9 06/24/2003 S S S 2\.24 0\.41 10 11/13/2003 S S S 2\.78 0\.52 11 06/08/2004 S S S 3\.82 1\.06 12 12/20/2004 S S S 4\.42 1\.62 13 04/02/2005 S S S 4\.69 1\.71 14 03/21/2006 MS S MS 5\.50 2\.07 15 08/23/2006 MS S MS 5\.86 2\.18 16 02/06/2007 MS S MS 5\.92 2\.35 17 02/21/2007 MS S MS 5\.92 2\.35 18 07/25/2007 MS S MS 6\.72 2\.42 19 02/13/2008 S S S 7\.52 2\.46 20 09/20/2008 S S HS 7\.91 2\.48 H\. Restructuring (if any) Not Applicable viii  I\. Disbursement Profile P065715 P064091 ix  1\. Project Context, Development and Global Environment Objectives Design 1\.1 Context at Appraisal Agricultural production in the Republic of Georgia was severely disrupted following the collapse of the Soviet Union, and the subsequent civil conflict\. By the mid to late 1990s, agricultural production had picked up again, accounting for about 28 percent of Gross Domestic Product (GDP) and some 55 percent of employment\.1 However, the nature of agriculture had changed dramatically; with the collapse of markets and land privatization efforts, about one million small farmers with less than one hectare (ha) of land reverted to subsistence production, cultivating mainly wheat, maize and potatoes\.2 Productivity in the sector was low, underemployment and unemployment rates were high, and poverty and vulnerability was widespread\. The agriculture sector faced three significant constraints to its development\. First, the shift from a command economy to a market-based economy required significant restructuring of former collectivized farms, privatization of land assets, development of markets, investments and access to credit\. Second, the breakup of the Soviet Union meant the disintegration of large collective farms into private highly fragmented small farms\. These new private farmers had little experience in farm management, especially in agricultural technologies available to expand production or to improve environmental sustainability\. Finally, agriculture practices during the Soviet period relied heavily on mineral fertilizers and pesticides that resulted in the pollution of the Black Sea\. While agro-chemical input use dropped significantly after the country's independence, the poor manure storage and handling practices and overall poor field management practices of the new private farmers prevented a significant reduction of nutrients flows from rivers to the Black Sea\. The basis for the Bank's agriculture sector investment strategy was first formulated in 1995, following the end of the civil war in Georgia\. This strategy was based on a Bank sector report, "Georgia: Reform in the Food and Agriculture Sector\." The investment strategy placed top priority on addressing short-term needs, such as provision of agricultural credit and consolidation of the ongoing land reform\. As a second phase, the strategy proposed some longer-term investments in government services to the agricultural sector, such as irrigation, and agricultural research and extension\. The first investment project, the Agricultural Development Project (ADP) (IDA CR 2941), aimed primarily to address these short-term priorities, but also provided seed funds to prepare studies related to some of the longer-term priorities\. On the basis of these studies, preparation of the Georgia: Agriculture Development II Project (ADP II) was initiated, which included both irrigation rehabilitation and agricultural research and extension components\. During the review of the Project Concept Document, however, a decision was taken to split the project into two separate operations: (i) the Georgia: Irrigation and Drainage Rehabilitation Project; and (ii) the Georgia: Agricultural Technology 1 1997 Figures 2 IFAD "Rural Poverty in Georgia" 1  Improvement Project\. The name of the latter was changed to Georgia: Agricultural Research, Extension and Training Project, following consultations with the Georgian project preparation team\. The Government of Georgia has been an early adopter of agricultural sector reforms, and became a member of the World Trade Organization in late 1999\. Georgia has over the years evolved into one of the least "interventionist" economies in the region\. Recognizing its agro-industrial potential, the Government of Georgia has been pursuing a strategy to meet internal demands and to realize potentials to expand exports\. Thus, the Government was interested in pursuing sector reforms, especially with regard to land reforms, and to increasing farm productivity\. This was to be achieved by dissemination of improved technologies and inputs and stimulating research using mainly market driven instruments\. In addition, the Government of Georgia recognized the threat to environmental sustainability in the Black Sea, caused by current farming practices\. Country Assistance Strategy and Government strategies supported by the Project The project objectives were consistent with the Country Assistance Strategy (CAS, Report No\. 1700 GE dated 10/21/97), which defined the Bank's objectives in Georgia as (i) deepening and diversifying the sources of growth; (ii) reducing poverty; and (iii) protecting the environment through sustainable natural resource management\. New agricultural practices disseminated through the competitive grants scheme (Component 1) would assist direct beneficiaries of the project, rural farmers, to improve farming practices for more sustainable yields that would result in reduced poverty while the introduction of environmentally-friendly agricultural practices would result in improved soil and water quality and contribute to the reduction of pollutants to the Black Sea\. Reforming select agricultural institutions (Component 2) would create the appropriate institutional setting for agricultural extension and research programs that would assist farmers and boost agricultural productivity\. Finally, the installation of biogas digesters (Component 3) would directly improve the lives of rural households by providing a reliable and secure source of energy, and simultaneously reduce pollution\. 1\.2 Original Project Development Objectives (PDO) and Key Indicators (as approved) The Overall Development Objective (DO) of the Project was to assist the Government of Georgia to develop an efficient and cost-effective agricultural knowledge system to demonstrate, disseminate and promote the adoption of appropriate technologies that increase sustainable agricultural production and reduce pollution of natural resources\. In support of this objective, the Project would assist the Government of Georgia to: (i) put in place a Competitive Grant Scheme for agriculture; (ii) support Reform of the Agricultural Research System; and (iii) invest in Environmental Pollution Control (manure storage and handling facilities and biogas digesters, as well as a soil and water quality monitoring program) on a pilot basis to reduce agricultural nutrient pollution of the Black Sea\. Key performance indicators of the project development objectives at design (PDO) included: 2  1\. 20% of farmers in project areas adopting improved farm production, marketing, management, and post-harvest technologies\. 2\. 10% of farms in project areas adopting production and resource conservation technologies (environmentally-friendly agriculture practices) 3\. 10% of farmers in project areas adopting manure management plans, including the use of biogas units\. 4\. Successful completion of the reform and rehabilitation plan for the Institute of Viticulture, Horticulture and Oenology (IVHO)\.3 1\.3 Original Global Environment Objectives (GEO) and Key Indicators (as approved) The Project aimed to initiate measures that would improve on-farm environmental practices, which, over the long-term, would reduce nutrients entering the Black Sea\. The key performance indicator for the Global Environment Objective was the increased adoption of recommended environmentally sound farming practices in pilot areas (e\.g\., sound manure management practices), which would lead to a reduction of pollution in the Black Sea\. 1\.4 Revised PDO (as approved by original approving authority) and Key Indicators, and reasons/justification The PDO was not formally revised\. 1\.5 Revised GEO (as approved by original approving authority) and Key Indicators, and reasons/justification The GEO was not formally revised\. 1\.6 Main Beneficiaries\. The main beneficiaries, as identified in the PAD, were private farmers and agro- processors, who, through the introduction of technologies would experience agricultural diversification, higher productivity, and lower costs of production\. The types of farms targeted for the project ranged from smallholders (with farm sizes up to one hectare) and part-time farmers with small crop or livestock surpluses, to larger leased farms with land ranging in size from five to one hundred hectares (ha)\. Improved productivity and management of these farms would increase returns to farmers from higher production and better product quality to meet market requirements, especially export markets\. In addition, higher productivity in rural areas would mean improved living standards and greater profitability\. Secondary benefits from the project were expected to accrue to both the broader population in Georgia, through reforms to applied agricultural research facilities, and to the global community through reduced pollution in the Black Sea\. Investments in applied agricultural research and effective technology transfer were expected to result in high 3 These indicators reflect those originally approved as per the Project Appraisal Document (PAD)\. The indicators were modified in the mid-term review (see section 2\.3) 3  returns (given the relatively low technological base), and to engage farmers in practical and relevant technologies that could be applied for greater productivity\. Second, the global community and the broader Georgian public were expected to benefit from reduced pollution in the Black Sea, and the maintenance of productive ecosystems and critical natural habitats in the freshwater, estuarine and near shore waters\. This would be achieved through the introduction of improved manure management practices, manure pits and platforms and bio-digester technologies\. 1\.7 Original Components (as approved) The project had four components that aimed to reform the Georgian agricultural knowledge system through appropriate technology acquisition, adaptation and dissemination that would better respond to the new realities and needs of the emerging private farmers, while at the same time promote environmentally friendly agricultural practices to protect Georgia's surface and ground water and reduce agricultural pollution to the Black Sea\. These components were as follows: Component 1: Competitive Grant Scheme (US$5\.6 million ­ IDA Credit + GEF Grant) The Competitive Grant Scheme (CGS) supported the following activities: (i) Adaptive Research and Technology Dissemination (IDA funding); and (ii) Environment-friendly Agricultural Practices to reduce negative impacts on soil and water quality (GEF funding)\. (a) Adaptive Research and Technology Dissemination\. This combined a program of on-farm technology acquisition, adaptation and dissemination, as well as the provision of agricultural advisory services, to tackle immediate priorities for improving on-farm productivity, profitability and long-term sustainability on private farms, both small-holder and commercial\. The project encouraged the participation of farmers, farmers' organizations, NGOs and other stakeholders in "needs assessments" of farmers' priorities and constraints, identification of priority activities and their implementation\. These activities, funded under the Competitive Grant Scheme, aimed to build national capacity and increase the competitiveness of Georgia's agricultural sector\. The terms and conditions for operating the CGS were set out in an Operational Manual, which was approved by the Inter-Ministerial Commission (IMC) and the Bank\. The CGS was implemented by a Competitive Grant Board (CGB)\. (b) Support for Agricultural Practices to Reduce Environmental Pollution\. This subcomponent, funded by the Global Environment Facility (GEF), aimed to fund activities to improve Georgian surface and groundwater and reduce the nutrient load entering the Black Sea from point and non-point sources of pollution originating from agricultural practices in Georgia\. The selected project area was located within the Khobi River watershed in Western Georgia, and comprised three districts ­ Khobi, Chkhorotsku and Tsalenjikha ­ bordering the Black Sea\. These districts suffered from high levels of 4  pollutants in the soil that eventually washed into the Black Sea\. This sub-component funded activities proposed to the CGS that aimed to specifically reduce pollutants in this area\. These activities included (i) promotion of efficient manure management practices; and (ii) conducting on-farm trials and demonstrations of improved sustainable agricultural practices, including reduced tillage, better chemical management systems, introducing contour farming and buffer strips to improve water quality\. Component 2: Reform of the Agricultural Research System (US$3\.52 million- IDA Credit) A Conceptual Framework for a National Strategy for Reform of the Agricultural Research, Extension and Training System was approved on June 17, 1999, by the Inter- Ministerial Commission set up by the President to support reform of the Georgian Agricultural Knowledge System (AKS)\. The Government agreed with the Bank to pilot reforms in one priority research area, namely Horticulture and Viticulture\. This component provided a combination of technical assistance, training and investments to reform the Institute for Viticulture, Horticulture and Oenology (IVHO)\. The reform of this institute would then serve as a model for the remaining Agricultural Research, Extension and Training System\. This component included activities related to civil works and rehabilitation; procurement of laboratory and field equipment and goods; human resource streamlining; and training, and operational costs\. Component 3: Pilot Environmental Pollution Control Program (GEF funding ­ US$1\.17 million) The project supported a pilot program in the Khobi River watershed, in the same areas of Western Georgia, to cover the following activities: (i) the promotion of efficient manure management practices ­ installation of manure storage tanks/pits on a pilot basis; (ii) adaptive research, on-farm testing and demonstration of the use of biogas digesters in the villages to provide biogas for cooking and other domestic use to rural families and to reduce methane emissions into the atmosphere; and (iii) the establishment of a watershed scale water quality monitoring program to monitor agricultural pollution of major rivers draining into the Black Sea\. Component 4: Project Management Unit (US$0\.71 million- IDA Credit) The Project provided for a Project Management Unit (PMU) to coordinate project implementation and monitor and evaluate project activities\. The PMU was headed by a Project Manager, who reported to the Minister of Agriculture and Food\. The PMU was comprised of an Environmental Engineer (heading the Environmental Pollution Control component), a Reform Component Coordinator, an Administrative Officer and a Secretary/Interpreter\. 1\.8 Revised Components There were no formal revisions to the project components\. 1\.9 Other significant changes While there were no significant changes to the design of the project, some changes were made to the implementation arrangements under both Component 1 (Competitive Grant 5  Scheme) and Component 4 (Project Management Unit)\. In addition, some reallocation of resources between activities in Component 3 (Environmental Pollution Control) occurred to respond to increased demand for one technology over another\. At closing, project costs had amounted to approximately 105 percent of the amount estimated at appraisal\. Much of the increases were related to overall cost of construction that were greater than anticipated, as well as goods and services in a rapidly growing economy over the life of the project\. Component 1 ­ Competitive Grant Scheme: According to the original design of the CGS, the recipients of the competitive grants were required to submit receipts for all purchases to track the grant disbursements\. This, however, resulted in blocked disbursements and impeded implementation of the component since there were few retailers that offered receipts at the time in Georgia, and those that did were generally larger supermarkets where the goods were more expensive to buy than with smaller retailers or in open air markets\. Thus, the CGS was redesigned to omit this requirement and to follow international practice in small grants program that disbursed funding based on outputs\. This adjustment led to improved implementation of this component and disbursements were able to resume in a timely fashion\. The rapid implementation of the component with most grants already completed by early 2007 resulted in some 7 percent savings\. Component 2 ­ Reform of the Agricultural Research System: While the component suffered from delays in implementation resulting mainly from the frequent changes at the top level of government, the overall design of the component activities to be financed had largely remained as defined at appraisal\. These delays along with an unplanned a move of the entire Institute for Viticulture, Horticulture and Oenology out of the main building to a new adjacent location on the site of the Ministry meant that significant resources were spent on the move to the new facilities and the component expenditures ended up some 8% overdrawn relative to estimates at appraisal\. Component 3 ­ Pilot Environmental Pollution Control Program: During implementation it became apparent that farmers were most likely to adopt technologies that provided some economic benefit over technologies with the objective of reducing pollution alone, especially when an additional work load was involved\. Consequently, from the beginning the demand for manure pads/pits, and manure management practices remained weak\. Bio-gas digesters, on the other hand, offered some immediate economic benefits in the form of energy for cooking\. It was therefore decided to reallocate significant resources away from manure pits and improved practices to concentrate on the installation of biogas digesters (BGDs)\. Relative to the manure pits, however, BGDs were significantly more costly, and, in the end this component absorbed some 24 percent in additional resources relative to the original design\. Component 4 ­ Project Management: As part of an attempt to streamline implementation of projects in the agricultural sector, the Government of Georgia decided to merge the existing Project Implementation Units (PIUs) for all existing agriculture projects under one legal status in the form of an Agricultural Development Project 6  Coordination Center under the Ministry of Agriculture\. While this was not a direct requirement of the World Bank, the result was that the Project Implementation Units benefitted from this centralization of activities, since PIUs worked in close collaboration, and could exchange information and share some administrative resources, especially as related to procurement and financial management\. Nonetheless, these changes along with frequent policy reversals due to changing ministers led to significant delays in the implementation and the subsequent extensions resulted in increases in project management costs of some 47 percent relative to design\. Extension of closing date: During project implementation, there were major political changes, arising from the Rose Revolution, the revolution in the Autonomous Republic of Achara, and frequent turnovers in the Ministry of Agriculture\. These political changes resulted in shifting policy directions that, when combined with the regular staff turnovers meant that project implementation was frequently delayed\. The project required four extensions of the Closing Date for both the IDA Credit and the GEF TF, moving it from the original closing date of December 31, 2005 to December 31, 2006, then to June 30, 2007, December 31, 2007, and finally June 30, 2008\. However, by the project closing date, June 30, 2008, all project activities were substantially delivered and the project objectives as measured against the revised indicators were to a large extent met\. Monitoring and Evaluation: A revision was made to the project's intermediate outcome indicators at the mid-term review\. This followed a portfolio review and the desire to make project indicators more reflective of outputs and outcomes\. As a result, the target values of several indicators were revised to reflect more achievable goals, and several indicators were revised completely to become more output based\. The revised monitoring indicators were fully met by project closing\. However, several of these indicators measure outputs and outcomes that differ from the stated objectives and outcomes in the PAD\. Section 2\.3 outlines this issue in greater detail\. 2\. Key Factors Affecting Implementation and Outcomes 2\.1 Project Preparation, Design and Quality at Entry a\. Lessons of earlier operations\. An Agricultural Development Project funded by the World Bank approved in 1997 along with a sector study undertaken in early 2000 provided much of the foundation for this project\. Lessons learned from this project highlighted the need to improve government services offered, such as research and extension, to the agricultural sector, which provided the logic for the ARET project\. Global experience using competitive grant schemes provided a lesson for Component 1- CGS, which was anticipated to introduce greater competition and improvement in allocation of resources and more demand driven government services\. The introduction of this model was the first of its kind in the FSU region and has been adopted more broadly now in several countries in the region\. Component 2 remained modest in scope with the specific aim of piloting the reform for one of the institutions of the agricultural 7  research system for broader replication later with more Government commitment\.4 Finally, the introduction of BGDs (Component 3) drew on global experiences, from countries such as China and India, in introducing innovative technologies to reduce pollutants\. Given that BGDs were to be introduced in a new setting, climate and culture, the project was designed to pilot the technology and went through several designs and adjustments before local companies were able to design and produce systems that performed acceptably at reasonable costs in Georgia's setting\. b\. Risks: The risks to the project were adequately identified at project preparation\. The main risks to outcome that were identified related to local technical capacity and commitment at the level of extension officers, researchers, and farmers\. The project intended to address them with training and external technical assistance and capacity building as deemed necessary\. On reforms of the research system, political willingness was considered a moderate risk\. This risk was addressed with a design that involved an incremental approach dealing with one research institute that would then provide a model for wider reform in the Agricultural Knowledge System at a later point\. In the end, frequent changeovers in the Ministry of Agriculture led to some delays in implementation of both Components 1 and 2, although the pilot nature and the simple scope of activities allowed for continued implementation\. One further risk identified at entry was the possible failure by the implementing agency and the grant committee to keep the grant approval process transparent and apolitical\. This was deemed a high risk, and a detailed grant manual was developed that outlined procedures for reviewing grants and application processes that ensured a relatively transparent award process\. The procurement and financial reviews performed at the end of the project found no irregularities in the administration of the Component\. c\. Adequacy of participatory process\. The project made very good use of participatory mechanisms to solicit opinions and to disseminate new technologies and findings\. At entry, there was a participatory process that involved several agencies and ministries in the Government to determine which research institute would be selected to be reformed on a pilot basis\. This process led to the selection of the IVHO\. Throughout the project, participatory stakeholder workshops were used to disseminate project results, and to introduce new technologies\. There were two beneficiary meetings held in East and West Georgia to discuss the outcomes of the CGS that brought together the entire community of Georgia's agricultural science and technology sector, including heads of institutes, research centers, laboratories and farmers\. For more details on the stakeholder workshops, see Annex 6\. d\. Project Design (IDA)\. While the project's design accounted for lessons learned and made use of an extensive participatory process, the design of the project activities are difficult to link directly to the project objectives and outcomes\. The PAD makes reference to technological improvements that will result in "agricultural diversification, higher productivity and lower costs of production and, in turn, increase profitability and 4The need for reforms had been identified by a report Restructuring Assistance and Policy Advice for the Ministry of Agriculture and Food of Georgia that was commissioned by USAID with input from the World Bank and the European Commission 8  improve living standards in rural areas\. Higher productivity and better management will bring about improvements in product quality to meet specific market needs, including those of export markets" (PAD, page 12)\. The Project Development Objective aims to achieve sustainable agricultural production through the dissemination, promotion and resulting adoption in the project areas of technologies\. However, project activities in Component 1 focus on the introduction and anticipated adoption of technologies that are to be introduced under the project, with little reference to any improved incomes, or productivity\. In addition, the monitoring and evaluation (M&E) framework does not provide for measurement of changes in income or productivity\. Thus, the project objectives, outcomes, activities and evaluation framework are only loosely connected\. Based on the project activities, the objectives were more modest, and linked simply to strengthening the extension service link for farmers\. This more modest objective would have been realistic given the fact that farming reverted to subsistence levels after the collapse of the Soviet Union, and the likelihood of increased productivity for export markets remains relatively poor\. e\. Project Design (GEF)\. According to the stated GEF global objectives (GO) of the project, new technologies were expected to be adopted for eventual reductions in pollution\. The environmental pollution control program (EPC) under Components 1 and 3 planned for the investment in agricultural practices to reduce runoff including manure platforms and BGDs, among others\. The STAP review undertaken at appraisal noted a relatively weak link between BGD technologies and reduced water pollution\. Given the fact that BGDs were eventually the method most in demand by farmers to reduce pollution and significantly more costly than the other alternatives, the impact of the program as piloting an effective way to reduce water pollution is in question\. While the project called for extensive piloting to eventually fund a model that was appropriate for the Georgian climate, the relatively high investment costs of the BGDs means that without programs to subsidize installation, they remain beyond the reach of most of the rural households they were targeting\. 2\.2 Implementation Implementation of project activities was continuously rated satisfactory\. Implementation of project activities was accomplished despite a Government changeover in 2004, and frequent changeovers in the Ministry of Agriculture\. At the mid-term review, the project was also assessed to be progressing in a satisfactory manner, and no issues were identified that put project implementation at risk\. A request was made at the mid-term review to extend the project's closing date by one year because of a slow start and delayed effectiveness\. One further outcome of the mid-term review was a restructuring of indicators that aimed to better measure progress toward output-based monitoring, and that provided a more realistic assessment of targets\. Thus, several of the indicators for measuring progress of the project's global environment and development objectives were revised to provide more precision and practicality in measuring and assessing progress\. By the project closing, all of the project's revised outcome indicators were met or surpassed\. The following outlines the component-specific factors that are believed to have impacted implementation: 9  Component 1 ­Competitive Grant Scheme Frequent changeover of Ministry of Agriculture staff delayed the implementation of the CGS\. During the course of the project, the Minister of Agriculture changed over six times, causing frequent delays as the Ministry strove to inform themselves of the project details and the mechanisms for grant disbursements\. The CGS introduced the first mechanisms for awarding grants in a competitive manner in the region, and this mechanism was a significant departure from Soviet and post-Soviet funding for agricultural extension activities\. At several points throughout the project the team had to reconfirm the objectives of the grant scheme which was to fund activities with a public good that would result in the knowledge acquisition of beneficiary farmers and the eventual replication among other farmers\. In addition, because of the frequent changeover of the Minster of Agriculture, the overall component objectives had to be clarified to the newly appointed Ministers, during which time implementation was often put on hold\. For example, the Minister of Agriculture appointed prior to the last round of the CGS first requested an increase in the allocation towards the component, only to withdraw the request shortly afterwards, causing some delays in the implementation even of the final round\. Despite this, 157 subprojects were funded, of which 155 closed with satisfactory ratings, and only two were suspended for noncompliance of reporting standards\. Component 2 ­ Institutional Reform Deep changes in Georgia's political and economic systems meant that some delays ensued in reforming Agricultural Knowledge and Research facilities\. At the project start, most members of the Agricultural Research System in Georgia agreed that significant efforts would need to be undertaken to align Georgia's facilities with the demands of a market economy\. This fundamental transformation of the research system would create entirely new conditions for and expectations from the academic field\. This component aimed to initiate this process by developing a comprehensive model for reforming the IVHO, which would serve as an example for the rest of the agricultural research system\. The timely implementation of this component was hindered in part by the extensive staff optimization program that was needed\. While the institutes had far too many staff at the time of the project's initiation, the Georgian law did not permit termination of staff until the issue of salary arrears had been addressed, which delayed the implementation of the project\. In addition, implementation was delayed over discussion of how to determine the legal status of the research institute, which had implications for its ability to bring in revenue from different activities\. Once these issues were resolved, however, the component continued to be implemented in a timely and satisfactory manner\. Components 3 ­ Environmental Pollution Control Program: The component faced difficulties in finding farmers willing to implement manure management practices beyond BGDs\. The high demand for BGDs pushed the project in investing in the development of a design that adequately functions under Georgia's cooler winter and required piloting of several models before arriving at an appropriate design\. This component funded the development of biogas digesters and the introduction (540) manure pits/pads for improved environmental pollution control\. The manure pits were not considered as providing significant benefits, and so much of the funding was shifted to the development 10  of BGDs that enjoyed higher demand from the farmers\. Significant resources and time were spent in the first two years of implementation to arrive at a technologically and cost appropriate BGD design for Georgia's small farms\. The design finally adopted was a hybrid from Indian and Chinese systems mainly because of the small scale and perceived simplicity of these designs\. Towards the end of the project, slightly larger units were constructed on a pilot basis to demonstrate a relatively higher efficiency that could be achieved with larger size\. In this process extensive consultation took place between designers, manufacturers and the project team to ensure that the design represented an optimal consensus on size, price and efficiency\. Ultimately, 292 biogas digesters were built, and several local manufacturers have begun producing locally manufactured models\. The design developed under the project has been adopted as the most suitable design and some 100 additional units have been built since project closing with support from other donors and some local government funding\. Component 4 ­ Project Management Unit: Restructuring of Project Management Units led to some initial delays\. A very difficult political environment, and the merging of the implementing agency into a single body at the Ministry of Agriculture, led to some initial delays in implementation\. Once the consolidation happened, project management remained adequate and responsive to client needs\. Overall the Project Management unit was always adequately staffed; and procurement and financial management procedures were rated satisfactory throughout the project\. Technical staff remained dedicated throughout implementation, undertaking frequent field visits to demonstration and research sites, and providing guidance to scientists and farmers involved in the project\. 2\.3 Monitoring and Evaluation (M&E) Design, Implementation and Utilization At the outset, the project monitoring and evaluation design did not adequately link outputs with outcomes to reach the overall project objective\. The overall objective was too broad and ambitious in its definition making it difficult to clearly link activities with objectives\. This difficulty is reflected in the design, implementation and utilization of the monitoring and evaluation framework\. At project design, some indicators measured project inputs rather than outputs\. Under Component 1, the overall objective was to increase adoption rates of technologies that were introduced under funding through the CGS\. The original outcome indicator had estimated that a 20% adoption rate would be achieved among farmers in the area\. This indicator was revised to measure beneficiaries maintaining or retaining the technologies that were introduced on their properties from CGS funding\. In addition the establishment of the CGS moved from being an output originally, to become an outcome after MTR\. Similarly, the number of grants administered, and the numbers of farmers receiving grants (inputs) were measured rather than the adoption rates that were anticipated to result from the grant program (outputs)\. Similarly, under Component 2, the objective of rehabilitating the IVHO was that the institute would become more sensitive to the needs of small farmers and would begin providing research and extension services for a domestic market\. However, the indicators chosen to measure implementation progress focused on the adoption of a reform plan and the rehabilitation of the IVHO (inputs) rather than the services provided by a rehabilitated IVHO (outputs)\. Finally, the objective of Component 3 was to reduce pollution to the Black Sea\. However, the indicators measured the number of farms with 11  biogas digesters or manure pits (inputs) rather than levels of pollution directly linked to the farms (outputs)\. This issue was recognized at the mid-term review (MTR), and, as a result, the monitoring and evaluation indicators were revised to measure project outputs and outcomes as well as to provide a more realistic assessment of projected achievements under the project\. However, these revisions led to the second issue with the monitoring and evaluation framework in that they tended to measure activity outputs rather than the stated outcomes of the project components as set out in the Project Development Objective\. For example, under Component 1, the stated objective indicates that the technology demonstrated to targeted beneficiaries would, eventually, lead to the adoption of technologies on a wider scale\. While the original indicator measures both the beneficiary and non-beneficiary5 populations the revised indicator measures the percentage of beneficiary farmers that continue using/benefit from extended technologies\. Yet the objective of the project as per the design was to create a mechanism for adoption rates among all farmers in the project area\. While the project states it has achieved 122 percent of the target value, the proposed measurement does not capture the intended objectives of the project\. Likewise, under Component 3, the indicator was revised to measure the percentage of beneficiaries that adhere to the manure management practices\. However, the objective of the component as stated in the PAD was to develop a technology for the local conditions that would be demonstrated and adopted\. While anecdotal evidence exists to suggest that the popularity of the biogas digesters, in particular, led to adoption of the technology even after the project closed, the indicator only measures the sustainability of the technology amongst beneficiaries, rather than amongst the non-beneficiary populations\. The indicators for Component 2 were not revised, and thus, continue to measure inputs rather than outcomes or outputs\. Despite the issues in design and the later revisions, the monitoring and evaluation was consistent throughout project implementation\. While the PIU did not face any insurmountable problems in collecting data for the M&E, the revisions in the MTR were done with the specific aim of revising the indicators to present a more realistic assessment of projected outcomes\. These revisions also did not pose any issues in the data collection process, and the M&E implementation and utilization is rated satisfactory\. 2\.4 Safeguard and Fiduciary Compliance As a category "C" project no environmental safeguards were considered applicable during appraisal\. Project impacts were considered mainly positive for the environment\. 5Beneficiaries are defined as farmers who have directly benefited from either a research or demonstration grant\. Non-beneficiaries represent farmers who have not directly benefitted from grant resources beyond their purely demonstrative and research objectives\. 12  Even though in the initial stages of the project there were difficulties in obtaining adequate counterpart funding, project financial management was found to be satisfactory throughout implementation\. The centralization of PIUs for agriculture projects meant that financial management and procurement benefitted from staff that was knowledgeable in World Bank procedures\. The last financial management review of operations managed by ADPCC was carried out as part of the last supervision mission in June 2008\. The rating for financial management of the project as of this review remained Highly Satisfactory\. Procurement was satisfactory throughout the implementation of the project\. A final procurement review was undertaken as part of the last supervision mission and was rated satisfactory\. ADPCC has significant experience with project closings and grace period payments, and all payments were completed in a satisfactory manner\. 2\.5 Post-completion Operation/Next Phase Overall, the sustainability of the activities funded under the project is considered to be high\. The section below provides a component by component overview of the post- completion arrangements\. Component 1: Competitive Grant Scheme In addition to funding numerous significant sub-grants under the project that were imperative to sustaining Georgia's agricultural extension system during very turbulent economic and political times, the CGS introduced a new and innovative mechanism for funding agricultural research\. As such, a secondary benefit of this component was training researchers in how to review and assess proposals on a competitive basis\. This capacity was instrumental in continuing the CGS model for funding research services, and the model has been mainstreamed into the Georgian National Science Foundation that was created in 2005 to award grants on a competitive basis\. Component 2: Reform of the Agricultural Research System This component was intended to serve as a model for reforming the agricultural research system through the complete reform and restructuring of one such institute- the IVHO\. The sustainability of the reforms to the IVHO is considered to be quite high, since the institute is currently able to cover all of its costs, partially through public funding, and partially through selling services and products\. Thus, the reforms and rehabilitation of the IVHO is expected to be sustained in the future\. Unfortunately, given the rapidly changing political and economic climate in Georgia, further institutional reform of the Agricultural Research System has been put on hold indefinitely as other policy concerns have taken priority\. Thus, while the activities funded under the component have been largely successful and are expected to be sustained, the next phase of reform remains unclear\. Component 3: Environment Pollution Control Program The sustainability of the biogas digesters (BGD) that were installed under the program is rated high, based on field visits and other documentation\. The BGD that were installed are expected to be operated and maintained without problem, since all the farmers were 13  trained in operating the installations and the BGD are locally produced and local companies can provide maintenance services\. Discussions with contractors and beneficiaries reveal few problems as long as operating procedures are followed\. However, the sustainability of continued promotion and adoption of the BGD remains unclear\. BGDs require an initial investment between US$ 2,000 to 2,500 per unit, which is beyond the abilities of most rural farmers today in spite of the potential estimated US$400 a year in savings on energy and fertilizers these systems represent depending on farming model\. As such, the pilot has been successful in demonstrating the technical viability of these systems, however significantly more in-depth analysis of the economic benefits would need to be undertaken to be able to conclusively say that a subsidy for the building of small scale BGDs would present an optimal way to invest public resources to support small subsistence farmers in Georgia's context\. Arrangements including links to potential carbon funding would need to be explored\. It is notable however, that since the project closing, other donors have funded continued promotion and installation of some 100 additional units, but the continued adoption of BGDs among small subsistence farmers remains unlikely without some sort of government or donor support\.6 The soil and water sampling component had been contracted to a private company for the duration of the project\. While this arrangement proved adequate for the duration of the project at the conclusion of the contract these water sampling activities finished as well\. However, the National Environmental Agency established under the Ministry of Environment in 2005 has been tasked with water monitoring and the data collected under the project has been transferred to the Agency\. It has branches in Batumi, Kutaisi, Zestapani and Rustaui, where it samples water along the main rivers in the country\. Georgia has also recently adopted regulation that favors the on farm implementation of Global GAP (Good Agricultural Practices) of which a key aim is environmentally sustainable agricultural production\. However, these practices in the EU and EU pre- accession countries are supported by subsidy policies and rural development grants that incentivize farmers to adopt them\. In Georgia, none of these mechanisms are in place and current agricultural support policy does not provide financial incentives in that direction\. 3\. Assessment of Outcomes 3\.1 Relevance of Objectives, Design and Implementation The overall PDO as approved in the PAD exhibits somewhat unclear linkages with the relevant project activities\. In addition, as goals, they encompass a scope that was, perhaps, too broad and ambitious\. While this remains a significant design issue of the project, the components as designed reflected more modest objectives in scope and in approach; all three components introduced activities on a pilot basis, either to be further 6 During the course of the project, some local governments offered to cover the 20 percent contribution of the beneficiaries towards the installation of BGDs\. However, the GOG has not indicated that it intends to take over the 80 percent installation costs\. Some donors are, at present, looking towards continued financing, but, as of yet, there are not concrete plans to continue the funding of BGDs on a wider scale\. 14  revised and updated throughout the course of the project (Component 1 and 3) or to serve as a model for the sector (Component 2)\. As such the project activities continue to be relevant in the context of Georgia\. Agriculture continues to occupy a large share of employment (over 50 percent) and GDP in Georgia, and provision of farm advice to small farmers remains as necessary as ever\. The mechanisms introduced under this project have helped in delivering these services more effectively and with greater participation by farmers in formulating their needs for extension services\. The GEO, as approved in the PAD, remains more modest in scope, and thus exhibits closer linkages with the project activities\. 3\.2 Achievement of Project Development Objectives and Global Environment Objectives The PDO as approved in the PAD aims "to assist the Government of Georgia to develop an efficient and cost-effective agricultural knowledge system to demonstrate, disseminate and promote the adoption of appropriate technologies that increase sustainable agricultural production and reduce pollution of natural resources\." This objective, as formulated here, was only partially achieved\. The project components (specifically Components 1 and 3) focused on introducing new farming practices and technologies with the objective of wider adoption rates and reduced pollution\. There was little in the project activities or the design of the components to address how sustainable agricultural production was to be achieved\. However, in looking at the design of the components as described in the PAD, it is clear that the outcome of sustainable agricultural production was not related to the project activities, and a clear causal relationship is not established\. Instead, the activities promoted the establishment of a CGS that would deliver technologies and know-how with the objective of wider adoption rates (Component 1), the reform of one research institute to serve as a model for wider replication at a later point (Component 2), and the piloting of improved manure handling and storage systems (Component 3)\. These activities would imply a more modest PDO than what was approved\. While the PDO was never formally revised, based on the project activities and the objectives laid out in the PAD for each of the components, the project largely achieved its objectives\. The Global Environment Objective of initiating `measures that would improve on-farm environmental practices, which, over the long-term, would reduce nutrients entering the Black Sea" was largely achieved\. This was accomplished through research and demonstration grants in nine main categories representing key agricultural activities in the country (detail of grant activities is reflected in annex 2) A total of 55 grants dealt directly with land conservation and erosion control techniques as well as improved water run-off controls and fertilizer management techniques\. However, little data is available on the adoption of these technologies outside of the direct beneficiaries\. Pilot technologies that were introduced to reduce pollution in the small rivers adjoining project are linked with a reduction in organic particles in suspension and nitrate contamination by some 5 percent according to samples taken under the project\. Biogas digesters, meanwhile, have dramatically improved the livelihood of individuals who have been direct beneficiaries of the demonstration program\. However adoption of this technology by farmers without external resources remains unlikely, given the high upfront costs\. 15  Such a program, based on a more in depth economic review, relative to other instruments to support small farmers, may be a possibility worth revisiting if financing of the construction and installation could be organized with carbon funding\. Component 1\. Competitive Grant Scheme: Moderately Satisfactory\. Based on the description in the PAD, the objective of this component was twofold\. First, a competitive grant program was to be introduced with the key objective of re-establishing the link between the scientific community and farmers at grassroots levels\. This objective was largely achieved, with the introduction and continued operation of a competitive grant scheme to fund on-farm extension and training services\. During the course of the project 157 grants were funded, of which 155 were rated satisfactory\. The CGS mechanism has been adopted by the Georgian National Science Foundation, created in 2005 to conduct applied field research nationwide\. The second objective of the project was that the technology introduced under the CGS would be adopted by non-beneficiaries of the project\. However, during the mid-term review revision of indicators, this objective seems to have been lost\. While the end of project survey responses confirm the usefulness of the technology introduced under the CGS by the majority of farmers interviewed, there appears to be little is very little actual adoption by farmers who have not directly benefited from grant financing\. The results of a beneficiary survey by an independent consultant show that 73\.2 percent of CGS participant farmers continue using/benefiting from the extended technologies after completion of grant financing, and most of these farmers (69 percent) consider the introduced technologies effective\. Some 38 percent of farmers characterize yield growth resulting from application of the new technologies as significant and 78\.9 percent believe the quality of their produce increased\. While the survey indicated adoption amongst non-beneficiaries as negligible, anecdotal evidence indicates some adoption did occur, particularly of new seed materials, improved seedling for wine, and new varieties of potato\. Adoption of practices that involved more processes than direct materials or use of inputs, were less successful\. Overall larger more progressive farmers have been more willing and able to adopt the demonstrated technologies The survey results indicate that while recognition for technology was significant, as illustrated by high satisfaction by direct grant beneficiaries, and awareness by indirect beneficiaries, effective diffusion is hampered by factors beyond the project, such as lack of access to credit necessary for investments in new technology, weak supply chains for produce to reach markets, and a very open trade regime that forces very low producer prices\. Given the success of the CGS as a mechanism, but the low adoption rates to date of the technology introduced, the component is rated moderately satisfactory\. Component 2 ­ Reform of the Agricultural Research System: Satisfactory\. The objective of the component, to introduce reforms through the restructuring and rehabilitation of one research institute, was largely achieved\. The IVHO was chosen through extensive consultations with the Government and other stakeholders\. At project design the expectation was that reform model introduced in IVHO, would be used as a template to replicate in the other agricultural research institutions\. A sector-wide reform of the Agricultural Research System has been initiated by Government\. However, a clear strategic plan remains to be agreed until the role and interface with universities, the Academy of Sciences, and line ministries, has been determined\. Nonetheless, the reform 16  of and the investment into IVHO have actually gained results which go much beyond providing scientific support to the priority area of horticulture and viticulture\. Laboratory equipment and other facilities now housed at IVHO will lay the ground work for further research especially as they relate to the selection of wine varieties, diseases and development of disease control methods, and control of foreign substances in wine production\. Technical expertise and lessons learned from operating CGS under ARET Project are factored into the set-up of the National Science Foundation that now administers yearly grants programs according to agreed priorities\. The objective of the component defined as piloting reform of a selected priority institute of the agricultural research system, and the formulation of a strategic vision for reform of the research system has been significantly achieved\. In Georgia's turbulent political environment, this has to be considered a satisfactory achievement of component outcome\. Component 3\. Pilot Environment Pollution Control (EPC) Program: Satisfactory\. The primary aim of this component was to educate rural communities of the selected districts of Western Georgia on the basics on-farm management of organic waste and its implications for the quality of the environment\. The pilot EPC program implementation revealed that farmers are unlikely to adopt those elements of manure management which do not carry direct and tangible economic benefits\. BGDs carried benefits for the environment and served economic interests of cattle farmers\. In response to the local demand, the pilot program disseminated BGDs in a larger number of administrative districts than planned originally, and significantly raised awareness of this technology, as revealed in a beneficiary survey conducted at the project's closing\. Tracking contents of nitrogen (N) and phosphorous (P) in the minor river crossing the village with the highest proportion of farms with good manure management practices showed decrease of NO3 and PO4 decreased respectively by 4\.6 percent and 23\.5 percent\. However, the impact of the BGDs on water pollution remains a tenuous link\. With the demise of the Soviet Union, and the subsequent privatization of farms into small plots, most of the farmers reverted to subsistence farming and no longer used intensive mineral fertilizers which may have played a significant role in nutrient reduction\. The lack of control sampling in non-project areas makes attribution of reduction of pollution to the project difficult\. A significant aim of the component was the effective piloting and testing of suitability of BGDs in Georgia\. As previously described several designs were tested and in this process builders and manufacturers have gained significant expertise in this technology\. While the technology introduced under this component largely remains beyond the reach of Georgia's small farmers targeted under the project, significant external benefits were gained from this work\. However, the purchase and installation of the BGD technology is estimated at US$2,500 per unit, and remains unaffordable for the rural populations of Georgia, who are typically subsistence farmers with limited incomes\. The case for BGDs vis-à-vis simpler and less costly technologies in terms of objectives to reduce pollution remains unclear\. Manure pits introduced under the project, are an example of an effective lower cost method to reduce pollutants to the Black Sea\. However, farmers preferred the BGD technology (particularly with significant GEF co-financing), since they brought tangible economic benefits in the form of cost savings in energy\. Given these facts, the pilot EPC Program is rated as satisfactory\. 17  3\.3 Efficiency At the time of appraisal, there was no analysis done on the economic rate of return (ERR)\. Component 1 ­ Competitive Grant Scheme: The economic assessment concentrated on a sample of projects with beneficiaries that have retained the new technology spread by the sub-projects\. IRR calculations were based on 10 years of operating the investments made under the sub- projects\. The information for conducting the economic impact assessment is based on: sub-projects documentation, mainly final grant reports for assessing expenses incurred by the farmers in operating/maintaining the technology introduced under the investment; market prices of goods produced by farmers to derive gross revenues; and price indices provided by state statistics services for calculating other parameters and forecasting future cash flows from operating the investments\. The analysis shows that the average internal rate of return of grants amounted to 38 percent with a wide range of results between categories and individual grants\. Due to the lack of adoption beyond direct project beneficiaries, the incremental impact of this component on the economy of the project areas remains very modest\. However, measuring impact of the diffusion of knowledge and technology are processes that are affected by time and other factors beyond the scope of the project\. Component 2 ­ Reform of Agricultural Research System: The IVHO as a result of its reorganization has been able to greatly increase its revenues and undertake research and provide advisory services that are beneficial for the farming community and for which to a significant extent commercial farmers and processors are willing to pay\. While it largely has been able to retain its state budget allocations today these resources only represent about 30 percent of its operating budget\. In addition to state funds the IVHO is now contracting some 30 percent of its operating resources in the form of research grants from the National Science Foundation and another 35 percent from the sale of services to farmers and agri-business\. As such the component has significantly helped in improving the efficiency and sustainability of agricultural research and extension and rebuilding the link between the agro-scientific world and farmers\. These are lasting effects that will continue to accrue past the project's conclusion\. Component 3 ­ Pilot Environnemental Pollution Control Program Results from the survey show high levels of satisfaction of beneficiaries of the BGD technology\. However economic benefits remain limited at around US$120\.00 a year from energy against an investment cost of US$2,000-2,500\. Benefits improve dramatically in case of intensive agriculture where the BGD's production of highly nitrogenated organic fertilizer is used for high value horticulture, green house production, or intensive orchards\. In intensive farm operations the combined benefit of energy and fertilizer can be as high as US$480\.00 per year according to reports produced under the project\. However, given that most farmers under the project operate low intensity farm 18  operations, the actual benefits remain significantly lower (estimated around US$200\.00)\. Assuming a 12 percent discount rate and 20 years of operation, the rate of return only amounts only to some 5 percent\. 3\.4 Justification of Overall Outcome and Global Environment Outcome Rating Rating: Moderately Satisfactory While the project remains relevant to global and country objectives, and it achieved its investments, the justification for a rating of moderately satisfactory stems from the fact that the specific activities funded under the project had only a weak link to the Project Development Objectives and the Global Environment Objectives\. The PDO, as listed in the PAD, is to "develop an efficient and cost-effective agricultural knowledge system to demonstrate, disseminate and promote the adoption of appropriate technologies that increase sustainable agricultural production and reduce pollution of natural resources\." The project initiated institutional reform within Component 2, the link between reforming the IVHO and the development of an "efficient and cost-effective agricultural knowledge system" is incomplete without adoption of reforms across the other research institutions\. There was little scope for follow up within the Component to ensure the extrapolation of reform initiatives to the agricultural knowledge system as a whole\. This is particularly salient given the lack of analysis done at project closing on the efficiency of the system\. So while the reform of the IVHO was carried through and this institute is now arguably more cost-effective and efficient- which is, in and of itself an admirable achievement- the link between the reform of one institute and the reform on an agricultural knowledge system remains underdeveloped\. Second, the link between the PDO of the promotion of appropriate technologies that increase sustainable agricultural production and reduce pollution of natural resources remains unclear\. Much of the focus of Component 1-CGS was focused on boosting production or improving incomes of rural farmers, and the indicators associated with this component aimed to measure the number of grants disseminated, or the number of high- quality proposals received\. While this remains an admirable objective, there is little mention of the focus on sustainable agricultural production that is featured prominently in the PDO\. Some of the grants awarded under the CGS invariably went to improving the sustainability of agricultural production, but the prominence of this objective in the PDO suggests that it should have been a key focus of activities implemented under this project\. Finally, the GEO has the objective of promoting appropriate technologies that reduce pollution of natural resources\. The biogas digesters bring significant benefits to farm families in the form of cooking fuel, and reduce land erosion and silting of water streams\. However, at $2,500 per unit, they remain beyond the means of the average farmer in Georgia\. Replication of the technology therefore is uncertain due to the investment costs involved in building these facilities\. Given the high input costs of this technology, the objective of introducing technologies to reduce pollution could have been achieved with more cost-effective measures, mainly involving changes in land management practices, manure platforms, etc\. 19  Yet, the achievements of the project remain substantial\. The introduction of new technologies to farmers who had recently taken over small private plots, the installation of BGD technologies for a consistent cooking gas source in poor rural areas, and the complete reform of the IVHO were important benefits\. There is anecdotal evidence that technology for digester developed under this project offers a springboard to local manufacturers to sell BGDs in neighboring countries\. Beneficiaries of the project indicated high levels of satisfaction, and the Georgian scientific community indicated that the project acted as a lifeline for the agricultural research system in a time when state funding had all but collapsed\. The link, however, between the project and its development objectives, and the substantiation for achieving these objectives in an efficient and cost-effective manner remains a bit weak\. A clearer link between the objectives of the project based on the specific implementation activities would have eliminated many of these issues\. 3\.5 Overarching Themes, Other Outcomes and Impacts (a) Poverty Impacts, Gender Aspects, and Social Development Poverty: The project had a clear link to reducing poverty by expressly providing services to farmers in rural areas that would assist them in improving yields, and thereby positively impacting food production and incomes\. While all of the project beneficiaries surveyed as part of the project closing indicated their satisfaction with the project's activities, no assessment was done on the impact of poverty, agricultural yields, or production\. Gender: The project did not have a gender focus in its objectives\. Recent evidence has emerged to indicate that females in rural areas are a particularly vulnerable group, especially since the fall of the Soviet Union\. 7 Future projects that address rural development activities could take this under consideration\. Social Development: Given the prominent role of agriculture in economic production, the project had an inherent social benefit for a population that relies on subsistence farming for survival\. Thus, the fact that the project funded activities that benefited these farmers, who are predominantly poor, had an inherent social benefit\. In addition, biogas 7IFAD "Rural Poverty in Georgia" indicates that poverty in the rural areas is particularly severe for women and for female headed households\. Females face particularly heavy burdens in the rural areas, since the erosion of public services has impacted the tasks that women are typically responsible for, such as farm work, cultivating crops, tending livestock and processing agricultural and dairy products\. Overall, and especially in rural areas of Georgia, female headed households face particular vulnerability to poverty, and economic and social crises have eroded much of the gender equality promoted under the Soviet Union\. Increased outmigration of men to urban areas and to other post-Soviet countries has increased the number of female headed households\. Under the project, no specific targeting was done to address these vulnerable households, and the beneficiary survey respondents were predominantly men (97%)\. It is unclear whether this means that the beneficiaries of the project typically did not include female headed households, or whether the sampling techniques of the final survey tended to favor male respondents, or even whether outmigration is an issue in the project areas\. Again, little data exists to confirm or deny the importance of gender issues in the project areas, but given the increasing vulnerability of women, this could be addressed in future projects\. 20  digesters were installed for populations to provide cooking gas for remote rural populations, this also alleviates some of the cost burden on the poor for gas, or time spent on collecting wood\. (b) Institutional Change/Strengthening The project restructured the institutional mechanisms involved in basic agricultural research as well as disseminated agricultural technology\. These changes were necessary since research and farm information had previously only been disseminated at the level of agronomists working for collective farms (sovkhozes and kholkhozes)\. The new mechanism improves delivery to the grassroots i\.e\. farmers directly, and also allows for better feedback up the agricultural information chain\. The competition introduced in the model also ensures that research is more in line with demand of the sector and farmers in general\. For Component 1, institutional configurations to administer grants in a competitive way were adopted, and the project funded an important development in this end\. While it was understood that the resources under the project would only suffice for the restructuring of one of the units of the Agricultural Academy, there was the expectation that the reforms pioneered under the project would be adopted across the Agricultural research sector\. Although an overall plan and strategy have been adopted, little has been done beyond the IVHO's restructuring and the adoption of the competitive grants mechanism across the Agricultural Academy, mainly due to a lack of resources\. For Component 2, the hope was that the research institutes would benefit from the examples of reforming the IVHO, but in the end, little progress has been made to this end\. Under Component 3, the introduction of BGD technologies was done with the implicit objective also of building the capacity of local producers to replicate and disseminate this technology\. Specific provisions were made under the project that the BGD technology adopted would be licensed under Georgian law, and for local production\. As a result of this, several local businesses developed to promote and replicate the technology\. As demand has risen for the technology, the volume of production has increased, and the costs of production have fallen, making local companies competitive in the production of BGD\. In addition, local companies have introduced innovations and improvements to the technology: where BGD were initially built from concrete blocks, one local producer has introduced reactors built of polymeric materials\. In addition to reducing production costs, these plastic digesters last longer and don't deteriorate under harsh weather conditions\. While the capacities of local production companies has been built in the production and installation of BGD technologies, it is unclear whether the demand for this technology would continue once the project closed, given the relatively high costs of the technology\. (c) Other Unintended Outcomes and Impacts (positive or negative) The introduction of a competitive financing mechanism introduced under Component 1 required significant training for staff and reviewers, and a detailed operational manual was prepared to systematize this mechanism\. This approach to financing has been well received in Georgia, and has been mainstreamed throughout the National Science Foundation as administered by the department of Education\. This mechanism now leads 21  to more demand driven and outcome based research, not only for agriculture but for research funding in Georgia overall\. The project has greatly contributed to the development of grant writing skills\. This newly acquired skill has already helped a number of scientists at the IVHO to apply for funding from outside resources and help present their research data to attract investors, as well as consulting assignments\. Under Component 3, the approach of the project was to pilot and test the BGD technologies to eventually build a model that was suitable to the local conditions of Georgia\. The extensive piloting of biogas digesters and close collaboration with construction firms and designers has contributed to build significant local capacity in the design and implementation of Biogas systems\. Local expertise has grown to the point that some of the firms that supplied the project have managed to bid on international assignment in neighboring countries 3\.6 Summary of Findings of Beneficiary Survey and/or Stakeholder Workshops During the course of the project, there were two beneficiary workshops that were held throughout the country\. Workshop summaries are presented in Annex 6\. (a) Assessment of Risk to Development Outcome and Global Environment Outcome Rating: Moderate The risk to the Development and Global Environment outcome as formulated in the PAD cannot be assessed, since there the relationship between these and the actual project activities carried out remains underdeveloped\. However, the risk to the objectives of each component as described in the PAD is assessed as being moderate\. The CGS has already been mainstreamed nationwide and much of the capacity that was built under the project to administer the CGS and to review grants is currently being used by the Georgian National Science Foundation\. The risk to adoption rates of technologies is low, since farmers continue to benefit from the demonstration services\. Risks to the institutional reform component (Component 2) remain moderate, since the IVHO is currently operating as a research institute and has successfully procured large parts of its own funding\. While the BGDs that have been put in place are sustainable and will be maintained due their contribution in energy generation for the beneficiary households, it is likely that the number of these digesters will not increase significantly without additional outside funding and thus the demonstration effect of these facilities and further reduction in reducing organic pollutants will remain limited\. 5\. Assessment of Bank and Borrower Performance 5\.1 Bank Performance (a) Bank Performance in Ensuring Quality at Entry Rating: Moderately Satisfactory The Bank's performance at entry and throughout the lending phase of the project is ranked moderately satisfactory\. The project activities remain highly relevant to the country, and the team coordinated closely with the Government of Georgia to devise a relevant project in the agriculture sector\. The project drew on lessons learned from 22  global experiences of introducing BGD technologies, and initiating the CGS process within the agriculture sector\. In addition, the project drew on recommendations from the country-level to complement and ongoing agriculture project that identified the knowledge and extension systems as being a severe impediment to the ongoing performance of the agriculture sector\. However, some key areas of the project design remained underdeveloped, most notably between the PDO and the design of the components, and the design of the components and the M&E sections\. From the project component designs, the team seems to have had a clear vision for activities, although these related only loosely to the PDO and the M&E sections\. Project preparation was professional and the overall emphasis of the project to support agricultural knowledge and its delivery at field level was based on solid analytical work\. The project remained flexible in using a "pilot" design; by introducing new technologies and initiatives slowly and gathering feedback along the way, the project aimed to find the most relevant and effective measures to achieve its objectives\. The work of the team and the pilot approach proved highly relevant to the context, and these factors counterbalance the loose linkages between the PDO and project activities in the PAD to merit a rating of moderately satisfactory\. (b) Quality of Supervision Rating: Satisfactory The quality of supervision is rated Satisfactory\. This assessment is based on the fact that supervision missions were conducted on a regular semi-annual basis\. In addition, as issues with the project emerged they were handled in a timely fashion by the Task Team Leader, who is based in Tblisi\. The supervision team identified and followed up on issues in a timely fashion, and the team composition reflected adequate expertise\. The supervision team adequately addressed periods of shortage of counterpart funding with proactive reminders of the government's obligations for co-financing project activities\. The services of environmental specialists by GEF budget were very helpful in monitoring the impact of demonstrated technologies on the GEF objectives\. Beyond initial problems with counterpart funding before the rose revolution there were no few issues with fiduciary or safeguard policies that that were addressed in a timely fashion\. (c) Justification of Rating for Overall Bank Performance Rating: Moderately Satisfactory The project design was solidly grounded in a sector review, and the experience gained from the previous Agriculture Development Project that identified agricultural knowledge transfer as a key issue constraining the potential of the sector in Georgia\. The greatest issue with the project design was the fact that the overall objectives and outcomes of the project remained underdeveloped, particularly in creating clear links to the project activities\. In addition, the monitoring and evaluation framework measured inputs rather than outputs and outcomes of the project at design\. The Bank was proactive in working with the government to improve the indicators, although the revised M&E framework remained further removed from the stated objectives\. While the project required two extensions (the closing date of the IDA credit and the GEF grant were each 23  extended trice), the scope of activities as outlined in the PAD were generally completed\. For these reasons, the Bank's performance is rated moderately satisfactory\. 5\.2 Borrower Performance (a) Government Performance Rating: Moderately Satisfactory The project was implemented during a time of great transitions for the Government of Georgia\. This transition resulted in frequent staff turnovers within the Ministry of Agriculture, and, at times, to shortages of counterpart funding\. Funding problems occurred in all projects in Georgia at the time, and were not only present in ARET\. However lack of counterpart funding never reappeared once the Rose Revolution took hold\. Given the extent of the changes at the top political levels, the project was generally implemented in a timely fashion\. (b) Implementing Agency or Agencies Performance Rating: Satisfactory During the course of the project, the political environment was one of frequent changes, and this led to staff turnovers at the highest levels\. Just in the course of the project, the Minister of Agriculture changed six times\. These Ministers had conflicting visions of the shape and role of the agricultural sector and related institutions, which led to some delays during the implementation of the project\. Some of this delay was made up by the consolidation of all Project Management Units (PMU) for agricultural projects within the Ministry of Agriculture under the ADPCC\. This centralization allowed for more consistent follow up, and interaction between implementing actors and relevant Ministry staff, which enable the project to also move faster\. Thus, the implementing agency's performance is rated as satisfactory\. (c) Justification of Rating for Overall Borrower Performance Rating: Moderately Satisfactory Given the above, in spite of the delays in project implementation due to the many changes at the Ministerial level, overall borrower performance is rated as moderately satisfactory\. This is based on the fact that the project required three extensions of closing dates because of delays experienced in implementing the project\. However, many of the delays occurred because of the broader political context rather than from the Borrower's doing\. (a) Lessons Learned Some key lessons learned from this project include: Designing programs must take account of the broader social and economic contexts\. The Government of Georgia, as one of the most liberal economies in the region, has, over the past decade, reduced trade barriers and eased red tape to attract foreign direct investment\. In 2006, Georgia was named the top reformer by the World Bank's Doing Business Report because of a drastic reduction in business regulations\. However, market liberalizations, while beneficial for the country as a whole, has had a more significant impact on rural subsistence farmers who compete with relatively cheap imports for basic 24  foodstuffs\. Given this environment, the project's focus on extension services as a catalyst for increasing production was hampered by weak supply chains and relatively low producer prices\. In addition, small farms that provide subsistence living may not have been the best poised to take advantage of technology and extension services for export production\. Technology adoption rates are dependent on factors beyond the control of extension services that affect profitability of investments\. The broader social and economic context presented a difficult environment for small farmers to boost production significantly\. The weak supply chains and high margins at the retail level favor cheap agricultural imports from more advanced neighboring countries and result in low producer prices for small farmers\. In such an environment, yield and production increases by small farmers do often not result in improved incomes\. The project could have benefitted from a more clear linkage between markets, supply chains, and the purported increased production of the project areas\. Projects benefit from a clear set of objectives that relate closely to proposed activities\. The ARET Project undoubtedly achieved a number of significant outcomes\. However, the link between these outcomes and the objectives of the project remains underdeveloped\. Project documents (such as Aide Memoires and ISRs) throughout implementation of the project frequently listed varying project objectives (at times to provide extension services to small farmers, at times to assist scientific researchers working in agricultural extension), and the activities under each of the components were not consistently linked to the ambitious overall objectives of the project\. In addition, some objectives of the project (most notably the aim to improve production and increase farmer incomes) were mentioned in the PAD, but follow up, either through M&E or through specific activities were assumed to occur\. Thus, this project could have benefitted from strengthened links between the project objectives, the project activities, and the monitoring and evaluation\. Close linkages between each of these typically provide improved focus to the project activities, as well as a clearer ability to assess outcomes and achievements of projects\. Broader social benefits are important to consider in cost-benefit analysis of technologies\. In the context of Component 3, biogas digesters and manure pits were installed with the objective of reducing water pollution\. The digesters were also expected to bring some monetary benefit to consumers in reduced costs for energy used for heating and cooking\. From a cost standpoint, the manure pits were arguably more cost effective in achieving the objective of reducing water pollution, since the installation and maintenance costs of the pits are negligible\. The costs of the biogas digesters, on the other hand, were in the range of US$2,000- US$2,500 (although during the project, the cost of the biogas digesters was subsidized by 80%)\. Despite the relative cost of installation, operation and maintenance, the biogas digesters proved to be much more popular because of the tangible economic benefit they brought to relatively poor households\. As a result, the project shifted more resources to the installation of biogas digesters, and away from manure pits\. These broader social benefits are not captured in the cost benefit analysis comparing the two technologies, yet projects aiming to introduce 25  similar types of technologies would do well to examine the broader social context and demand for technologies, and allow for flexibility in shifting resources based on demand\. Prioritizing needs in the agriculture sector is best done around a core set of themes\. The Competitive Grant Scheme was designed to provide grants based on a number of priority themes set forward by the Government of Georgia\. However, the list of priority themes remained fairly long and comprehensive at the project start; nine priority areas were identified as being of particular importance to the agriculture sector, each with countless subsectors\. One lesson that can be derived is that this list of priority areas remained too large, essentially funding any activity within agriculture\. A more directed approach could be achieved with a more narrow set of priorities that defines the key areas for investment in the agriculture sector\. By focusing the grant scheme around a smaller set of priorities, the investments made with the CGS could achieve a more targeted and comprehensive result\. 7\. Comments on Issues Raised by Borrower/Implementing Agencies/Partners (a) Borrower/implementing agencies The comments of the GOG (Annex 8) highlight the significant achievements attained under the ARET project, and the positive role the implementing agency (ADPCC) at the Ministry of Agriculture played in completing project activities, particularly in the face of significant political turnover\. These comments are duly noted and reflect the engagement of the government in the implementation of the project\. However, as discussed in previous sections of the ICR, while the project attained several noteworthy outcomes, a number of these achievements fall outside of the project objective, as stated in the PDO\. While these achievements are not to be discounted, without a formal revision of the PDO, the ICR did assess the achievements of the project based on original project objectives, and on that measure, they remain moderately satisfactory\. The GOG also noted that it successfully implemented the project\. This ICR rates the performance of the ADPCC as satisfactory while overall borrower performance remains moderately satisfactory essentially due to the lack of continuity in policy that has hampered implementation and resulted in significant implementation delays, and 3 project closing date extensions\. (b) Cofinanciers\. (c) Other partners and stakeholders (e\.g\. NGOs/private sector/civil society) 26  Annex 1\. Project Costs and Financing (a) Project Cost by Component (in USD Million equivalent) Agricultural Research, Extension & Training Project ­ P065715 Appraisal Actual/Latest Components Estimate (USD Estimate (USD Percentage of millions) millions) Appraisal Competitive Grant Scheme 4\.07 3\.33 82% Reform of the Ag Research System 2\.76 3\.71 134% Pilot environmental pollution control program 0\.00 0\.04 - Project management unit 0\.71 0\.90 127% Total Baseline Cost 7\.54 7\.98 105% Physical Contingencies 0\.51 0\.00 Price Contingencies 0\.82 0\.00 Total Project Costs PPF 0\.00 0\.00 Front-end fee IBRD 0\.00 0\.00 Total Financing Required 8\.87 9\.65 108% Agricultural Research, Extension and Training GEF Project ­ P064091 Appraisal Actual/Latest Components Estimate (USD Estimate (USD Percentage of millions) millions) Appraisal Competitive grant systems 1\.19 0\.89 75% Reform of the ag research system 0\.00 0\.00 Pilot environmental pollution control program 1\.29 1\.54 119% Project management unit 0\.00 0\.05 - Total Baseline Cost 2\.48 2\.48 100% Physical Contingencies 0\.00 Price Contingencies 0\.00 Total Project Costs PPF 0\.00 Front-end fee IBRD 0\.00 Total Financing Required 2\.48 2\.48 100% 27  (b) Financing P065715 ­ Agricultural Research, Extension & Training Project Appraisal Actual/Late Source of Funds Type of Estimate st Estimate Percentage Financing (USD (USD of Appraisal millions) millions) Borrower 1\.26 1\.67 140% International Development Association (IDA) Credit 7\.60 7\.98 105% P064091 ­ Agricultural Research, Extension and Training GEF Project Appraisal Actual/Late Source of Funds Type of Estimate st Estimate Percentage Financing (USD (USD of Appraisal millions) millions) Borrower 0\.41 0\.0 - Local Communities 0\.66 1\.41 214% Global Environment Facility (GEF) Grant 2\.48 2\.48 100% 28  Annex 2\. Outputs by Component Component 1: Competitive Grant Scheme Under this component one pilot and three full scale CGS rounds were held between 1999 and 2003\. Out of the total 157 awarded sub-grants, 154 are closed and fully accounted for\. One sub-grant project is completed, but the recipient failed to submit the final report in a format acceptable to the Competitive Grants Board (CGB)\. Two sub-grants were cancelled after payment of the first tranches due to failure of recipients to perform\. In more detail the following grants were administered under the component\. Category Activities Outcome Viticulture - 10 sub-projects covering some 13 These activities reflect villages in the 9 districts under the significant steps towards the project preservation of the genetic - 84,000 grape seedlings were planted fund of unique Georgian vine on a surface of some 25 ha\. varieties such as - 10 demonstrative nurseries were Aleksandrouli, Mujuretuli, established and 290,000 high quality Usakhelauri, Chkhaveri, seedlings were produced Aladasturi, Ojaleshi, etc\. (no data on sale of seedlings) Field crop ­ potato - 9 sub-projects in 36 villages of 16 New higher yielding material districts\. has successfully been - New varieties introduced and introduced in South Georgia multiplied on 64 Ha\. (no harvest data) Orchard trees - 11 sub-projects in 29 villages and 18 Demonstrated techniques for districts grafting, reproduction, and - a total of 42\.5 ha of orchards were seedling production\. (no data planted\. on sales of seedlings) - 6 apple nurseries were established that produced 118,000 seedlings Sub tropical crops - 7 sub-projects in 16 villages and 13 Introduced sub-tropical crop districts production in new areas\. - Some 250,000 high quality seedlings Methods of production and of lemon, tangerine, orange, kiwi and cultivation of citrus planting feioja were produced stock improved\. Livestock - 19 sub-projects in 26 villages and 13 districts\. Introduced improved feeding - some 162 cows and 300 goats higher practices and more intensive yielding breeds introduced\. dairy cow management as - Demonstrated IA program for higher cornerstone to improve dairy yielding breeds on 500 cows productivity Demonstrated vaccination effects covering some 1,800 animals -Demonstrated feeding improvements correlation with milk production - Tested hybrid breeds for suitability of local conditions Field crop- grains - 18 sub-in 58 villages of the project's 350 endemic varieties 29  and legumes 29 districts\. collected recorded and - Wheat, maize, soya, pea, lentil, bean certified\. production technologies tested on 30,000 ha - 322 t of high quality seeds of cereals produced Marketing and - 14 sub-projects in 19 villages of 12 Demonstrated small artisanal processing districts processing technologies and - milk and mushrooms processed in non traditional crops small farms - Introduced non-traditional crops; hot and sweet peppers, garlic, spices, walnut, citrus flowers, sea-buckthorn, bay and stevia leaves, potato Land management -55 sub-projects in 42 villages in 8 Demonstrated techniques to districts help land erosion and - erosion control integrated methods degradation reduction conducted on 57\.2 ha - land degradation restoration in 43 villages covering total of 53\.25 ha (rehabilitation of the drainage network, sideration, introduction of cover crops - soil fertility demonstration with digester residue and spreading techniques Non-agricultural 14 sub-projects\. Demonstrated off farm activities economic activities In November 2007 two meetings of CGS stakeholders were held in the eastern and the western parts of the country\. These forums were provided to discuss outcomes of the CGS-financed sub-projects, to look at their impact a few years since completion, and to work out recommendations for more efficient assistance to small farmers in future\. The meetings were attended by prominent agro-scientists of the nation, managers and participants of the CGS-financed sub-projects, authorities representing local government bodies, managerial and operational staff of ADPCC and the World Bank Task Team\. A unanimous opinion of the workshop participants is that small scale farms will continue to exist to carry important social role in rural Georgia for medium term perspective\. Therefore, improving management systems and technologies used in them is of much importance for addressing rural poverty as well as for improving quality of the environment\. CGS stakeholders spoke about critical importance of the project assistance delivered to a great number of agricultural science and production units in the most difficult times of economic crisis in Georgia, multiple positive externalities of this assistance, and bright examples of post-project sustainability of the initiatives piloted under CGS\. The CGS model is now mainstreamed nationwide\. It is being used by the Georgian National Science Foundation, created in 2005 to give out grants on the competitive basis\. Technical expertise and lessons learned from operating CGS under ARET project are 30  factored into the set-up of this Foundation\. It has separate branches of financing for the young scientists, travel to scientific forums, supplying of equipment and development of infrastructure for scientific needs\. The main branch of funding is grants for carrying out priority research programs\. It is noteworthy, that the Georgian National Foundation is a party to the South Caucasian Science Foundation\. This regional institution pools public resources from the three countries of the South Caucasus and finances research programs from the three member states on the basis of international competition\. Component 2: Reform of the Agricultural Research System IVHO was nominated the main beneficiary of the reform component by multiple stakeholders, because it had been a lead institution providing scientific support to the priority field of Georgia's agriculture with many decades of prominent history and with a strong potential to revitalize its capacity\. A comprehensive plan of reform was developed for IVHO, covering all aspects of its activity\. A respective investment plan was also produced\. After several years of reforming the institute re-establishing itself as a strong research and extension facility adapted to the current economic and legal framework of Georgia and relevant in the context of modern international scientific community\. In the course of reform the mission statement of IVHO was re-though and newly formulated\. A new, consolidated research plan was produced narrowing down the number of priority research themes from 33 to 9\. This plan is realistic and responsive to the client demand\. The research plan aims at ensuring steady yields of grapes and fruits; facilitating sustainable use of natural resources; enhancing food security, restoring and strengthening strategic alliances between agro-scientists, farmers, and business clients\. One of the main challenges of restructuring IVHO was introduction of a modern and effective model of research management that drives towards the overall goal of reform and is fit for market-driven economic environment\. A new organizational chart was developed for IVHO and optimization of the institutional set-up was carried out accordingly\. The existing 30 research departments and laboratories were replaced with newly assembled 5 research and 3 service departments, including a computerized information center, an extension and training center, and a central laboratory\. Two neighboring testing and extension stations of Gori and Skra were merged under a single management unit and a number of other small unsustainable stations were abolished\. Administration and financial management of IVHO underwent fundamental changes\. A new legal status allowed the Institute to diversify sources of income, previously confined to public funding from the State budget\. At present IVHO is encouraged to generate its own revenues from providing services that fall in the scope of the Institute's mission statement\. IVHO managed to quickly expand client services, including advice and guidance for planning and starting new vineyards and fruit orchards; a vide spectrum of chemical analysis of soil, plants, and agricultural products; and a variety of training opportunities provided to undergraduate, graduate, and PhD students\. Research teams of IVHO are successfully competing for local and international research grants\. 31  The building of IVHO was fundamentally rehabilitated and new premises were provided for Skra, Sakara, and Telavi testing and extension centers\. Highly valuable living collections of Georgia's vine varieties, as well as trial and demonstration plots of IVHO (11,5 ha) and Georgia State Agrarian University (4,5 ha) were rehabilitated and emergency repair works completed at the premises of IVHO's historical collection of wine samples used for research purposes\. The Institute was provided with a full set of up-to-date information technologies\. The brightest highlight of the investments made in IVHO is the delivery of the most contemporary laboratory equipment allowing to carry out high-tech research in almost any field of natural science\. An initial stock of chemical and other laboratory supplies were also provided\. Staff was trained on-the-job in calibration, use, and servicing of the equipment\. The above changes in IVHO allowed the Institute to reinforce it lost links with the research centers of the former Soviet Union and other foreign countries\. Several new partnerships emerged in the specific fields of research\. An increasing number of KHVO staff members are being invited to the professional international forums to present outcomes of their studies and IVHO staff's publications appear in the lead scientific periodicals\. One bright sign of the international acknowledgement was holding of the third meeting of a working group on Malus/Pyrus under the European Cooperative Programme for Crop Genetic Resources Networks (ECP/GR) in IVHO in October 2007\. Scientists from 20 European countries traveled to Georgia to attend this meeting devoted to facilitation of the long-term in situ and ex situ conservation of Malus/Pyrus resources, enhancement of utilization of plant genetic resources, improvement of cooperation between stakeholders, and better sharing of conservation responsibilities for plant genetic resources\. During the supervision mission's work in Georgia IVHO hosted a workshop on Piloting Reform of Agricultural Knowledge System ­ IVHO as a Model of Institutional Reform\. The purpose of this event was to publicize the reform model piloted in the IVHO to a wide audience of the national stakeholders\. The workshop was chaired by Minister of Agriculture\. The Members of the Parliament of Georgia, authorities of Ministry of Agriculture, Ministry of Education and Science of Georgia, GSAU, Tbilisi State University, the National Academy of Science of Georgia, the Academy of Agricultural Sciences of Georgia, also a number of prominent agro-scientists and other stakeholders attended the meeting\. The reform model piloted in IVHO received full recognition from the represented agencies\. Lessons learned and experience gained from its implementation were acknowledged and analyzed for the future sector-wide use\. Reform component provided some assistance to the Georgian State Agrarian University (GSAU) as well\. Several classrooms were renovated with the project proceeds and are being used for teaching at the horticulture and wine technology departments\. An information center delivered under the project is up and running, being heavily used by undergraduate, graduate, and PhD students and the faculty as well\. The assistance delivered to GSAU contributed to its successful accreditation and stimulated further investment from the State budget\. The Government delivered more PCs and other 32  information technologies to the GSAU and also provided heating system for the university building\. Environment Pollution Control Program The most successful outcome of the EPC Program is promotion and dissemination of the biogas digesting technology, as a powerful element of sound manure management practices in animal farms, which has proven to be most appealing for farmers\. During several years of implementation, the Program provided for testing out several models of biogas digesters (BGDs), selecting the one most suitable for the environment of West Georgia, improving some glitches in operation of BGDs, creating public awareness and demand for the technology, increasing local capacity to manufacture and install BGDs, and, finally, demonstrating positive environmental impact of operating BGDs in the locations with high coverage\. Upon demand the initially intended geographic area for BGD dissemination had been expanded and several units were installed with demonstration purposes in additional administrative districts\. Government of the Autonomous Republic of Achara allocated public resources to co-finance dissemination of BGDs to rural communities\. In response to the clients' demand and based on the outcomes of a quick feasibility study, construction of 20 units of 10m3 BGDs had been commissioned in 2007\. All of them were delivered and entered into operation\. Operational capacity of the 10m3 BGDs in terms of the produced biogas and processed manure is 1\.6 times higher compared to 6m3 BGDs disseminated earlier under the EPC Program\. According to the findings of an independent impact assessment of the ARET project, 98\.5% of BGDs ever constructed with the project support remain fully operational\. Cumulative annual output of methane generated from 292 BGD units installed during the ARET project life varies from 180,000 to 200,000 m3, which substitutes for about 2,000 m3 of fuelwood\. Increasing demand for BGDs stimulated development of local businesses offering construction and installation of digesters\. There are ongoing attempts to bring down the cost of BGD units through using variety of alternative materials and through cutting volume of on-site works required for their installation\. In June 2008 a workshop on the Adoption of Biogas Digestion Technology is Georgia and Perspectives for Its Regional Replication was conducted in Tbilisi, followed by a field trip to the field sites where BGDs are being successfully operated\. The goals of this workshop were to summarize experience and lessons learned from the EPC Program implementation in Georgia, to share the knowledge and experience with other multiple stakeholders and to stimulate new initiatives towards further dissemination of the technology throughout the country and the region\. The event was attended by representatives of the Government, donor organizations, private sector, and NGOs\. The workshop was chaired by the Minister of Agriculture of Georgia\. Personal participation of the Minister of Agriculture of Georgia and the Minister of Energy of Georgia shaped particularly high profile of the workshop, emphasizing the interest of and the likely support to further promotion of this technology from the Government\. As relevantly mentioned by the authorities of the Ministry of Environment Protection and Natural Resources attending the workshop, after years of successful demonstration of BGDs the 33  time is ripe for building a strategic plan of scaling up application of the technology throughout the country by providing the State support and right incentives for its adoption\. In the last quarter of 2007 the National Code of Good agricultural Practice was published under the ARET Project in both Georgian and English and disseminated to the relevant audiences within and outside the country\. Development of the Code of Good Agricultural Practice leads Georgia closer to the standards established by the EU Clean Water Directive and the EU Nitrate Directive and nicely fits into the nation-wide reforms in the sphere of water resource management\. A comprehensive survey of pastures and grassland of West Georgia was carried out with the project support and published in Georgian and English languages\. This document, supplemented with rich photo material and maps, carries important information on the present condition of pastures in terms of their productivity and intensity of use, as well as characteristics of herbal and other vegetation, diversity of flora and fauna, occurrence of erosion, water resources and their quality\. The publication provides recommendations and a key action plan for decreasing negative environmental impacts from the use of pastures and grasslands and for sustaining their use in a long term\. 34  Annex 3\. Economic and Financial Analysis, Efficiency At the time of appraisal, there was no analysis done on the economic rate of return (ERR) for the IDA Credit\. The GEF component was based on the adoption of more environmentally sustainable agricultural practices and investments that would lead to a reduction in pollutants reaching the Black Sea\. This was defined in the incremental cost analysis\. Component 1 ­ Competitive Grant Scheme: Given the demand-driven nature of the Grant Scheme, type and size of subproject investments were not known during project preparation stage\. Instead of computing an economic rate of return at the time of project appraisal, the Operational Manual required an analysis to be performed as part of each grant application process\. Since 155 of 157 grants have been completed under ARET a sample from the most significant grants are representing all categories of grants\. In addition, at project's closing, there was an extensive survey conducted of the beneficiaries and non-beneficiaries of Components 1 and 3 that showed high levels of satisfaction among the beneficiaries for the services and technologies implemented\. The economic assessment concentrated on a sample of projects with beneficiaries and that have retained the new technology spread by the sub-projects\. IRR calculations were based on 10 years of operating the investments made under the sub- projects\. The information needed for conducting the economic impact assessment is based on: sub-projects documentation, mainly final grant reports for assessing expenses incurred by the farmers in operating/maintaining the technology introduced under the investment; market prices of goods produced by farmers to derive gross revenues; and price indices provided by state statistics services for calculating other incomplete information and forecasting future cash flows from operating the investments\. The analysis shows that the average internal rate of return of projects funded under the CGS amounted to 38%, with significant difference in rates of return across the various categories, but also sub-projects\. Given the data available to the team, it is not possible to determine what the main reasons are for the wide range of results\. Average IRR for Total sub- % of the projects Number of total category Categories of Sub- and projects CGS of Sub Projects by category categories sampled amount Project IRR per Sub Project sampled Viticulture 11 3 8% 49\.71% 32\.36% 64\.62% 52\.15% Potatoes 10 3 8% 79\.54% 90\.77% 68\.23% 79\.62% Other annual crops 17 4 13% 37\.74% -3\.27% 18\.36% 37\.67% 98\.22% Tree crop development (sub- tropical) 12 3 8% 54\.57% 23\.16% 78\.35% 62\.20% Cattle breeding 27 3 19% 30\.75% 18\.81% 43\.37% 30\.06% 35  Processing and marketing 13 4 8% 4\.39% 7\.17% 22\.79% -9\.48% -2\.94% New crop development 14 3 9% 32\.16% -5\.33% 20\.10% 81\.73% Anti-erosion 20 3 10% 14\.24% 28\.99% 15\.12% -1\.38% Soil fertility 29 4 14% 42\.76% 80\.82% 49\.79% 17\.04% 23\.37% Others 4 3% Total 157 30 100% 38\.43% In spite of the general success of the demonstrated technologies, the lack of adoption by farmers results in a very limited incremental impact of this component on the economy of the regions covered by the project\. However as stated earlier in the text, the economic value of the CGS component is also to be found in the fact that the project has established a new system for output based research and extension and "re-building the bridge" between farmers, research and scientists\. Quantifying this aspect was not possible within the purview of this ICR but its impact especially on the productivity of larger commercial farms is be substantial\. Component 2 ­ Reform of Agricultural Research System: The IVHO as a result of its reorganization has been able to greatly increase its revenues and undertake research and provide advisory services that are beneficial for the farming community and for which to a significant extent commercial farmers and processors are willing to pay\. While it largely has been able to retain its state budget allocations today these resources only represent about 30% of its operating budget\. In addition to state funds the IVHO is now contracting some 30% of its operating resources in the form of research grants from the National Science Foundation and another 35% from the sale of services to farmers and agri-business\. As a result, resources to deliver agricultural knowledge to the farm level have significantly increased while demands on the state budget have remained constant\. Thus the component has been instrumental at ensuring financial sustainability in the delivery of research and extension knowledge at the farm level\. The Budget composition of the IVHO for the years 2000, 2007 and 2008 are as follows: Figure 1: Financial Analysis of IVHO Operating Budget, 200, 2007 and 2008 (US$ millions) 264\.5 2008 250 334 103 Targeted Programs, Grants 2007 179 Own Income 278\.3 Central Budget 0 2000 112\.5 194 36  Component 3 ­ Pilot Environmental Pollution Control Program: Results from the survey showed high levels of satisfaction with the BGD technology that was introduced\. The biogas, for households that have no connection to public utilities provides immense benefits for lighting and cooking and time savings\. However, in Georgia, most houses are connected to the electric grid, the rural population is relatively sparse, and deforestation is not recognized as a significant issue (0\.3% over the past 20 years) benefits remain limited\. Thus, the actual benefits from energy remain marginal, at an estimated US$120\.00 per year, against an investment cost per BGD of between US$2,000 and US$2,500\. Initial estimates for construction were estimated at between US$1,500 to US$ 1,700 so the unit costs of the installations have increased some 20% to 30% with the refinement and adaptation of the design to Georgian conditions\. Significant value added of BGDs comes from the conversion of manure to nitrogen enriched organic fertilizer\. Farmers with intensive farming operations such as green houses and high value horticultural crops have significantly higher benefits stemming from the residues removed from BGDs as high nitrogen content, sanitized fertilizer than the value of the energy it supplies\. The value of actual benefits of BGDs therefore is highly dependent on the farming model and the extent to which alternative sources of cheap energy are available, reaching from estimates of US$120\.00 per year without counting the value of fertilizer, up to US$$480\.00 including the value of fertilizer for the type of BGDs installed under the project\. Assuming an average benefit of around US$200\.00 per year given that most farmers do not practice intensive agriculture, the NPV of the savings realized by a typical BGD such as installed under the project are at US$ -575 and a rate of return of 5% when using a discount rate of 12%\. However, this figure is highly sensitive to farming models as indicated above\. The more farmers develop their intensive production and maximize the use of the high value fertilizer from the BGDs, the greater the benefits from BGDs\. As the STAP review of the GEF incremental cost analysis noted, BGDs were in all likelihood not the most effective method to reduce organic pollution from reaching the Black Sea\. The residue extracted after digestion has increased nitrogen contents, and retains the main nutrient compounds of manure\. Digestion does greatly reduce volumes, which makes storage and management somewhat easier\. Proper manure storage does have a beneficial impact on reducing contamination of surface water with nutrients\. Data collected as part of the project shows a clear reduction in nutrient loads in small stream adjoining the project areas\. However, the attribution of these impacts directly to the demonstration investments is extremely difficult given that in Georgia mineral fertilizer use and agricultural productivity have significantly dropped over the past 20 years and agriculture has returned to mainly subsistence levels\. Estimation of impact is made more difficult from the fact that no baseline existed and no control sampling was done of soils and water in comparable non-project areas to compare the impact on organic matter contamination and reduction in Nitrogen and Phosphorus\. 37  Annex 4\. Bank Lending and Implementation Support/Supervision Processes (a) Task Team members Names Title Unit Responsibility/ Specialty Lending Jitendra Srivastava Agronomist ECSSD TTL Ian Shuker Agricultural Economist ECSSD Team Leader David Bontempo Operations Analyst ECSSD Operations Meeta Sehgal Consultant ECSSD Operations David Bontempo Operations Analyst ECSSD Project Costing Darejan Kapanadze Operations Officer ECSSD Environment Sharifa Kalala Team Assistant ECSSD Editing John Hayward Sector Manager ECSSD Quality assurance Ranjan Ganguli Financial Management Specialist ECSSD FM Snezana Mitrovic Procurement Specialist ECSSD Procurement Supervision Ian Shuker Agricultural Economist ECSSD TTL Arman Vatyan Sr\. Financial Management Specialist ECSPS FM Guranda Elashvili Procurement Asst\. ECCGE Procurement Jitendra P\. Srivastava Consultant ECSSD Agronomist Karl Skansing Consultant ECSPS Procurement Nicolas Gergely Consultant AFTAR Environment Plamen Stoyanov Kirov Procurement Specialist ECSPS Procurement Darejan Kapanadze Operations Officer ECSSD Environment, TTL ICR Darejan Kapanadze Environmental Specialist ECSSD Environment Daniel Gerber Operations Analyst ECSSD TTL Anna O'Donnell Consultant ECSSD Edit/Analysis 38  (b) Staff Time and Cost Staff Time and Cost (Bank Budget Only) Stage of Project Cycle USD Thousands No\. of staff weeks (including travel and consultant costs) Lending FY00 47 151\.77 FY01 0\.00 FY99 0\.00 Total: 0\.00 Supervision/ICR FY00 2 4\.26 FY01 16 40\.89 FY02 21 68\.79 FY03 22 47\.05 FY04 17 28\.66 FY05 14 24\.48 FY06 16 16\.37 FY07 17 0\.00 FY08 15 0\.00 FY09 0\.00 Total: 140 230\.50 The above table is system generated and does not reflect the combined budgets from P065717 and P064091 used for the preparation and supervision of this project\. Overall the following figures apply in terms of budget resources absorbed as part of preparation and supervision of this project\. An estimated US$ 385,248\.26 of BB resources were allocated under the life of the project for the management of the IDA portion of the project P065715, while another US$297,066\.99 were allocated from GEF BB under P064091 for the same task\. Combined BB resources absorbed under this activity amount to US$ 682,315\.25, at the time of the writing of this report\. 39  Annex 5\. Beneficiary Survey Results Within the Competitive Grants Component the survey revealed that introduced technologies are rather important for farmers\. For one third of the respondents the introduced technology was innovative\. Most of the direct beneficiaries' consider that the technology increased quantity and improved quality of their production/yield, as well as positively impacted the economical condition of farmer' household\. However, positive benefits are not yet fully realized by those farmers involved in type of projects that take longer time to pay off (e\.g\. perennials and improvement of breed)\. At the moment more than two third of the respondents are still applying the technology and would agree to introduce it today under similar conditions (should it have not been introduced in the past) and would recommend the technology to other farmers\. Other farmers' indirect beneficiaries expressed rather high interests in the technology; yet, the survey registered only two individual case of replication of the technology by neighboring farmers\. To compensate on the shortcomings revealed by the evaluation and to increase the effectiveness of the project in the future the evaluation made a number of recommendations\. There is a need for better communication of the innovative elements of introduced technologies and benefits that can be expected from its introduction, as well as for more comprehensive training paying adequate attention to all aspects of the application of technology\. For effective implementation of large-scale crops-related technologies the availability of preliminary geological assessment and detailed study of soil would be essential\. Market studies that would secure farmer's access to the market should be a pre-condition for funding agricultural projects\. The services provided by the Information-Consultancy Centers established under the project were appreciated by those farmers who were aware of their functioning, but centers failed to sustain their functioning after the completion of the project\. On the background of the importance of the service for farmers and the investments of the project into the Centers this final outcome is not acceptable\. In future sustainability of such support services and their better anchoring with the Ministry of Agriculture and other relevant institutions should be approached more carefully\. Within the Environmental Pollution Control Program farmers gave high assessments to the need to install the biogas digester and the manure storage facility due to various benefits associated with the installment, including savings on fertilizers, liquid gas, firewood, increase of harvest and improvement of harvest quality\. Therefore, most of the targeted farmers during the survey period were still using the biogas digester/manure storage facility apart from single cases of damaged facilities\. Most of the respondents' expectations with regards to the biogas digester were met and they would recommend it to other farmers\. Lower level of satisfaction was registered in case of the manure storage facility due to false expectations of the farmers to benefit from a biogas digester installation in the future\. Indirect beneficiaries are quite positively assessing both equipment and are expressing their potential interest in both the biogas digesters and the 40  manure storage facilities\. However, due to the lack of own financial resources and/or will to invest none of them has installed the technology on their own up to now\. To minimize on weakness revealed during the evaluation in the future the project should pay adequate attention to ensuring maintenance of installed facilities on a long run and avoid cases of defect installment by strengthening control and supervision of construction/installation sub-contractors\. 41  Annex 6\. Stakeholder Workshop Report and Results STAKEHOLDER WORKSHOPS CGS stakeholder workshops\. In November 2007 two meetings of CGS stakeholders were held in the eastern and the western parts of the country\. These forums were provided to discuss outcomes of the CGS-financed sub-projects, to look at their impact a few years since completion, and to work out recommendations for more efficient assistance to small farmers in future\. The meetings were attended by prominent ago- scientists of the nation, managers and participants of the CGS-financed sub-projects, as well as authorities representing local government bodies, managerial and operational staff of ADPCC and the World Bank Task Team\. A unanimous opinion of the workshop participants is that small scale farms will continue to exist to carry important social role in rural Georgia for medium term perspective\. Therefore, improving management systems and technologies used in them is of much importance for addressing rural poverty as well as for improving quality of the environment\. CGS stakeholders spoke about critical importance of the project assistance delivered to a great number of agricultural science and production units in the most difficult times of economic crisis in Georgia\. Multiple positive externalities of this assistance, and several examples of post- project sustainability of the initiatives piloted under CGS were discussed\. The beneficiaries addressed in writing the Minister of Agriculture their opinion on the implemented subprojects and asked his mediation towards the World Bank in order to continue provision of the assistance to the agrarian sector\. Workshop on Piloting Reform of Agricultural Knowledge System - "IVHO as a Model of Institutional Reform"\. The workshop was held in late June 2008 and sponsored jointly by Ministry of Agriculture, ADPCC - ARET Project and IVHO\. The purpose of this meeting was to publicize the reform model piloted in the IVHO to a wide audience of national stakeholders\. The workshop was chaired by Minister of Agriculture\. The Members of Parliament of Georgia, authorities of Ministry of Agriculture, Ministry of Education and Science of Georgia, the Rector of the Agrarian University, representatives of Tbilisi State University, members of National Academy of Georgia and Academy of Agricultural Sciences, Staff of ADPCC, agro-scientists, the WB staff, IVHO staff and other stakeholders attended the meeting\. The Project's outcomes were introduced and summarized by ARETP staff, Director of IVHO and WB representatives\. Participants agreed that a model of reforming an agricultural scientific research institute implemented in IVHO carries important lessons learned and experience gained in practice\. Regional Workshop on "Adoption of Biogas Digestion Technology is Georgia and Perspectives for Its Regional Replication" was conducted in June, 2008\. The workshop discussion was held in Tbilisi followed by a field trip to the sites where biogas 42  digesters are being successfully operated in the Black Sea coastal area near the city of Batumi\. The overall goal of the workshop was to summarize experience and lessons learned from the 9 years of Environment Pollution Control Program implementation in Georgia, to share the knowledge and experience with other organizations concerned and to stimulate new initiatives towards further dissemination of the technology throughout the country and region\. This was the first and successful attempt to bring all stakeholders and participants being interested in BGD technologies (working in agricultural, environmental and power engineering spheres,) together, including Government, donors, private sector and non-governmental sector\. The workshop was chaired by the Minister of Agriculture of Georgia\. Minister of Energy of Georgia, Deputy Minister of Energy of Georgia, authorities of Ministry of Environment and Energy recourses also attended the workshop\. The main conclusion of the conference was that the introductory stage of Biogas Technology has been successfully completed at country level\. However the Georgian Government should take the next steps in support of dissemination of the BGD technology by elaborating a strategic plan at state level and review the possibilities to mobilize additional resources to implement an expansion strategy\. 43  Annex 7\. Summary of Borrower's ICR and/or Comments on Draft ICR Agricultural Research, Extension and Training Project Implementation Completion Report Ministry of Agriculture of Georgia Legal Entity under Public Law - World Bank Financed Georgian Agriculture Development Projects Coordination Center INTRODUCTION Historically agriculture is the mainstay of the Georgia economy\. However Agriculture production was seriously disrupted as a result of collapse of Soviet Union\. The main sector issues reflect the shift from a command economy to a market ­ based economy and the problems faced by emerging private farmers, who have little experience with the farm management or operating in a market economy\. Shortage of knowledge/information on sustainable agricultural practices in light of global environmental needs, equipment and service facilities, suspended linkage between researchers and farmers resulted in decreased agricultural productivity and competitiveness of Georgia's agricultural market and increased agricultural sourced environmental pollution\. Agricultural Research, Extension and Training Project was designed to help Georgian Government to establish and introduce an efficient and cost effective agricultural knowledge system, to demonstrate, disseminate and promote the adoption of appropriate technologies that increase sustainable agriculture production and to reduce the pollution of natural resources from agriculture sector and thus to assist the Government of Georgia to meet its international commitments under the Bucharest Convention\. Strengthening the agricultural knowledge system and adopting environmentally sustainable agricultural practices would assist farmers in realizing their potential for increased agricultural productivity and profitability, and improve competitiveness of Georgia agricultural sector\. In line with government policy the provision of more productive technologies and improved access to information would also support more efficient and profitable production for traditional and new export markets as well as the development of new products\. The Project was developed in three directions, namely: (i) Competitive Grant Scheme to support adaptive research and technology dissemination at the farm level: (ii) agricultural research, extension and training system reform for a selected high priority research direction; (iii) environmental pollution control to reduce agricultural nutrient pollution of the rivers draining into the Black Sea\. 44  MAIN ACHIEVEMENTS (A) Competitive Grants Scheme Competitive Grants Scheme (CGS) was a mechanism of financing of the applied research and disseminating its results, aimed at serving improvement of capacity of private farms and ensuring profitability and long-term sustainability\. By implementation of this component the first steps were made to reinstate liaison between farmers and scientists to adjust the research works to the actual needs of farmers and to deliver efficient and environment friendly technologies to the wide audience\. Later the already tested CGS model was successfully replicated and is being used by the National Science Foundation of the Ministry of Education and Science of Georgia\. Competitive selection of sub-projects under the CGS was carried out in compliance with a comprehensive set of guidelines\. The guidelines were developed based on an example provided by the World Bank (WB) and approved by the Government of Georgia\. The Competitive Grants Board (CGB) was formed by the order of the Minister of Agriculture of Georgia\. The Board consisted of representatives of the Parliament of Georgia; Ministry of Agriculture; Ministry of Finance; Ministry of Economics, Industry and Trade; Ministry of Environment; Academy of Agricultural Sciences; State Agrarian University; farmer NGOs; and farmer communities\. The chairmen of the CGB were approved by the Minister of Agriculture\. CGB was responsible for operating CGS\. ARET Project Technical Unit (PTU) and the CGB Secretariat, being sub-sections of ADPCC, provided day-to day management of CGS\. After an initial review of grant applications by the Secretariat, they were handed over to Georgian and foreign peer reviewers\. The final review of applications was carried out by the CGB, grant-winning sub-projects were named, and then grant awarded after obtaining the WB's no objection\. Total of 4 competitions were held\. 9 main fields and 32 priority themes under them were covered\. 637 initial applications were received by CGS and 157 sub-projects were financed\. Out of 157 winner sub-projects 2 sub-projects were terminated due to non- performance against interim indicators\. Overall outputs of CGS are as follows: 10 sub-projects financed in viticulture sector\. 13 villages of the 9 districts covered by the sub-projects\. 84,000 seedlings planted on 25 ha, 10 demonstrative nurseries for trees arranged and 290,000 high quality seedlings produced\. Significant steps made toward preservation of genofond of unique Georgian vine varieties such as Aleksandrouli, Mujuretuli, Usakhelauri, Chkhaveri, Aladasturi, Ojaleshi etc\. 9 potato growing sub-projects financed\. 36 villages of the 16 districts covered by the sub-projects\. New potato varieties seeded on 64\.4 ha\. Production of high quality planting stock was successfully introduced in South Georgia resulted in real increase of local farmers' incomes and improved social-economic conditions\. 45  11 fruit-growing sub-projects financed\. 29 villages of the18 districts covered by the sub-project\. Total 42\.5 ha of Hazelnut, almond and apple gardens planted\. 6 nurseries for apple trees, walnut and peach arranged on 6\.4 ha producing 118,000 high quality standard seedlings\. Fruit tree grafting, seedling growing, vegetative reproduction of walnuts and other improved technologies tested and spread\. 7 sub-projects financed in sub-tropical crop production sector\. 16 villages of the 13 districts covered by the sub-project\. Nurseries for lemon, tangerine, orange, kiwi, feijoa arranged and 250,000 high quality seedlings produced\. Methods of production and cultivation of citrus planting stock improved, production of certain sub-tropical crops and their introduction to untraditional areas commenced\. 19 sub-projects financed in cattle breeding sector\. 26 villages of the 13 districts covered by the sub-projects\. 162 cows and 300 goats of the desired breeds purchased for the farmers\. 500 head of cattle inseminated artificially by highly productive breeds of cattle\. Total of 1,800 head of cattle vaccinated\. Possibility of improvement of milking productivity and milk quality demonstrated through improving cattle nutrition\. Various interbreeding tested taking into consideration the existing conditions\. 18 sub-projects financed in grain growing sector covering total 58 villages of the 29 districts\. Wheat, maize, soya, pea, lentil, bean production technologies tested on 30,000 ha\. 322 t of high quality seeds of cereals produced and spread\. Production of some forgotten varieties of grains restored\. 3 expeditions conducted and 350 whet endemic and old Georgian varieties collected which certified and conserved in farms\. 14 sub-projects financed in the sector of production, processing and selling agricultural raw materials covering total 19 villages of the 12 districts\. Hot and sweet peppers, garlic, spices, walnut, citrus flowers, sea-buckthorn, bay and stevia leaves, non-standard potato, milk and mushrooms processed in small farms\. Environment friendly technologies introduced in 55 sub-projects covering 8 districts of Khobistskhali River and Black Sea basins\. In 42 villages of the said districts erosion control integrated methods conducted on 57\.2 ha; degraded soil restoration complex methods introduced in 43 villages covering total of 53\.25 ha (rehabilitation of the drainage network, sideration, development of new crops etc)\. Technologies of increase of soil fertility by using the processed manure introduced and spread; 14 sub-projects financed in various directions such as bee-keeping, development of extension and training centers, irrigation, etc\. (B) Institutional Reform As a result of successful implementation of the Institutional Reform Component (IRC) the Institute of Horticulture, Viticulture and Oenology (IVHO) will greatly contribute to the development of priority sectors of Georgia's agriculture such as horticulture, viticulture, and oenology\. After reforming the IVHO has become one of the most sustainable research centers of Georgia having optimal research themes, improved staffing, renovated infrastructure, informational technologies, modern divisions and 46  laboratories, financial sustainability mechanism and close liaison with international and local research organizations\. Development of priority research programs\. The project contributed to the development of Consolidated Research Plan which represents the framework for the research programs to be carried out in the context of the Institutional Reform Program\. It reflects broadly-shared priorities for the fields of viticulture and horticulture in Georgia's rural sector\. As a result of Reform the number of research themes was reduced from 33 to 9 priority themes\. Multi-disciplinary research themes of this plan are based on existing client demand and the expected economic opportunities\. The core objectives of the planned research are to ensure stable yields of grapes and fruits; facilitate the sustainable use of natural resources; enhance food security and economic growth; and, restore and strengthen strategic alliances between agro-scientists, farmers and other private sector clients\. Upgrade of organization and management of research\. One of the main challenges of restructuring IVHO was introduction of a modern and effective model of research management that drives towards the overall goal of reform and is fit for market-driven economic environment\. A new organizational chart was developed for IVHO and optimization of the institutional set-up was carried out accordingly\. The former 30 research departments and laboratories were replaced with newly created 5 research and 3 service departments, including a computerized information center, an extension, and training center and central laboratory\. Gori and Skra testing stations were merged under a single management unit, as planned by the reform program\. Rehabilitation of infrastructure\. The building of IVHO was fundamentally rehabilitated, including provision of utilities, office, laboratory, and library furniture\. The new premises of Skra, Sakara (Vachevi) and Telavi extension centers were built; rehabilitation works of trial-demonstration plots of IVHO (11,5 ha) and GSAU (4,5 ha) completed; rehabilitation of on farm irrigation scheme at Skra extension center plot made and access driveways constructed; rehabilitation works finalized for construction of driveways and protective fencing of Vachevi plot, as well as for the Institute's entrance and enothec roof\. In addition the rehabilitation works of hydro insulation, drainage and climate control systems for enothec made\. The space allocated for setting up computerized information and training center at GSAU rehabilitated and furnished, the alarm system installed\. Four classrooms at GSAU Horticulture and Viticulture departments rehabilitated and equipped with the new furniture and computers\. Re-equipping research departments and laboratories, providing up-to-date information technologies\. One of the most important investments of the Reform Program was to establish an up-to-date computer and communications network, which enabled to create the electronic databases for the IVHO library and other scientific information\. The network will allow introduction of Geographical Information Systems\. 47  Desktop publishing hardware was purchased for producing handouts, brochures, flyers\. The Institute's laboratory was re-equipped with new field research facilities, advanced laboratory equipment and chemicals\. Human resource management\. Switching to the newly developed stuff structure and recruitment through an open competitive process were among the most challenging elements of IVHO restructuring process\. The AKIS pilot reform program provided staff optimization, conducted capacity building activities- trainings, study visits\. An average age of department heads came down from more than 70 years to less than 50\. In result of staff optimization, the number of employees shrunk from 245 to 140\. Training opportunities were permanently being offered to IVHO staff\. Trainings in various specific issues, including plant variety protection and intellectual property rights, food safety, legislation, etc conducted\. Workshop on developing project proposals for grant- financing, English language courses and computer training courses organized\. Improving financial management through arranging for more sustainable financing mechanisms\. Financial management and funding issues are very important for successful implementation of the reform\. Expected future sources of IVHO funding include: the State budget, own income, local and international research grants, and donor organizations\. Success of the Reform Program depends in significant measure on the national budget contribution because this is an integral part of the program financing and its timely provision will ensure unconstrained implementation\. To facilitate the latter, the IVHO budgeting and accounting processes would be made open and transparent at all levels\. As a result of project implementation IVHO's financial management system improved by setting up an accurate recording system, consequently the IVHO services provided to external clients also improved and commercial income from testing stations, germ-plasm collections, experimental fields increased\. The State Budget financing was increased by 12 percent and Institute's own income five times compared to the past year\. In addition, the average salaries of scientists are increased 3\.5 times\. Enhanced collaboration with local and foreign partners\. In parallel with the institutional reform and rehabilitation, much attention was given to reinforcing and expanding of IVHO's partnerships that have weakened during more than a decade of an extreme economic hardship\. Some part of investment, coming to IVHO for piloting AKIS reform, was used to facilitate participation of the Institute's lead staff in international scientific events\. Two research staff was sent to Moldova Viticulture & Oenology Institute in order to bring back Georgian aboriginal vine varieties which were identified and kept in their collections\. As a result of the tour 77 Georgian vine species returned to home land\. Successful efforts are being made to increase cooperation not only with scientific partners, but with private clients as well\. For achieving the latter, the Extension, Design and Training Center existing under the IVHO developed a large package of services focusing on the demand from the clients\. Now the Institute and its Extension and Training Center have possibility to publish scientific studies, recommendations, booklets etc\. Relations of the Institute with public and private sectors have been strengthened\. Works with the public organizations, private sector representatives, agro-firms, farmers etc\. were performed\. 48  IVHO hosted (October 24-28) the third meeting of the working group on Malus/Pyrus under the European Cooperative Programme for Crop Genetic Resources Networks (ECP/GR)\. Scientists from 20 European countries traveled to Georgia to attend this meeting devoted to facilitation of the long-term in situ and ex situ conservation of Malus/Pyrus resources, enhancement of utilization of plant genetic resources, strengthening links between all plant genetic resources program in Europe, encouragement of cooperation between stakeholders, including NGOs and private breeders, better sharing of conservation responsibilities for plant genetic resources for food and agriculture, increasing awareness of ECP/GR networks, and seeking collaboration with other relevant regional and global initiatives\. Number of international study tours of the Institute research staff financed\. (C) Environment Pollution Control Program The pilot scheme to achieve gradual reduction of pollution of ground and surface waters flowing in the Black Sea basin, by introducing and promoting environmental friendly agricultural modern practice successfully introduced and disseminated\. \. Demonstration, extension and dissemination of Biogas Digester Technologies\. Digestion of manure in biogas digesters (BGD) is found the most successful practice introduced under the Environment Pollution Control (EPC) Program from the point of view of sustainability, quantity of direct and indirect beneficiaries, increased demand, and efficiency of direct environmental and socio-economic impact\. The main conditional factors for success are: essential savings made by farmer by reduced used of liquid gas, fertilizers and fire wood; reduced environmental pollution (water, soil, atmosphere), reduced consumption of firewood; improved hygienic conditions on farms\. Follow-up: The BGDs success story stimulated replication and dissemination of BGDs construction activities in almost every region of Georgia supported by various donors (UNDP, USAID)\. It is noteworthy to mention that notwithstanding of the high construction costs number of farmers installed the BDGs at their own expense (41 ­ units)\. The interest of Gov\. of Georgia to support the BGDs initiated - One of the regional (Adjarian) government already financed 10 percent of construction 60 biogas digesters in 2002-2006; Private-Public partnership strengthened: Ministry of Economic Development of Georgia cooperates with USAID to pilot the BGDs new design with polymeric construction materials; Political Support strengthened: The Presidential National Program of 2006 encouraged implementation of activities for support of introduction of biogas digesters; local capacity and skills increased of about ten construction companies; BGDs Public Awareness Campaign\. An active public awareness and promotion campaign was carried out during the 2002-2008\. Including preparation and publicizing of a TV Program on bio-gas digesters, numerously aired video film (in Georgian and English languages) on a local and rural TV, widely circulated books and brochures among the farmers of various regions of Georgia\. More than 2 500 farmers took part in 200 trainings arranged for 680 farmers participating in the program and for their 49  neighbors during 2002-2004\. Individual nutrient management plans, including recommendations for the appropriate doses and timing of application of organic fertilizer for 220 farmers were developed and disseminated\. The Brochure "Biogas Technology in Georgia­ achievement and future vision" was designed, published and disseminated at the final stage of the EPCP\. The purpose of this Brochure is the popularization of a technology among the farmers involved in animal husbandry\. It may also be useful for those interested in agriculture, renewable energy, and environment protection\. The Brochure contains brief description of BGD operating mechanism, the most widespread types of BGD design, as well as the economic and the environmental benefits of this technology\. Key recommendations for safe and proper operation of BGDs are also provided\. The publication describes brief history of biogas generating technology in Georgia and provides data on BGDs installed in various regions of the country\. The attached map depicts administrative regions of Georgia where BGDs are installed and gives their numbers per region\. The BGDs promotion Poster, with pictures, explanatory notes, brief information on BGDs benefits was also designed and published for the same purposes\. Dissemination of other environment-friendly technologies\. The practices to combat the soil erosion through terracing, contour plowing, arrangement of buffer strips is being considered by Program as one of the most sustainable, as it has the direct and long term impact\. The practice of increasing of productivity of the degraded and non-fertile arable lands through seed rotation, introduction of new crop varieties, amelioration etc is also considered as one of the prospective method\. Environment pollution monitoring: Soil, ground water, drinking and river water, crop quality monitoring within the Khobistskali river basin\. Environment pollution monitoring Scheme established and implemented in Khobi, Tsalenjikha and Chkhorotsku districts of the Khobistskali river basin during 2002-2006 years, in particular: optimum system for complex investigation of the soil, ground water and river quality monitoring developed; Operational manual for "Quality Control / Safety Precautions to ensure validity of data elaborated; sample analyses according to ISO standards carried out; Co- relation and regressive analysis of the statistical data made etc\. Assessment of impact of improved agricultural practices on farming efficiency and environment quality\. Integrated Methodology for assessing impact of the extended improved agricultural practices on the farm productivity and for monitoring of pollution of environment at the levels of individual farm units, villages, river basins and administrative districts developed\. Recommendations for decreasing their adverse environmental impacts through studying correlation between specific agricultural practices and pollution elaborated\. Development of the National Code of Good Agricultural Practice\. The Code of Good Agricultural Practices developed, published and disseminated among the individual growers and farmers, large agricultural companies, agriculture service and extension employees\. Ministry of Agriculture and Ministry of Environment and Natural resources of Georgia provided official appraisal for the final version of Code of GAP\. The 50  statement signed by Ministers is endorsed to the publication\. The Code provides information on gained experience of agricultural practices to local farmers and farmers' associations what will ensure farm sustainability and increase prospects of efficient selling the product on internal as well as external markets\. The Code sets recommendations taking into consideration of which will enable reduction of environmental pollution from agricultural sources by economically and environmentally efficient ways\. Integrated Study of Resource Use in pastures and Meadows of West Georgia\. The integrated research of pastures and meadows of west of Georgia carried out\. The results were designed, published ad disseminated\. Study provides a fundamental and comprehensive study of pasture lands in West Georgia to define the actual forms of their exploitation, as well as to study the specific and quality state of plant growth and wild fauna, the state of soil erosion and dynamics of landslide processes, to define a possible impact of grazing on forests, water reservoirs and biodiversity\. The target territory covers 1 mln ha and consists of 31 districts of Georgia\. Hayfields and pasture lands are located in all three landscape zones of Georgia The research has been conducted in the following main directions: flora and fauna species in hayfields and pasturelands; species/variety of cattle and assessment of quantity/quality of herds; feeding value of hayfields and pasture lands according to the livestock and quality and specific indicators of the growth; geodynamic processes, including the reasons provoking them and main characteristics of dynamics; physical and chemical characteristics of water reservoirs, hydrodynamics and pollution sources; forest stands, determination of specific/age structure, main forms of exploitation and its intensity, ability of self-regeneration of forests\. The recommendations for sustainable management of pasture lands have been elaborated\. The maps of studied and main pastures of west of Georgia have been developed\. TRAINING AND CAPACITY BUILDING Project has contributed to capacity building of the Ministry of Agriculture of Georgia and IVHO through trainings, workshops and sponsoring attendance at various international and national meetings conferences related to the Environmental and Agricultural issues\. The trainings of farmers/beneficiaries at various stages of project implementation have been also conducted\. A few most important training events attended with the ARETP project support by the Georgian public servants and farmers include: - Management Information System, monitoring and evaluation of the projects supported by Grants, Roven, Croatia\. 2002\. - Sustainability of Competitive Grants Programs and modernization of Agricultural Knowledge and Information System" - Tbilisi, 2003; - Integrated Nutrient Pollution Control in Black sea - Danube partnership Countries Romania, 2003 - Black Sea Ecological problems and Environmental Friendly Agrarian Technologies, Chakvi, Georgia\. 2004\. - VI International congress of Hazelnut - Tarragona, Spain\. 2004 51  - International Symposium of on Walnuts, Sorrento, Italy, 2004 - Short time study tour on advanced methods of root stock selection, Montpelier, France, 2004; - Short time study tour on using of entomophags and entomopatogens microorganisms against plant deceases, Bet-Dagan Israel, 2005 - Short time study tour on Genetic Identification method of plants, Germany, Gaizenhaim, 2005; - English language and computer Courses for Civil Servants, 2003-2004-2005; - International Conference ­ Agricultural Nutrient Management in the Danube ­ Black See and Baltic Sea Riparian Countries, Tbilisi, 2005, - International Symposium of Horticulture, Adana, Turkey, 2006 - Integrated Nutrient Pollution Control in Black sea - Danube partnership Countries, Moldova 2006 - Short professional courses for the staff of the Ministry of Agriculture, 2007 - Nutrient Pollution Control in Black sea - Danube partnership Countries, Ankara, Turkey, 2007\. 52  Annex 8\. Comments of Cofinanciers and Other Partners/Stakeholders 53  Annex 9\. List of Supporting Documents The information for this report was extracted from: An Update of Agricultural Developments, A Study by Iain Shuker, July 24, 2000 Project Appraisal Document, April 11, 2000 Grant Manual Mission supervision aide memoires, PSRs and ISRs Quality at Entry review, response by the project team\. Final project beneficiary survey Assessment of technologies for management and treatment of dairy manure in California's San Joaquin valley, December 2005 Engineering Notes, Winter 1995 ­ pollution potential of livestock manure\. Review of Small Scale, community Biogas in the Industrialized World, Kealan Gell\. Biogas digesters in Georgia Economics and Environmental Impact of Biogas Production as a Manure management Strategy, Cady R\. Engler, Ellen R\. Jordan, Marshall J\. McFarland, and Ronald D\. Lacewell\. 54  Annex 10\. Additional Information 1\. Introduction: a\. Implementation Approach The implementation of the GEF-funded components (Component 1b and Component 3) is rated as moderately satisfactory\. This rating is based on the following reasons\. First, the logical framework that was developed at project design was preliminary, since both of the activities that were funded under the GEF grant were of a pilot nature\. Thus, the indicators chosen were considered to be best estimates of potential achievements\. After the Mid-Term Review of the project, the team had a better grasp of the project's potential achievements, and the M&E indicators were revised accordingly\. This also served as a better management tool for the project, since the goals of the project were more realistic and reflective of the local environment\. In this way the team reflected a level of adaptation in their management of the GEF-financed components\. Second, during implementation the project made good use of different partnership arrangements\. For example, the installation of the bio-gas digesters under Component 3 brought together local manufacturers and farmers, where the project funding covered 80 percent of the biogas digesters and their installation, farmers contributed either in cash or kind to become beneficiaries of the project\. This partnership arrangement strengthened ties between local manufacturers and clients to arrive at an optimal design in terms of cost, user friendliness and efficiency\. A subset of the competitive grant scheme, sub component 1b (CGS) was set aside for GEF funded initiatives that had a particular environmental focus to them\. Because this process was well integrated into the CGS, this funding was able to reach a wide audience, even if ultimately adoption remained limited\. Both achievements under these Components were discussed in the two stakeholder workshops\. Finally, the design of the GEF-financed activities was based on lessons from other relevant projects\. First, the design of these components drew on global experiences in pollution reduction, with both the use of bio-gas digesters and more efficient manure practices (Component 3)\. The project recognized that these activities were new to the region, however, and allowed for a systematic pilot approach to determine the best technology for the local conditions\. Under Component 1, a subset of activities was financed on a competitive basis through grant proposals submitted by local groups and farmers with help from specialists\. This allowed for locally-relevant and innovative activities that address the particular pollution issues in Georgia\. b\. Country Ownership/Driveness\. The GEF-financed components of the project remain consistent with national and sectoral development plans\. The legacy of the Soviet Union meant that Georgian agriculture relied heavily on chemical fertilizers and pesticides that resulted in high levels of 55  pollutants flowing into the Black Sea\. The funding in this project aimed to address that issue through the implementation of agriculture practices that would reduce pollutants\. In the earlier phases of the project, there were some issues with counterpart funding\. This, however, was reflective of difficulties with the financial commitments to the agriculture sector in general, and not a unique problem of this project, nor of the Government's commitment to the project as a whole\. During this period The GEF- financed components continued to operate without any significant delays, because the counterpart financing came primarily from local communities\. In fact, there was much enthusiasm for the bio-gas digesters, and in Ajara the local government even offered to pay the 20 percent contribution expected from farmers to ensure the continued installation of what was seen to be a valuable source of consistent energy for local residents\. c\. Public Involvement\. Information dissemination Much effort was made under the project to promote the Competitive Grant Scheme (Component 1) as well as the new technologies and practices under Component 3\. Outreach activities included workshops and pamphlets along with demonstrations\. Results of the CGS were published in a booklet that was distributed to project stakeholders and made available on the World Bank Country website in both Georgian and English\. Consultation and stakeholder participation Two stakeholder workshops were held in late 2007 and June of 2008 to discuss impact of the competitive grant scheme as well as reforms of institutions undertaken as part of the project\. d\. Replication approach: Much of the overall project's design incorporated systems of knowledge transfer with the development of an extension services system\. This was designed to teach farmers innovative and locally appropriate methods and to introduce relevant technologies for farming practices\. For GEF-financed project activities under Component 1, these activities were focused on transferring knowledge on sustainable agricultural practices that would, in turn, reduce pollution\. Similarly, the activities financed under Component 3 brought new technologies and practices with the specific aim of reducing pollutant runoffs to the Black Sea\. As such, bio-gas digesters were demonstrated and tested, and then the technology was disseminated, the capacity of individuals to operate and maintain the bio-gas digesters was undertaken\. Similarly knowledge about more efficient manure practices was transferred to the local populations\. While the techniques are easy to replicate farmers who were not direct beneficiaries of the project have not taken up these technologies or practices\. e\. Financial Planning 56  The last financial management review of operations managed by ADPCC was carried out on June 17, 2008\. The rating for financial management of the project remained Highly Satisfactory\. ADPCC has a significant experience with the projects' closure and grace period payments and no issues are expected with the payments to be made during the grace period\. All books and accounts of the IDA Credit and the GEF Trust Fund Grant will be closed on October 30, 2008\. ADPCC plans to submit the final report of an independent auditor to the Bank by end CY 2008\. Project Costs and Financing At appraisal, the total project cost was estimated at US$ 12\.41 million, of which US$ 7\.60 million was to be provided as IDA credit; US$ 2\.48 million as GEF Trust Fund grant, US$ 0\.66 million as beneficiary contribution, and US$ 1\.67 million as contribution of the Government of Georgia\. At project completion, the total cost is estimated at US$ 13\.03 million, including an estimate of the payments engaged but still to be made during the grace period ending October 30, 2008\. The cost at completion is 105 percent of the appraisal estimate\. More information on the costs at appraisal and at closing is detailed in the below table\. Funding Sources Component 1 Component 2 Component 3 Component 4 IDA 4\.07 2\.76 - 0\.71 Appraisal GEF TF 1\.19 - 1\.29 - estimate Beneficiaries 0\.53 - 0\.13 - GoG 0\.10 1\.38 0\.05 0\.14 IDA 3\.33 3\.71 0\.04 0\.90 Latest GEF TF 0\.89 - 1\.54 0\.05 estimate Beneficiaries 1\.21 - 0\.20 - GoG 0\.06 0\.77 0\.04 0\.30 IDA 82% 134% N/A 126% % of GEF TF 75% - 119% N/A Appraisal Beneficiaries 228% - 154% - GoG 60% 56% 80% 214% Procurement All planned goods, works, and services were procured before the project Closing Date\. The last post review of contracts under ARET project was conducted in shortly before project closing\. Procurement was found to have been conducted in compliance with the provisions of the legal agreements\. 57  Project Administration ARET PTU and CST of the ADPCC remained sufficiently staffed through the project Closing Date\. ADPCC with its CST continues to operate post-project, as it serves several other projects which are yet operational\. Therefore, no administrative issues are expected in relation with the ARET project closeout\. Borrower's Project Completion Report (PCR) of the acceptable quality and content was submitted to the Bank on August 27, 2008\. Leveraged Resources Beneficiary farmers contributed 20 percent of the value of the biogas digesters, amounting to a sum of US$1\.40 million\. f\. Cost-effectiveness Results from the survey showed high levels of satisfaction with the BGD technology that was introduced\. Under and intensive farming model, BGDs provide significant savings as a result of Nitrogen enriched organic fertilizer extracted form the digester\. In addition, the biogas, for households that have no connection to public utilities offers immense benefits for lighting and cooking\. However, in Georgia most houses are connected to the electric grid, the rural population is relatively sparse, and deforestation is not recognized as a significant issue (0\.3 percent over the past 20 years)\. Thus, the actual benefits from energy remain marginal at an estimated US$120\.00 per year, against an investment cost per BGD of between US$2,000 and US$2,500\. Cost effectiveness has also been negatively affected by an increase in unit costs of the installations by some 20 percent to 30 percent with the refinement and adaptation of the design to Georgian conditions\. The value of actual benefits to farmers of BGDs therefore is highly dependent on the farming model and the extent to which alternative sources of cheap energy are available, reaching from estimates of US$120\.00 per year without counting the value of fertilizer, up to US$$480\.00 including the value of fertilizer for the type of BGDs installed under the project\. Assuming an average benefit of around US$200\.00 per year given that most farmers do not practice intensive agriculture, the NPV of the savings realized by a typical BGD such as installed under the project are at US$ -575 and a rate of return of 5 percent when using a discount rate of 12 percent\. However, this figure is highly sensitive to farming model as indicated above\. The more farmers develop and maximize the use of the high value fertilizer from the BGDs, the greater the benefits from BGDs\. As the STAP review of the GEF incremental cost analysis noted, BGDs were in all likelihood not the most effective method to reduce organic pollution from reaching the waters of the Black Sea\. The residue extracted after digestion has increased nitrogen contents, and retains the main nutrient compounds of manure\. Digestion does greatly reduce volumes, which makes storage and management somewhat easier\. Proper manure storage to reduce run-off, does have a beneficial impact on reducing contamination of surface water with nutrients\. Data collected as part of the project shows a clear reduction in nutrient loads in small stream adjoining the project areas\. While this is a positive outcome, the attribution of these impacts directly to the 58  demonstration investments given the lack of control samples in non-project areas of similar biological make up is extremely difficult given that in Georgia mineral fertilizer use and agricultural productivity have significantly dropped over the past 20 years and agriculture has returned to mainly subsistence levels\. Finally, GEF financing assumed that manure of some 75\.600 cattle would be affected by the investments under component\. Given the small size of farms and the 540 manure pads and 292 digesters that have been built in the country, and the limited adoption of the technologies without additional outside financing, this is a highly optimistic figure\. In the project area the average beneficiary farmer owns between 2 and 5 large livestock units, equivalent to approximately 2000 to 2500 heads of cattle or roughly 3 percent of the figures used at project design\. Given the low adoption of improved manure management technology beyond BGDs and manure platforms established under the project, the reduction in water contamination of the Black Sea estimated at design is not likely to be achieved without significant additional external funding\. g\. Monitoring & Evaluation\. Overall, the monitoring and evaluation design of the project is somewhat inconsistent with its objectives\. Two main issues stand out in relation to the design, implementation and utilization of the monitoring and evaluation framework\. First, at project design, the indicators that were chosen measured inputs rather than outputs of the project\. For example, under Component 1, the overall objective was to increase adoption rates of technologies that were introduced under funding through the CGS\. However, the indicators chosen measured the establishment of the CGS, the number of grants administered, and the numbers of farmers receiving grants (inputs)\. Similarly, under Component 2, the objective of rehabilitating the IVHO was that the institute would become more sensitive to the needs of small farmers and would begin providing research and extension services for a domestic market\. However, the indicators chosen to measure implementation progress focused on the adoption of a reform plan and the rehabilitation of the IVHO (inputs) rather than the services provided by a rehabilitated IVHO (outputs)\. Finally, the objective of Component 3 was to reduce pollution to the Black Sea\. However, the indicators measured the number of farms with biogas digesters or manure pits (inputs) rather than the reduction of levels of pollution directly linked to the farms (outputs)\. This issue was recognized at the Mid-Term Review, and, as a result, the monitoring and evaluation indicators were revised to measure project outputs and outcomes as well as to update the figures with a more realistic assessment of projected achievements under the project\. However, these revisions led to the second issue with the monitoring and evaluation framework in that they tended to measure activity outputs rather than the stated outcomes of the project components as set out in the Project Development Objective\. For example, under Component 1, the revised indicator measures the percentage of beneficiary farmers that continue using/benefit from extended technologies\. However, the objective of the project was to create a mechanism for adoption rates among the non-beneficiary population\. While the project states to have achieved 122 59  percent of the target value, the proposed measurement does not capture the intended objectives of the project\. Likewise, under Component 3, the indicator was revised to measure the percentage of beneficiaries that adhere to the manure management practices\. However, the objective of the component as stated in the PAD was to develop a technology for the local conditions that would be demonstrated and adopted\. While anecdotal evidence exists to suggest that the popularity of the biogas digesters, in particular, led to adoption of the technology even after the project closed, the indicator only measures the sustainability of the technology amongst beneficiaries, rather than amongst the non-beneficiary populations\. 60  Attachment 1 Financial Planning: GEF Grant and Co-financing GEF Grant Bank: Government Other* Total Co financing (mill US$) IBRD/IDA (Type/Source) (mill US$) (mill US$) (mill US$) (mill US$) Planned Actual Planned Actual Planned Actual Planned Actual Planned Actual Grants 2\.48 2\.48 2\.48 2\.48 Loans Credits 7\.54 7\.98 7\.54 7\.98 Equity 1\.67 1\.17 1\.67 1\.17 investments In-kind support 0\.13 0\.20 0\.13 0\.20 Other Totals 2\.48 2\.48 7\.54 7\.98 1\.67 1\.17 0\.13 0\.20 11\.82 11\.83 * Other refers to contributions mobilized for the project from other multilateral agencies, bilateral development cooperation agencies, NGOs, the private sector and or beneficiaries\. 61  62

REVIEW

P107851

Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review BI-Finance & Private Sector Development (P107851) Report Number : ICRR0021239 1\. Project Data Project ID Project Name BI-Finance & Private Sector P107851 Development Country Practice Area(Lead) Additional Financing Finance, Competitiveness and P125209 Burundi Innovation L/C/TF Number(s) Closing Date (Original) Total Project Cost (USD) IDA-H5360,IDA-H6590 28-Feb-2014 27,384,800\.00 Bank Approval Date Closing Date (Actual) 22-Dec-2009 31-Jul-2017 IBRD/IDA (USD) Grants (USD) Original Commitment 19,000,000\.00 0\.00 Revised Commitment 23,779,422\.07 0\.00 Actual 22,027,593\.90 0\.00 Prepared by Reviewed by ICR Review Coordinator Group Nestor Ntungwanayo Fernando Manibog Christopher David Nelson IEGFP (Unit 3) 2\. Project Objectives and Components a\. Objectives As per the Financing Agreement (FA) on page 5, "the objective of the project is to strengthen the Recipient’s financial system and improve its business enabling environment"\. The Project Appraisal Document (PAD) states the same objective\. Page 1 of 16  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review BI-Finance & Private Sector Development (P107851) b\. Were the project objectives/key associated outcome targets revised during implementation? No PHEVALUNDERTAKENLBL c\. Will a split evaluation be undertaken? No d\. Components Note: This ICR Review will not apply a split rating methodology to derive the overall project outcome, since the PDO was not changed during the project’s five restructuring events, and the detailed changes mainly involved technical adjustments, and scaling-down of specific activities, including to drop those that required political decisions or involved serious security risks\. The project has four components as detailed below: Component 1: Modernizing the financial sector (US$6\.9 million at appraisal; US$12\.59 million actual): Original project: Key project activities under this component were to: • Strengthen the supervision of commercial banks, financial institutions, and microfinance institutions through the provision of technical advisory services, training and capacity-building activities; • Modernize the Recipient's payment system through the provision of technical advisory services and training, equipment, and capacity-building activities, including: (a) the strengthening of electronic clearing of checks, and direct transfers and bank card payment system, and (b) the acquisition of an electronic clearing system and a Real Time Gross System (RTGS); and • Strengthen nonbanking financial institutions through provision of technical advisory services, equipment and training, operating costs, and capacity-building activities, including strengthening of and support to the operations and administration of the independent Insurance Regulatory and Supervisory Agency of Burundi (ARCA)\. Revised project: May 2011 During this restructuring, the following activities were added: • A revamp of the BRB’s IT infrastructure: This upgrade involved the installation of electro-technical equipment (UPS, cooling, access control) and cables as well as IT and infrastructure services to provide the necessary business services (data center servers, storage, networking, and security equipment meeting international standards\. The renovation also included the selection and installation of a banking application required to support back-office check clearing and Real Time Gross Settlement applications; • The establishment of a SWIFT (Society for Worldwide Interbank Financial Telecommunication) network and security services; • The establishment of a data exchange portal to support all inquiries and updates and uploads/downloads of files for banking, microfinance supervision, and information registries projects, Page 2 of 16  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review BI-Finance & Private Sector Development (P107851) through various communication channels\. Component 2: Improving corporate governance and performance of public enterprises (US$5\.2 million at appraisal; US$3\.1 actual): Original project: Under this component, the project was to support: • the provision of technical advisory services to: (i) prepare and implement measures for the privatization of ONATEL, (ii) prepare a strategy for the privatization of the tea sector and prepare and implement measures to privatize the sugar sector; and (iii) privatize financial institutions and commercial banks; • the preparation and implementation of measures to complete the privatization of several coffee sector washing stations and coffee hulling and processing plants, including strengthening the coffee sector through the provision of technical advisory services; and • the provision of equipment, technical advisory services, and training to strengthen the capacity of the SCEP to oversee processes related to privatizing public enterprises and performing its other mandated functions\. Revised project: May 2011 During this restructuring, the following activities were added: • The computerization of public finance management with the update of the Government-employees database, and support to a specialized unit in the Ministry of Public Administration; (ii) institutional capacity building in procurement at the central and decentralized levels, with training and equipment provided to the central and decentralized procurement units; (iii) the support to internal and external audit institutions; (iv) the strengthening of capacities in the production of national economic statistics; (v) the provision of technical assistance for the development of the Recipient’s new growth and poverty reduction strategy, and (vi) the strengthening of the capacities of the Women’s Association and the Chamber of Commerce, as well as the provision of guarantees by the Women’s Associations\. Revised project: February 2014 During this restructuring, the following changes were incorporated: • The component 2 was significantly downsized, with only a limited number of activities being retained\. These included the strategy for the privatization of the coffee sector and capacity building from the SCEP\. The privatization of ONATEL was made subject to further decisions by the cabinet/parliament\. • The procurement methods were modified and “works” were added in to allow for the renovation of the Civil Court building\. Revised project: October 2015 • Following the political upheaval in April 2015, the project scope was narrowed, and nonessential Page 3 of 16  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review BI-Finance & Private Sector Development (P107851) activities and those subject to political decision were dropped, including the privatization of ONATEL\. Component 3: Streamlining the regulatory environment for business and promoting private-public dialogue (US$4\.4 million at appraisal; US$6\.96 million actual): Original project: Toward improving the business environment, the project was to provide technical assistance to public and private bodies through three streams of activities: • The provision of technical advisory services to (i) prepare draft regulations, review and amend existing laws and regulations, along with the provision of technical advisory services and training, capacity- building programs, and financing of the operating costs to benefit participating Institutions; • The provision of technical advisory services, training, and capacity-building activities to strengthen the accounting profession through establishment of a twinning program to benefit the Professional Accountancy Body; and • The provision of technical advisory services, capacity building, and training to promote private-public dialogue\. Revised project in February 2014 • Component 3 was significantly streamlined, both in terms of activities and beneficiaries\. This was intended to focus on the achievement of results and address the fiduciary issues that had emerged during the restructuring; • Project resources were reallocated among disbursement categories in the original financing agreement and disbursement categories were harmonized between the two grant agreements\. Revised Project in October 2015 • The project scope was narrowed, and nonessential activities or those subject to political decision were dropped, including the rehabilitation of the commercial court building and training of magistrates\. Component 4: Project implementation (US$1\.8 million at appraisal; US$3\.7 million actual): Original project: This component was to fund the cost of all project management tasks,including M&E, financial management and procurement\. Revised project in October 2015 Some of the proceeds were reallocated to adequately complete ongoing activities, while savings were recorded on some contracts that were signed with amounts lower than the projected budget\. e\. Comments on Project Cost, Financing, Borrower Contribution, and Dates Page 4 of 16  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review BI-Finance & Private Sector Development (P107851) Cost: The project cost amounted to US$26\.35 million, or 98 percent of the approved grants amount\. Financing: The project was funded by two IDA grants in the respective amounts of US$19 million and US$8 million equivalent\. Borrower Contribution: The Borrower contribution was estimated at US$1\.0 million at approval, but only US$0\.3 million was disbursed\. Dates: The project was approved on December 22, 2009 and became effective on May 14, 2010\. The project was restructured (level 2) five times: (i) the first restructuring was approved in May 2011, and provided an additional financing, as well as a strategic reorientation of the project to cover the large infrastructure needs of the client, and extended the closing date until October 2015; (ii) the second one was approved in February 2014, and extended the closing date by another 15 months until January 31, 2017\. As the Borrower was going through a crisis, the project scope was narrowed, some proceeds were either reallocated or cancelled, and the result framework was revised; (iii) a third restructuring was approved in October 2015 aimed at cancelling activities that seemed impossible to complete before the closing date, due to worsening security conditions that restricted contractors to travel to the country; (iv) a fourth restructuring was approved in June 2016 to extend the closing date by an additional six months until January 2017; and finally (v) a fifth restructuring took place in January 2017, extending the closing date until July 31, 2017 when the project closed\. 3\. Relevance of Objectives Rationale The project's relevance of objectives is substantial, as they were consistent with the policy priorities of the Borrower and with the key pillars of the successive World Bank's strategies for the country\. The Burundi's Second Poverty Reduction Strategy Paper (2012–15) intended to achieve “the acceleration of the private sector development” (Pillar IV) and “the strengthening of institutional capacity” (Pillar VI)\. A National Strategy for Private Sector Development was also adopted by the Government in 2013, whose goal was to increase enterprises’ share in the economy through both job creation and wealth production\. The three objectives pursued by the strategy were to: (i) improve support for entrepreneurs, (ii) develop an effective institutional and regulatory framework, and (iii) promote Burundi’s integration into the regional and global economy\. Finally, the World Bank Group’s FY13–FY16 Country Assistance Strategy (CAS) emphasized “improving competitiveness by establishing an enabling environment for inclusive growth and poverty reduction” (Pillar III)\. Page 5 of 16  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review BI-Finance & Private Sector Development (P107851) Rating Substantial 4\. Achievement of Objectives (Efficacy) PHEFFICACYTBL Objective 1 Objective Strengthening the Burundi’s financial system Rationale Outputs: Key outputs generated by the project toward the first objective are detailed below: • An electronic transmission system of data from commercial banks to the Central Bank (BRB) that strengthened banking sector supervision was completed; • A core banking system at the Central Bank (BRB) was established in order to: (i) help process daily banking transactions related to deposit, loan and credit processing, and (ii) provide interfaces to general ledger systems and reporting tools; • An on-the-job training to BRB’s supervisors was conducted\. However, an inter-operable national switch was installed but not fully operational\. Three banks (Ecobank, Interbank Burundi, and Banque Commerciale du Burundi) have been testing their operating systems for Automated Teller Machine (ATM) card transactions through the switch\. Outcomes: Key outcomes achieved by the project toward the objective are detailed below: • 100 percent of interbank transactions and BRB securities are settled in automated transmission system (ATS); • The percentage of high-value payments settled within 15 minutes increased from 0 percent in 2011 to 98 percent at the end of 2017, against a target of 90 percent, as a result of the implementation of a comprehensive clearing and settlement infrastructure system\.; • The percentage of insurance companies meeting the minimum solvency ratio increased from 0 percent in 2011 to 83 percent, against a target of 80 percent, at the end of 2017, as a result of the supervisory work performed by ARCA\. • Institutional strengthening was achieved as detailed below: • (i) The Central Bank (BRB): The technical expertise of BRB staff and the staff of participating commercial banks has been enhanced through on-site training, travel studies and seminars\. Two departments were strengthened: (a) first, a new department (the Payment System Unit) was created for the payment system to manage RTGS and ACH transactions and means of payment, (b) second, parallel changes were introduced to the IT infrastructure department, with the creation of a upgraded data center at the BRB in Bujumbura, a back-up center in a BRB agency in Ngozi, and a fully staffed IT department responsible for infrastructure Page 6 of 16  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review BI-Finance & Private Sector Development (P107851) maintenance \. • (ii) The Insurance Regulator and Supervisory Agency (ARCA): The project strengthened and modernized the framework for the regulation and supervision of the insurance sector with the creation of ARCA\. The project significantly improved the capabilities of ARCA’s staff through their participation in seminars and field trips, and upgraded the IT systems to manage administrative, financial, accounting, and manpower issues Rating Substantial PHREVDELTBL PHEFFICACYTBL Objective 2 Objective Improving Burundi’s business enabling environment Rationale Outputs: The following outputs were generated with the project's support: • A privatization law was approved by the Parliament in February 2012; • The Service Chargé des Entreprises Publiques (SCEP) completed legal, financial, and operational audits for ONATEL, and a study with options for ONATEL privatization; • The valuation of the 77 coffee washing stations and the preparation of the coffee sector privatization strategy; • Financial audits were completed for the three public enterprises: ONATOUR, ALM and ECOSAT; • The business code was approved in 2011 and the commercial code was ratified by Parliament in April 2010, amended in January 2015 and disseminated; • The Public Private Partnership Law was drafted; • The mine code was adopted and promulgated; • The automated payment system and a fully integrated electronic securities deposit (CSD) were completed; • The decree that includes private sector representation in the ARCA Commission was revised and approved in January 2014; • A strategy for the third phase of privatization of the coffee washing stations and the coffee processing company was adopted by the Inter-Ministerial Committee for Privatization (CIP); • An independent procurement audit report for 2011 and 2012 was produced and published; • The number of qualified accountants and auditors trained with support from the project reached 38, against a target of 30; and • The target of Government officials and civil servants identified by a biometric record and integrated in the database of the payroll software was exceeded and completed in 2016\. Page 7 of 16  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review BI-Finance & Private Sector Development (P107851) The following output was not achieved: • An autonomous and computerized one-stop-shop for the creation and post creation services for companies was dropped following the political crisis, as the project team refocused attention to a restricted set of activities\. Outcomes: • The privatization of 28 coffee washing stations in 2011, and 13 coffee washing stations in 2009 was completed; • The number of newly registered companies increased from 1,676 in 2013 to 2,274 at the end of 2017, against a target of 2011\. • The number of days to start a business decreased from 32 to 8 days at project closure, against a target of 15 days\. • Institutional strengthening was achieved as detailed below: • The institutional capacity of the SCEP was improved through training on enterprise privatization management, participatory processes to privatization studies and valuations, and financial analysis\. • The Departement Chargé des Affaires Monétaires et Financières (DAMF) within the Ministry of Finance benefitted from technical assistance from the Financial Sector Reform and Strengthening Trust Initiative to develop the 2011-2017 Financial Sector Development Strategy for Burundi\. • The following entities benefitted from institutional and technical support: the Coffee Regulation Authority, the organization regrouping all actors within the coffee sector, the Arbitration Center, the Chamber of Commerce, the Association of Women, and the Ministry of Commerce, Industry and Tourism\. Rating Substantial PHREVDELTBL PHOVRLEFFRATTBL Rationale Performance under the first objective included (i) the completion of a comprehensive clearing and settlement infrastructure system at the Central Bank, which allowed easier settlement of 100 percent of interbank transactions and BRB securities, (ii) the improvement of the supervisory work performed by ARCA which helped more insurance companies to meet the minimum solvency ratio\. Achievements under the second objective allowed an increase in the number of newly registered companies, and a reduction of the days needed to start a business\. Overall, the level of achievements under each objective was significant, and in certain instances (BRB and ARCA), the results achieved were far-reaching\. Page 8 of 16  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review BI-Finance & Private Sector Development (P107851) Overall Efficacy Rating Substantial PHREVISEDTBL 5\. Efficiency Economic efficiency: This is a technical assistance project aimed at institutional and capacity strengthening in the financial and private sector of Burundi\. It was difficult to conduct an economic or financial analysis either at appraisal or at completion\. From a cost effectiveness perspective, there were savings under Component 1 by choosing a more cost- efficient technology in the procurement of the Information and Technology Information System (ITIS) of the BRB core banking system, the ATS/CSD and the card payment system, following a switch in project activities introduced in 2013\. Moreover, the project financed the development of a safe, modern, efficient national payments system in Burundi compared to a cash-based economy at inception\. Due to the project’s contribution, Burundi's business environment improved its Doing Business indicators between 2009 and 2015 from 176th of 183 countries to 152th out of 183 countries, but the political instability negatively impacted Burundi’s ranking, which fell to 164th ranking out of 183 countries in 2018\. Administrative and operational efficiency: The cost of project coordination and implementation went from 9\.5 percent at appraisal to 14 percent at closing, what is slightly higher than the most recent ICRs for IPFs, where the average cost of project management (including Technical Assistance activities) accounts for 13 percent of the total loan\. Moreover, project implementation was not smooth, mainly because of weaknesses in the PIU, and the political context that led to project restructuring many times, and the project was completed about 40 months after the initial closing date\. On average, the project's efficiency is rated as Modest\. Efficiency Rating Modest a\. If available, enter the Economic Rate of Return (ERR) and/or Financial Rate of Return (FRR) at appraisal and the re-estimated value at evaluation: Rate Available? Point value (%) *Coverage/Scope (%) 0 Appraisal 0 Not Applicable 0 ICR Estimate 0 Not Applicable * Refers to percent of total project cost for which ERR/FRR was calculated\. Page 9 of 16  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review BI-Finance & Private Sector Development (P107851) 6\. Outcome The relevance of objectives is substantial, the project's efficacy is substantial, and the project's efficiency is modest\. Overall outcome is moderately satisfactory\. a\. Outcome Rating Moderately Satisfactory 7\. Risk to Development Outcome Key project's achievements were: (i) significant strengthening of the capacity of the BRB so that it can carry out its mandate, (ii) the launching of the privatization of the coffee sector, and (iii) significant improvement in the Burundi's business environment\. While some of the results achieved appear to be long-lasting, the volatility of the economic and political environment poses risks to the sustainability of the results\. Regarding the payment and financial sector, a new lending operation (Digital Burundi-P162246) under preparation aims to leverage the implementation of the payment system infrastructure to support financial inclusion outcomes\. However, financial stability concerns connected to the macro-financial environment could be putting the achievements of the project at some risk\. In the area of privatization of the coffee sector, while the Government’s policy orientation changed, the reform of the coffee sector will continue by implementing the coffee sector strategy through the WB's Burundi Coffee Sector Competitiveness project (P151869)\. Progress in the Burundi's business environment arose from combined efforts of the series of DPOs, IFC technical assistance, and this project\. The Digital Burundi operation intends to pick up from where the project left off regarding the implementation of the business one-stop shop\. The risk to development outcome is mostly elevated in fragile environments, and sustainability of achieved outcome depends on the perspectives of country's political stability\. The results of the recently completed constitutional referendum in Burundi seem to be contested and makes the political outlook even more uncertain\. Overall, the risk to development outcome from this project is elevated, but mostly unknown, as the political future is still unfolding\. 8\. Assessment of Bank Performance a\. Quality-at-Entry The project preparation was underpinned by good analytical work, partly funded by the World Bank's Financial Sector Reform and Strengthening Trust Initiative\. However, the short period of project preparation made it impossible to deepen the analysis of some of the technical components pertaining to payment systems and the privatisation agenda\. For instance, the limited involvement of a payment system expert at appraisal resulted in the need for additional financing shortly after project launch\. The additional financing in the amount of US$8\.0 million was approved in April 2011 and aimed to: (i) modernize the IT Page 10 of 16  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review BI-Finance & Private Sector Development (P107851) infrastructure of the core banking system, and (ii) complete reforms left by a previous project\. The intention to address a wide range of identified needs resulted in an ambitious project scope, as nine institutions were selected to be the main beneficiaries of the project\. A more focused approach in selecting beneficiaries would have made implementation more effective and the project have more impact\. Implementation arrangements inherited from a previous WB project (Projet d'Appui à la gestion économique-PAGE) resulted in a slowed implementation and fiduciary challenges\. While the Ministry of finance and the Ministry of Justice were responsible for reforms related to the integrated financial management information system and commercial legislation respectively, the BRB oversaw the largest components related to the modernization of the payment system and the financial sector\. The PIU did not have the technical capacity to oversee fiduciary and procurement issues of the project and to ensure the coordination among the above institutions, as well as with the technical focal points, the technical committee that had to meet quarterly to assess progress, and a steering committee responsible for national planning\. Finally, the project risks were underestimated, as most of the risks were rated moderate or low, and the political risk was totally missed\. In fact, all identified risks materialized, and the lack of appropriate mitigation measures delayed implementation\. Quality-at-Entry Rating Moderately Unsatisfactory b\. Quality of supervision The PIU structure inherited from a previous project turned out to be understaffed and performed poorly after the project became effective in May 2010\. Shortcomings arising from weak internal and external coordination and irregularities in procurement and financial management led to a very slow project launch\. Limited supervision from the project team failed to identify and address fiduciary issues early on and speed up implementation\. For instance, disbursements based on practices inherited from the previous project were authorized without prior no-objections from the TTL, but results did not materialize\. Despite the Government's overall commitment to the project, its support to the project's privatization agenda component diminished very quickly\. While the privatization in the coffee and the hotel sectors was launched, plans to privatize the banking sector, the tea, sugar and telecommunication companies were totally abandoned\. As a result of the weaknesses in the PIU, and the difficulties to move ahead with the implementation of the key components of the project, more delays in project implementation accumulated\. In the search of a way forward, the project team spent much time in a high-level policy dialogue on key reforms in the project and provided technical assistance to improve capability of the technical committee\. The dialogue was concluded by the identification of key project bottlenecks and the agreement by both parties to conduct a first MTR, and thereafter to restructure the project\. The MTR started in November 2012 and concluded in September 2013, and benefited from the launch of two parallel financial and procurement reviews that identified several procurement shortcomings and uncovered ineligible expenditures to be reimbursed by the Government\. While the Government submitted a proposal in August 2013 to restructure the project, the restructuring was finalized only in February 2014\. Page 11 of 16  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review BI-Finance & Private Sector Development (P107851) During the post restructuring phase (from March 2014 to closing), supervision improved substantially and became more effective, with senior and specialized staff joining the supervision missions\. Global experts in payment systems were added to the project team to improve the quality of supervision\. The team designed and implemented a clear action plan to bring the project on track, while ensuring strict adherence to procurement and financial policies\. During this phase, semiannual field supervision missions were conducted and aide-memoires were filed adequately\. Other limited restructuring operations took place in October 2015, June 2016, and January 2017 to adjust project implementation to ground conditions created by the April 2015 political outbreak\. Four TTLs designed and supervised the project, and despite the lack of continuity, the TTLs and the project team had to be flexible and creative to keep the Borrower engaged and the project on track, as most risks identified in the PAD were underestimated, and the political risk merely overlooked at appraisal\. Quality of Supervision Rating Moderately Satisfactory Overall Bank Performance Rating Moderately Satisfactory 9\. M&E Design, Implementation, & Utilization a\. M&E Design The result framework and monitoring arrangements in Annex 3 of the PAD provide a list of PDO and intermediate indicators, as well as mechanisms to measuring the performance of the project toward the achievement of the project objectives\. In the hindsight, the indicators selected to measure the performance were too high-level and not sufficiently sequenced and realistic\. For instance, the decrease of time to clear checks could only occur after a major upgrade is completed within the entire banking sector, which was beyond the purview of this sole project\. Moreover, implementation arrangements were built on a weak PIU and outdated practices that created challenges toward monitoring and achieving the project's results\. b\. M&E Implementation The initial M&E framework was improved during the project’s first and second level 2 restructurings in 2011 and 2014\. Three PDO indicators were streamlined and made more realistic in 2014, while the fourth one was dropped and not replaced\. A new PDO indicator was identified to measure the enhancement of the business Page 12 of 16  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review BI-Finance & Private Sector Development (P107851) environment, but had some attribution issues\. All nine intermediate indicators were replaced to better capture the results of the project, but project monitoring would have benefited from a limited number of intermediate indicators, given the Borrower's and PIU's weak technical capacity to track their performance\. A review of the ISRs provides a mixed performance of the implementation of the M&E framework\. The initial ISRs stated that the M&E reports were conducted well, included significant details, and were produced regularly and on time\. Stating 2012, the PDO and intermediate indicators were not monitored on an ongoing basis, because the collection of data became an issue, as dialogue with project beneficiaries did not take place\. Starting early 2014, a new M&E framework was developed and a new M&E specialist was hired, and his contribution resulted in improvements in the project’s M&E and associated reporting process\. c\. M&E Utilization The M&E data on project performance and the developments on the ground were the focus of successive TTLs throughout the life project given the implementation challenges on the ground since the outset\. Updated data and evolving information from the field informed the project management and decision making to adjust project implementation with changing conditions on the ground\. M&E Quality Rating Modest 10\. Other Issues a\. Safeguards Environmental and social Safeguards: The project was classified as Category C, because it was to finance technical advisory services with no significant adverse social and environmental impacts, and no safeguards policies were triggered\. b\. Fiduciary Compliance Financial management: Project's financial management performance was rated “Moderately Satisfactory” at the beginning of the project, but was downgraded to “Moderately Unsatisfactory” for most of the remaining period of project implementation for the following reasons: (i) there were major delays in the submission of interim and annual financial statements, (ii) ineligible expenditures were spotted in a 2012 thorough mini review of operating expenditures, (iii) there were inherited practices from a previous project which allowed the disbursement of funds without prior authorization, and this prompted an audit and in-depth financial review which led to tighter oversight of the project's disbursements, (iv) ineligible expenditures were resolved only on June 26, 2015, after the reimbursement by the Borrower of the remaining ineligible expenses amounting to US$99,169\. Thereafter, the financial management rating improved to “Satisfactory” in the final Page 13 of 16  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review BI-Finance & Private Sector Development (P107851) phase of the project\. Procurement: Project implementation was negatively affected by the absence of procurement expertise on the side of the PIU and the Borrower's counterparts\. The PIU and the project counterparts lacked familiarity with WBG procurement procedures, and the PIU's procurement specialist left by the end-2010, then replaced twice in mid-2011, and again in September 2014\. The project had to procure a significant amount of IT-related equipment and consultancy services, and while procurement of such items commenced when the project became effective, delays occurred because of insufficient expertise\. The procurement of major equipment (IT infrastructure for the BRB; ATS/CSD and the core banking system) was relaunched mid-July 2013 after two mis-procurement, which created tensions among the key stakeholders and delays in finalizing negotiations, and the procurement bottlenecks were mostly resolved in 2015\. c\. Unintended impacts (Positive or Negative) The ICR did not indicate any unintended impacts\. d\. Other NA 11\. Ratings Reason for Ratings ICR IEG Disagreements/Comment Moderately Outcome Moderately Satisfactory --- Satisfactory Moderately Bank Performance Moderately Satisfactory --- Satisfactory Quality of M&E Modest Modest --- Quality of ICR Substantial --- 12\. Lessons The lessons learned presented in the ICR were derived from the experience of the project design and implementation, and are summarized and rephrased hereunder: (i) Simplicity and moderate optimism should guide the design of projects in fragile environments: In a fragile context, it is key to be simple and selective in identifying priority objectives and activities\. In hindsight, the project was very complex and wide in scope, and this reduced the pace of implementation and led to repeated restructuring\. The design of operations should be based on careful consideration of potential risks\. The volatility of the political and economic environment in a fragile state need to be considered Page 14 of 16  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review BI-Finance & Private Sector Development (P107851) at the project design stage through the inclusion of mitigation mechanisms to manage adverse circumstances under a number of potential scenarios\. An appropriate risk analysis, taking into account possible adverse scenarios, should accompany the design of operations in fragile country contexts\. The possibility for a scale down of the project should be considered during the design stage, with mechanisms to be triggered if adverse scenarios materialize\. (ii) A reduced project scope might mitigate the fiduciary weaknesses on the ground\. A simplified design may help to address potential fiduciary issues at their source\. A reduction in the number of project components reduces the complexity and increases transparency in implementation and the risks of potential leakages\. As fiduciary issues are difficult to address when they occur, significant efforts are required to monitor the early stages of project implementation to prevent these issues from emerging\. (ii) Continuity and field presence of TTLs are central to generating results in fragile environments: The rotation in project responsibilities disrupts project implementation, entails a steep learning curve, and should be limited and properly planned\. In this case, the second TTL was assigned responsibilities on top of his existing commitments, resulting in poorer supervision outcomes\. Following the February 2014 restructuring, a resident co-TTL was appointed and was also responsible for the implementation of an IFC technical assistance project\. In the future, pairing up an IPF operation with a complementary technical assistance activity could enhance the effectiveness of implementation and build the capacities of the client\. (iii) For a project with highly technical components, it is essential to (a) secure the experts very early, (b) associate them since inception and during supervision, and (c) provide the required management oversight: The involvement of experts at the preparation stage is a cost-effective investment, and may facilitate quicker project implementation at later stages and help to avoid restructuring\. In this case, there was no payment system specialist at design, and a fulltime payment system expert joined the team only later in 2014\. Moreover, effective supervision requires significant technical expertise, and the project team should identify the necessary resources to leverage experts during project implementation from the project side and from the WBG side\. Finally, the successful implementation of IT solutions depends in equal measure on the technical competence of the providers and the quality of project management, and the latter needs to be factored into the project design\. (iv) More efforts should be invested in the preparation of economic analysis at inception to determine whether the project represented the expected least-cost solution to attain identified and measurable benefits\. The WBG has had enough experience in implementing payment systems reforms in both Middle and Low Income (including fragile states) Countries by setting up payment system infrastructures to benchmark the cost per unit per output \. 13\. Assessment Recommended? No 14\. Comments on Quality of ICR Page 15 of 16  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review BI-Finance & Private Sector Development (P107851) The ICR is well written and comprehensive\. It provides a consistent assessment covering the context of project design and implementation, and the progress made toward the project's expected outcome and objectives\. The key factors underpinning the project preparation and implementation were particularly well spelled out\. The performance ratings were in general justified and consistent with OPCS guidelines, and lessons were derived from the project's design and implementation experience\. Aspects that could have been improved include: (i) two annexes that were filled out incorrectly: Annex 1-B: Key outputs by components, and Annex 3: Project Cost by component, and (ii) the rating of efficiency using the wrong scale\. The efficiency rating was corrected, and the annexes provided upon request\. a\. Quality of ICR Rating Substantial Page 16 of 16

REVIEW

P105122

Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review JM Rural Economic Development Initiative (P105122) Report Number : ICRR0021144 1\. Project Data Project ID Project Name P105122 JM Rural Economic Development Initiative Country Practice Area(Lead) Jamaica Agriculture L/C/TF Number(s) Closing Date (Original) Total Project Cost (USD) IBRD-77690 31-Jul-2016 17,500,000\.00 Bank Approval Date Closing Date (Actual) 03-Sep-2009 31-Jul-2017 IBRD/IDA (USD) Grants (USD) Original Commitment 15,000,000\.00 0\.00 Revised Commitment 14,732,354\.81 0\.00 Actual 14,732,354\.81 0\.00 Prepared by Reviewed by ICR Review Coordinator Group Francesco Cuomo J\. W\. van Holst Christopher David Nelson IEGSD (Unit 4) Pellekaan 2\. Project Objectives and Components a\. Objectives The project development objective (PDO) for the Rural Economic Development Initiative (REDI) in Jamaica was "to improve market access for micro and small-scale rural agricultural producers and tourism product and service providers", as stated in the Loan Agreement (page 6)\. b\. Were the project objectives/key associated outcome targets revised during implementation? Page 1 of 18  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review JM Rural Economic Development Initiative (P105122) No PHEVALUNDERTAKENLBL c\. Will a split evaluation be undertaken? No d\. Components Component 1: Rural Subprojects in Agriculture and Rural Tourism (appraisal cost: US$14\.18 million, actual cost: US$13\.61 million)\. The component financed two types of subprojects, namely to support revenue generating activities in agriculture and tourism (Type A), and to provide critical infrastructure, marketing and management support services in the agriculture and tourism sectors (Type B)\. Component 2: National Technical Assistance and Capacity Building (appraisal cost: US$1\.25 million, actual cost: US$0\.69 million)\. The PAD anticipated that there would be 12 capacity building interventions designed to improve the capabilities of key national institutions responsible for assisting rural enterprises\. The reason for the 45% reduction in cost (US$560,000) was not explained in the ICR, although US$400,000 were reallocated from this component to project management (component 3) in 2015\. Component 3: Project Management (appraisal cost: US$2\.03 million, actual cost: US$2\.26 million)\. The reasons for the increased cost were not explained in the ICR\. The objective of this component was to finance project management, technical expertise, annual audits and other project operating costs\. The reasons for the increase was unclear\. e\. Comments on Project Cost, Financing, Borrower Contribution, and Dates Project cost: At appraisal the project was estimated to cost US$17\.5 million, while at project close the actual total cost was US$16\.6 million\. The reason for this 5% decrease was not explained in the ICR\. Financing: At appraisal, the World Bank was expected to finance US$15 million of the total estimated project cost of US$17\.5 million (86%)\. At project close, after a small restructuring, the World Bank had financed US$14\.7 million (89% of actual total project cost) and beneficiaries financed US$0\.96 million (6% of total project cost), which was 48% of the appraisal estimate of US$2 million\. Borrower Contribution: The Government of Jamaica was expected to finance US$0\.5 million (3% of total project cost at appraisal)\. At project close, the Government of Jamaica financed US$0\.9 million (5% of total project cost at the project's close)\. Dates: The project was approved on September 3, 2009, and was expected to close on July 31, 2016\. The actual closing date was July 31, 2017\. The project was restructured twice, in 2015 and 2016\. Changes concerned PDO indicators, reallocation of funds and an extension of project closing date as requested by the Government of Jamaica to "complete its investments into agriculture and tourism sub- projects, and a reallocation of proceeds to ensure proper resources for project management during the additional period\." (Project Paper, Summary of Changes) Restructuring: Two level 2 restructurings were approved in September 2015 and July 2016\. The first restructuring reallocated US$400,000 from component 2 to component 3 to strengthen the Project Implementing Unit (PIU) in the implementation agency, including the hiring of a Community Tourism Specialist, a Monitoring & Evaluation Specialist, an international consultant to assist with the preparation of Business Plans, and a Site Supervisor\. This restructuring also revised PDO outcome indicators 2 and Page 2 of 18  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review JM Rural Economic Development Initiative (P105122) 3 to better capture sustainability in time (PDO indicator 2) and access to markets (PDO indicator 3)\. The second restructuring extended the project's life by one year, from July 2016 to July 2017, as per Government request and involved a reallocation of funds (US$350,000) from component 1 to component 3 to ensure appropriate staffing in the PIU (Restructuring Paper 2015, pages 5-7, Restructuring Paper 2016, pages 5-6)\. The revision of indicators in the first restructuring resulted in no material change in the level of ambition expected\. Therefore the project’s restructuring did not trigger a split rating\. 3\. Relevance of Objectives Rationale Relevance of objective at approval\. The project objective was highly relevant to the country strategy at approval\. Accelerating inclusive economic growth and improving human development and opportunity were two of the three pillars of the 2005 World Bank country assistance strategy (CAS)\. Specifically, the CAS identified "improving rural roads and irrigation infrastructure, storage, brokering commercial partnerships between merchants, hotel chains or agro-processors and farmer associations, contract farming and other contractual relationships that add rural value and increase competitiveness" as key elements of the Government rural strategy, and points out how at the time linkages in the tourism sector and rural areas were not fully exploited (CAS 2005, para 88)\. At the same time, the Government’s medium-term policy framework also referred to agriculture and tourism as two key sectors that would contribute to environmental sustainability, and identified inappropriate agricultural practices as generators of "negative impacts including deforestation, soil erosion, pollution, and dwindling marine resources", while inappropriate management of solid and liquid waste was identified as the cause of environmental degradation and a challenge to the development of the tourism sector, due to flooding and pollution of beaches (CAS 2005, para 64)\. Relevance of objective at project end\. The project was highly relevant to the National Development Plan (Vision 2030), in which the government outlines its plan for agricultural transformation to invest in rural communities, create strong linkages with other sectors and emphatically repositions the sector in the national economy to focus on production of high value commodities "through a sustained, research oriented, technological, market driven and private sector-led revolution" and its tourism priorities to "achieve greater inclusiveness to counter the development of tourism as an enclave industry and to widen the share of benefits derived from the industry by local residents and communities" (Vision 2030, pages 204, 230)\. While a new World Bank Country Partnership Strategy for the FY18-FY21 period is not available yet, the project objective remained highly relevant to the last CPS for FY14-FY17\. Sustainable and inclusive growth were the two main overarching goals of the CPS\. Specifically, the project objective was highly relevant to achieve "Enhanced technological adoption, improved skills mix, and fostered investments in high potential sectors" under pillar 2 Enabling Environment for Private Sector Growth (CPS FY14-FY17, para 44)\. Weak business environment, limited technological innovation and inadequate skills supply impede competitiveness and business expansion were identified in the last CPS (FY14-FY17) as major challenges, and the WBG strategy focused on improving the enabling environment, with particular Page 3 of 18  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review JM Rural Economic Development Initiative (P105122) attention to "industry level interventions aimed at removing gaps in the value chain" (CPS FY14-17, para 53)\. Analytical work conducted by the Bank identified tourism, agribusiness and logistics (amongst others) as potential sources of increased competitiveness, jobs, and growth in Jamaica (CPS FY14-17, para 53)\. Conclusion: Relevance of objectives is rated high given that the development objective was clearly highly relevant to the Bank and national development strategies at project approval and when it closed, addressing market access in two high potential sectors identified as key sources of economic growth and competitiveness\. Rating High 4\. Achievement of Objectives (Efficacy) PHEFFICACYTBL Objective 1 Objective To improve market access for micro and small-scale rural agricultural producers Rationale Constraints to the analysis of efficacy of this objective • While the ICR provided information on some project achievements, much more information was provided in the "Rural Economic Development Initiative Final Evaluation Report" (independent report prepared by an external consultant firm) which pre-dated the ICR but was only explicitly referred to in Annex 6 of the ICR\. • This objective refers to market access for micro and small-scale rural agricultural producers, which were not the units of account used to measure the project results\. The units of account for measuring results were rural enterprises, whose members were micro and small-scale rural agricultural producers\. • This Review therefore cannot assess or validate the achievement of this objective on the basis of information in the ICR\. Outputs • 63 rural agricultural enterprises were established and corresponded to 4,617 micro and small-scale rural agricultural producers (ICR, Annex 4, Table 1)\. • The project financed investments to improve the supply chain (including greenhouses, drip irrigation etc\.) to help rural enterprises produce potentially marketable products\. • 56 agriculture infrastructure subprojects were financed, which directly benefitted 4,617 farmers (members of the rural enterprises)\. Specifically, the project assisted 40 enterprises to finance the construction of farming/production infrastructure, and 16 agro-processing centers\. The production infrastructure subprojects included 20 greenhouses, 9 drip-irrigation subprojects, 4 ginger shade Page 4 of 18  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review JM Rural Economic Development Initiative (P105122) houses and 4 subprojects which focused on capacity building/provision of equipment (REDI Final Evaluation Report , page 24)\. • 58 enterprises were upgraded to satisfactory environmental standards and industry operations (145% of revised target, 116% of original target) (ICR, Intermediate Results Indicator 1\.6)\. Compliance with environmental standards was a key issue for local produce to replace imports and accessing new markets, such as hotels and supermarkets (ICR\. para 47)\. • The project also financed 11 technical assistance programs (including trainings) in agriculture and 7 in agriculture and tourism\. The trainings within the technical assistance were conducted by consulting companies (REDI Final Evaluation Report, page 38)\. • Eight of the 11 agriculture sector TA sub-projects supported additional infrastructure or capacity building to various sector areas, such as enhancing food safety in ginger shade house sub-projects, capacity building of Jamaica Exporters Association to facilitate marketing for farmers, capacity building and equipping of the Ministry of Industry, Commerce, Agriculture and Fisheries (MICAF) specifically on enhancing the fish cold chain supply and food safety, infrastructure to facilitate National Food Safety Compliance for the export market (pilot project), equipping National Irrigation Council, upgrading of pig rearing sub-projects with bio-digesters, and equipment for seven Rural Agricultural Development Authority (RADA) agro-processing facilities (REDI Final Evaluation Report, page 37)\. • Four sub-projects supported organizational strengthening and enterprise development, such as business development plans, mentoring and the preparation of monitoring reports\. • The project also provided capacity building to several national organizations, including industry associations and the Rural Agricultural Development Authority, to provide ongoing technical assistance to rural enterprises after subproject completion and, thus, continue supporting linkages between rural enterprises with local tourism industry operators (i\.e\. hotels) • Food safety and good agricultural practices trainings were provided to 160 staff of the Ministry of Industry, Commerce, Agriculture and Fisheries and the Ministry of Finance as well as to 200 exporters and agro-processors in order to ensure access to the international markets following the US Food and Drug Administration 2012 Food Safety Modernization Act (REDI Final Evaluation Report, page 44)\. • The trainings financed by the project led to the Rural Agricultural Development Authority (RADA) extension officers reaching 98 extension areas around the country and about 5,000 farmers by 2015 (REDI Final Evaluation Report, page 44)\. • A survey was performed to understand the impact of capacity building activities and disseminated to 35 key stakeholders in these organizations, and results show that respondents were satisfied with the quality and topic of the assistance provided (REDI Final Evaluation Report, page 57-58)\. Outcomes • As discussed, the achievement of the focal elements of the PDO cannot be assessed directly because there was no information in the ICR on the distribution of the benefits to individual micro and small-scale rural agricultural producers arising from the improved market access of enterprises\. According to the Bank's project team, the matter of distribution of profits is essentially internal to the rural enterprises\. If profits were not distributed (as a “dividend”) it remained in the enterprise as an asset\. The project team Page 5 of 18  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review JM Rural Economic Development Initiative (P105122) reported that individual farmers contributed 30% of their income to help sustain enterprise operations, which implies a redistribution of 70 percent of the partnership profit margin to members (micro and small- scale rural agricultural producers)\. • Results from a beneficiary survey conducted through site visits during the preparation of the REDI Final Evaluation Report showed overwhelming perception that the project was beneficial to the respondents and their household (91%, n=68), as well as relevant to the community (93%, n=68) (REDI Final Evaluation Report, Annex 8, page 15-16)\. The survey was administered to 70 individuals in 26 site visits\. 84% of respondents (59) were part of agricultural rural enterprises and 16% (11) in tourism producer groups\. • The following questions were asked in the beneficiary survey: (a) opinion on the REDI application process; (b) satisfaction with the time taken to approve your application (request for funding); (c) satisfaction with the time taken to disburse the funds approved to your sub-project; (d) views on the REDI programme reporting process; (e) satisfaction working with REDI programme staff; (f) benefits to you/your family; (g) relevance of the project to the community; (h) overall, satisfaction with the REDI programme/sub-project\. • The achieved levels of increased revenue and production were generated by the project financed investments and technical assistance, which supported the production of new products and linkages to new markets (REDI Independent End-of-Project Evaluation Report, page 26-27; ICR, PDO Indicator 3)\. • The three major purveyors - the Glastonbury Purveyor Co, Al Golaub and Sons (the largest purveyor in the country), and Everything Fresh Ltd\. - purchase REDI produce that in turn is sold to large hotels/resorts through bi-monthly or tri-monthly auctions\. Investments in infrastructure and assistance in linking with new markets was instrumental to achieve this results\. (REDI Final Evaluation Report, page 38) • Improved production technologies (e\.g\. greenhouses and drip irrigation) resulted in increased crop diversification, which facilitated linking rural enterprises to the demands of new buyers (i\.e\. Jamaican ginger) (REDI End-of-Project Evaluation Report, 29)\. • In addition, while a full evaluation of trainings wasn't performed, a survey of participants in the training activities found that participants believed participation in the training resulted in changes in practices (89%), improved provision of business services (86%) and reach to clients (73%)\. Response rate was 50% (17 out of 35), and although the responses were from eight organizations, more than 50% of the responses were from RADA and Scientific Research Council(REDI Final Evaluation Report, page 57-58)\. Conclusion: The evidence regarding outcomes is focused on rural enterprises as unit of account but the distributional benefits from increased market access to micro and small-scale rural agricultural producers were not tracked\. There is, however, considerable evidence that the project contributed to improved market access for rural enterprises and that the benefits arising from improved market access of rural enterprises were distributed to some extent to individual micro and small-scale rural agricultural producers, namely members of rural enterprises\. Rating Substantial PHREVDELTBL Page 6 of 18  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review JM Rural Economic Development Initiative (P105122) PHEFFICACYTBL Objective 2 Objective To improve market access for tourism product and service providers in Jamaica Rationale Outputs • There were eleven subprojects which were selected for implementation, of two types: nature tourism and culture/arts and crafts\. • 11 subprojects were initially selected and designed to finance the construction of public bathrooms, collection and out of view disposal of solid waste, construction of simple craft markets, equipment for satellite based internet access, trail development, signage, rehabilitation of public attraction (ICR, para 24, annex 4 table 1)\. • According to the REDI Final Evaluation Report, the Project Implementation Unit revisited all the initial sub-projects and decided to focus its effort on only 7 Community Tourist Enterprises (CTEs) of the initially 11 identified (REDI, Final Evaluation Report, page 35)\. The project also provided training on tour guiding, coxswain training, community tourism awareness, as well as first aid and CPR\. • 1,572 beneficiaries benefitted from training in community tourism and 218 benefitted from a mix of training in agriculture and tourism (ICR, annex 4, table 1)\. • Through technical assistance, the project supported the development of policies to integrate community tourism into Jamaica’s “traditional” tourism sector\. • The National Community Tourism Policy & Strategy, a community toolkit, a community tourism portal and new Jamaica Community Experiences brand and logo were developed (ICR, para 29)\. • REDI supported the Ministry of Tourism to conduct a Tourism Demand Study • The project also helped establish the Jamaica Community Experiences brand, as well as a development of community tourism portal (www\.moretojamaica\.com), where five Community Tourist Enterprises and their services are promoted\. Outcomes • All sub-projects are currently operating at below capacity or not yet operational (REDI Final Evaluation Report, page 35)\. The REDI final evaluation report states that there were "progressive increases in tourist traffic which lead to increased income (although not to self-sustainable levels)\." • With the support of REDI, two tourism enterprises were linked with two downstream buyers\. Treasure Beach Women’s Group was able to enter into an agreement with the Sandals Foundation and sell its flagship product, a starlight candle holder (REDI Final Evaluation Report, page 36)\. The Rastafari Indigenous Village (RIV) was linked with cruise ship tour operators, however RIV is currently operating at sub-optimal levels due to issues in implementing the business plan (REDI Final Evaluation Report, page 35)\. • All community tourism enterprises still lacked adequate promotion/arrangements with hotels and Page 7 of 18  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review JM Rural Economic Development Initiative (P105122) cruise ship operators (REDI Final Evaluation Report, page 37)\. Conclusion: The available evidence relevant to this sub-objective does not support the claim in the ICR of substantial achievements in terms of improved market access\. The extent to which this sub objective was achieved is therefore rated Modest\. Rating Modest PHREVDELTBL PHOVRLEFFRATTBL Rationale Assessment of overall efficacy: • The discussion above addressed achievements by sectors separately, but the ICR does provide an aggregate assessment of achievement\. It reports that, as a result of the project, 86 rural enterprises or producer groups have accessed new markets (110% of target) and 64 enterprises offered new or improved products and services (160% of target) (ICR, PDO Indicator 3; ICR, Intermediate Results Indicator Component 1)\. • This assessment has focused on agricultural enterprises, which represent 85% of subprojects\. Based on information from the beneficiary survey and the Bank's project team, the project (through the rural enterprises) indirectly improved the market access of micro and small-scale rural agricultural producers\. Therefore, despite a modest achievement on improving market access for tourism product and service providers because subprojects were operating below capacity, the overall efficacy of the project is rated Substantial\. Overall Efficacy Rating Substantial 5\. Efficiency To evaluate the efficiency of this project, one needs to consider what aspects of project activities were amenable to an evaluation of efficiency\. There were four elements: the efficiency by which the subprojects that received financial support were identified, the efficiency with which rural enterprises used the received funding, the efficiency of the training component, and the overall administrative efficiency of the project\. Efficiency of the processing and implementation of subprojects\. The selection and implementation of subprojects were not performed efficiently compared to expectations at appraisal: • It should be noted that, according to the ICR, more complex and expensive projects to support critical infrastructure were financed compared to the original design, but the overall number of subprojects financed was reduced during the 2015 restructuring (ICR, paras 22-24)\. The decision to focus on more Page 8 of 18  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review JM Rural Economic Development Initiative (P105122) complex projects was driven by higher performance of these projects observed during Mid Term Review, and this affected the eligibility criteria for the third call for proposals, which selected 45 subprojects out of 97 total\. • The selection process was lengthy and much slower compared to expectations at appraisal, due to unexpected inadequate performance by the consulting firms hired to assist rural enterprises with their business plan submission, small size of the JSIF team (with only 4 full time staffers), implementation delays (i\.e\. land leases) and more complex projects (REDI Final Evaluation Report, page 12)\. • A total of 546 applications were received over three calls for proposals, mostly for agricultural sub- projects (74%)\. 446 applications were rejected, 5 were ineligible, and 97 were approved (REDI Final Evaluation Report, page 10)\. In the operating manual, the processing time from application to approval was expected to take between 4 to 6 months at design; the timeframe for implementation was not to exceed 12 months\. Instead, on average, the time to have an application considered and approved took ~10 months (between 1\.5 and 2 times expected duration) and implementation took ~24 months (twice the expected duration) (REDI Final Evaluation Report, page 11-12)\. Efficiency with which rural enterprises used the funding\. While rural enterprises arguably used the funding efficiently, the use of funds was only as a proxy for the efficiency with which micro and small-scale rural agricultural producers (the focus of the project) used the funding\. The ICR does not consider the counterfactual which would assess the benefits of improved market access to micro and small-scale producers that did not become member of rural enterprises\. • The ICR considered a sample of 12 projects to evaluate the financial returns of the investment project portfolio (12%), after excluding the technical assistance subprojects as well as two investment projects considered outliers because their rates of return were considered exceedingly high\. This sample was not randomly selected but chosen as “representative”\. It was also chosen to represent both older and newer projects, including the seven main types of subprojects and highlighting tourism and agriculture according to their weight in the portfolio (10 agriculture and 2 tourism subprojects)\. The Bank's project team explained that random selection would not have been possible due to different implementation status and sector of the rural enterprises\. While this strategy is acceptable, it is unclear to IEG why random selection could not have been performed with stratification according to implementation status and sector\. • Of these twelve projects, at the time of the ICR, three projects were either operating at a loss or with internal rates of return (IRR) below 4%, two had an IRR between 5% and 9% and seven are operating at or above capacity (returns of 10% or above) (ICR, para 33)\. Best performing projects were honey-bottling project, the vegetables marketing cooperative, and the cocoa drying enterprise (ICR, Annex 4 para 10)\. Efficiency of training programs\. The evidence for the quality and efficiency training and capacity building programs is weak as an evaluation of these trainings was not performed\. Despite missing an evaluation, the project tried to show efficiency in trainings through two means: indicators in the ICR, and a survey of key stakeholders among producers organizations, public and research organizations that received these trainings\. • The survey of 35 key stakeholders who received technical assistance trainings under component 2 reported by the REDI Final Evaluation Report (50% response rate), provided partial insight on these Page 9 of 18  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review JM Rural Economic Development Initiative (P105122) trainings\. According to participants in the survey, the capacity building provided under the project has resulted in changes of practices (89%), improved provision of business services (86%) and higher reach to clients (73%)\. In addition, participants believed the trainings were well designed (94%), useful in the topics covered (100%), of appropriate level of quality (93%), and contributed to increases in knowledge (87%) and skills (74%), and 82% of participants stated that they applied the knowledge and skills gained from the assistance provided (REDI Final Evaluation Report, pages 57-58)\. Administrative efficiency\. The project had high administrative costs\. They increased from US$2\.03 million at appraisal to US$2\.26 million at closing (11% of actual total project costs) driven by the extension of the closing date\. There was a 1-year delay in the project due to unexpected challenges in a new approach covering two sectors (ICR, para 16)\. According to the project team this delay was due to unexpected lack of capacity in the implementing agency (JSIF), which had to build capacity for an unfamiliar project type delivery in two sectors (Agriculture and Tourism)\. Conclusion: While rural enterprises used the funds efficiently, the process to select subprojects was weak, a formal analysis of efficiency of trainings was not performed and the project incurred high administration costs (above 10% of actual total project cost)\. The efficiency of rural enterprises is not fully relevant to the project development objective\. in addition, there was no consideration in the ICR of the counterfactual, namely the market access achieved by micro and small-scale agricultural producers who did not become members of rural enterprises\. On balance, the project's efficiency is therefore rated Modest\. Efficiency Rating Modest a\. If available, enter the Economic Rate of Return (ERR) and/or Financial Rate of Return (FRR) at appraisal and the re-estimated value at evaluation: Rate Available? Point value (%) *Coverage/Scope (%) 0 Appraisal  39\.00 Not Applicable 0 ICR Estimate  13\.85 Not Applicable * Refers to percent of total project cost for which ERR/FRR was calculated\. 6\. Outcome Considering the project's high relevance of objectives, substantial efficacy (because of the substantive achievements of rural enterprises in improving market access for their members) and modest efficiency (driven by scarce and mixed evidence of an efficient achievement of the project's outcome), the project's overall outcome is rated Moderately Satisfactory\. Page 10 of 18  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review JM Rural Economic Development Initiative (P105122) a\. Outcome Rating Moderately Satisfactory 7\. Risk to Development Outcome High Risk to Development Outcome\. As the ICR points out, there is a high risk to development outcome, which is dependent on (a) how will rural enterprises be able to maintain their market access and (b) how the government agencies will be able to support new rural enterprises to upgrade their standards and enter new markets (ICR, para 63)\. PDO Indicator 2 (number of participating rural enterprises functioning as legally registered entities one year after they started operations) was an effort to track sustainability for the sub- investments\. This Review considers there were two problems with it: (a) one year is too short a time period to really understand whether enterprises that were established with the support of this project would be able to maintain them after project close; and (b) while this indicator achieved its revised target (53 enterprises at project end against a revised target of 44), it did not achieve its initial target of 56 enterprises being active after one year of operations\. The ICR provided no logical rationale for the revision of the target to 44\. It is also clear that the emphasis in this analysis of risk to development outcome is solely on the rural enterprises\. Risk mitigation activities\. While in the ICR, there is no mention of risk mitigation activities to ensure sustainability for the rural enterprises of improved market access after project close, the Bank project team advised that "The project design’s focus on the enterprises (rather than on individual farmers) was considered a risk mitigating feature"\. A follow--up project with the Government of Jamaica is currently envisaged to further improve its ability in this new area of working with the private sector for the JSIF and other government entities that participated in the project\. This was also confirmed to IEG by the Bank's project team, which stated that, based on discussions held on a second phase, it will focus on addressing sustainability through more capacity building at the level of the JSIF and other national institutions (e\.g\. RADA)\. 8\. Assessment of Bank Performance a\. Quality-at-Entry Project Design • The results framework presented considerable shortcomings as it did not address how financial gains by rural enterprises would benefit micro and small-scale rural agricultural producers, as evidenced in Section 4, Objective 1\. The core weakness was that project activities and outputs were not linked to the PDO\. • While the plan to finance rural enterprises was intended to improve the supply chains and the ability of rural enterprises to enter new markets either through standards upgrading or new products was sound, it was not relevant to the project development objective because how potential financial gains achieved by Page 11 of 18  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review JM Rural Economic Development Initiative (P105122) rural enterprises would trickle down to micro and small-scale rural agricultural producers was not explained\. • The project financed a full-time M&E Officer to strengthen JSIF’s regular M&E staffing, and this led to improved M&E capability within JSIF to address potential issues in JSIF's limited M&E capacity, which revolved around routine monitoring of ongoing project activities and outputs (ICR, para 49; PAD, para 48)\. • The PAD included and addressed several lessons learned from other, similar projects financed by the Bank and its development partners (PAD, para 32)\. M&E design • As a consequence of the shortcomings in the results framework, the M&E was designed using rural enterprises as unit of account, and measured financial benefits to rural enterprises\. As already discussed, this was not relevant to the PDO, which explicitly refers to micro and small-scale rural agricultural producers as the project beneficiaries\. • The PDO and intermediate indicators reported in the ICR did not provide enough details to link outputs to outcomes, even in the case of rural enterprises\. This issue was resolved by the REDI Final Evaluation Report which does provide adequate evidence\. Mitigation of risk to development outcomes • There were no clear risk mitigation activities to address the strong risk to development outcome of how (a) rural enterprises and micro and small-scale rural agricultural producers would maintain their market access; and (b) how the government agencies would be able to support new rural enterprises to upgrade their standards and enter new markets after the Bank financing ceases\. • According to the Bank project team, "the project design’s focus on the enterprises (rather than on individual farmers) was considered a risk mitigating feature” of the project\. Other issues: • The project was highly relevant to Bank and Government strategies, and remained relevant at project close\. • Weak buy-in of stakeholder agencies other than JSIF (Ministry of Tourism and Ministry of Agriculture) and procedural misalignment was not foreseen\. A better allocation of time and strategy to achieve these stakeholder agencies buy-in could have been imagined (ICR, Annex 5, page 47)\. • According to the ICR, too many small contracts coupled with a fragmented procurement strategy represented a heavy workload for the implementing agency (ICR, para 56)\. Conclusion: There were considerable shortcomings in the project's quality at entry because (a) project activities and outputs were linked in the results framework to strengthening rural enterprises rather than to the achievement of the PDO, namely improving market access for micro and small-scale rural agricultural producers, (b) M&E used PDO indicators focused on rural enterprises and did not measure benefits arising from improved market access to micro and small-scale rural agricultural producers, and (c) risk mitigation activities were inadequate to address the risk of how micro and small-scale rural agricultural producers would Page 12 of 18  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review JM Rural Economic Development Initiative (P105122) maintain their improved market access in the future without support from the project\. Therefore, Quality at Entry is rated Moderately Unsatisfactory\. Quality-at-Entry Rating Moderately Unsatisfactory b\. Quality of supervision • The Bank's project team failed to resolve the irrelevance of the results matrix and M&E design to the project development objective; nor did it consult with the Government during supervision on the need to amend the PDO to align it with the existing results matrix\. • With the Bank’s support, JSIF was able to make various structural changes required to involve the private sector, both on the demand and supply sides\. • The Bank team had observed that sub-projects that received only limited TA tended to have a lower survival rate or limited improvement in market access\. This led to JSIF systematically contracting the service of specialized technical assistance providers which in turn led to subprojects with clearer vision and sustainability plans, and stronger contractual arrangements with wholesalers\. • More project funds for rural agricultural enterprises were allocated to Type B projects when they proved to be more successful • Training provided by World Bank staff on Financial Management (FM) issues such as the use of International Financial Reporting Standards\. Effective financial management arrangements and financial reporting on the subprojects meant that JSIF was able to provide timely reports as well as timely external audits (ICR, para 57)\. Conclusion: Despite the Bank's inaction vis a vis the Government on the lack of alignment between the PDO to the results framework, supervision missions by the Bank made positive contributions to project implementation and the quality of supervision is therefore rated Moderately Satisfactory\. Quality of Supervision Rating Moderately Satisfactory Overall Bank Performance Rating Moderately Satisfactory 9\. M&E Design, Implementation, & Utilization a\. M&E Design According to the PAD, JSIF was responsible for collecting baseline data as well as keeping track of progress made in the Project and updating information on indicators (PAD, para 47-48)\. At project end, JSIF and grant recipients were to conduct a final evaluation of subproject design and implementation, an external independent mid-term review and final review to assess achievement of the PDO (PAD, para 52)\. The mid-term review was Page 13 of 18  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review JM Rural Economic Development Initiative (P105122) to be conducted at the end of the second year of implementation by an external consultant (PAD, Annex 3 para 6)\. The same arrangement was envisaged for the final evaluation, which was expected to "focus on the same issues as the midterm evaluation, as well as it will examine impact and sustainability of results and provide recommendations for follow up activities" (PAD, Annex 3 para 7)\. This Review has highlighted the following issues with the design of M&E for this project: • The M&E design was not relevant to the project development objective as it focused on the achievements of rural enterprises, and not on the micro and small-scale rural agricultural producers who were the intended beneficiaries of the project\. Secondly, it did not show how the financial benefits stemming from the achievements of rural enterprises would have benefitted individual micro and small-scale rural agricultural producers\. • Even though the project's design to establish rural enterprises was well thought through and the respective indicators were outcome oriented, the M&E framework suffered from being too aggregated and did not show how project activities supported rural enterprises in achieving the reported outcomes\. In fact, the project did not plan to collect disaggregated outputs and outcomes by rural enterprise sector (agriculture vs\. tourism), products through which rural enterprises achieved increased market access nor investment financed (i\.e\. cold storage)\. • Although the project focused on rural enterprises, the monitoring system reported on direct beneficiaries (such as farmers) and indirect beneficiaries\. It was unclear from the results framework how direct and indirect beneficiaries were counted\. Interviews with the Bank's project team clarified that direct beneficiaries were members of the rural enterprises\. b\. M&E Implementation M&E was implemented by JSIF as planned at the design stage (ICR, para 49)\. Beneficiaries themselves reported on business performance through a data collection liaison appointed by rural enterprises and a Monitoring and Evaluation Specialist from JSIF maintained communication with the groups’ data collection liaison and other members of the leadership team (ICR, para 49-50)\. M&E reports were prepared bimonthly, covering key aspects such as milestone achieved and difficulties, and the project management team issued reports to the World Bank and JSIF every six months (ICR, para 50)\. According to design, at the end of project, JSIF and grant recipients carried out a final evaluation of subproject design and implementation to document lessons learned for future subprojects and external independent final review was also conducted according to design (ICR, para 51)\. The main shortcoming of M&E implementation was that, despite two restructurings, indicators were not amended to focus on the achievements (improved market access) of micro and small-scale rural agricultural producers, and therefore the recorded results were not relevant to the project development objective\. c\. M&E Utilization According to the ICR, the M&E system was used to inform various changes in JSIF’s original cumbersome processes and to restructure the project after mid-term review by the Bank's team (changing the share of type A and B project, shifting some of component 1 and component 2 fund allocations to component 3, and Page 14 of 18  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review JM Rural Economic Development Initiative (P105122) the extension of the closing date (ICR, para 52)\. M&E Quality Rating Modest 10\. Other Issues a\. Safeguards This was a Category B project\. At approval, four safeguards were triggered: Environmental Assessment (OPBP 4\.0 1), Natural Habitats (OP/BP 4\.04), Pest Management (OP 4\.09) and Forests (OP/BP 4\.36) (PAD, para 69)\. While the ICR explicitly states compliance with safeguards concerning environmental assessments and physical cultural resources, it does not make references to compliance with respect to natural habitat and forests\. Subsequent interviews with the Bank's project team clarified that the project complied with all safeguards\. • Regarding environmental safeguards, the ICR concludes that risks were managed appropriately through the application of a certified environmental management system standard (ISO14001)\. The ISO 140001 is an international standard that specifies requirements for an effective environmental management system and requires that an organization considers all environmental issues relevant to its operations (para 55)\. The ICR also attributes country-wide improvements in pest management practices to the training in pest management and food safety but the evidence that supports this conclusion is missing (para 55)\. • There were other risk mitigation practices, such as the introduction of good agricultural practice and water conservation through the financing of drip systems for small farming, cooperative effort with the Jamaica Bauxite Institute to reclaim mine pits and the incorporation of bio-digesters for pollution prevention in model pig-rearing facilities (ICR, para 55)\. • According to the project team, Forests safeguards was triggered (OP/BP 4\.36) as a precaution at approval, but not during implementation, and therefore the ICR does not report on this matter\. b\. Fiduciary Compliance Procurement • According to the ICR, procurement performance was appropriate and according to Bank guidelines throughout project implementation (para 56)\. The Bank carried out five ex post reviews and reviewed 71 out of 217 contracts, concluding that procurement was being conducted in compliance with the Loan Agreement, procurement guidelines, and agreed procurement plans\. All contracts signed under the project were of small value, and many of them were for the procurement of similar items for different Page 15 of 18  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review JM Rural Economic Development Initiative (P105122) communities\. Financial Management • At the approval stage, the PAD identified several actions to mitigate financial management risks including accounting for full staffing of the JSIF project management team, revisions of the Operations Manual to address financial appraisal and supervision concerns and financial reports on subprojects (paras 61 and 71)\. These included, inter alia, the set-up of the accounting system’s chart of accounts; the methodology for allocating general administrative cost amongst all projects managed by JSIF; the treatment of foreign exchange movement; and having adequate oversight of the auditing and financial reporting process (ICR, para 57)\. • According to the ICR, JSIF had an established Financial Management (FM) system that satisfactorily covered the needs of the Project, including those for subprojects\. Training provided by Bank FM staff on FM related issues such as the preparation of interim unaudited financial reports, financial management arrangements and financial reporting on the subprojects led JSIF to be able to provide timely reports as well as timely external audits (para 57)\. • The Bank’s project team stated that the final audit received after completion of the ICR was unqualified\. External auditors initially issued qualified opinions (with exception) on JSIF’s project financial statements for the year ended March 31, 2017 because of issues in accounting for beneficiaries' contributions (ICR, para 58)\. c\. Unintended impacts (Positive or Negative) • The ICR claims support of inclusion of women and youth in economic activities (para 38)\. This analysis remains shallow and is not differentiated by looking at economic performances of rural enterprise by gender\. • The ICR claims institutional strengthening of JSIF in working with the private sector (para 40-41), and suggests more integrated cooperation between JSIF and "private sector representatives [\.] drawn from the private micro-finance sector, commercial banks and private businesses" (para 40)\. d\. Other --- 11\. Ratings Reason for Ratings ICR IEG Disagreements/Comment Outcome Satisfactory Moderately There is not enough evidence Page 16 of 18  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review JM Rural Economic Development Initiative (P105122) Satisfactory to support a Satsfactory rating because of this Review's modest rating of efficiency\. At entry, the results matrix did not show how inputs and outputs resulted in achieving the objective of improved market access for micro and small-scale rural agricultural producers resulting, inter alia, Moderately in a moderately unsatisfactory Bank Performance Satisfactory Satisfactory rating for quality at entry\. Supervision was rated moderately satisfactory and therefore consistent with OPCS/IEG harmonized guidelines, the overall rating of Bank performance is Moderately Satisfactory\. M&E suffered from design flaws regarding the lack of relevance of the results matrix Quality of M&E Substantial Modest to the project development objective that were not addressed during implementation\. Quality of ICR Modest --- 12\. Lessons The following is a summary of key lessons from the ICR that this Review considered were highly relevant to this and similar operations: • Technical assistance, implementation support of sub-projects, facilitation of contractual arrangements are critical elements for linking enterprises to markets\. Enterprises that received only limited capacity building, particularly at the beginning of project implementation, tended to have a lower success rate\. JSIF contracted the service of specialized technical assistance providers which systematically resulted in stronger enterprises, with a clear vision and sustainability plans, and strong contractual arrangements with wholesale buyers\. • Leadership needs to delegate responsibilities among core managers to ensure continuity, in case leadership needs to be replaced\. Leadership and judicious delegation were found to be important in organizing groups for sub-project development and implementation in this project\. Often leadership is concentrated in a single person, with few others knowing or understanding the business and being able to step in\. In this project, when a leader of one of the rural enterprises passed away and another relocated to a different country, the groups and the sub-projects collapsed or performed well below the level achieved under Page 17 of 18  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review JM Rural Economic Development Initiative (P105122) long standing leaders because those leaders had not engaged others through delegation\. 13\. Assessment Recommended? No 14\. Comments on Quality of ICR The ICR quality is rated modest, because of a number of shortcomings in the presentation, analysis and evidence: • The ICR does not present systematic evidence to claim that the project development objective was achieved\. While there are some examples of anecdotal evidence (see for example para 25), the only indication of outputs is the table in paragraph 24 and Table 1 in Annex 4\. Furthermore, particularly for sub- objective 1, there was significant evidence concerning the extent to which the objectives were achieved in the REDI Final Evaluation Report\. It is unclear the extent to which the REDI Final Evaluation Report was used in the ICR analysis\. • The ICR is not candid in presenting the evidence, particularly when the evidence was missing or unclear\. For example, the ICR suggested the design was strong, but then also highlighted the restructuring with more focus on Type B projects was a successful move (ICR, para 22, 61)\. • There are inconsistencies at several points in the numbers that the ICR uses in terms of number of projects\. For example, para 24 accounts for 10 Agriculture technical assistance subprojects, 9 mixed and two in tourism\. Table 1 Annex 4 reports 11 Agriculture technical assistance, 8 mixed and 2 in tourism\. Another example is the computation of direct and indirect beneficiaries, which are estimated to ~52,000 in paragraph 4 in Annex 4, "over 53,000" in footnote 29 Annex 4 and 53,608 in para 21\. In this specific instance, it is also unclear how the ICR arrived at the conclusion that "33,800 rural residents benefitted/are expected to benefit indirectly from the training and capacity building provided to staff of the Rural Agricultural Development Authority and Tourism Product Development Company (TPDCo)\. a\. Quality of ICR Rating Modest Page 18 of 18

REVIEW

P091145

 Document of the World Bank Report No: 108560 IMPLEMENTATION COMPLETION AND RESULTS REPORT (P091145) ON A CARBON FINANCE TO THE REPUBLIC OF ALBANIA FOR THE AFFORESTATION & REFORESTATION OF REFUSED LANDS IN ALBANIA BIOCARBON FUND PROJECT September 26, 2016 Global Practice for Environment and Natural Resources Europe and Central Asia Region Albania Country Management Unit This document has a restricted distribution and may be used by recipients only in the performance of their official duties\. Its contents may not otherwise be disclosed without World Bank authorization\.  ABBREVIATIONS AND ACRONYMS AAU Assigned Amount Unit AFP Albania Forestry Project A/R Afforestation/Reforestation BioCF BioCarbon Fund CDM Clean Development Mechanism CDM EB Clean Development Mechanism Executive Board CER Certified Emission Reduction CO2 Carbon Dioxide DOE Designated Operational Entity EA Environmental Assessment EMF Environnemental Management Framework ER Emission Reduction ERU Emission Reduction Unit ERPA Emission Reductions Purchase Agreement ESP Environmental Services Project FMP Forest Management Plan FPUA Forest and Pasture User Association GCCCF Climate and Carbon Finance Unit GHG Greenhouse Gases Ha Hectare(s) IBRD International Bank for Reconstruction and Development ICR Implementation Completion and Results Report INRMP Improved Natural Resources Management Project lCER Long-term Certified Emission Reduction LULUCF Land Use, Land Use Change and Forestry MoE Ministry of Environment NRDP Natural Resources Development Project PDD Project Design Document PDO Project Development Objective tCER Temporary Certified Emission Reduction tCO2e Tonne (Metric Ton) of Carbon Dioxide Equivalent UNFCCC United Nations Framework Convention on Climate Change Vice President: Cyril Muller Country Director: Ellen A\. Goldstein Sr\. Global Practice Director: Julia Bucknall Practice Manager: Kulsum Ahmed Deal Manager: Yevgen Yesyrkenov Task Team Leader: Drita Dade ICR Author: Burcu Polat  TABLE OF CONTENTS 1\. DATA SHEET \. 1 A\. Basic Information \. 1 B\. Key Dates \. 1 C\. Ratings Summary \. 1 D\. Sector and Theme Codes\. 1 E\. Bank Staff \. 2 F\. Emission reductions delivery to date \. 2 2\. ACHIEVEMENT OF IMPLEMENTATION OBJECTIVES AND OUTCOMES \. 2 2\.1\. Basic project description and summary of any significant changes since ERPA signature \. 2 2\.2\. Project implementation and commissioning\. 5 2\.3\. Monitoring and Reporting \. 8 2\.4\. Lessons Learned \. 9 3\. BANK AND PROJECT ENTITY PERFORMANCE \. 9 3\.1\. Assessment and rating of overall Bank performance \. 9 3\.2\. Assessment and rating of overall project entity performance \. 10 4\. COMMENTS FROM PROJECT ENTITY AND OTHER PARTNERS \. 10 4\.1\. Project entity \. 10 4\.2\. Other partners and stakeholders \. 11 5\. JUSTIFICATION FOR MOVING TO THE SECOND PHASE (CARBON FINANCE MONITORING PHASE) AND SAFEGUARDS COMPLIANCE \. 11 5\.1\. Compliance with safeguards and implementation challenges in the first phase - supervision phase \. 11 5\.2\. Project entity’s capacity to carry out key functions related to safeguard requirements\. 13 5\.3\. Potential issues in post completion operation, including project entity’s capacity and ability of the project to deliver the contracted emission reductions\. 13 5\.5\. Recommendations and guidance for project monitoring in the second phase - carbon finance monitoring phase\. 14 Annex 1: Map of Project Sites \. 15 1\. DATA SHEET A\. Basic Information Country: Republic of Albania Project Name: Afforestation & Reforestation of Refused Lands in Albania BioCarbon Fund Project Project ID: P091145/TF056871 ICR Date: September 26, 2016 PDD volume: 459,287 tCO2 ERPA volume: N/A (confidential) Bank/IFC lending or grant: 7,360,000 USD Environmental Category: B (Partial Assessment) Project Entity: Ministry of Environment (MoE) Cofinanciers and Other External Partners: Global Environmental Facility ICR prepared by: Burcu Polat Concurred by CD: Ellen A\. Goldstein Concurred by PM: Kulsum Ahmed Approved by SGPD: Julia Bucknall B\. Key Dates ERPA signing date 06/29/2007 ERPA effectiveness date 06/29/2007 ERPA amendment date (if applicable) 06/18/2009 ERPA termination date (if applicable) 12/31/2018 Project commissioning date 06/29/2007 C\. Ratings Summary Outcomes (project performance) Moderately Satisfactory Bank performance Satisfactory Project entity performance Moderately Satisfactory D\. Sector and Theme Codes Sector Codes (in %) Forestry 50% Sub-national government administration 50% Theme Codes (Primary/Secondary) Climate change 33% Land administration and management 17% Water resource management 17% Biodiversity 17% Environmental policies and institutions 16% 1 E\. Bank Staff Position At ICR At ERPA Signing Vice President Laura Tuck Shigeo Katsu Country Manager Tahseen Sayed Khan Orsalia Kalantzopoulos Practice Manager Kulsum Ahmed Marjory-Anne Bromhead Project Team Leader Drita Dade Rita Cestti Deal Manager Yevgen Yesyrkenov Andre Aasrud ICR Team Leader Yevgen Yesyrkenov ICR Primary Author Burcu Polat F\. Emission reductions delivery to date Total verified Emission Reductions (ERs) from December 20, 2004 to June 30, 2012 as reported in the Verification Report dated May 21, 2013: 128,757 tCO2e\. The verified ER amount corresponds to 56% of the ERPA volume\. Supervision of Carbon Finance Operations According to the Bank Procedures (Office Memorandum, December 1, 2011) oversight (supervision and monitoring) of Carbon Finance operations is conducted in two phases: (a) the implementation phase, from effectiveness of the Emission Reductions Purchase Agreement (ERPA) to project completion; and (b) the monitoring phase, from project completion to termination of the ERPA\. Between these phases, oversight responsibility is transferred from the Global Practice to the Climate and Carbon Finance Unit (GCCCF)\. Since the Afforestation & Reforestation of Refused Lands in Albania BioCarbon Fund Project is fully operational and capable of generating GHG Reductions, the present ICR summarizes the achievements of this carbon finance project, and issues and lessons learned from this particular transaction, in order to be transferred to GCCCF for the monitoring phase\. 2 2\. ACHIEVEMENT OF IMPLEMENTATION OBJECTIVES AND OUTCOMES 2\.1\. Basic project description and summary of any significant changes since ERPA signature The Project Development Objective (PDO) is to increase carbon sequestration through afforestation and reforestation of highly degraded land in Albania, leading to enhanced sources of livelihood and incomes in poor rural areas, reduced soil degradation and improved water quality and conservation of biodiversity\. This project is based on the following completed World Bank projects: Albania Forestry Project (AFP, P008271), Natural Resources Development Project1 (NRDP, P082375) and Improved Natural Resources Management Project (INRMP, P120961)\. This project was built on the success of and lessons learned from the communal component of the AFP, a World Bank lending project that was launched in 1996 and closed in 2004\. Under the communal forestry component of the AFP, about 1,284 hectares (ha) were successfully afforested, 10,378 ha received cleaning and/or pre-commercial thinning, and vegetative cutting was carried out on a further 1,578 ha\. In addition, some 36 km of fence was constructed to protect natural regeneration and re-growth\. The AFP supported institutional and policy reforms of Albania's forestry and pasture sector and provided resources for investment in the institutional development of the forest/pasture administration including related training, education and research and the establishment of a project environmental management unit; improved management of state forests; rehabilitation of forest roads; management of communal forest and pasture areas; and management of protected areas\. Among the institutional reforms of the AFP were the transfer of user rights and management of forest and pastures from the state to the local communities\. This approach to natural resources management, which was new at the time, started the reversal of natural resource degradation\. The NRDP was developed between 2005 and 2011\. Its objective was to establish and maintain sustainable, community-based natural resource management in about 218 communes in upland and mountainous erosion-prone lands of Albania with the aim of enhancing productivity and incomes derived from sustainable resource management, reduced soil degradation, improved water management, conservation of biodiversity, and strengthened public sector management of these resources\. At the time the NRDP was being developed, land degradation was identified as a major issue for Albania, where highly degraded land had been subject to uncontrolled grazing, preventing the development of a protective vegetative cover\. One of the activities under the NRDP was to strengthen participatory forest and pasture management in communes by updating existing communal forest and pasture management plans (prepared under the Albanian Forestry Project) and supporting their implementation (covering an area of about 450,000 ha)\. In 2012, the Government of Albania received additional funding from the Swedish International Development Agency (SIDA) to finance the INRMP, another World Bank project with the development objective to provide continuous support for improved community-based management of natural resources in upland and mountainous erosion-prone lands in Albania 1 Albania – Natural Resources Development Project (P082375) was a lending project of the International Bank for Reconstruction and Development that was closed in 2011\. The Implementation Completion and Results Report (ICR) for the NRDP can be accessed here\. 3 through participatory planning and investments and to prepare the proposed Environmental Services Project (ESP)\. INRMP supported the scaling up of implementation of forest and pasture, carbon sequestration and micro-catchment works, as already supported under the NRDP\. Afforestation & Reforestation of Refused Lands in Albania BioCarbon Fund Project During the early stages of the NRDP, the BioCarbon Fund (BioCF) expressed interest in purchasing emission reductions (ERs) from Albania, resulting in the Afforestation & Reforestation of Refused Lands in Albania Biocarbon Fund Project (Project) that was connected with the NRDP\. Additional resources were therefore allocated to 24 of the former communes (that are now part of 12 municipalities) to make investments needed to sequester carbon through assisted natural regeneration on about 6,200 ha\. The implementation activities of the project supported under the NRDP included: (i) protection of land from grazing by fencing to promote natural seed sources to enable natural regeneration or re-growth; (ii) supplemental planting at 200-500 seedlings per ha to enrich species diversity and to stabilize eroded areas by filling in the gaps where existing regeneration was poor or absent; and (iii) silvicultural works (vegetative cutting to promote growth such as coppicing, cleaning and thinning)\. The project sites were spread over five regions of Albania (see Annex 1 for a map of project sites), covering ten different districts mainly in the central and northern part of the country, and showed variability in terms of altitude, climate, and soil conditions\. The reforestation activities covered communal forestland and pastureland distributed in 24 former communes (117 villages) that were among the poorest in the country\.2 The then Ministry of Environment, Forests and Water Administration (currently the Ministry of Environment - MoE) was the project entity responsible for overall supervision, implementation and reporting\. In selecting the sites and protecting them from grazing, the Project supported a participatory approach\. The size and locations were negotiated with the communities during the development phase\. The planting and tending of the trees and annual reporting for the project activity have been undertaken by communal Forest and Pasture User Associations (FPUAs) and non-governmental organizations that consist of members of the public who use forest and pastoral resources within the territory of a given commune\. There is one FPUA for each former commune and each FPUA undertaking part of the Project entered into an agreement with its commune\. On June 29, 2007, an Emissions Reduction Purchase Agreement (ERPA) was signed between the World Bank, acting as trustee of the BioCF, and the Government of Albania, governing the sale of emission reduction credits under the Afforestation / Reforestation (A/R) Clean Development Mechanism (CDM) project activities\. The project consists from activities focused on reforestation of degraded lands, through setting aside and protecting land to make natural re- growth possible on the area of 6,200 ha\. The state owned the tradable rights to sequestered carbon, which were then handed over to the communes\. In return for the carbon credits, payments were made to the Albanian Government in accordance with the ERPA\. Additionally, sub-agreements on the sharing of the carbon revenues were signed between the MoE, the FPUAs and the former communes\. According to these sub-agreements the MoE retained 12\.5% of the payment amount to support staff and for costs of monitoring and verification, while of the remaining portion, 67\.5% was distributed to FPUAs and 20% to the former communes\. The 2 Median poverty rate for these communes was 42%\. Almost two-thirds of the communes ranked in the lowest third of the poverty distribution as measured by “percent poor families\.â€? 4 FPUAs and the communes agreed to use most of the carbon payments – which were disbursed after submission of investment plans to the MoE – to reinvest in forests, for either maintenance or additional silvicultural work and for additional measures for forest protection or landscape management\. Project participants agreed on the issuance of temporary Certified Emission Reduction (tCER) units for GHG removals by sinks to be achieved under the A/R CDM project activities in order to address the issue of non-permanence\.3 Expected operational lifetime of the A/R CDM activities is 60 years; the crediting period for this Project was set for 20 years, renewable twice for a total crediting period of 60 years\. Following the Project’s registration as a CDM project and the required CDM validation, the estimated amount of CO2 sequestered was adjusted down\. ERPA volumes of tCERs were accordingly adjusted down from the ex-ante estimations to mitigate the risk of partial delivery\. The reasons for these adjustments included (i) uncertainty of ex-ante carbon sequestration calculations due to the lack of sufficient data for tree growth model in Albania; (ii) delays in implementation at community levels; and (iii) smaller areas on which project activities were implemented due to poor uptake and interest in some participating communities\. However, despite these limiting factors, the Project is estimated to catch up with initial sequestration projections by 2018 (within the range of 140,000 to 160,000 tons)\. On June 18, 2009, the Albanian Government and the BioCF/World Bank amended the ERPA in order to shorten the end of the contract term (from the original December 31, 2037 to December 31, 2018) due to expected closing of the BioCarbon Fund in 2020\. 2\.2\. Project implementation and commissioning Before the project implementation started, the areas were being used for grazing by goats and sheep by local villages and suffered from two major potential threats: first, over-grazing, resulting in land degradation, and secondly, fire, which was used by local shepherds to promote new shoot growth and had the potential to run out of control and damage extensive areas\. Both over-grazing and fires had been leading to loss of vegetative cover and increased erosion with consequent impacts on water and water quality\. Concerned communities indicated that they were keen to reverse the trend of land degradation if incentives were made available\. During the preparation phase of the Project in early 2004, selected communes were contacted and made aware of the outline of the Project and the general requirements\. Meetings were 3 Afforestation and Reforestation (A/R) projects generate GHG credits by removing CO 2 from the atmosphere through biophysical processes and storing it in terrestrial carbon stocks\. Non-permanence refers to the temporary nature of the removals, given that carbon contained in the biomass of trees is at a continuous risk of being emitted into the atmosphere (through natural disturbances, such as fire and wind, or anthropogenic disturbances such as harvesting)\. In order to address this problem, A/R projects issue temporary credits that are then replaced by the Annex I Party that has retired them\. This replacement has to take place when a mandatory monitoring report sent by project participants indicates a decrease in the stocks of carbon of the project, when the period of validity of the credits has expired, or when the mandatory report has not been sent\. Project participants have to choose between the issuance of two different units that were created\. First, tCERs, which expire at the end of the commitment period subsequent to the one among which they were issued\. Second, lCERs (or long-term CERs), which expire at the end of the crediting period of the afforestation reforestation project activity\. For replacing tCERs or lCERs, an Annex I Party has to transfer a valid unit (which can be AAUs, CERs, ERUs, tCERs or lCERs) into a replacement account created for this purpose\. 5 arranged where a number of communes were represented together with the chairmen of the FPUAs, representatives of the Directorate of Communal Forestry from the Directorate General for Forests and Pastures, the District Forest Office and the project preparation unit\. At these meetings, an outline of the Project together with the requirements for eligible areas was presented and the former communes proposed potential areas for the Project\. Data collection forms were completed by the villages and sent to the Directorate of Communal Forestry where it was entered into a project database\. Following these meetings and the preparation of contracts for protection of land parcels, the project implementation started on December 20, 2004\. Usufruct agreements, covering the land use rights and the carbon rights for each of the 22 out of 24 former communes that were involved in the project activity, were made between the Government of Albania and each former commune and FPUA\. Two former communes out of the 24 included in the Project refused to sign the agreements due to disagreements and disputes between mayors and leaders of the FPUAs\. The World Bank team as well as independent consultants (the DOE – see section 1\.3 below) reviewed these agreements, concluding that the issues surrounding land ownership, use rights and carbon rights were fully transparent and clarified among the parties involved\. Informational leaflets were prepared by carbon specialists and disseminated to the relevant communes as part of the efforts to raise public awareness regarding carbon sequestration activities\. The leaflets provided to the former communes an overview of the global warming issues, carbon sequestration activities, simplified description of measurement of CO2 sequestration, and rules and procedures for the transfer of carbon credits\. Project implementation was successful and there were no major issues encountered during this time, including compliance with environmental and social safeguards\. As shown in Table 1 below, the Project achieved its established goals with respect to GHG emission removals, which were calculated ex-ante\. A small difference of about 50,000 tCO2e that was observed in the first Verification Report between ex-ante estimations and actual CO2 removals was explained by the pending implementation in certain areas in the same report\. Table 1: Net Anthropogenic GHG Rremovals by Sinks Year Net Estimated net anthropogenic anthropogenic GHG removals GHG removals by sinks (tCO2e) by sinks (tCO2e) 2005 17,353\.08 6,783\.30 2006 17,182\.52 13,971\.62 2007 16,190\.59 23,597\.25 2008 17,000\.08 27,382\.68 2009 17,117\.27 27,392\.71 2010 17,119\.52 26,936\.46 2011 17,121\.75 26,487\.78 2012 8,952\.66 26,046\.54 Total 128,037\.47 178,598\.34 6 To assess the risk of underperformance, interim measurements were carried out on 10% of the permanent sample plots, which had already been identified by the MoE\. Since the next official verification will take place in 2018, an assessment of the underperformance risk will mitigate the risk of under-delivery until 2017, i\.e\., the end of the second monitoring period\. The BioCarbon Fund prepared an ER reporting template that sets the framework for the project entities to self- assess the risks of achieving ER targets and serves as a basis to discount emission reductions as a buffer for potential under-delivery until the end of the second monitoring period\. In 2015 there was an increase in the geographical size of local government units and consolidation of their number from 386 to 61 as a result of the territorial administrative reform\. Also, with local elections that were held on June 21, 2015, new mayors and municipal councils for 61 new municipalities were elected\. Table 2 below lists the name of the new municipalities replacing the former communes\. Following these developments, there is now a need to sign new sub-agreements on the sharing of the carbon revenues and to amend the ERPA to include the new names of the municipalities participating in the carbon sequestration project\. Table 2: Municipalities that are Beneficiaries of the Project after the Administrative Reform NO\. MUNICIPALITY FORMER COMMUNE 1 TOMIN 2 MELAN DIBER 3 MAQELLARE 4 SLLOVE 5 ZERQAN 6 BULQIZE TREBISHT 7 OSTREN 8 KLOS KLOS 9 MAT ULEZ 10 SHISHTAVEC 11 KUKES GRYKE CAJE 12 BUSHTRICE 13 HAS GOLAJ 14 FUSH-ARREZ QAFE MALI 15 RRAPE 16 PUKE LUF QERRET 17 QELEZ 18 GRAMSH PISHAJ 19 SHUSHICE 20 ELBASAN PAPER 21 GJINAR 7  NO\. MUNICIPALITY FORMER COMMUNE 22 LABINOT MAL 23 LIBRAZHD POLIS 24 KOLONJE BARMASH In May 2016, the World Bank team’s visit to the field confirmed that forest improvements and fencing were implemented on 4,494 hectares\. No major issues were revealed during the on-site visits\. As of May 2016, all of the corresponding payments have been made to the MoE and MoE distributed the payments further to 22 FPUAs and former communes after retaining 12\.5% of the payments as per the sub-agreements signed\. Payments to the two remaining former communes will be done in 2017, after new sub-agreements are signed with municipalities\. In general carbon finance improved the overall sustainability of the Natural Resources Development Project as carbon payments to former communes and FPUAs created additional incentives to sustain and improve forest areas\. It could be concluded that the project met its implementation and development objectives and the outcome rating is moderately satisfactory\. 2\.3\. Monitoring and Reporting4 A distinctive monitoring effort has been put in place to track the progress of the Project‘s carbon sequestration activities and results under its ERPA commitments as per the stringent requirements of the UNFCCC for CDM afforestation/reforestation projects\. To ensure that the quality of carbon monitoring is up to these requirements, the Project provided training to 70 professionals representing Regional Coordinators, District Forest Offices, FPUAs and community foresters\. The monitoring of carbon related activities will continue in the future until the end of the crediting period\. The IBRD commissioned Designated Operational Entities (DOE)5, TUV SUD to perform a validation of the Project and TUV NORD to verify GHG emission removals during the implementation phase\. The Validation Report was issued on October 2, 2009\. The first periodic verification of the Project with regard to the relevant requirements for CDM project activities was issued on May 21, 2013\. The Report, which covered the monitoring period from December 20, 2004 to June 30, 2012, confirmed that all operations of the Project were implemented and installed as planned and described in the validated Project Design Document 4 The Project Design Document (PDD), Validation Report, and the first Monitoring Report (MR) (2004-2012) can be accessed here\. The approved methodology (“Afforestation and reforestation of degraded land through tree planting, assisted natural regeneration and control of animal grazing – Version 4â€?) was developed on the basis of the successful Albania Forestry Project and thus appropriately fit the Project conditions\. 5 Designated Operational Entity (DOE) is an independent auditor accredited by the CDM Executive Board (CDM EB) to validate project proposals (i\.e\., assessing whether a project proposal meets the eligibility requirements and subsequently requesting registration of the project by the CDM EB) or to verify whether implemented projects have achieved planned GHG emission reductions (more specifically verification/certification involves verifying ER from a project, certifying as appropriate, and recommending to the CDM EB the amount of Certified Emission Reductions (CERs) that should be used)\. Usually, for large scale projects, a DOE may only conduct either validation or verification of the same project\. However, upon request, the CDM EB may allow a single DOE to perform both functions (validation and validation/certification)\. Source: http://cdm\.unfccc\.int/DOE/index\.html 8 (PDD) (except for specific changes of A/R activities as previous discussed and agreed upon by the parties involved)\. The Verification Report also concluded that the monitoring plan was in accordance with the applied approved CDM methodology, the applied techniques essential for measuring parameters required for calculating emission removals were as per best forest practice, the monitoring system was in place and functional\. 2\.4\. Lessons Learned Communities are using land for different purposes and in some cases afforestation/reforestation plans contradict needs for some pasture activities or access to water points\. Since communities are using land for different purposes, it would be better in future to support them to develop landscape management plans and not only afforestation/reforestation plans\. In future projects it is recommended to create the comprehensive landscape management plans or integrated local resources management plans that will ensure sustainable management of all land and natural resources owned by the communities\. Payments for reported emission reductions based on annual monitoring reports that were not independently verified in case of afforestation/reforestation projects is not a sound approach due to inherent risks of such projects\. Since there was a lack of data on Albanian forests, the carbon sequestration methodology used in the project was not tested in the field\. Due to this, the verified emission reductions (carbon sequestration) differ from the data reported in the annual monitoring reports\. In future carbon sequestration projects payments for emission reductions should be done only after independent verification\. Final arrangements on payment for carbon sequestered from the MoE to communes and FPUAs were adjusted to reflect the established national practices and differed from normal practice of the BioCarbon Fund\. After the first payment for emission reductions were sent to the MoE it appeared that the MoE decided to use a slightly different approach to payments made to former communes and FPUAs than was agreed initially\. The approach used by MoE was more cumbersome and rigorous – former communes and FPUAs first signed investment plans on additional silvicultural and landscape management activities, then were paid in three installments after confirmation that the agreed activities were fulfilled\. After some consideration the BioCarbon Fund agreed to the approach selected by the MoE as it reflected established national practice and in the end former communes and FPUAs received the payments as well as additional silvicultural and landscape management activities were done in the project area\. In future projects, the mechanism for payment to municipalities (former communes) and FPUAs should be discussed in more detail and agreed upfront with the MoE\. 3\. BANK AND PROJECT ENTITY PERFORMANCE 3\.1\. Assessment and rating of overall Bank performance The Project benefited from previous analytical and technical efforts supported under the Albania Forestry Project of the World Bank\. At the time of project development, there was no government policy on the legal status of carbon trading\. The World Bank team worked closely 9 with the Albanian Government on issues regarding the land use rights and carbon rights in order to ensure transparency and informed consent\. The Bank has provided ongoing assistance to the project entity (MoE), both as trustee of the BioCarbon Fund through the Climate and Carbon Finance Unit (GCCCF) and as facilitator of the project through the Global Practice for Environment and Natural Resources\. Although the project faced difficulties due to delays in afforestation activities and CDM registration and verification process in the beginning, the Bank extended serious efforts in supporting project management and providing in-house expertise to meet CDM monitoring and reporting requirements\. The Bank also provided the project entity with CDM training in Moldova\. The Bank conducted regular site visits for the supervision of the project activities and to resolve project issues\. Given these factors, the overall Bank performance is rated as satisfactory\. 3\.2\. Assessment and rating of overall project entity performance The project entity contributed its efforts to achieve the following: afforestation/reforestation activities are implemented on 4,494 ha (72% of the planned), 128,757 tCERs are issued (56% of ERPA volume), payments to 22 (out of 24) communes for achieved emission reductions were done\. In addition, the project entity has complied with the Bank’s safeguard policies and reporting requirements\. Though at the beginning of the project, the MoE frequently changed the project coordinator and did not have sufficient resources to monitor and manage the project, in the recent years the MoE had a permanent coordinator, who successfully managed the project monitoring and implementation\. Thus, the project entity’s performance is rated as moderately satisfactory\. 4\. COMMENTS FROM PROJECT ENTITY AND OTHER PARTNERS 4\.1\. Project entity As land degradation has been identified as a major natural resource management issue in Albania, the project has been considered important for the Ministry of Environment, former communes and FPUAs resident in the targeted areas\. This project represents the first one implemented in Albania under a framework of payments for environmental services\. The project activities consist of reforestation of degraded lands, by assisting the natural regeneration of vegetation on degraded lands with the objective to reduce soil degradation, conserve biodiversity and enable GHG emission reduction\. The project covers 24 poorest administrative units (former communes) over five regions of the country\. The project is implemented by the MoE through Forest and Pasture User Associations (FPUAs) that operate at the village level, which are non-government organizations and are formed by village members who use forest and pastoral resources in the territory\. The implementation activities have been performed through a participatory approach and 10 involvement of various stakeholders as former communes (owners of forests and pastures), Regional Forestry Directorates and FPUAs\. The new territorial administrative reform completed in 2015 resulted in the replacement of the former communes with 61 new municipalities\. The BioCarbon Fund agreed that this should be considered for future arrangements during the implementation of the Project\. On the other hand, the project team is aware that, the institutional reform in MoE local structures, has caused some delays in payments and in undertaking the interim measurements of sample plots planned to be accomplished during 2015\. Actually, the Regional Forestry Directorates under MoE have ceased to exist since January 1, 2016, but the new forest local structures are being established under the new municipalities\. In order to perform the above mentioned measurements, MoE has engaged other structures specialized in forestry able to successfully accomplish this important process\. With regard to the payment method, the Ministry previously applied three installments, (30%+60%+10%), based on the Ministers Order No\.1840 dated July 15, 2014\. In the future the number of installments could change to two (30%+70%), in order to facilitate the payment procedure\. 4\.2\. Other partners and stakeholders During implementation, the FPUAs have been very active and in close contact with the representatives of MoE involved in the process\. Based on the information provided by most of the FPUAs, the main requirement is to have additional plots included in the project sites focusing on the most degraded areas, where the ongoing erosion is evident\. The same opinion is shared by the former mayors of the previous communes\. Expanding project sites will improve the sustainable management of natural resources in the targeted regions and consequently will increase the incomes of land users, land managers and communities living nearby\. 5\. JUSTIFICATION FOR MOVING TO THE SECOND PHASE (CARBON FINANCE MONITORING PHASE) AND SAFEGUARDS COMPLIANCE 5\.1\. Compliance with safeguards and implementation challenges in the first phase - supervision phase Environmental The Project was rated as category B (partial assessment), under the Environmental Assessment (EA) (OP 4\.0\.1) safeguard policy\. An Environmental Assessment for the NRDP, including an Environmental Management Framework (EMF), was published on February 28, 2005, establishing methodologies for identification and mitigation of environmental impacts during project implementation\. 11 The potential impacts arising from the Project’s former commune-level activities were addressed through the EMF\. Compliance was subject to environmental performance audits carried out by independent organizations; two such audits carried out for 2010 and 2011, which revealed satisfactory compliance and provided conclusive evidence on the positive impacts of the Project on the environment\. The Project was implemented in five regions (Diber, Elbasan, Korce, Kukes and Puka) across 24 communes and involved some 117 local villages (see Annex 1 for a map of project sites)\. The project sites were spread over ten different districts mainly in the central and northern part of the country, and showed variability in terms of altitude, climate, and soil conditions\.6 The areas were all communal forestlands with the usufruct rights transferred to the communes\. They consisted of degraded broadleaf forestlands of either coppice or high forest origin\. The land is mountainous and the soils fragile and susceptible to erosion in the absence of vegetative cover\. The main species included oaks (Quercus spp\.), hornbeam, hazel and some shrub species of Rosa canina as well as Juniper\. Each plot to be reforested under the Project was contained within a Forest Management Plan (FMP), providing site-specific information that was collected during the tendered carbon baseline study, which started in early 2005\. In the data collection questionnaire completed by the former communes participating in the Project, respondents were asked to identify the desired species in the regenerated forest and also to identify the species to be used for supplemental planting\. The only non-native species proposed was Robinia (Pseudoaccacia robinia) on some 31\.8% of the area identified for supplemental planting\. The former communes’ rationale for proposing Robinia was that it is a good species for firewood, poles, as a source for honey and fodder\. Another factor influencing the former communes selecting Robinia was that it has been used in the afforestation of degraded lands\. Robinia was used only to enrich existing species and not planted in monoculture\.7 Some 70% of the supplemental planting was done with native broadleaf species, mainly oak, chestnut, birch and walnut\. The main threats were identified as overgrazing and fire followed by seedling supply, illegal cutting, pests and diseases and natural regeneration failure\. Over-grazing: Similar to the method used in the AFP, during the identification stage of the Project, the communes provided an undertaking that they would either readjust their flock numbers (reduce number of goats relative to sheep and/or reduce total livestock numbers) or identify and use alternative grazing areas available to them\. Fire: Local shepherds traditionally use fire as a means to promote new shoot growth\. Fires can get out of control and enter adjoining forest areas\. This posed a potential risk to the Project sites\. However, based on discussions with the former communes, it was revealed that fire was only a risk in areas where there was a dispute over ownership or user rights\. The transfer of user rights for forests to former communes reduced the risk due to fire\. 6 Major eco-zones represented in the Project area were as follows: Eco-zone 1: Mediterranean scrub and garrigues: 917\.76 ha, 14\.6%; Eco-zone 2: Mixed oak and hornbeam or Macedonian oak, ask and hornbeam: 1878\.71 ha, 30%; Eco-zone 3: Buxus and Juniper over Magmatic stones: 3058\.93 ha, 48\.8%; Eco-zone 4: Shrubs and small tree species or grassland with Juniper: 416\.96 ha, 6\.6%\. 7 Robinia has been used in the afforestation of degraded lands in Albania over a long period of time and usually planted as a monoculture\. Its silviculture and tending is well known\. Although some may regard it as an invasive or potential invasive species, it has been present in Europe since the early seventeenth century\. 12 Illegal cutting: The practice of illegal cutting is widespread in Albania\. It is however more or less limited to state forests\. With the transfer of forest user rights to former communes, the practice stopped in forest areas that became communal forests\. Although it was only the user rights transferred to former communes, the forest areas were considered and treated as communal property, hence rendering the risk of illegal cutting in project areas negligible\. Social No social safeguards were triggered by the Project\. The only negative social impacts of the Project were identified as the reduced access to project areas for grazing and the impact associated with the use of alternative grazing areas, which were likely to be more remote from the villages\. However, these impacts were acknowledged by the former communes to be temporary\. As for the positive impacts, the Project provided local employment at village-level during the implementation phase for the planting of seedlings, fencing, digging holes for planting, vegetative cutting, weeding and silvicultural operations\. Additionally, the payments from the sale of the carbon sequestered has provided a steady and reliable income stream for communities, enabling them to undertake much needed infrastructural (roads, water, sanitation) and social developmental work\. 5\.2\. Project entity’s capacity to carry out key functions related to safeguard requirements The local communities have user rights for the forest areas, while actually the municipalities have ownership rights\. They are both subject to the regulatory and legal framework\. The institutional arrangements are on a par with the rest of Europe and the state regulatory authority has the remit in Albania as elsewhere to ensure that forests are managed in accordance with the legal and regulatory framework\. The communities have good reason to maintain and care for their forests, as they will continue to provide a sustainable source of multiple benefits achieved through the implementation of sustainable forest management and enhanced pasture management practices\. 5\.3\. Potential issues in post completion operation, including project entity’s capacity and ability of the project to deliver the contracted emission reductions An official verification will take place in 2018 but annual ER reports should inform the calculation of accurate annual ER payments\. The risk assessment will mitigate the risk of under- delivery until 2017\. For additional risk mitigation, interim measurements were carried out on 10% of the permanent sample plots during April-May 2016\. The BioCarbon Fund prepared an annual ER reporting template that set the framework for the project entities to self-assess the risks of achieving ER targets and that serves as a basis to discount the emission reduction to leave some buffer for a potential under-delivery at the end of the second monitoring period\. As a result of introduction of updated annual ER reporting template and final risk score, the Emission Reduction Purchase Agreement (ERPA) between the BioCarbon Fund and the Government of Albania needs to be amended to reflect this change\. The next payment will be made upon receipt of the annual report, assessment of underperformance risk, full disbursement 13 of correspondent share from already received payments to the FPUAs and the former communes, and clarification regarding the use (earmarking) of these payments at the level of the MoE\. The verification and certification of the project activity will be carried out every five years until the end of the Project’s crediting period\. The amount of tCERs achieved in a given monitoring period is calculated at the time of verification as the total amount of carbon sequestered since the Project start date, and tCERs that were issued in the first monitoring period may be re-issued in the second monitoring period if it is verified that the carbon is still sequestered in the carbon pools\. Although the cumulative amount of ERs generated in the first 5-year monitoring period since the start of the Project will be reissued, the basis for carbon revenue payment in the second monitoring period is the incremental part of issued tCERs only\. The project team also needs to ensure that new sub-agreements are signed between the MoE and municipalities/FPUAs as this could affect the project’s ability to deliver the contracted emission reductions\. 5\.4\. Justification for moving to the second phase - carbon finance monitoring phase The Project is fully commissioned – all suitable area is already afforested\. The Project generated ERs and the Project Entity has adequate capacity and experience to conduct monitoring activities according to the ERPA\. All safeguard requirements are fulfilled and the Project has complied with the EMF\. No outstanding safeguards concerns exist and no significant safeguard issues are anticipated during the remaining term of the ERPA\. Since the Project was implemented on a smaller area than was planned, the Project is rated as moderately satisfactory\. 5\.5\. Recommendations and guidance for project monitoring in the second phase - carbon finance monitoring phase The Climate and Carbon Finance Unit team is recommended to monitor compliance with Environmental Management Framework as well as payments to municipalities and FPUAs who agreed to be part of the Project, according to the signed sub-agreements between MoE and municipalities/FPUAs\. 14 Annex 1: Map of Project Sites 15

REVIEW

P098654

IEG Report Number: ICRR14755 ICR Review Independent Evaluation Group 1\. Project Data: Date Posted: 06/09/2015 Country: China Project ID: P098654 Appraisal Actual Project Name: Thermal Power Project Costs (US$M): 108\.96 96\.36 Efficiency L/C Number: Loan/Credit (US$M): 19\.70 19\.54 Sector Board: Energy and Mining Cofinancing (US$M): Cofinanciers: Board Approval Date : 05/05/2009 Closing Date: 12/31/2012 06/30/2014 Sector(s): Public administration- Energy and mining (61%); Energy efficiency in Heat and Power (39%) Theme(s): Climate change (47%); Pollution management and environmental health (26%); Rural services and infrastructure (16%); Environmental policies and institutions (11%) Prepared by: Reviewed by: ICR Review Group: Coordinator: Victoria Alexeeva Peter Nigel Freeman Christopher David IEGPS1 Nelson 2\. Project Objectives and Components: a\. Objectives: The project development objective is "to reduce coal consumption and greenhouse gas emissions (GHG) per unit of electricity production in Shanxi Province, Shandong Province, and Guangdong Province", as per the Global Environment Facility (GEF) Grant Agreement dated June 21, 2009, (p\.6)\. The statement of the project development objective in the Project Appraisal Document (PAD, p\.6) is identical, however it expands further to specify how this objective would be achieved: through (i) mitigating the financial barriers of closing inefficient small-sized coal-fired units; (ii) demonstrating the viability of investments in efficiency improvements in existing mid-sized thermal units; and (iii) developing effective regulations to implement the pilot Energy Saving Dispatch (ESD) programs and conducting studies to support the transition to efficient generation dispatch\. This ICR Review is based upon IEG’s assessment of the achievement of the project objective as formulated in the legal document\. b\.Were the project objectives/key associated outcome targets revised during implementation? Yes If yes, did the Board approve the revised objectives/key associated outcome targets? No c\. Components: Component 1: Mechanisms to Support the Closure of Inefficient Small Coal -fired Generation Units (appraised US$36\.42 million, with GEF Grant at US$9\.5 million; actual US$37\.3 million, with GEF Grant at US$5\.9 million) was to support the closure of inefficient small thermal units and greenhouse gas (GHG) emission reduction in Shandong (4,300 MW) and Shanxi (2,870 MW) by 2010, and help pilot a transparent and effective financial incentive mechanism for the closure of small units (MCSU)\. Component 2: Demonstration of Power Plant Efficiency Improvement (appraised US$56\.4 million, with GEF Grant at US$3\.6 million; actual US$51\.3 million, with GEF Grant at US$7\.6 million) included the following activities: (i) conversion of mid-sized power generation only units into combined heat and power (CHP) units, at Huangtai Thermal Power Plant in Shandong; (ii) waste heat recovery at thermal power units and utilization for district heating, at Jinan Beijiao Thermal Power Plant in Shandong; and (iii) improvement of power generation efficiency resulting from plant energy audit recommendations, at Yangguang Thermal Power Plant in Shanxi\. Component 3: Transition to Efficient Generation Dispatch (appraised US$7\.3 million, with GEF Grant at US$4\.1 million; actual US$4\.6 million, with GEF Grant at US$4\.1 million) was designed to help pilot transition to an efficient energy saving dispatch in Guangdong Provincial Power Grid, including development or improvement of the detailed regulations required to commence the piloting, as well as provide continued support for the improvement of the approach and regulations for generation dispatch and replication to other provinces\. Component 4: Technical Assistance for Project Implementation (appraised US$1\.9 million, with GEF Grant at US$1\.3 million; actual US$1\.55 million, with GEF Grant at US$1\.55 million) included hiring of international and local consultants for operational management, technical advisory, procurement and financial management at the implementing agencies (IA) to support project implementation, M&E and replication of successful experience and practices\. Component 5: Project Management (appraised US$1\.9 million, with GEF Grant at US$0\.4 million; actual US$1\.7 million, with GEF Grant at US$0\.34 million) was to provide budget support for the incremental operating costs of the IAs resulting from the project implementation\. During the project restructuring in January 2013, the following modifications were made:  Component 1: (i) The activity on closure of small coal-fired units was canceled in Shanxi and reduced in size in Shandong because this had been carried out by provincial governments that accelerated the closure of small coal-fired units; (ii) The activity on establishment of a CHP online monitoring in Shanxi was canceled due to the provincial government's decision; (iii) The establishment of electronic bulletin systems for emission allowances of closed small coal-fired units in Shandong and Shanxi was expanded to support the pilot emission trading systems in both Shandong and Shanxi province\.  Component 2 was expanded to include rehabilitation of three additional power plants in Shandong and Shanxi provinces\. d\. Comments on Project Cost, Financing, Borrower Contribution, and Dates: Project cost: The actual project cost was US$96\.4 million, 88\.4% of the appraised estimate of US$108\.96 million\. Financing: GEF Grant in the amount of US$19\.70 million was disbursed at US$19\.54 million by project closure\. Borrower contribution : At appraisal, the counterpart funding was estimated at US$89\.26 million, of which US$15\.50 million were from the central government (Recipient) and US$73\.76 million were from the provincial governments, power plants and commercial loans from local banks (sub-borrowers)\. At project closure, the actual contribution of the Recipient increased to US$25\.52 million, and the contribution from sub-borrowers reduced to US$51\.3 million, to total US$76\.82 million\. Dates: The project closing date was extended twice by a total of 18 months from the original closing date of December 31, 2012 to June 30, 2014, through two project restructurings\. The first extension in 2012 was for one year to December 31, 2013, due to delays\. During project restructuring in January 2013, the scope of activities was modified (see section 2c above), along with modification of the intermediate indicators to reflect the changes, and the outcome targets were revised upward\. The second project closing date extension in 2013 was for six months to complete the studies and dissemination activities\. 3\. Relevance of Objectives & Design: a\. Relevance of Objectives: High\. In 2006, coal-fired generation in China consumed an average 366 gce/kWh, compared to a 300 gce/kWh benchmark in Japan or Europe\. The main factors contributing to China’s low power generation efficiency were: (i) China’s large share of generation by inefficient small units; (ii) generation dispatch not optimized for achieving maximum efficiency; (iii) small Combined Heat and Power (CHP) units operating for power generation only; and (iv) old mid-sized coal-fired units operating at relatively high coal consumption rate\. The government put closure of small generation units as a priority action in its 11th Five-Year period (2006-2010) pursuing a 20% reduction of energy consumption per unit output of gross domestic product (GDP) by 2010 and aimed to complete the rehabilitation of medium-size coal-fired thermal power plants in its 12th Five-Year period (2011-2015)\. The Medium and Long Term Energy Conservation Plan (2004-2020) targeted a reduction of energy intensity from 2\.68 tce per RMB 10,000 of GDP output of 2002 to 2\.25 tce by 2010 and 1\.54 tce by 2020\. The objectives were relevant to the Bank's Country Partnership Strategy FY2006-2010, which was supporting more efficient energy supply\. The project objectives remained relevant to the Bank's Country Partnership Strategy FY2013-2016, which supports shifting to a sustainable energy path, in particular energy efficiency\. b\. Relevance of Design: Substantial\. The statement of the development objectives was clear, and there was a clear causal chain between the activities financed by the project and outcomes related to the attainment of the project objectives\. Reduction of coal consumption and greenhouse gas emissions (GHG) per unit of electricity production in three Chinese provinces was to be achieved through closure of inefficient small coal-fired generation units and rehabilitation of power plants in the Shandong and Shanxi provinces (Component 1 and 2), and pilot transition to an efficient Energy Saving Dispatch (ESD) in the Guangdong Provincial Power Grid (Component 3)\. The first component aimed to demonstrate a sound financial and social management for closure of the small coal-fired units\. The second component presented a holistic approach to improve efficiency of the thermal plants by using energy audits to identify areas for efficiency improvement, piloting leading energy- saving technologies, and promoting best practice for plant operation and maintenance\. Under the third component, the pilot ESD simulation system was designed to identify optimal dispatch rules to improve operation of the existing ESD in Guangdong, and the upstream policy studies targeted key policy gaps for sustaining ESD and its national roll-out\. 4\. Achievement of Objectives (Efficacy): To reduce coal consumption and greenhouse gas em issions (GHG) per unit of electricity production in Shanxi Province, Shandong Province, and Guangdong Province \. * As the outcome targets were revised, the Review evaluates the project's efficacy against the original and revised outcome targets\. In this case, the rating is the same, as both outcome targets were over-achieved\. Under the original and revised outcome targets : Substantial\. Outputs In the Shandong province:  Technical assistance was carried out in the Shandong province to pilot the mechanism for the closure of small units (MCSU) to support small generation companies in closing down inefficient small units, through financial incentives ( an output-based payment per MW closed) and social mitigation (provision of vocational trainings and financial compensation for affected workers)\.  9 small coal-fired plants were closed down with the total capacity of 225 MW\. According to the ICR's Results Framework, the total capacity of the closed down small units in Shandong was 7,733 MW, exceeding the target of 4,300MW\.  The combined heat and power (CHP) online monitoring system was put into operation in 2007 to help the Shandong government enforce their regulations for CHP plants\.  3 thermal power plants were upgraded, i\.e\., Huangtai, Jinan Beijiao, and Weihai plants\.  The project supported the design, development, and operation of the Sulfur Dioxide (SO2) emission allowance trading system, which was established in Weifang city in Shandong Province in 2012\. In the Shanxi province:  The provincial government carried out the MCSU through their own funds\.  The combined heat and power (CHP) online monitoring system was cancelled, as the Shanxi provincial  government decided not to establish such a monitoring system as the amount of existing combined heat and power (CHP) units was reduced substantially after most of the small coal-fired units had been closed\.  3 thermal power plants were upgraded, i\.e\., Yangguang, Wuxiang, and Taiyuan No\. 1 plants\.  Technical assistance was provided for the development of the Shanxi SO2 emission allowance trading system, which became operational in 2012\. In the Guangdong province:  The Energy Saving Dispatch (ESD) simulation system was put into operation in 2012 for the Guangdong Provincial Power Grid to help identify gaps between actual and ideal operations of the ESD that has been operating in the province since 2008\. A number of policy studies were also carried out to identify key policy gaps for sustaining ESD and its national roll-out\.  The combined heat and power (CHP) online monitoring system was put into operation in 2011 in the Guangdong province, with four CHP plants being connected to the monitoring system\. This number was expected to increase to 17 at the end of 2014, covering all the CHP plants in Guangdong\.  An information disclosure system was established based on the actual ESD operation in Guangdong to provide an open platform for data collection, analysis, exchange, inquiry, and management\. The ICR p\. 35 reports that the Guangdong Power Grid Corporation was developing a brand new Operation and Management System (OMS), which would integrate the existing information disclosure system\. Outcome In the Shandong province:  The average coal consumption per unit of coal-fired electricity output reduced from 382 to 332 gce/kWh, exceeding the original and revised targets of 369 and 366 gce/kWh\. The GHG emissions per unit of coal-fired electricity output reduced from 1045 to 909 kgCO2/MWh, exceeding the original and revised targets of 1009 and 1002 kgCO2/MWh\.  For the upgraded power plants, thermal efficiency improved from 40\.3% to 56\.4% at the Huangtai plant (target 44\.4%) and from 57% to 77\.8% at Jinan Beijiao (target 66\.8%)\. In case of the Weihai plant, thermal efficiency was 72\.84%, below the targeted 77\.9%\. The actual cost savings/GHG emission reductions at these plants did not meet the targets: Huangtai (0\.064mtce/0\.16 mtons against the targeted 0\.17mtce/0\.47 mtons); Jinan Beijiao (0\.03mtce/0\.069 mtons against the targeted 0\.06mtce/0\.16 mtons); Weihai (0\.0064mtce/0\.0155 mtons against the targeted 0\.007mtce/0\.017 mtons)\. According to the ICR, this was mainly caused by shorter operation hours than planned for these plants\.  The SO2 emission trading scheme was established at the end of 2012, and the Weifang government has been allocating quota to the local enterprises in the primary market, with results publicly disclosed\. Actual transactions in the secondary market, however, have been put on hold until the issuance of the national policy for a pollutants emission allowance trading system (ICR, p\.31)\. In the Shanxi province:  The average coal consumption per unit of coal-fired electricity output reduced from 373 to 347 gce/kWh, exceeding the original and revised targets of 357 and 354 gce/kWh\. The GHG emissions per unit of coal-fired electricity output reduced from 1020 to 951 kgCO2/MWh, exceeding the original and revised targets of 977 and 970 kgCO2/MWh\.  For the upgraded power plants, thermal efficiency targets were exceeded: 39\.49% at the Yangguang plant (target 35\.8%), 39\.5% at Wuxiang (target 38\.4%), and 41\.26% at Taiyuan No\. 1 (target 40\.9%)\. The actual cost savings/GHG emission reductions met the target at Yangguang (0\.0664mtce/0\.1661 mtons against the targeted 0\.04mtce/0\.11 mtons) and Wuxiang (0\.01738mtce/0\.038 mtons against the targeted 0\.014mtce/0\.031 mtons)\. At Taiyuan No\. 1, the target was not met (0\.0041mtce/0\.012 mtons against the targeted 0\.008mtce/0\.023 mtons)\.  The SO2 emission trading scheme supported under the project in Shanxi led to the issuance of Guidance Note on Further Promotion of Paid Use of Pollutants Emission Allowance and Pilot Trade by the State Council in 2014\. More than 20 provinces organized study tours to Shanxi and four provinces followed the Shanxi practice to establish independent emission allowance trading centers to manage emission control\. In the Guangdong province:  The average coal consumption per unit of coal-fired electricity output reduced from 342 gce/kWh to 299 gce/kWh, exceeding the original and revised targets of 332 and 330 gce/kWh\. The GHG emissions per unit of coal-fired electricity output reduced from 935 kgCO2/MWh to 815 kgCO2/MWh, exceeding the original and revised targets of 908 and 900 kgCO2/MWh\. The attribution of the project to this outcome, however, is weak, as the project support was limited only a few TA activities (see outputs above)\.  The ESD simulation system continues to be used to improve the energy saving dispatch operation in the province of Guangdong, according to the ICR p\.21\. The ICR notes, however, the decision to roll out ESD at the national  level has not yet been made; the ESD policy studies did not lead to the issuance of national policies or regulations, as these were strongly linked to much broader power sector reforms, including pricing reform\. The ICR p\.16 reports that the mechanism for the closure of small units (MCSU) provided technical inputs to the issuance of a national policy, Central Government Fiscal Incentives to Phase out Inefficient Capacity, which was issued by the Ministry of Finance (MOF) in 2011 and guides the further closure of 20 GW in inefficient capacity during the 12th FYP period\. Two technical studies, which complemented the thermal efficiency investments contributed to the issuance of two national policies regarding plant rehabilitation in China, i\.e\. Administrative Measures on Fiscal Incentives on Energy-saving Technologies issued jointly by MOF and the National Development and Reform Commission (NDRC) in 2011, and Notice on Undertaking a Comprehensive Upgrading of Coal-fired Power Plants issued jointly by MOF and NDRC in 2012\. 5\. Efficiency: The ex-post economic internal rates of return (EIRRs) for the six upgraded thermal plants (which constituted 53% of final project cost) are estimated to be in the range of 11\.3% and 176\.2%\. The ex-ante EIRRs were estimated for the original three plants at appraisal (the aggregate ex-ante EIRR 30\.5% (PAD, p\.91)), and for the additional three plants at project restructuring in 2012\. The financial internal rates of return (FIRRs) were also estimated at appraisal and project closure, using the sensitivity analysis of 10% increase in fixed investment and 10% decrease in efficiency gain\. For Huangtai, Beijiao, and Yangguang thermal power plants, the ex-post EIRRs and FIRRs are all higher compared to ex-ante because actual capital expenditures were significantly below the levels anticipated at appraisal\. In addition, Y angguang thermal plant saved more coal than estimated at appraisal, resulting in greater savings from the reduction of coal expenditure\. For Wuxiang, Taiyi, and Weihai thermal power plants, the ex-post EIRRs and FIRRs are all lower compared to ex-ante because of the decrease in coal price, which has reduced the benefit of the coal savings\. In addition, the actual coal savings for both Taiyi and Weihai power plants were lower than expected\. The results are below: 1\. Huangtai: ex-post EIRR: 176\.2% (ex-ante 20\.4%); ex-post FIRR 186\.77% (ex-ante 23\.73%)\. 2\. Beijiao: ex-post EIRR: 76\.8% (ex-ante 26\.7%); ex-post FIRR 91\.79% (ex-ante 16\.96%)\. 3\. Yangguang ex-post EIRR: 85\.7% (ex-ante 78\.7%); ex-post FIRR 90\.91% (ex-ante 88\.69%)\. 4\. Wuxiang, ex-post EIRR: 20\.8% (ex-ante 25\.1%); ex-post FIRR 11\.9% (ex-ante 13\.0%)\. 5\. Taiyi ex-post EIRR: 11\.3% (ex-ante 16\.4%); ex-post FIRR 5\.3% (ex-ante 7\.7%)\. 6\. Weihai ex-post EIRR: 31\.2% (ex-ante 32\.8%); ex-post FIRR 20\.1% (ex-ante 25\.4%)\. The project's closing date was extended by 18 months to make up for slow progress during early years of project implementation, mainly due to unfamiliarity with Bank-GEF procedures\. Efficiency is assessed as substantial\. a\. If available, enter the Economic Rate of Return (ERR)/Financial Rate of Return (FRR) at appraisal and the re-estimated value at evaluation : Rate Available? Point Value Coverage/Scope* Appraisal Yes 30\.5% 52% ICR estimate No * Refers to percent of total project cost for which ERR/FRR was calculated\. 6\. Outcome: Relevance of objectives is high, and that of design is substantial\. Efficacy and efficiency are rated substantial\. The overall outcome is Satisfactory\. a\. Outcome Rating: Satisfactory 7\. Rationale for Risk to Development Outcome Rating:  The gains achieved through closure of inefficient small plants and rehabilitation of thermal plants are likely to be  sustained\. The ESD operations are likely to be continued into the GoC's 13th Five Year Plan 2016-2020\. The decision, however, to roll out ESD at the national level has not been made yet\. The uncertainties in other key sector reforms may slow down the promotion of ESD at the national level\. a\. Risk to Development Outcome Rating : Moderate 8\. Assessment of Bank Performance: a\. Quality at entry: The project design built on Bank's international experience related to rehabilitation of thermal power plants and incorporated lessons from earlier Bank operations related to mine closures and power sector reform in China and other countries such as Russia and Poland\. Most risks were adequately identified and all risks were rated either low or modest (PAD, p\.12-13)\. The risk that materialized and delayed the project at an early stage of implementation was the weak project management capacity of one of the implementing agencies (i\.e\., National Project Management Office (NPMO)) that mainly resulted from unfamiliarity with Bank requirements (ICR, p\.11)\. Financial and safeguard requirements were in place, and the M&E design was overall adequate, with some minor shortcomings (see section 10a below)\. The prolonged preparation time (2\.5 years), however, was identified as a weakness by the Guangdong Power Grid Corporation\. In particular, it undermined the added-value of the ESD simulation system to the pilot ESD in Guangdong\. The corporation expected to have the ESD simulation ready before the pilot ESD to integrate the findings from the ESD simulation system (ICR, p\.45)\. Quality-at-Entry Rating: Moderately Satisfactory b\. Quality of supervision: Seven missions were carried out during five years of project implementation period (ICR, data sheet)\. In addition to the formal missions, the Bank organized a number of technical assistance missions to provide guidance and financial management and procurement training to the project management units at NPMO to speed up the project implementation\. The Bank team was flexible to make adjustments to adapt the project to the shifting provincial priorities and restructured the project to cancel the sub-component for the closure of small thermal units in Shanxi earmarking the resources to other emerging government priorities, including the pollutants emission allowance trading system and innovative rehabilitation demonstration of an additional three thermal power plants\. The early period of project implementation was, however, characterized by insufficient communication between the project team and the NPMO's project management units (PMUs) (ICR, p\.11)\. The initial project delay was attributed by the Shanxi PMU to lack of guidance from the Bank prior to its first mission that took place after one year into the project implementation in April 2010 (ICR, p\.44)\. Quality of Supervision Rating : Moderately Satisfactory Overall Bank Performance Rating : Moderately Satisfactory 9\. Assessment of Borrower Performance: a\. Government Performance: The GOC showed strong commitment to and ownership of energy efficiency reforms in the power sector\. From 2006-2010, China improved energy efficiency by 19\.1% and closed down 76 GW of small inefficient coal-fired units, exceeding its target of 50 GW\. Sufficient fiscal incentives were provided to support EE rehabilitation of medium- and large-size thermal units in the 11th FYP\. The rehabilitation of thermal plants continued to be a top priority during the 12th FYP\. The Government commitment to the project was also strong\. During project implementation, government officials requested the GEF project for a range of analytical and advisory studies as inputs to the government’s EE policies and regulations in the power sector\. At project closure, the MOF's deputy director generals of the International Department and the Economic and Construction Department attended the project closing workshop to acknowledge the contributions of the GEF project\. Government Performance Rating Highly Satisfactory b\. Implementing Agency Performance: There were multiple implementing agencies\. The ICR rates each IA performance separately, as follows: Six thermal power companies: highly satisfactory\. Adequate technical capacity; mobilization of sufficient funds of their own to ensure timely completion of their rehabilitation\. Shanxi Environmental Protection Bureau: highly satisfactory\. a strong leadership role in advancing the agenda for SO2 emission allowance trading at the provincial level\. Shanxi PMU and Guangdong PMU: satisfactory\. Despite a lack of experience with Bank projects at an early stage of the project, the PMUs quickly improved their project management capacity\. National Project Management Office (NPMO): moderately satisfactory\. Key personnel changes (executive director) slowed down project progress and led to the final extension the closing date by half a year\. Shandong PMU: moderately satisfactory\. Although Shandong PMU gradually improved its management capacity, capacity remained weak due to frequent staff turnover and project implementation was slowed down\. On the other hand, Shandong PMU performed well in closing down nine thermal plants in Shandong\. The post-evaluation report showed no unresolved issues associated with the closures\. Shandong Environmental Protection Bureau: moderately satisfactory\. The Shandong EPB completed the establishment of a SO2 emission allowance trading system in Weifang city and disseminated its experience\. However, only virtual trading transactions occurred in the secondary market in Weifang city\. Shandong Power Grid Company: satisfactory\. The corporation completed the establishment of the CHP online monitoring system on time and effectively used the monitoring data to inform its discussion with the relevant government authorities on the scheduling of the power dispatch with CHP plants in Shandong\. Based on a highly satisfactory rating for all six thermal companies, satisfactory performance of the Shanxi and Guangdong PMUs, and moderate shortcomings in the performance of the Shandong PMU and NPMO, the overall performance rating is assessed as Satisfactory\. Implementing Agency Performance Rating : Satisfactory Overall Borrower Performance Rating : Satisfactory 10\. M&E Design, Implementation, & Utilization: a\. M&E Design: The key performance indicators for the project development objective were: the reduction of average coal consumption and GHG emission per unit of coal-fired electricity output (gce/kWh) in Shandong, Shanxi and Guangdong Provinces\. The key indicators included baseline data and measurable targets set at appraisal (PAD Annex 3)\. The attribution to the expected outcome in the Guangdong province, however, is not clear, as the outputs in this province were limited only to a few TA activities\. These outcome indicators are measuring the aggregate efficiency improvements and GHG impacts in the power sector in the selected provinces, and, as noted by the ICR p\. 25, more precise measurement of the project outputs would have enhanced attribution\. For example, weighted electricity supply efficiency (in gce/kWh), total energy savings contributed by the GEF project directly (tce), avoided GHG emissions (ton CO2), or a weighted emission factor (ton CO2/MWh)\. During project restructuring in 2012, the outcome targets were revised upward, and a number of the intermediate indicators were modified, as follows: (i) the cumulative capacity of small-coal fired power generation units closed in Shanxi province indicator was dropped as the subcomponent was dropped, and (ii) the thermal efficiency improvement and GHG emission reductions were added for three new power plants under Component 2\. b\. M&E Implementation: The required data were collected semiannually by the provincial PMUs and assessments were documented in the project progress reports\. All required data and information were collected when the provincial statistical data was available, generally in the second half of the following year\. c\. M&E Utilization: The ICR p\. 12 says that the results of the project were broadly communicated to a wide range of stakeholders, in particular in case of the thermal plant rehabilitation components\. M&E Quality Rating: Substantial 11\. Other Issues a\. Safeguards: This was a Category “B” project that triggered two safeguards policies at appraisal – OP4\.01 Environmental Assessment, and OP 4\.12 Involuntary Resettlement\. There were applicable for the investment activities that may have resulted from the establishment and pilot operation of a transparent and effective financial incentive mechanism for the closure of small units plant (MCSU) under Component 1 and the efficiency improvement projects under Component 2 (PAD, p\.20) \. A new safeguard policy - OP 4\.37 Safety of Dams was triggered during project restructuring in 2012/2013, as the Wuxiang Power Plant and the Taiyuan No\. 1 Power Plant to be rehabilitated under the project were to withdraw water from reservoirs formed by two existing dams: Guanhe and Jinyanghu ( Restructuring paper 2012, p\. 8)\. Environmental Assessment and Management : Environmental Management Plans (EMPs) were prepared for the nine closed small power plants and the six plants for rehabilitation following an approved Environmental Management Framework\. Environmental monitoring of noise, dust, waste water, and solid waste during project implementation was carried out regularly to ensure EMPs were followed\. The monitoring data showed that the plants fully complied with relevant environmental standards and met the standards set in the Environmental Management Plan (ICR, p\.13)\. Involuntary Resettlement : The support to closure of nine small thermal plants was completed in June 2013\. The approved Resettlement Plan Framework and resettlement plans associated with the plants had been followed\. According to the ICR p\.13, adequate compensation and social protection measures for settlement of affected workers were provided\. The post evaluation activity did not identify any remaining social issues\. Safety of Dams: The ICR does not report on the project's compliance with this policy\. The project team subsequently confirmed that the policy was complied with\. The findings of the supervision missions that included a dam safety specialist were all satisfactory\. b\. Fiduciary Compliance: Procurement: The ICR p\. 13 reports that procurement was carried out generally in accordance with Bank procurement policies and procedures\. The issues identified by the prior and post review were addressed, i\.e\., delayed payments by some individual consultants and suppliers in 2010-2011, insufficient maintainance of the record of procurement documents and procurement of some contracts not in line with the agreed procurement plan by the Shandong PMU\. Financial management\. The ICR p\.13 reports, the financial reports were submitted generally on time and all audited financial reports were unqualified\. Issues that arose during project implementation were all addressed, according to the ICR, p\.14\. c\. Unintended Impacts (positive or negative): d\. Other: 12\. Ratings: ICR IEG Review Reason for Disagreement/Comments Outcome: Satisfactory Satisfactory Risk to Development Moderate Moderate Outcome: Bank Performance: Moderately Moderately Satisfactory Satisfactory Borrower Performance : Moderately Satisfactory The overall performance of the multiple Satisfactory implementing agencies is assessed as satisfactory\. Quality of ICR: Satisfactory NOTES: - When insufficient information is provided by the Bank for IEG to arrive at a clear rating, IEG will downgrade the relevant ratings as warranted beginning July 1, 2006\. - The "Reason for Disagreement/Comments" column could cross-reference other sections of the ICR Review, as appropriate\. 13\. Lessons: Two lessons were selected from the ICR, with some adaptation of the language:  Significant demonstration effects can be attained for rehabilitation through proper selection of tech nology based on cost-effectiveness and replication potential , as well as extensive dissemination activities \. Under this project, six thermal plants collectively hosted more than 30 study tours for staff from other thermal plants located both inside and outside their respective provinces\. Several demonstrated technologies (CHP, waste heat utilization, variable frequency control) have been turned into standard industrial practices\.  Flexibility is required to adapt project implementation to evolving government priorities \. The rapid government interventions, along with the project delay at the outset of the project, necessitated a revision to the project sub-components\. One lesson is selected from the Recipient's report (ICR's Annex 7):  Dissemination efforts at the national level should be included as a major design element to promote the application of knowledge and project outputs \. The potential impacts of knowledge outputs could have been more significant if the project was designed to have a greater link to line ministries at the national level and targeted a broader range of stakeholder at the national level\. 14\. Assessment Recommended? Yes No 15\. Comments on Quality of ICR: The ICR is clear and concise\. It covers well the important aspects of the project implementation experience\. Lessons are evidence-based\. The ICR however does not mention the safeguard policy on Safety of Dams that was triggered at restructuring\. Also, the ICR's Results Framework has calculation errors, i\.e\., the actual values exceeding the targets by 212% and 258% under GEO Indicator 1, and by 216% and 242% under GEO indicator 2\. a\.Quality of ICR Rating : Satisfactory

REVIEW

P042237

Document of The World Bank Report No: ICR0000709 IMPLEMENTATION COMPLETION AND RESULTS REPORT (IDA-31310) ON A CREDIT IN THE AMOUNT OF SDR20\.7 MILLION (US$32\.5 MILLION EQUIVALENT) TO THE LAO PEOPLE'S DEMOCRATIC REPUBLIC FOR A PROVINCIAL INFRASTRUCTURE PROJECT June 23, 2008 Transport, Energy & Mining Unit Sustainable Development Department East Asia and Pacific Region  CURRENCY EQUIVALENTS (Exchange Rate Effective June 30, 2007) Currency Unit = Kip Kip 1\.00 = US$ 0\.0001 US$ 1\.00 = 9,610\.00 Kip FISCAL YEAR October 1 ­ September 30 ABBREVIATIONS AND ACRONYMS CAS Country Assistance Strategy (formerly MCTPC) CPPR Country Portfolio Performance Review Namsaat National Centre for Environmental Health DBST Double bituminous surface treatment and Water Supply DCTPC Provincial Department of Communication, NGPES National Growth and Poverty Eradication Transport, Post, and Construction (later Strategy reorganized into DPWT) NPV Net Present Value DOF Provincial Department of Finance O&M Operation and Maintenance DPC Provincial Department of Planning and OBA Output-Based Aid Cooperation (later reorganized into DPI) PAD Project Appraisal Document DoPH Provincial Department of Public Health PDO Project Development Objective DPI Provincial Department of Planning and PDR Peoples Democratic Republic Investment (formerly DPC) PIP Provincial Infrastructure Project DPWT Provincial Department of Public Works PNS Provincial Namsaat and Transport (formerly DCTPC) PPIAF Public Private Infrastructure Advisory FIRR Financial Internal Rate of Return Facility IDA International Development Association PRSP Poverty Reduction Strategy Paper IRR Internal Rate of Return RCMS Road Construction and Maintenance KPI Key Performance Indicators Specialist LNPDP Luang Namtha Provincial Development RWSS Rural Water Supply and Sanitation Project TA Technical Assistance M&E Monitoring and Evaluation TWS Township Water Supply MCTPC Ministry of Communication, Transport, UADP Upland Agriculture Development Project Post and Construction (later reorganized UWS Urban Water Supply into MPWT) WHO World Health Organization MDG Millennium Development Goals WS Water Supply MOF Ministry of Finance WSP Water and Sanitation Program MPWT Ministry of Public Works and Transport Vice President: James W\. Adams Country Director: Ian C\. Porter Sector Manager: Junhui Wu Project Team Leader: Maria Margarita Nunez ICR Team Leader: Maria Margarita Nunez  Lao People's Democratic Republic Provincial Infrastructure Project CONTENTS Data Sheet A\. Basic Information\. i B\. Key Dates\. i C\. Ratings Summary\. i D\. Sector and Theme Codes\. ii E\. Bank Staff\. ii F\. Results Framework Analysis\. ii G\. Ratings of Project Performance in ISRs \. vi H\. Restructuring (if any)\. vi I\. Disbursement Profile\. vi 1\. Project Context, Development Objectives and Design\.1 2\. Key Factors Affecting Implementation and Outcomes \.5 3\. Assessment of Outcomes\.11 4\. Assessment of Risk to Development Outcome\.19 5\. Assessment of Bank and Borrower Performance \.20 6\. Lessons Learned \.23 7\. Comments on Issues Raised by Borrower/Implementing Agencies/Partners \.24 Annex 1\. Project Costs and Financing\.26 Annex 2\. Outputs by Component \.27 Annex 3\. Economic and Financial Analysis\.32 Annex 4\. Bank Lending and Implementation Support/Supervision Processes \.35 Annex 5\. Beneficiary Survey Results\.37 Annex 5\. Beneficiary Survey Results\.37 Annex 6\. Stakeholder Workshop Report and Results\.40 Annex 7\. Summary of Borrower's ICR and/or Comments on Draft ICR\.41 Annex 8\. Comments of Cofinanciers and Other Partners/Stakeholders\.55 Annex 9\. List of Supporting Documents \.56 MAP 29417R  A\. Basic Information Lao People's Provincial Country: Project Name: Democratic Republic Infrastructure Project Project ID: P042237 L/C/TF Number(s): IDA-31310 ICR Date: 06/23/2008 ICR Type: Core ICR Lending Instrument: SIL Borrower: Lao PDR Original Total XDR 20\.7M Disbursed Amount: XDR 20\.4M Commitment: Environmental Category: B Implementing Agencies: Ministry of Communication, Transport, Post and Construction\. Renamed in 2008 to Ministry of Public Works and Transport Cofinanciers and Other External Partners: none B\. Key Dates Process Date Process Original Date Revised / Actual Date(s) Concept Review: 01/07/1997 Effectiveness: 03/19/1999 03/19/1999 Appraisal: 04/20/1998 Restructuring(s): Approval: 09/22/1998 Mid-term Review: 05/17/2002 Closing: 11/30/2006 06/30/2007 C\. Ratings Summary C\.1 Performance Rating by ICR Outcomes: Satisfactory Risk to Development Outcome: Substantial Bank Performance: Satisfactory Borrower Performance: Satisfactory C\.2 Detailed Ratings of Bank and Borrower Performance (by ICR) Bank Ratings Borrower Ratings Quality at Entry: Satisfactory Government: Satisfactory Quality of Supervision: Satisfactory Implementing Agency/Agencies: Satisfactory Overall Bank Overall Borrower Performance: Satisfactory Performance: Satisfactory ­ i ­  C\.3 Quality at Entry and Implementation Performance Indicators Implementation QAG Assessments Performance Indicators (if any) Rating Potential Problem Project Quality at Entry at any time (Yes/No): No (QEA): None Problem Project at any Quality of time (Yes/No): No Supervision (QSA): Satisfactory DO rating before Closing/Inactive status: Satisfactory D\. Sector and Theme Codes Original Actual Sector Code (as % of total Bank financing) Aviation 4 4 Ports, waterways and shipping 1 1 Roads and highways 58 66 Sub-national government administration 16 11 Water supply 21 18 Theme Code (Primary/Secondary) Rural services and infrastructure Primary Primary E\. Bank Staff Positions At ICR At Approval Vice President: James W\. Adams Jean-Michel Severino Country Director: Ian C\. Porter Ngozi N\. Okonjo-Iweala Sector Manager: Junhui Wu Jeffrey S\. Gutman Project Team Leader: Maria Margarita Nunez Supee Teravaninthorn ICR Team Leader: Maria Margarita Nunez ICR Primary Author: Maria Margarita Nunez F\. Results Framework Analysis Project Development Objectives The objective of the Project is to assist the Borrower to strengthen the local institutional capacity, and rehabilitate and upgrade critical basic infrastructure of its remote northern Provinces of Oudomxay and Phongsaly, so as to reduce the poverty conditions and improve the standard of living and socioeconomic potential of the poor inhabitants of these provinces and gradually integrate them into the Borrower's national economy\. ­ ii ­  Revised Project Development Objectives Not applicable (a) PDO Indicator(s) Original Target Formally Actual Value Indicator Baseline Value Values (from Revised Achieved at approval Target Completion or documents) Values Target Years Indicator 1 : Increase in number of staff who were trained in the field/subject concerning planning, budgeting, management, and specific technical subjects\. 78 bachelors and 3 6 bachelors masters degrees; Value 143 courses, quantitative or 0 Staff 15 on-the-job workshops, on-the- Qualitative) training 3 accountants job-training and study tours; 17 accountants Date achieved 03/19/1999 11/30/2006 06/30/2007 Comments Overall total of 143 courses were attended by 1,930 participants (707 persons (incl\. % from Oudomxay and 1,223 from Phongsaly provinces), including 78 bachelors achievement) and three master degrees in the main areas of commerce, engineering, and English\. The indicator increased ten-fold\. Indicator 2 : Number of provincial staff who have experience in executing road maintenance contracts\. Value quantitative or 3 10 10 Qualitative) Date achieved 03/19/1999 11/30/2006 06/30/2007 Comments The transport teams were trained in road design, procurement and preparation of (incl\. % bids, contract supervision and quality control, and English language\. achievement) The indicator was fully achieved\. Reduction in time spent for traveling and transporting goods and services (using Indicator 3 : a 4WD vehicle): from (i) M\. Xay to M\. Pakbeng; (ii) from M\. Xay to M\. Khoua; and (iii) from M\. Boun Neua to B\. Pakha\. Value (i) 10 hrs (i) 2\.5 hrs (i) 2\.5 hrs quantitative or (ii) 5 hrs (ii) 2\.0 hrs (ii) 1\.5 hrs Qualitative) (iii) 2 hrs (iii) 0\.9 hrs (iii) 0\.7 hrs Date achieved 03/19/1999 11/30/2006 11/30/2006 Comments Improved road segments resulted in travel time reductions of: (i) 75 percent between M\. Xay to M\. Pakbeng; (ii) 70 percent between M\. Xay to M\. Khoua (incl\. % and (iii) 65 percent between Boun Neua to B\. Pakha\. achievement) The indicator was fully achieved\. ­ iii ­  (b) Intermediate Outcome Indicator(s) Original Target Formally Actual Value Indicator Baseline Value Values (from Achieved at approval Revised Completion or documents) Target Values Target Years Indicator 1 : Kilometers (km) of road rehabilitated Value (quantitative 0 km 280 km 316 km or Qualitative) Date achieved 03/19/1999 11/30/2006 11/30/2006 Comments By the end of the project, the length of roads rehabilitated and in operation are (incl\. % (199 km in Oudomxay and 117 km in Phongsaly) 13 percent greater than the achievement) target\. The indicator was fully achieved\. Indicator 2 : Number of maintenance contracts awarded Value 18 for 329 km of 13 for 327 km of (quantitative 0 or Qualitative) roads roads Date achieved 03/19/1999 11/30/2006 11/30/2006 Comments The road emergency spot improvement works contracts covered the planned road (incl\. % extension (seven maintenance contracts covering 217 km in Oudomxay and six achievement) maintenance contracts covering 110 km in Phongsaly)\. Though the number of contracts was smaller, the number of kilometers reached the original target\. The indicator was fully achieved\. Indicator 3 : Airfield constructed Value (quantitative or none completed completed Qualitative) Date achieved 03/19/1999 12/31/2002 12/31/2002 Comments A new runway (900 m long and 18 m wide), a 350 m access road, and an 800 (incl\. % m bridge crossing the Nam Boun River were built\. The airfield is being achievement) operated with helicopter services, twice a week from Vientiane to Phongsaly\. The outcome was fully achieved\. Indicator 4 : Cable ferry river crossing Value (quantitative none completed completed or Qualitative) Date achieved 03/19/1999 11/30/2006 03/31/2005 Comments A cable ferry crossing and reconstruction of the ferry ramps on both river (incl\. % banks were completed in 2005\. There has been a 106 percent increase in the achievement) annual traffic since the improved ferry crossing is operating (from 2,555 vehicles in 2004 to 5,475 vehicles in 2006)\. The outcome has been greatly exceeded\. ­ iv ­  Original Target Formally Actual Value Indicator Baseline Value Values (from Achieved at approval Revised Completion or documents) Target Values Target Years Indicator 5 : DCTPC office constructed 1 office building Value 2 laboratories (quantitative or none completed 1 meeting room Qualitative) 7 district office buildings Date achieved 03/19/1999 11/30/2001 11/30/2006 Comments The project supported the construction in Oudomxay of a laboratory and a (incl\. % meeting room and in Phongsaly of an office, a laboratory and seven district achievement) office buildings\. The Indicator has been largely achieved\. Indicator 6 : Water Supply system in Muang Xai Value (quantitative or none completed completed Qualitative) Date achieved 03/19/1999 11/30/2006 11/30/2006 Comments The civil works and equipment supply were completed and commissioned in (incl\. % 2006 such that the number of people benefiting from quality piped water by achievement) 2007 is 19,330\. The indicator was fully achieved\. Indicator 7 : Water Supply system in Muang Khoua Value (quantitative or none completed completed Qualitative) Date achieved 03/19/1999 11/30/2006 11/30/2006 Comments The civil works and equipment supply were completed in 2006 such that the (incl\. % number of people benefiting from quality piped water in 2007 is 2,376 achievement) persons\. The indicator was fully achieved\. Indicator 8 : Number of communities with RWSS programs initiated in Oudomxay (OUD) and Phongsaly (PHY) Value OUD - 0 OUD - 90 OUD - 126 (quantitative or Qualitative) PHY - 0 PHY - 75 PHY - 76 Date achieved 03/19/1999 11/30/2006 11/30/2006 Comments Rural water supply provided to more than 71,400 people in 193 villages, 47 (incl\. % schools (5,455 students) and 7 clinics (19,620 people)\. Sanitation services and achievement) hygiene awareness promotions benefited 71,000 people in 181 villages and 23 schools (1,272 people)\. The rural water supply services in number of people served exceeded the initial target by 38 percent and the sanitation services by 37 percent\. ­ v ­  G\. Ratings of Project Performance in ISRs Actual No\. Date ISR Archived DO IP Disbursements (USD millions) 1 12/21/1998 Satisfactory Satisfactory 0\.00 2 12/23/1998 Satisfactory Satisfactory 0\.00 3 03/12/1999 Satisfactory Satisfactory 0\.00 4 12/27/1999 Satisfactory Satisfactory 1\.12 5 06/16/2000 Satisfactory Satisfactory 1\.69 6 12/19/2000 Satisfactory Satisfactory 3\.36 7 06/14/2001 Satisfactory Satisfactory 6\.08 8 11/02/2001 Satisfactory Satisfactory 7\.12 9 06/27/2002 Satisfactory Satisfactory 10\.38 10 12/09/2002 Satisfactory Satisfactory 12\.51 11 06/30/2003 Satisfactory Satisfactory 15\.15 12 12/31/2003 Satisfactory Satisfactory 17\.76 13 06/30/2004 Satisfactory Satisfactory 20\.10 14 12/28/2004 Satisfactory Satisfactory 22\.02 15 06/20/2005 Satisfactory Satisfactory 23\.51 16 01/05/2006 Satisfactory Satisfactory 25\.89 17 04/09/2007 Satisfactory Satisfactory 27\.84 H\. Restructuring (if any) Not Applicable I\. Disbursement Profile ­ vi ­  1\. Project Context, Development Objectives and Design 1\.1 Context at Appraisal At the time of project preparation, key development challenges at the provincial level in Lao PDR were the rudimentary state of basic infrastructure and its negative effects on agricultural productivity\. The lack of year-round road access in many rural areas and the absence of basic public transport, electricity, and safe water, were hampering the opportunities for enhanced market integration and economic production that were part of the Country's and market integration along with the country's broader development goals\. The dominant mode of transport in the Lao PDR was and still is road transport, followed by civil aviation\. At the time of project appraisal, though the rehabilitation of the backbone national road network was to be completed within the next two years, the provincial and district roads were in a serious state of disrepair, incapable of providing the rural population with year-round weather access to social services, markets, and income-generation and employment opportunities, preventing the achievement of country to achieve a higher levels of economic development and poverty alleviation for the Lao PDR\. The Provincial Infrastructure Project (PIP) represented the continuation of the support the International Development Association (IDA) had been giving to the Country's rural areas through the Luang Namtha Provincial Development Project (Cr\. 2579-LA)\. The PIP was designed to address the main sector issues of rehabilitation of basic provincial and rural infrastructure, improving the quality of the investment plans, and strengthening local institutional capacity, all in order to achieve key objectives of the 1996 Country Assistance Strategy (CAS)\. The CAS attributed poor physical integration of the country's sixteen provinces (half of the country's villages were found to have no access to the main road network, and half of the network was impassable in the rainy season) to the limited progress in reducing poverty and improving living standards in rural areas (the national incidence of poverty was very high at 46 percent, and was particularly acute in rural areas at 53 percent), and advocated a stronger focus on rural infrastructure and rural development\. 1\.2 Original Project Development Objectives (PDO) and Key Indicators (as approved) The objective of the project was to assist the Borrower strengthen the local institutional capacity and rehabilitate and upgrade critical infrastructure of its remote northern provinces of Oudomxay and Phongsaly, so as to reduce the poverty conditions and improve the standard of living and socio-economic potential of the poor inhabitants of these provinces and gradually integrate them into the national economy\. The key performance indicators for assessing the outcome/impact towards meeting the development objectives were: ­ 1 ­  1\. Increase in number of staff who were trained in the field/subject concerning planning, budgeting, management, and specific technical areas; 2\. Number of provincial staff who have experience in budgeting and project management; and 3\. Reduction in time spent for traveling and transporting goods and services\. 1\.3 Revised PDO (as approved by original approving authority) and Key Indicators, and reasons/justification The Project Development Objectives and Key Indicators were not revised\. 1\.4 Main Beneficiaries The project investment strategy targeted beneficiaries on the selected provinces of Oudomxay and Phongsaly (where, based on the 2005 census, population was 265,179 and 165,947 habitants, respectively)\. The principal aim was to provide year-round access to the two provincial capitals and several districts, and to improve related town and rural water and sanitation practices\. Local government staff from the provincial departments of: communication, transport, post and construction; public health; and planning and investment also benefited from the project through capacity development and training\. The investment in treated water supply and sanitation in two major towns provided sufficient good quality water to reduce the time people spend obtaining it, and significantly improved basic health and hygiene, and more generally enhanced the living conditions of residents of remote rural communities\. The project sought to build provincial-level administrative capacity to plan, design and budget, implement, supervise and monitor development initiatives, thus reducing dependency on for technical support from central units\. 1\.5 Original Components Part A: Province of Oudomxay Infrastructure Improvements and Institutional Strengthening 1\. Rehabilitation of: (i) about 139 km of Road No\. 2W between Muang Xay and Pakbeng; and (ii) about 52 km of Road No\. 2E between Muang Xay and Phongsaly provincial border\. 2\. Carrying out a program of road emergency spot improvement works on the sections of the roads referred to in Part A (1) above\. 3\. Upgrading of water supply system in Muang Xay, including installation of a water treatment plant, and construction of an extension to the local office of Nampapa Lao Muang Xay branch\. 4\. Provision of community rural water supply, latrine, sanitation and washing facilities, and construction, management and maintenance of said facilities on a cost-effective sustainable basis by local community user groups\. ­ 2 ­  5\. Provision of goods (including vehicles, soil and material testing, road survey and construction quality control equipment) and office equipment and supplies as required carrying out the foregoing\. 6\. Strengthening the institutional capacity of Oudomxay's provincial government technical and administrative authorities to budget, manage, implement, monitor and evaluate provincial investment projects and related financial accounts and systems, through the provision of consultant's services, workshops, scholarships and training\. Part B: Province of Phongsaly Infrastructure Improvements and Institutional Strengthening 1\. Rehabilitation of: (i) about 40 km of Road No\. 19 between Boun Neua and Ban Pakha; (ii) about 48 km of Road No\. 2E between Oudomxay provincial border and Muang Khoua; and (iii) the Boun Neua Airfield, including access road and bridge thereto\. 2\. Construction of cable river crossing system in Muang Khoua linking Road No\. 2E between Oudomxay provincial border through Muang Khoua towards Taichang\. 3\. Carrying out a program of road emergency spot improvement works on (i) the roads referred to in Part B (1) above and (ii) on Road No\. 2E between Muang Khoua and Taichang\. 4\. Upgrading the water supply system in Muang Khoua, including installation of a water treatment plant and construction of a local office for Nampapa Lao Muang Khoua branch\. 5\. Provision of community rural water supply, latrine, sanitation and washing facilities, and construction, management and maintenance of said facilities on a cost-effective sustainable basis by local community user groups\. 6\. Provision of goods (including vehicles, soil and material testing, road survey and construction quality control equipment) and office equipment and supplies as required to carry out the foregoing\. 7\. Provision of road maintenance vehicles and equipment (including a loader, an excavator and trucks)\. 8\. Strengthening the institutional capacity of Phongsaly's provincial government technical and administrative authorities to budget, manage, implement, monitor and evaluate provincial investment projects, and related financial accounts and systems, through the provision of consultants' services, workshops, scholarships and training\. 1\.6 Revised Components Reallocation of Credit Proceeds\. As agreed during the Mid-Term Review in 2002, modifications to the project's scope and scale that were in line with the original project development objectives resulted in a reallocation of credit proceeds in June 2005 to support additional activities utilizing project cost savings\. Upon assuring that the additional activities proposed by the implementing agencies met IDA requirements, the following changes in the project components were introduced: Part A: Province of Oudomxay Infrastructure Improvements and Institutional Strengthening ­ 3 ­  1\. Resealing and safety improvements (black spot removal) of five km of urban roads; provision of road safety furniture for NR No\. 2W, along 101 km of project rehabilitated roads; construction of the meeting room and laboratory for the Department of Communications Transport Post and Construction (DCTPC); construction of a two km road access to a hospital; additional English language training for DCTPC engineers and funding for two masters degree programs in project management\. 2\. Reticulation for a hospital in the Township Water Supply system\. 3\. Another 35 villages on the rural water supply sub-component\. 4\. Expanding the institutional strengthening and training programs to develop core skills and staff\. Part B: Province of Phongsaly Infrastructure Improvements and Institutional Strengthening 1\. Rehabilitation of NR No\. 19 from Boun Neua to Phongsaly town (20 km); road maintenance by labor intensive works at the district level (this was later cancelled at the Borrower's request); construction of seven Communications Transport Post and Construction (CTCP) District offices; provision of office equipment and motorcycles for the CTCP offices; and navigation equipment for Boun Neua airfield\. 2\. Remedial works to the township water supply through the construction of a gravity feed system for Muang Khoua\. The table below illustrates the additional activities and related financing: Table 1: ADDITIONAL PROGRAM 2002 - 06 Item Description Est\. Cost Evaluation USD DO Poverty Econ Cap-Bdg Score Oudomxay 1,610,000 7\.6 1 Transport 700,000 a\. NR 2W resealing/blackspot 75,000 H L H M 9 b\. NR 2W bridge 300,000 M L M M 7 c\. DCTPC office/laboratory 50,000 H L L H 8 d\. NR 2 safety furniture 200,000 H M M L 8 e\. Training 75,000 H L M H 9 2 RWSS 250,000 a\. 50 village schemes 250,000 H H M M 10 3 Township Water Supply 560,000 a\. Hospital reticulation 560,000 M L M L 6 4 Institutional Strengthening 100,000 a\. Expand to $313k total 100,000 H L M H 9 Phongsaly 1,900,000 9\.3 1 Transport 1,800,000 a\. Access B Neua-Phy-NR19 1,050,000 H L H M 9 b\. LIW in 7 Districts 350,000 H H H H 12 c\. DCTPC offices in 7 Districts 350,000 H L L H 8 d\. BN Airport operation 50,000 M L L M 6 2 RWSS 0 3 Township Water Supply 100,000 a\. GFS Phongsaly 100,000 H M M M 9 4 Institutional Strengthening 0 Total Additional Program 2002-06 3,510,000 ­ 4 ­  In addition, the Road Maintenance Vehicles and Equipment sub-component in Part B of the project was cancelled after the Phongsaly DCTPC recognized that it was more efficient to contract out civil works and decided against buying maintenance equipment\. The funds originally allocated for this purpose (US$600,000) were reallocated to the rehabilitation of priority urban roads in Phongsaly\. 1\.7 Other Significant Changes Closing Date Extensions\. Two extensions of the closing date were granted, for a total of seven months\. The first extension, from November 30, 2006 to March 31, 2007, was to complete the remedial works to the township water supply in Muang Khoua, conclude institutional strengthening program for the provincial governments' staff, and to prepare the results table and the final implementation report\. The second extension, from March 31, 2007 to June 30, 2007, was granted to ensure the provinces' finalization of the implementation completion report (see Annex 7)\. 2\. Key Factors Affecting Implementation and Outcomes 2\.1 Project Preparation, Design and Quality at Entry The overall quality at entry is rated satisfactory\. This assessment is based on: Consistency with country priorities and the CAS\. The project was consistent with the Government's priority of reducing poverty\. As reflected in the CAS, the strategy and priorities were aimed at promoting growth, creating social and physical infrastructure and targeting intervention to vulnerable groups and regions\. The project objective was to enhance connectivity among regions through better transport infrastructure, as well as provide access to clean water and improved sanitation to encourage services and employment opportunities to the benefit of the communities\. Thus, the Bank's strategy was to support the Borrower in designing and implementing a plan to develop rural infrastructure ­ one that would ensure that quality was achieved at the lowest cost ­ and facilitate capacity building through a specific technical assistance component\. The project was also consistent with the country's resolution to invest in well-focused rural development projects, and to draw maximum participation from local authorities and communities in accordance with the decentralization policy\. The objectives of the project were kept relatively modest by concentrating its intervention in three different sub-sectors, which were appropriate given the limited financial and institutional capacity of the local governments at the onset of a decentralization policy\. The emphasis given to road works were in line with the country's priority to urgently address the lack of year round road access to certain rural areas and the absence of other basic infrastructure needed to stimulate production and market integration\. This was relevant to the northern most Phongsaly and Oudomxay provinces, which were among the poorest, most isolated provinces in the country, and were facing difficulties attracting donor investment and other forms of support\. Despite potentially significant preparation and implementation costs due to the remoteness of Phongsaly and Oudomxay provinces, ­ 5 ­  IDA pioneered a decentralized, multi-sectoral operation, as it was considered critical to the provinces' ability to attract investments and realize their economic potential through provision of basic access to roads and water supply\. Nevertheless, there was still room for improvement in the project design with regard to the strategic definition of road rehabilitation and on the projected capacity requirements for the township water supply\. The objective of the road rehabilitation design strategy was to improve the roads to normal service standards at the least cost, based on the condition and visual assessment of the distresses on each road section without detailed designs of the road works\. The first four roads rehabilitation packages, which followed the strategy, resulted in contracts with large quantity and cost escalation\. In 2002, the rehabilitation strategy was reviewed to include systematic testing of the underlying layers of the existing pavements, revised traffic projections, detailed geometric and structural designs, and revised technical specifications\. Similarly, the project started in both provinces without a realistic assessment of the districts' capacity to manage the project\. The units were seriously understaffed without key engineering positions, and the available staff were often newly appointed young graduate engineers\. In 2001-2002 the project management units were restructured and decentralized and the key positions were filled with support from the engaged Road Construction and Maintenance Specialists (RCMS) consultants\. According to the initial design of the township water supply for Muang Khoua, the water treatment plan was to produce 1,100 cubic meters per hour at full capacity to cover a service area population estimated to be 5,894 people in 1998, and a projected population of 11,000 residents at the end of the design period of 20 years\. In 2004, the population in town was 2,625 people and the projected population to 2014 is 2,872 people, well below the estimated number at the design stage\. Similarly, the technology chosen at project design for the water supply system comprised an intake on the Nam Pak River with an infiltration gallery and a pumping station that would bring raw river water and the old spring source to the new water supply\. This was neither appropriate nor efficient for the quality of water in the river and the institutional and economic capacity of the town\. The naturally high turbidity of the water, combined with inappropriate pump specifications that did not account for this siltation, created onerous maintenance requirements and resultant mechanical failures\. A water supply crisis in Muang Khoua ensued in 2002 and thereafter, the system could only supply water two hours or less per day, and was further exacerbated by the inability of the water tariffs to cover operation and maintenance\. Although the water treatment plant was overdesigned, the water production was much lower than anticipated\. The provincial DCTPC, assisted by the Bank, proposed additional works which included a spring surface water source with reduced operation and maintenance demands\. The remedial works were completed in 2006\. ­ 6 ­  Lessons taken into Account in the Project Design The conclusion of the May 1995 Country Portfolio Performance Review (CPPR) indicated that projects focusing on a few key objectives and whose interventions were limited to a few geographic areas had the best chance for success\. Implementation problems were found to be a result of lack of capacity and unrealistically high expectations (by both the Government and the Bank) with regard to objectives and time frames\. The lessons incorporated in the project design reflected the experiences from two ongoing rural infrastructure projects, the Upland Agriculture Development Project (UADP) (Cr\. 3047-LA) and the LNPDP\. These included: Carefully defined, prioritized and focused investment scenarios\. The project design was simple; the investment was focused in two poor Northern provinces and activities were limited to constructing roads and water supply systems\. Capacity building focused on strengthening provincial administration of operations was an integral part of the investment\. To strengthen the provincial governments' administrative functions, the project also included a major capacity development component to support the decentralization agenda\. During project design, technical assistance and a training plan were focused on building capacity of the local authorities to plan, coordinate and implement infrastructure investments, such that the project would be part of daily operations and not a special unit created solely to supervise donor projects\. The responsibilities for project management, including monitoring and reporting, financial management, procurement, and social and environmental safeguards, were assigned to line departments within the provinces\. This was the first IDA project in the provinces and the scope was intentionally limited to implementing the infrastructure works and strengthening the local institutional capacity\. However, expectations were not realistically established in a country dealing with a shortage of qualified personnel\. The intervention, in terms of the training program and the technical assistance, was not well aligned to the limited resources and institutional and human capacity of the provinces\. As such, the assessment of the capacity of the provincial departments to manage the project may have been overly optimistic and of the specific needs for further development could have been more refined\. Consultation with provincial work units and beneficiary groups was central to project planning, implementation and operation and maintenance (O&M)\. The project activities were prepared and implemented following close consultation with the provincial authorities and local beneficiaries\. The incorporation of greater local participation, mainly in the water supply components, encouraged ownership of the beneficiaries for O&M of the systems\. Close coordination with provincial and National Planning Committee and Ministry of Finance\. The roles, responsibilities, incentives, and staffing of the implementing agencies and the national and provincial institutions involved were not well defined and ­ 7 ­  could have been coordinated to facilitate implementation procedures and shifting decentralization of more responsibilities to the provinces\. Project Risks The overall risk rating at entry was Moderate\. A risk rating of substantial would have been more realistic given the project was engaging provinces with rather limited institutional capacity\. The project related risks and the mitigation measures that could be influenced by the project were identified as follows: Lack of Government and private contractors experience to implement an externally financed project (Moderate risk)\. This risk was to be minimized through a training component and more frequent supervision during early years of project implementation\. There was also insufficient institutional capacity of the implementing agencies in terms of skills and numbers\. The risk could have been further mitigated by conducting a more thorough capacity assessment to develop a targeted, comprehensive training and capacity development program and requisite technical assistance\. In addition, an incremental approach to procurement with fewer contracts during the earlier years would have facilitated a smoother learning curve\. In hindsight, a Substantial rating would have been more appropriate\. Lack of counterpart funds (Moderate risk)\. This risk was to be reduced by placing emphasis on least cost technical solutions and incorporating close communication among implementing agencies during annual budget preparation\. In addition, the counterpart fund requirement was limited to a maximum of ten percent of the civil works project cost\. In the latter stages of project execution, implementing agencies' requested assistance with recurrent expenditures, highlighting the apparent shortage of funding for sustaining certain operating costs\. Experience with other projects in the portfolio at that time would suggest that a Substantial rating would have been more realistic\. Poor monitoring and accountability on the use of the funds (Moderate risk)\. With the proposed mitigation measure through independent auditing of project accounts, particular attention should have been given to the skills needs and reducing the knowledge gap at the project onset in the following main areas: procurement, financial management, in addition to accounting and project management\. A Substantial rating would have been more realistic\. 2\.2 Implementation The Mid-Term Review conducted in May 2002 concluded that, despite some cost over- runs in the road works, the estimates of Credit commitments indicated unused funds in contingencies that would support more than US$3\.0 million of additional project activities (within the original Project cost of US$31\.1 million equivalent)\. In joint discussions with the Provinces, IDA agreed to the following criteria for selecting additional activities: consistency with project objectives, maximum impact on poverty, satisfactory economic return, and capacity building impact\. From lists presented by each ­ 8 ­  Province, the Bank gave provisional clearance for preparation of a program of about US$3\.51 million, as detailed in Table 1 above\. The implementation of the Rural Water Supply and Sanitation (RWSS) component was less successful for service delivery to primary schools and health centers in both provinces, as in overall it reached less than 40 percent of the target\. Details of the beneficiary numbers, by Province, are provided in Annex 2\. The factors contributing to the less successful outputs in the RWSS component are summarized below: The original baseline data on the schools and clinics collected were not accurate\. For example, the actual number of clinics in Phongsaly province was only four, not 18\. The number of schools and clinics was overestimated during project preparation, per requests or pressures from local government, as it included schools and clinics the provinces were hoping to build in the target districts during implementation\. There were some overlapping projects in some target villages in Phongsaly\. Some of the school and clinic RWSS facilities were provided by other donors working in the provinces\. Based on the detailed technical feasibility survey, the construction of WS facilities was very difficult in some school and/or clinic locations, especially those in highland areas\. Following consultations with the villages and local authorities, some of the WS facilities/taps were installed in nearby village areas or provided to the new villages instead\. Due to the remoteness/long distance and lack of teachers, some of the primary schools in those villages close to each other were consolidated\. 2\.3 Monitoring and Evaluation (M&E) Design, Implementation and Utilization Due to a lack of existing data sources for monitoring project progress, a project-based M&E system was designed during project implementation\. In addition, the institutional capacity strengthening and follow-up surveys were designed such that they would provide more in-depth assessment of the project outcomes in the provinces and a sample of villages\. There was still room for improvement in the design of the indicators ­for example, identifying indicators for which a base line already exists or reducing the total number of indicators to reflect only the most appropriate\. The supervision team made strong efforts to develop and improve the format and to provide recommendations for data collection\. However, reporting was delayed on a number of occasions and the information available did not meet the requirements for M & E\. This was particularly noticeable as the project was winding down; it was difficult to maintain the provincial authorities' engagement and to act on long term follow-up review and evaluation of the project's impacts\. 2\.4 Safeguard and Fiduciary Compliance Safeguard Compliance\. The treatment of the safeguard issues for this project, classified as category B because of its potential for adverse impacts from the construction or failure to protect the water resources, was appropriate for the Laotian conditions and the type of ­ 9 ­  intervention\. Since most of the project civil works were of rehabilitation within the existing right-of-way, no significant impact on the physical environment activities was expected and the environmental mitigation plan allowed the project to meet the environmental policies\. In expectation of modest land acquisition and resettlement impacts during implementation, a Plan for Land Acquisition, Compensation and Resettlement was developed, agreed and applied in conformity by the respective province\. Some slope erosion protection techniques using bioengineering were tried on sites in Oudomxay\. Despite partial failures at certain locations, the practice has shown excellent results with important savings\. The provinces have been encouraged to continue using the recently experienced low cost technique for other slope protection needs\. Fiduciary Compliance\. The accounts of the implementing agencies were independently audited for all project years\. However, timely submission was often impaired as a result of lack of interest from potential auditing firms\. All audit reports were reviewed by the Bank and considered acceptable\. Some financial management and disbursement issues were noted during project implementation, including slow disbursements, delay or lack of counterpart contributions, and incremental operating cost overruns\. To address these issues, the disbursement division and Department of Roads worked closely to improve reconciling accounts, recruiting auditors and preparing disbursement requests\. Procurement was carried out efficiently by the provincial authorities in accordance with Bank policies\. 2\.5 Post-completion Operation/Next Phase The civil works were properly performed and the roads are fully operational and assumed by the provincial departments\. The private sector participated through national competitive contracting procedures and is capable of supporting the preservation activities\. The Ministry of Public Works and Transport (MPWT) has prepared a National Rural Transport Policy which will provide a framework for sustainability of the preservation of the local roads (provincial, district and rural)\. Although the Ministry is applying an improved mechanism for distributing scarce funding for road maintenance, approval of the Policy is urgently needed to ensure adequate funding for the local roads\. The Rural Water Supply and Sanitation component of the project was designed to apply the Lao National Rural Water Supply and Sanitation Sector Strategy (originally launched in 1997)\. The strategy was prepared by the National Centre for Environmental Health and Water Supply (commonly known as Namsaat) under the Ministry of Health (MOH) in a participatory manner by establishing inter-institutional working teams\. In line with the decentralization process, the project was designed with a demand responsive approach that involved communities through a participatory assessment that would enable them to own the facilities\. These developments gave careful attention to the arrangements after implementation and support for continued operation of the systems\. ­ 10 ­  The MPWT, in consultation with the participating provinces, has been giving attention to the transition arrangements for the town water supply, and is preparing a policy framework within the decentralization agenda\. Water tariffs are being regularly collected and are able to cover operation and maintenance costs, although the tariffs in Phongsaly have not been consistently updated\. Stronger efforts are required from the provincial auhtorities to keep the levels of tariffs according to the actual costs of service provision\. The institutional strengthening activities started under this project will be partially continued for the roads sector under the IDA financed Second Phase of the Road Maintenance Project\. With the support of the Public Private Infrastructure Advisory Facility (PPIAF) grant approved in 2004, the Bank assisted MPWT in assessing different management models utilized in the region With support from the Output Based Aid Facility (OBA), additional grant funding approved in 2006 also assisted in drafting model management contracts on performance-based terms into its scheme designs and developing transparent bidding processes for twenty-one small towns that currently lack access to piped water\. The Government requested Bank support in 2003 for a second provincial infrastructure operation with similar objectives in four additional poor and remote provinces in the Northern part of the country\. The project, which was aligned with the National Growth Poverty Eradication Strategy, was expected to build upon this operation and the successful IDA experiences in the two previous provincial projects\. Due to other competing priorities within the available resource allocation, preparation of the project did not proceed further\. The central and provincial authorities remain eager to invest in a second provincial/rural roads and small towns/rural water supply operation; IDA funding is tentatively planned for 2010\. 3\. Assessment of Outcomes 3\.1 Relevance of Objectives, Design and Implementation The project remained consistent with the country's National Growth and Poverty Eradication Strategy goal of reducing poverty\. The project's development objectives also remained aligned with Bank priorities related to social service delivery and investments in infrastructure (1996 CAS, and 1999 CAS), and sustained growth, improved social outcomes, and reduced vulnerability (2005 CAS)\. In addition, despite being prepared prior to the Millennium Development Goals (MDGs), the project is consistent with the global priorities and targets for the MDG\. The project helped the Government to focus on working towards these global targets, and keeping relevant the need for discussions and actions for reform, notably in the development of alternative private sector management models for water supply facilities\. The project design supported improvements to the backbone of the road network in the two provinces, while simultaneously addressing the lack of year-round road access to district centers and villages\. The inclusion of air transport infrastructure contributed to ­ 11 ­  improved accessibility, particularly for emergency care and business needs\. This in turn reduced isolation of the poor and improved the living conditions and access to essential services and markets\. By the end of 2006, there were still some 97 small towns and 2000 villages lacking access to safe water supply and improved sanitation\. Providing these services remains a priority\. The project has made available procedures and lessons and has raised the profile of the water supply sector\. Results have been encouraging and replication of the project approach may be a suitable way forward to reach the NGPES, and the MDGs\. However, further investments in WSS are still required\. 3\.2 Achievement of Project Development Objectives ICR rating: Satisfactory\. Assist the Borrower to strengthen local institutional capacity\. The capacity building provided by the project proved highly effective at increasing knowledge among staff of the provincial Departments of Communications, Transport, Post and Construction (DCTPC), Planning and Investment, and Health, as well as local contractors and villagers\. Through the courses funded by the project, 1,930 staff from provincial departments, districts and villages received management, financial and technical training\. (Further details of the beneficiary numbers, by province, are provided in Annex 2\.) Following training, staff gained further experience in project management and budgeting through direct involvement on the project\. Provincial staff trained through the project contributed to the overall development and sustainability of the provincial departments and gained experience through the day to day activities\. The communities learnt to develop work plans and village action plans, and to conduct community dialog processes and assessment of hygiene awareness at village level\. Considerable knowledge and experience were gained in the DCTPC in contract management and administration, and technical designs through organized courses and by the RCMS\. This is most evident in the provincial ownership of the civil works programs, as well as their performance in undertaking the procurement process and supervision during execution\. The strengthened coordination and partnership between the central ministry and provincial counterparts is demonstrated by the level of efficiency in the selection and approval of proposed work programs\. The knowledge and experience acquired reinforces other general contracting activities undertaken by provincial authorities\. However, communication and coordination between the Provincial National Center for Environmental Health and Water Supply (Namsaat), the Department of Public Health (DoPH), the district Namsaat and Public Health implementing agencies had marked deficiencies\. There was not a systematic approach to monitoring and evaluation of implementation by the Provincial Namsaat and DoPH\. Project reports were often not submitted on time and the district did not make opportune communication of the problems and issues to the Provincial Namsaat and DoPH\. ­ 12 ­  Staff trained continued to work on the project and applied their new skills in management of the project\. Both provinces now have a core of competent staff that is capable of managing the provincial activities and donor funded projects with less reliance on central government support\. However, accounting and budgeting, monitoring and reporting of the project implementation activities were moderately acceptable\. The provincial departments assigned a very limited capacity of the staff (in number and skills) to the project; this had, in a few instances, impacts on project implementation\. The provinces must ensure that staffs are retained such that the knowledge and procedures developed under the project are of future use\. Rehabilitate and upgrade critical infrastructure of its remote northern provinces of Oudomxay and Phongsaly\. Road Rehabilitation\. The rehabilitation of the two national road sections (roads No\. 2 E and W and 19), which form part of the backbone of the road network of the provinces, has had a major positive impact by providing better roads, which in turn have facilitated improved transport services for the population within the vicinity of those roads, travelers within the provinces and the rest of the country, and traders and tourists from China and Vietnam\. Before the project, Road No\. 2 was hardly passable and the trip from Muang Xay to Muang Pakbeng took 10 hours; it now takes 2\.5 hours (70 percent time savings)\. For instance, in Muang La District in Oudomxay, prior to the rehabilitation there was little or no ownership of motorized transport, with two buses daily passing through from Muang Khoua\. Following rehabilitation, there is now higher traffic within the district and public transport has increased to six buses per day to Muang Xay\. Similar substantial time and vehicle operating costs reductions and traffic increases are recorded on Road No\. 19 (see Data Sheet)\. The improved road connections have also opened up new public transport routes with daily service to China (via Road 1A) and to Vietnam (via Road No\. 2 Muang Khoua - Taichang) which has already increased trade and tourism in the provinces\. The expected outputs were exceeded by 13 percent (316 km of roads were rehabilitated versus 280 km planned)\. Further details of the beneficiary numbers, by province, are provided in Annex 2\. Cable Ferry in Muang Khoua\. Since the cable ferry was opened in 2005, there has been a substantial traffic increase (see table below), which has facilitated transport movements along an important regional route to Vietnam\. In addition, the ferry fee has been reduced as a result of the fuel efficiency gains enabled by the cable crossing, as the ferry benefited from having to navigate less against river currents\. The 200 percent increase in traffic since 2003 demonstrates a significant demand for the crossing and increased economic activity\. ­ 13 ­  Table 2: Cable Ferry traffic in Muang Khoua Year No\. Vehicles No\. Trucks 2003 1825 5 2004 2555 7 2005 4386 12 2006 5475 15 The Boun Neua Airport opened on December 28, 2002, with an average of two flights per week, according to the season\. However, the airport was closed for six months in 2007 as Lao Airlines retired three aircraft\. A recent development is the helicopter service from Vientiane to Phongsaly, which services two flights per week\. The airport provides prompt, year-around access to the province and its convenience is appreciated by business people, government officials, and by the locals on emergency trips\. The passenger traffic the last five years is averaging 1,000 passengers per year (see table below)\. Table 3: Boun Neua Airport Traffic Year Number of Passengers February 2003 - September 2004 1352 October 2004 - September 2005 998 October 2005 - September 2006 1112 October 2006 - September 2007 920 October 2007- June 2008 838 The Urban Water Supply outcomes are satisfactory as the objectives were fully achieved\. Both systems were implemented on time\. By the end of the year 2006, 19,330 people in Muang Xay and 2,376 in Muang Khoua had access to improved piped water supply\. The treated water quality is satisfactory meeting the World Health Organization (WHO) water quality standards and is monitored monthly and annually\. The Muang Xay water supply system is making good progress towards sustainability through proper management, good operation and maintenance of the system, and full cost recovery by updating the water tariff to meet the expenditure needs\. At project preparation, the team guided the provinces to adopt engineering design standards to supply water at low cost\. However, in Muang Khoua the system design was not of a rational standard as the expected demand for piped water supply was overestimated and the system did not meet the technical design expectations\. As a result, the price of providing water to households in Muang Khoua is higher than expected\. Nonetheless, the urban water supply management in Muang Khoua would need to make efforts to attain the level of operation and maintenance and financial stability by increasing the water tariff to cover actual operating and management costs\. As part of the final evaluation a rapid beneficiary survey/interview was conducted\. The survey found that prior to the provision of the water supply through the connections; households were spending significant time collecting water\. Households were spending an average of 25 minutes in Munag Xay and 45 minutes in Muang Khoua per day, ­ 14 ­  depending on the season, collecting water\. Hence, the time previously used to collect water can now be used for more productive purposes, childcare or leisure\. The details of the beneficiary surveys are provided in Annex 5\. The rural water supply schemes built under the project are meeting the WHO water quality standards and servicing more than 71,400 villagers in 193 villages; and have improved sanitation and health behavior through education and small investments provided to 71,000 people in 181 villages across both provinces\. Further details of the beneficiary numbers, by province, are provided in Annex 2\. Other project achievements demonstrated the application of the national rural water supply strategy in remote areas, increased the local awareness for environmental health issues, and promoted participatory practices\. As part of the final evaluation a rapid beneficiary survey/interview was conducted\. The survey highlighted improvements in key water-related health behaviors as a result of the provision of the sanitation campaign and investments\. Overall health behaviors have improved; from the interviews it was observed that over 60 percent in Oudomxay and 54 percent in Phongsaly of the respondents currently follow safe practices for hand washing; and over 44 percent in Oudomxay and 40 percent in Phongsaly of the respondents follow safe practices cleaning and washing of cooking/eating utensils\. Detailed results of the survey are provided in Annex 5\. 3\.3 Efficiency Economic Rate of Return Road Rehabilitation Investments\. The ex-post economic evaluation of the road rehabilitation sub-component was prepared by the Bank using the Roads Economic Decision Model (RED) version 3\.2\. The model was developed by the World Bank for the economic evaluation of low volume roads, which estimates project benefits in terms of reduction in road user costs (vehicle operating costs plus passenger time costs)\. The project roads were rehabilitated and sealed with Double Surface Treatment and the average rehabilitation cost was US$59,614 per km\. It is worth noting that this cost is considered low when compared with the regional average\. The table below presents the economic evaluation results per contract and for the overall rehabilitation program\. The analysis assumes a 15 year evaluation period for all roads at a discount rate of 10 percent to be consistent with the ex-ante economic evaluation\. The overall program Internal Rate of Return (IRR) is 24 percent and a Net Present Value (NPV) of US$17\.1 million suggests that the road rehabilitation strategy, as applied, provided an economic approach, given the condition of the old pavement and the traffic projections under the assumption of normal loading of heavy vehicles\. Four sections presented low returns (IRR at or <9 percent) for they sustain very low traffic; however, these sections represent important regional or international links\. (See Annex 3 for further details)\. ­ 15 ­  The road rehabilitation strategy outlined at appraisal was based on the requirement to rehabilitate and improve selected roads\. It was not possible to compare the appraisal stage economic rate of return with the re-calculated IRR as the estimates of traffic and road rehabilitation cost, per road section, are no longer available\. Table 4: Economic Evaluation of Road Investments Economic Evaluation Results NPV IRR Province Contract (Million US$) (%) OudomXay CP-OUD-2W-01 1\.1 24% CP-OUD-2W-02 2\.5 40% CP-OUD-2W-03 4\.9 61% CP-OUD-2E-04 3\.6 45% CP-OUD-2E-05 2\.1 31% CP-OUD-2W-06 1\.1 24% CP-OUD-2W-07 0\.3 14% CP-OUD-2W-08 -0\.1 9% CP-OUD-2W-09 0\.7 37% CP-OUD-URB-01 0\.3 47% Phongsaly CP-PHY-19-01 -0\.6 <9% CP-PHY-19-02 -0\.5 <9% CP-PHY-19-03 -0\.1 9% CP-PHY-2E-03 0\.6 16% CP-PHY-2E-04 0\.4 14% CP-PHY-UR-01 0\.7 27% Total 17\.1 24% Boun Neua Airfield\. The existing runaway was upgraded with a new alignment, as its safety made it the most viable option\. This option had a cost of US$1,120,000 (ten percent higher than the original estimate, but represents less than four percent of the total project cost)\. As described in the previous section, the traffic statistics indicate an average annual traffic of 1,000 passengers in and out of Phongsaly, which is well below the appraisal estimate\. However, due to problems with commercial aircraft service, we are unable to estimate the growth pattern of air traffic and to determine the economic viability of the airfield beyond the fact that it provides convenient access to the province\. Although it is expected that the service will improve, we would not know yet that the airfield will be economically viable in the future\. Urban Water Supply (UWS) Systems in Muang Xay and Muang Khoua\. The estimated at appraisal and actual costs at completion of Muang Xay and Muang Khoua water supply are depicted in the following table\. As can be noted, the actual completion cost of the UWS systems are ten and thirteen percent lower than its estimate at appraisal for Muang Xay and Muang Khoua, respectively\. Table 5: Appraisal Estimates and Actual Completion Cost of the Urban Water Supply Systems UWS Component Appraisal Actual at Difference in Estimate Completion Percentage (USD) (USD) Muang Xay 1,925,000 1,731,164 10 Muang Khoua 800,000 700,881 13 ­ 16 ­  The population growth rate, population served, number of connections and current water tariffs in Muang Xay and Muang Khoua are presented in the table below\. Table 6: Urban Water Supply System Attributes Town Muang Xay Muang Khoua Population growth rate 2\.8 percent 2\.3 percent Population served 19,300 habitants 2,300 habitants Number of connections 4,328 connections 404 connections Current household water tariffs 1,291 Kip/cum 1,050 Kip/cum Both Muang Xay and Muang Khoua UWS systems utilized the standard least-cost effectiveness methodology which incorporates technical, environmental, financial, and social criteria into the decision-making process\. At project closing, people from both towns were benefiting from reliable supply of safe piped water\. The number of beneficiaries in Muang Xay is 23 percent less than estimated at the time of appraisal; and it is 61 percent less in Muang Khoua for the design shortcomings described in the previous section\. The systems have been managed relatively well, although operation and maintenance has suffered from the reluctance of the provincial authorities to raise the tariffs and this is a source of concern\. Muang Xai has adequate capacity and revenue for the near term and has no specific plan for post completion operation\. On the other hand, due to over-design of Muang Khoua water supply system, it would need additional technical and financial support to expand capacity of its water supply distribution networks, with final goal of achieving full cost recovery to meet its operation and maintenance expenditures\. The systems are still on their early days, they are running with seven days a week 20 to 24 hours service to the towns households; it will be important to carry on a detailed economic reevaluation once data becomes available\. Cost Effectiveness Actual project costs were within five percent of the estimates, and contingencies were reallocated mainly to extend the quantity of the works\. This reallocation, combined with the savings resulting from the competitive bidding processes, allowed for an increased number of staffs trained and for the rehabilitation of a longer length of road than originally planned\. While most of the costs were equal to or lower than expected, the cost of administering the project was higher than it should have been, largely due to the lack of experience of the government staff in the process\. In addition, IDA's flexibility in providing additional resources for incremental operating costs greatly facilitated the provinces' ability to implement the project, which would have otherwise faced difficulties\. Financial Rate of Return Not applicable\. ­ 17 ­  3\.4 Justification of Overall Outcome Rating The overall outcome is rated Satisfactory\. This overall rating is based on the review of achievements of the main project objectives (Section 3\.2), the compliance with the safeguards (Section 2\.4) and the ex-post economic evaluation of the project (Section 3\.3)\. The key aim of strengthening the local institutional capacity was achieved for a significant number of staff\. The physical components for rehabilitation and upgrading of basic transport and water supply and sanitation infrastructure in the project provinces enabled time savings for both travel and water gathering\. Completion of the cable ferry crossing and airport rehabilitation were crucial linkages in facilitating connectivity and ensuring access\. Though also attributable to many other factors, the project contributed to reducing the conditions associated with poverty by improving the standard of living and socioeconomic potential while gradually integrating rural communities into the Laotian economy\. 3\.5 Overarching Themes, Other Outcomes and Impacts (a) Poverty Impacts, Gender Aspects, and Social Development The project aimed at assisting Lao PDR to reduce the poverty conditions of the inhabitants of two remote Northern provinces of the country\. It was designed to provide access to transport and social services; and to reduce the travel time for people and goods\. The project assisted in reducing the time poor villagers were spending collecting water from raw sources\. Access to safe water and appropriate sanitation and hygiene services led to health benefits to the poor\. In addition, improved health resulted in more productive workdays and in savings to the poor households from reduced medical expenditures\. The project also provided school water supply and latrines with hand washing facilities and health education activities\. (b) Institutional Change/Strengthening See Section 3\.2 above\. (c) Other Unintended Outcomes and Impacts (positive or negative) The poor population of the project provinces of Oudomxay and Phongsaly are reaping benefits from the project roads, as there has been a significant increase in agricultural production, with produce being exported to China and Vietnam\. Although this is not an outcome of the project investment, the improved vehicle access has contributed to this development and the increment of the rural communities' incomes\. Conversely, these production activities are happening with very little control\. The new areas opened for agricultural produce are mostly mountainous areas, which are sensitive to deforestation and soil erosion\. The central and the provincial authorities should ensure that any development is carried out in a sustainable manner and with minimum impact to the environment and the existing infrastructure\. Towards this end, the authorities should create conditions to manage the land use problem through strong laws and institutions\. ­ 18 ­  While the provision of improved water supply has promoted social and economic development of Muang Xay and Muang Khoua, the untreated waste water has potential negative consequences if not dealt with properly\. The long-term development horizon of the sector should recognize the need for ensuring delivery first, with waste water and sewage addressed during latter stages, given the resource constraints that may determine a phased approach\. The local government and related departments would have to ensure proper management and handling of the waste water generated, to avoid causing detrimental impacts to the environment\. 3\.6 Summary of Findings of Beneficiary Survey and/or Stakeholder Workshops According to the beneficiary survey results, 70 percent of interviewees in Maung Xay and 33 percent in Muang Khoua hold the view that their income has increased due to the township water supply\. Most notably, all respondents agree that the services are supplying good quality water and of sufficient volume\. Furthermore, all respondents agree that there has been a marked improvement in individual health benefits\. However, the survey results for the rural water supply component suggest that there has only been a modest change in behaviors related to sanitation practices, the handling of water and the general knowledge of associated water-born illnesses\. 4\. Assessment of Risk to Development Outcome The risk to development outcomes is considered Substantial\. The assessment is based on consideration of the institutional capacity at project completion, technical considerations, and financial viability of the investments\. A robust road maintenance regime and adequate maintenance funding must be internalized if access and level of service are to be maintained\. There is now a healthy local contracting industry available for the ongoing maintenance program and for future road rehabilitation works\. Both the provincial authorities and contractors have developed skills in bid preparation and contract management and have demonstrated the advantages that competitively bid works bring in terms of cost efficiency\. The central Government and Provinces confront a difficult challenge in the need to address a substantial financial gap for road maintenance in the medium term, and to control heavy transport and road safety\. Although the roads have been built to standards, the current level of funds provided by the road fund and the allocations from the provincial budgets are not enough compared with the road preservation needs\. In order for the Government and the Provinces to meet these needs, incremental additions of the revenues earmarked for road maintenance and to the provincial road maintenance budget are required\. In addition, a related issue is the heavy loaded truck traffic on the project roads\. Roads completed by the project are exposed to daily overloaded trucks transporting various agricultural and other goods, particularly on the roads connecting to neighboring China and Vietnam\. The Oudomxay and Phongsaly DCTPC supported by the MPWT should exercise stricter control of overloaded traffic to reduce and eventually eradicate this practice\. A failure by the authorities to act promptly will result in shortening of the useful life of these roads and higher maintenance costs\. ­ 19 ­  Lao PDR's strategic decentralization efforts must continue to focus on skills development, quality control and operational management aspects\. This is particularly true for improving the management of Nampapas in terms of water tariff setting, financial management and accounting practices, and operation & maintenance activities\. Staff retention and life time training of water supply plant managers, accountants and operators is critical to the sustainability of the rural and town water supply schemes\. The financial viability of the water supply and sanitation services remains tenuous\. Both Muang Xay Water Supply Enterprise of Lao (Nampapa) and Muang Khoua Nampapa imposed one time water connection fees, monthly water meter rental fees, and water tariffs to cover water production costs, operation and maintenance (O&M) only\. While the Oudomxay Nampapa has increased water tariffs annually to enhance cost recovery, financial reports indicate that it only achieved the O&M cost recovery milestone at the end of 2006\. Financial sustainability of the Oudomxay Nampapa is likely\. The Muang Khoua Nampapa has maintained the same water tariffs since 2001\. The combination of Muang Khoua water treatment plant over-design (the plant is operating at about 45 percent of its actual design capacity), the household income levels of both its users and potential customers, and the outdated tariff levels, are the main reasons why the system has underperformed\. The financial accounts of the Muang Khoua Nampapa have shown deficits since the commission of the new water supply system in 2001, therefore, financial sustainability of Muang Khoua Nampapa would require strong efforts from the Province to make it likely\. 5\. Assessment of Bank and Borrower Performance 5\.1 Bank Performance (a) Bank Performance in Ensuring Quality at Entry IDA's performance in the preparation stage is rated Satisfactory\. During preparation, the task team ensured that the development objectives and the project scope were consistent with the country's priorities and the CAS\. The team properly assessed the sectoral issues and needs of the provinces, the overall context in which the project was to be implemented and designed well-focused project components\. However, the initial assessment of capacity needs lacked a realistic plan to cover the skills gap and would have been useful in developing an appropriate capacity development plan, thus resulting in a scattered approach to training initiatives\. The team complied with relevant safeguard policies and assessed the economic viability of the project's major road works, airfield, and the urban water supply systems\. Prequalification of contractors commenced after effectiveness of the Credit and contracting started eight months later\. Work on the first two road contracts commenced in November 1999\. The contracts were extended for six months in Phongsaly and 20 months in Oudomxay, with substantial increases in quantities mainly due to changes in pavement specifications\. The project design of the road rehabilitation and the Muang ­ 20 ­  Khoua township water supply shortcomings could have been avoided if IDA had required a comprehensive detailed design of the road and township works and assessed the client's readiness for implementation prior to project approval\. (b) Quality of Supervision IDA performance during supervision is rated Satisfactory\. IDA conducted regular supervision missions, averaging two missions per year; the expertise of the team members was high and usually included an appropriate skill mix, supported by the Bank's Vientiane, Bangkok and Hanoi offices\. The World Bank Water and Sanitation Program (WSP) team provided extensive support on the water supply and sanitation aspects of the project\. Most missions made field visits and were able to provide technical and other advice to resolve issues based on actual conditions\. The early supervision missions concentrated on implementation facilitation such as construction standards, procurement, quality of works and safeguards\. Later missions looked after results such as project management, reporting, capacity development targets, accounting, health education and hygiene promotion activities and models for piped water supply\. An important benefit of the support provided by the Bank was sharing lessons on the possible private sector participation, made possible with PPIAF and GPOBA grants\. However, it was not always possible to integrate a water supply specialist in the project activities to sufficiently and efficiently respond to outstanding issues, as would have been the task team preference\. There were three different task managers; the last of which supervised about half of the project duration\. At the Mid-Term Review, having observed improved performance of the provinces, IDA: cleared acceleration of remaining work on National Road 2E for Oudomxai DCTPC; supported expansion of the UWS component in Oudomxay and in Muang Khoua; and identified needs for improvements in the management of the RWSS component, thus demonstrating flexibility in administering the project\. (c) Justification of Rating for Overall Bank Performance IDA overall performance is rated Satisfactory\. The PIP was a follow up project from the Luang Namtha Provincial Development Project, but was the first IDA project for the two northern remote provinces\. Furthermore, the Bank attended to client requests in an appropriate manner as issues emerged, proactively engaged with the implementing agencies, both in the capital and in the provinces, provided regular supervision of procurement and FM aspects and supported project implementation, hence contributing to achievement of PDOs\. 5\.2 Borrower Performance (a) Government Performance ­ 21 ­  The Government performance is rated Satisfactory\. Under the country's decentralization policy, the project was executed by the two provinces with limited involvement by the central authorities\. For technical needs, the provincial governments received advice from the concerned line ministries (e\.g\. MCTPC for road and township water, and the Ministry of Health for rural water)\. However, further improvements could have been made earlier to the institutional arrangements for more effective management by further decentralizing responsibilities to the provincial and district level\. Project implementation was affected by weak institutional capacity, and decision making sometimes was cumbersome\. At the provincial level, many issues had to be brought up to the Provincial Department of Planning and Investment (DPI) for decision\. For example, DPI was the coordinator for the capacity development program and the consolidated financial management; this was operated with unclear instructions and unfamiliarity with the work\. (b) Implementing Agency or Agencies Performance The overall implementing agencies performance is rated Satisfactory\. DCTPC\. The DCTPC carried out the major civil works with quality and within budget, though not in the time frame for reasons out of its control\. The starting date of the second batch of contracts was delayed over two years as a result of the need to strengthen limited institutional capacity and the need for assistance from consultants\. The civil works were supervised by capable international consultants who supported provincial capacity and transferred best-practice knowledge to public and private sector engineers and technicians while also helping to sustain the pace of project delivery\. Good cooperation occurred among the implementing units of DCTPC, particularly with the township water supply management\. It is essential that the DCTPC alerts the MPWT and other concerned authorities about current truck overloading incidents in order to ensure effective counter measures, as the current situation is causing serious damage to the project roads\. The use of mobile scales, in addition to the permanent weigh stations that are being supported by the IDA financed Road Maintenance Program (Phase 2), can be used to carry out spot checks at different locations\. The Water Supply Enterprise of Lao (Nampapa Lao), which reports to the DCTPC, was responsible for the implementation of the township water supply\. The Oudomxay and Muang Khoua Nampapas completed all planned investments in a timely manner and were adequately staffed\. Although the Nampapas face financial difficulties, local government support is required to ensure cost recovery and to maintain water tariffs at an adequate level to meet the operation and maintenance cost\. The Provincial National Center for Environmental Health and Water Supply (Namsaat) and the Department of Public Health (DoPH)\. The Rural Water Supply and Sanitation activities were implemented under an innovative approach to service provision by a demand responsive approach\. The decentralization policy was supported extensively by ­ 22 ­  the Namsaat Central through clear policies and training to the provincial and district staff\. Community dialogue led to good community mobilization and represents a best practice case as an effective method of community participation and mobilization\. However, communication and coordination among the Provincial Namsaat, DoPH, and the district Namsaat in project implementation had some limitations\. There was no systematic monitoring and evaluation of implementation approach by the Provincial Namsaat and DoPH\. Project reports were often not submitted on time and the district did not communicate in an opportune manner the problems and issues to the Provincial Namsaat and DoPH\. Greater support and oversight by the provinces could have strengthened and improved the implementation and monitoring of the schemes and latrines for better operation and maintenance\. Department of Planning and Investment\. The project management and coordination role of the DPI at the local level was particularly important for project implementation\. The progress of the project relied a great deal on the DPI response\. The complexity involved in parallel implementation in two provinces caused delay from time to time of required accounting activities, training event clearances and general reporting\. The Bank's Mid- Term Review mission, as well as subsequent missions, noted the improvement in accounting capacity, as evidence of strengthened institutional ability\. However, the improvements were not always constant and the reporting results were spotted\. This was noticeable as the project was winding down, and ownership of the provincial authorities was very low for the long term follow-up review and evaluation of project results\. (c) Justification of Rating for Overall Borrower Performance The overall Government performance is rated Satisfactory\. Significant physical outputs outperforming the original targets have resulted, along with recognizable capacity enhancement at all levels in the project provinces\. IDA consistently rated project implementation satisfactory for good project performance and attention to fiduciary and safeguards issues\. The local governments implemented the project satisfactorily; except for the accounting and project activities monitoring and reporting which was not always conducted according with the agreed guidelines\. 6\. Lessons Learned The multi-sectoral approach and the implementation delegated at the provincial level proved to be efficient\. The project adopted a multi-sectoral implementation approach for road transport, urban water supply, rural water supply and capacity development, through sector based provincial units\. The organizational arrangements and coordination among components were challenging at times, for they required changes in the working methods to constant and open communication among the various units\. However, synergy was created particularly on the road, town and rural water components for cooperation and fulfillment of common interests\. Accessibility to project financing for the provinces should be through a competitive process based on performance\. The project allocated funding per province based on the ­ 23 ­  needs and the perceived capacity of the provincial institutions, with the stronger province acting as the project coordinator\. The incentives for good performance diminished as the Credit resources became scarcer, and completing the final activities for the dependent province was extremely challenging\. In future projects funding should be allocated using a programmatic approach; with provisions for each province to act independently and for funding in subsequent years allocated according to a previously agreed rating based on performance\. The project design and cost estimate for civil works should include detailed design for proper assessment of the material and monetary resource needs\. Project preparation was based on visual assessments and a few road materials samples, and that main engineering decisions would be made on site jointly by the supervising engineers and contractors\. This practice provided inadequate information on the condition of the existing pavements and in consequence ­ together with the low capacity of the provincial staff ­ required changes in the rehabilitation design and escalation of quantities and cost of the road works\. Upfront consideration to the increased waste water produced by the new water supply system needs to be given\. At the time of project preparation, one of the urgent basic infrastructures needed in the provinces was reliable water supply in quantity and quality\. The project financed the construction of water supply systems and schemes, but a system to collect the used water or sewage was not included\. The additional water use as a result of the project produced free outside running water which is unhealthy and damages the surrounding structures and landscape\. A plan on how to handle the used water has to be taken in consideration at the same time as the town water supply system is being contemplated for funding support\. Appropriate measures for preventing truck overloading are critical to extending road life cycles and reducing maintenance costs on the newly rehabilitated road investments\. The project roads were designed as low volume, low cost roads with pavements strengthened to withstand increased normal traffic generated after the rehabilitation\. However, the pavements have been continuously exposed to the impact of high contact stressing due to heavily overloaded trucks transporting various agricultural and other goods\. Overloaded trucks were observed on NR-02 from Muang Xay to Pak Beng during the maize harvest from September to January each year, and on NR-19 from Pakkha to Ban Yo during the sugar cane harvest\. Overloaded trucks have also been observed on NR-19 traveling from the Chinese border through Phongsaly to Vientiane\. Failure from the Government to take proper measures to prevent such overloading will result in shortening of the useful life of these roads and increase maintenance costs\. 7\. Comments on Issues Raised by Borrower/Implementing Agencies/Partners (a) Borrower/implementing agencies (Obtained at the Lao PIP Reflections Workshop held on Wednesday, March 12, 2008 at the Oudomxai Provincial Government Office) ­ 24 ­  Key reflections shared and discussed include the following: Each province has developed sufficient capacity to implement projects by external (international) funding (e\.g\. contractor management, procurement), thus in the future, per-province project financing should be pursued from the view point of efficiency and optimal project management\. Multi-sector approach has proven to be effective in both provinces, and PIP model should be advocated\. Fund management at the province level provided a good opportunity for developing capacity of the provincial staff\. Closer supervision by the World Bank, particularly at the initial stage of implementation, would have enabled smoother operation\. From the technical perspective, central government (Ministry of Public Works and Transport) played an important role in providing advice as required; however, all the administrative arrangements were made by the Governors' Offices and these arrangements provided provincial government staff with opportunity to acquire skills required for project management\. (b) Cofinanciers (c) Other partners and stakeholders ­ 25 ­  Annex 1\. Project Costs and Financing (a) Project Cost by Component (in USD Million equivalent) Appraisal Actual/Latest Components Estimate (USD Estimate (USD Percentage of millions) millions) Appraisal* I\. Transport Access Road 18\.06 22\.03 122 Airfield 1\.02 1\.12 109 River Crossing 0\.18 0\.32 178 II\. Township Water Supply 3\.31 3\.57 108 III\. Rural Water Supply And Sanitation 2\.44 1\.94 80 IV\. Institutional Strengthening 0\.74 1\.19 160 Total Baseline Cost 25\.75 -- Physical Contingencies 2\.58 -- Price Contingencies 2\.77 -- Total Project Costs 31\.10 30\.18 97 Total Financing Required 31\.10 30\.18 97 * - Percentage of Appraisal has been calculated based on the total component cost including contingencies\. (b) Financing Appraisal Actual/Latest Source of Funds Type of Estimate Estimate Percentage of Cofinancing (USD (USD Appraisal millions) millions) Borrower 2\.60 1\.45 56 International Development Association (IDA) 27\.80 27\.94 101 Beneficiary contribution 0\.65 0\.79 122 ­ 26 ­  Annex 2\. Outputs by Component I\. Transport Access Component (Appraisal estimate US$23\.31 million; actual US$23\.47 million) 1\. The component activities aimed to improve physical access through road rehabilitation and maintenance of roads in Oudomxay and Phongsaly Provinces, and also provided for the reconstruction of Boun Neua airfield and a ferry crossing over the River Ou in Muang Khoua\. The expected outputs were successfully achieved, the details of which are highlighted below\. (i) Road Rehabilitation, Maintenance and Spot Improvements (Appraisal estimate US$21\.84 million, actual US$22\.03 million) 2\. In total, 316 km of roads were upgraded and rehabilitated exceeding the target by 13 percent\. In Oudomxay Province, a total of 199 km of roads were rehabilitated along Road No\. 2W between Muang Pakbeng and Muang Xay (144 km); Road No\. 2E between Muang Xay and Phongsaly border (52 km); and a hospital access road of 2 km\. In Phongsaly Province, 117 km of roads were rehabilitated along Road No\. 2E between Oudomxay Border and Muang Khoua (48 km) and Road No\. 19 between Boun Nua and Ban Pakha - China Border (60 km); and 8\.5 km of urban roads in Phongsaly Municipality\. 3\. Thirteen road maintenance, spot improvements and emergency maintenance contract packages covering a total length of approximately 327 km were tendered in both Provinces\. Although 18 contracts were originally envisioned for spots improvements, the original target of 329 km was completed in terms of road length covered\. In Oudomxay, five contracts were awarded for maintenance and spot improvement of badly damaged sections of Road No\. 2E and on Road No\. 2W (covering 218 km); and 5 km of urban roads\. Two additional emergency maintenance contracts were awarded for the removal of landslides affecting Road 2W\. In Phongsaly, six maintenance contracts covered 110 km, including the repair of the drainage structures along 50 km of the road Muang Khoua to Taichang ­ Vietnam Border\. An additional package per province was awarded for traffic signage and markings for 101 km of Road No\. 2 E and 83 km of Road No\. 19\. 4\. The sub-component also provided for the construction of the materials testing building in Oudomxay and an office building and materials testing laboratory in Phongsaly provincial departments of Communications Transport, Post and Construction (CTPC)\. At the mid-term review, an agreement was reached to finance the construction of a meeting room in Oudomxay and the CTPC district office buildings in seven districts\. The project went beyond its target of constructing an office and laboratory building for Phongsaly DCTPC only\. (ii) Boun Neua Airfield (Appraisal estimate US$1\.25 million, actual US$1\.12 million) 5\. The sub-component financed the reconstruction of the Boun Neua airstrip in Phongsaly Province; a new runway (900 m long and 18 m wide) was constructed\. At the ­ 27 ­  commencement of construction the runway was re-aligned to avoid and minimize obstacles on takeoff and landing\. The 350 m access road and an 800 m bridge crossing over the Nam Boun River were also built\. The procurement and installation of the air navigation equipment was added after the mid-term review\. At the present time, the airfield is operated by a private operator with helicopter services, twice a week from Vientiane to Phongsaly\. (iii) River crossing system (Appraisal estimate US$0\.22 million; actual US$0\.32 million) 6\. The subcomponent financed the construction of a cable river crossing over the river Ou, linking Road No\. 2E in Muang Khoua in Phongsaly Province\. The scope of works involved the construction of a new ferry crossing and the reconstruction of the ferry ramps on both river banks\. The improvement of the ferry was key for the re- establishment of the road traffic with neighboring Vietnam\. Annual traffic in 2006 was 5,475 vehicles\. II\. Township water supply (TWS) (Appraisal estimate US$3\.96 million, actual US$3\.57 million) 7\. The component provided township water supply systems in Muang Xay (Oudomxay) and Muang Khoua (Phongsaly), including the facilities and infrastructure to deliver sufficient water supplies of reliable quality\. The project outputs of putting into operation piped water supply systems was largely completed as detailed below: 8\. For Muang Xay Nampapa, the outputs attained include: (i) a new water supply plant (complete with chemical dosing, rapid and slow mixing, sedimentation, filtration, and disinfection facilities) with a capacity of 3,800 m3/day; (ii) a new river intake on Nam Ko River capable of pumping 79 m3/h (cubic meters per hour); (iii) a new clear water reservoir with 1,860 m3 capacity and a new bulk flow meter; (iv) an improved water distribution network extending service to Muang Xay residents and a hospital; and (v) a new service reservoir (120 m3 capacity) and booster pump (26 m3/h) in Houikhoum\. 9\. In 2005, the Muang Xay Nampapa management made a number of improvements to the system by purchasing, with its own funds to provide water 24 hours per day, a new pump set (spec: 80m3/hr) and an extra pump set and additional motor for back-up (95- 110m3/hr)\. The number of benefited residents who are served with quality project- supplied water by 2007 is 19,330 persons (28 above the target by the end of the year 2004 of 15,000)\. The water quality has been reported satisfactory in the past years\. 10\. For Muang Khoua Nampapa, the outputs attained include: (i) a new water supply plant (complete with chemical dosing, rapid and slow mixing, sedimentation, filtration, and disinfection facilities) with a capacity of 1,000 m3/day; (ii) a new river intake on Nam Pak River with pumps and pipelines which bring new raw Nam Pak water and the old spring source to the new water supply plant; (iii) a new clear water reservoir and bulk flow meter; and (iv) a new water distribution network extending service to Muang Khoua residents\. The number of benefited residents who are served with quality project- ­ 28 ­  supplied water by 2007 is 2,376 persons (72 percent of the number of projected beneficiaries using a projected population of 3,300 at the end of the project)\. As noted in Section 3\.2 during project design the original number of habitants was overestimated leading to further miscalculation in the 20 year design period population forecast\. The water quality has been reported satisfactory in the past years\. 11\. As per agreement at the mid-term review the Muang Khoua Nampapa added a new stream source (Houay Song Nam Mun) that flows to the water treatment plant by gravity, with an intake and a pipeline 3 km long\. The civil works were finalized and the system started operating with the new water source in 2006\. III\. Rural water supply and sanitation (RWSS) (Appraisal estimate US$2\.92 million, actual US$1\.94 million) 12\. The component provided water supply and to more than 71,400 people in 193 villages, including sanitation services and hygiene awareness promotions for 71,000 people in 181 villages across both provinces\. The achievements exceeded the targets of 42,000 people covered by 38 percent for water supply and 37 percent for sanitation\. 13\. In Oudomxay's Beng, Houn and Pakbeng Districts the rural water supply services reached 52,006 persons in 117 rural and remote villages, more than doubling its initial target of 24,000 people in 90 villages\. Like wise, the Province installed rural sanitation services for 56,807 persons in 126 villages\. The project also assisted with the construction of one provincial and three district Namsaat offices\. Less successful was RWSS service delivery to primary schools and health centers, where the project reached 4,812 students in 31 schools (from its goal of 7,680 students in 64 primary schools) and seven health centers (from its goal of 18 health centers) while failing to provide any connections to schools or health clinics (from its original plan to provide services for 64 schools and 18 clinics)\. 14\. In Phongsaly's Boun Tai, Khoua and Mai Districts the rural water supply services reached 19,360 persons in 76 remote villages, slightly more than its initial target of 18,000 in 75 villages, while also installing rural sanitation services for 12,975 persons in 55 villages\. Less successful was Rural Water Supply service delivery to primary schools where the project reached 655 students in 16 schools (from its goal of 6,240 students in 52 schools), and installed rural sanitation services for 1,272 students in 23 schools, while failing to provide any connections to health clinics (from its original plan to provide services for 18 clinics)\. IV\. Institutional strengthening (Appraisal estimate US$0\.90 million, actual US$1\.19 million) 15\. The component supported developing technical and administrative capacity within provincial government offices for planning, implementing and operating infrastructure investments\. An expanded capacity development program was implemented by means of on-the-job training, formal courses, workshops and study tours\. ­ 29 ­  A capacity development program for each sub-sector (roads, urban water supply and rural water supply) was also implemented\. 16\. The table below shows the results of the training program under the project by number of participants\. Overall the achievements of the institutional strengthening component are: a total of 143 courses were attended by 1,930 participants, where 707 and 1,223 persons belong to Oudomxay and Phongsaly provinces (Department of Communications Transport Post and Construction; Department of Planning and Investment, Department of Health, Department of Finance, Urban Water Supply Office, Rural Water Supply Office, and the districts), respectively\. The long term studies at the local and regional universities were mainly on the subjects of finance, accounting, economics, marketing, and engineering, for a total of 78 bachelors and three master degrees\. 17\. The transport access teams training was provided by the road construction and maintenance specialist in the areas of road design, procurement and preparation of bids, contract supervision and quality control, and English language; for a total of 13 events with 77 participants\. Training materials, short seminars and on-the-job trainings were also attended by the supervising and contractors' staff\. 18\. The provincial departments of Planning and Investment led a comprehensive capacity development program with 37 events, and a bachelor and master degrees program\. The main areas of study were Commerce, Engineering and English language\. The trainings benefited 1,160 staffs and villagers from the provinces\. 19\. For the urban water supply, 60 studies and training courses (including a study tour to Malaysia and Indonesia) were organized for the provinces of Oudomxay and Phongsaly for a total of 90 persons receiving training\. Related to rural water supply and sanitation 33 courses, workshops and study tours were conducted\. A total of 603 persons were trained, of these 13 percent were women and 51 percent were from the villages\. Training Program 1999-2006\. Number of participants Training Oudomxay Phongsaly Bachelor and Master Degrees 39 14 Under Degrees 28 - Road Maintenance and Management 4 7 English 110 34 Finance and Budgeting 30 12 Planning 60 21 Poverty Reduction - 811 Study Tours 14 18 Piped Water Supply 69 21 Rural Water Supply and Sanitation 345 258 Other 8 27 Total 707 1223 20\. Goods, supplies and equipment required for the institutional strengthening component were procured, and installed satisfactorily\. Both provinces procured vehicles and motorcycles for use during project execution\. The components also enabled each province to acquire the necessary laboratory and survey equipment, computers, office ­ 30 ­  technology and office furniture to support implementation and are being fully utilized for the purposes intended\. The availability of the operation funds within the Credit greatly facilitated and simplified project implementation\. ­ 31 ­  Annex 3\. Economic and Financial Analysis Ex-post Evaluation Assumptions The ex-post economic evaluation of the road rehabilitation sub-component was prepared by the Bank using the Roads Economic Decision Model (RED) version 3\.2\. The model was developed by the World Bank for the economic evaluation of low volume roads, that estimates project benefits in terms of reduction in road user costs (vehicle operating costs plus passenger time costs)\. The project roads were rehabilitated and sealed with Double Surface Treatment and the average rehabilitation cost was US$59,614 per km\. The table below presents the adopted representative vehicle fleet characteristics based on a preliminary 2007 update of the Lao Road Management System unit costs parameters\. Vehicle Fleet Economic Unit Costs and Basic Characteristics Micro Small Medium Light Medium Heavy Articulated Motorcycle Car Bus Bus Bus Truck Truck Truck Truck Economic Unit Costs New Vehicle Cost (US$/vehicle) 1,000 13,400 22,600 113,700 144,500 16,100 29,000 90,500 117,400 New Tire Cost (US$/tire) 8\.00 49\.00 55\.00 79\.00 146\.00 55\.00 151\.00 165\.00 220\.00 Fuel Cost (US$/liter) 0\.62 0\.62 0\.66 0\.66 0\.66 0\.66 0\.66 0\.66 0\.66 Lubricant Cost (US$/liter) 2\.40 2\.40 2\.40 2\.40 2\.40 2\.40 2\.40 2\.40 2\.40 Maintenance Labor Cost (US$/hour) 0\.25 0\.50 0\.50 0\.50 1\.00 1\.00 1\.00 1\.00 1\.00 Crew Cost (US$/hour) 0\.25 0\.25 0\.44 0\.66 1\.47 0\.44 0\.52 0\.81 1\.25 Passenger Time (US$/hour) 0\.83 0\.83 0\.83 0\.83 0\.83 0\.83 0\.83 0\.83 0\.83 Interest Rate (%) 12\.00 12\.00 12\.00 12\.00 12\.00 12\.00 12\.00 12\.00 12\.00 Utilization and Loading Kilometers Driven per Year (km) 8,000 15,000 75,000 35,000 50,000 30,000 40,000 45,000 50,000 Hours Driven per Year (hr) 300 375 1,900 875 1,150 800 1,000 1,200 1,300 Service Life (years) 8 12 10 10 10 10 12 10 10 Percent of Time for Private Use (%) 75 100 0 0 0 0 0 0 0 Number of Passengers 0\.5 3 9 20 40 2 2 2 2 Gross Vehicle Weight (tons) 0\.2 1\.4 2\.1 7\.6 10\.6 6\.2 14\.0 20\.0 27\.0 Annual Traffic Growth Rate Traffic Growth Rate (%) 9% 9% 9% 7% 7% 7% 7% 7% 7% The following table presents resulting typical unit road user costs for the without project and with project cases\. Typical Unit Road User Costs (US$ per vehicle-km) Micro Small Medium Light Medium Heavy Articulated Case Motorcycle Car Bus Bus Bus Truck Truck Truck Truck Without Project 0\.06 0\.26 0\.26 1\.13 1\.32 0\.33 0\.52 1\.28 1\.69 With Project 0\.04 0\.18 0\.18 0\.59 0\.68 0\.21 0\.32 0\.74 0\.98 The economic evaluation considered the road rehabilitation of 314\.7 kilometers representing a total investment of US$18\.8 million under sixteen contracts\. The table below presents the average section characteristics per contract\. The 2003 average traffic of the roads is 117 vehicles per day with, on average, 49 percent of trucks and buses and 46 percent of motorcycles\. The project roads were bituminous roads in very poor condition that were constructed to a bituminous paved standard over 20 years ago\. The rehabilitation method of the project roads was to strengthen the pavement with a 20 cm thick sub-base course layer, followed by a 10 cm base course layer, and a double ­ 32 ­  bituminous surface treatment (DBST)\. That is commonly used in Lao PDR and the region, and is the most cost effective method for this type of roads\. Average Road Sections Characteristics Length 2003 Traffic Heavy Province Contract (km) (AADT) Vehicles (%) Oudomxai CP-OUD-2W-01 22\.4 112 46% CP-OUD-2W-02 26\.6 143 46% CP-OUD-2W-03 26\.0 243 46% CP-OUD-2E-04 26\.0 200 46% CP-OUD-2E-05 26\.0 142 46% CP-OUD-2W-06 20\.0 115 46% CP-OUD-2W-07 22\.0 70 50% CP-OUD-2W-08 22\.0 54 50% CP-OUD-2W-09 5\.0 415 29% CP-OUD-URB-01 2\.0 400 29% Phongsaly CP-PHY-19-01 21\.7 31 58% CP-PHY-19-02 18\.5 28 58% CP-PHY-19-03 20\.0 46 58% CP-PHY-2E-03 24\.0 85 50% CP-PHY-2E-04 24\.0 78 50% CP-PHY-UR-01 8\.5 164 46% Total 314\.7 117 49% The table below presents the actual financial road works unit costs per contract\. The average actual rehabilitation cost is US$59,614 per km, while the unit cost estimated at appraisal was US$49,600 per km\. Project cost were 20 percent higher than the estimates\. This is explained by the increased thickness of the sub-base and base pavement layers and the large amounts of sub-soil soft material that had to be removed in some sections which were not accounted for in the original designs\. Most road works started in 2002- 2003 and the construction period was on average two years\. It is worth noting that the cost per km is considered low when compared with the regional average\. Average Unit Costs of Road Works Financial Cost Province Contract Road Work (Million US$) (US$/km) Oudomxai CP-OUD-2W-01 Rehabilitation with DST 1\.3 58,317 CP-OUD-2W-02 Rehabilitation with DST 1\.1 42,606 CP-OUD-2W-03 Rehabilitation with DST 1\.2 46,799 CP-OUD-2E-04 Rehabilitation with DST 1\.4 53,685 CP-OUD-2E-05 Rehabilitation with DST 1\.5 56,080 CP-OUD-2W-06 Rehabilitation with DST 1\.2 59,491 CP-OUD-2W-07 Rehabilitation with DST 1\.3 60,304 CP-OUD-2W-08 Rehabilitation with DST 1\.3 60,381 CP-OUD-2W-09 Rehabilitation with DST 0\.4 77,577 CP-OUD-URB-01 Rehabilitation with DST 0\.1 55,809 Phongsaly CP-PHY-19-01 Rehabilitation with DST 1\.5 71,031 CP-PHY-19-02 Rehabilitation with DST 1\.2 63,508 CP-PHY-19-03 Rehabilitation with DST 1\.3 65,004 CP-PHY-2E-03 Rehabilitation with DST 1\.6 65,675 CP-PHY-2E-04 Rehabilitation with DST 1\.6 68,605 CP-PHY-UR-01 Rehabilitation with DST 0\.7 78,454 Total 18\.8 59,614 ­ 33 ­  Economic Internal Rate of Return of the Investments The table below presents the economic evaluation results per contract and for the overall rehabilitation program\. The analysis assumes a 15 year evaluation period for all roads at a discount rate of 10 percent to be consistent with the ex-ante economic evaluation\. The overall program Internal Rate of Return (IRR) is 24 percent and a Net Present Value (NPV) is US$17\.1 million, suggesting that the road rehabilitation strategy, as applied, provided and economic approach given the condition of the old pavement and the traffic projections, under the assumption of normal loading of heavy vehicles\. Four sections presented low returns (IRR at or <9 percent) for they sustain very low traffic, however, these sections represent important regional or international links\. The road rehabilitation strategy outlined in the PAD was based on the requirement to rehabilitate and improve selected roads\. It was not possible to compare the appraisal stage economic rate of return with the re-calculated IRR as the estimates of traffic and road rehabilitation cost, per road section, are no longer available\. Economic Evaluation Results NPV IRR Province Contract (Million US$) (%) Oudomxai CP-OUD-2W-01 1\.1 24% CP-OUD-2W-02 2\.5 40% CP-OUD-2W-03 4\.9 61% CP-OUD-2E-04 3\.6 45% CP-OUD-2E-05 2\.1 31% CP-OUD-2W-06 1\.1 24% CP-OUD-2W-07 0\.3 14% CP-OUD-2W-08 -0\.1 9% CP-OUD-2W-09 0\.7 37% CP-OUD-URB-01 0\.3 47% Phongsaly CP-PHY-19-01 -0\.6 <9% CP-PHY-19-02 -0\.5 <9% CP-PHY-19-03 -0\.1 9% CP-PHY-2E-03 0\.6 16% CP-PHY-2E-04 0\.4 14% CP-PHY-UR-01 0\.7 27% Total 17\.1 24% ­ 34 ­  Annex 4\. Bank Lending and Implementation Support/Supervision Processes (a) Task Team members Names Title Unit Responsibility/ Specialty Lending Supee Teravaninthorn Economist AFTTR Task Team Leader Finn Nielsen Water Supply Engineer EASUR Water Supply Denis Robitaille Highway Engineer LCSDE Roads Mary Judd Sociologist EASSO Resettlement Michael Seager Rural Water Supply & Sanitation ETWTA Water supply Mostafa El-Erian Senior Counsel LEGEA Legal Gaye P\. Lindsey Senior Disbursement Officer LOAD Financial management Supervision/ICR Maria Margarita Nunez Senior Highway Engineer EASSD Task Team Leader William D\. O\. Paterson Lead Infrastructure Specialist EASVS Task Team Leader Denis Robitaille Highway Engineer LCSDE Task Team Leader Roch Levesque Legal Counsel LEGEA Legal Thomas Rupert Meadley Consultant ETWEA Water Supply Sybounheung Phandanouvong Social Development Specialist EASSO Resettlement Nipa Siribuddhamas Financial Management Specialist EAPCO Financial management Chinnakorn Chantra Procurement Specialist EAPCO Procurement Manida Unkulvasapaul Senior Environmental Specialist EASRE Environment Maki Tsumagari Social Scientist ETWTR Researcher Santanu Lahiri Water and Sanitation Specialist ETWSA Water Supply Voravate Tuntivate Consultant EASAE Water Supply Richard Scheiner Civil Engineer EACNI Roads Wijaya Wickrema Financial Management Specialist EAPCO Financial management Preethi Wijeratne Financial Management Specialist ESDRM Financial management Omowunmi Ladipo Disbursement Officer LOAAS Financial management Amer Durrani Highway Engineer SASDT Roads Nguyen Cong Thanh Senior Operations Officer ACTFA Project management Christina Malmberg-Calvo Lead Economist ETWTR Economist Arun Kumar Institutional Specialist EASTE Capacity development Teck Ghee Lim Senior Social Sector Specialist EASSO Resettlement Christopher De Serio Senior Program Assistant EASTE Program support Sreyvop Tep Program Assistant EASTE Program support ­ 35 ­  (b) Staff Time and Cost Staff Time and Cost (Bank Budget Only) Stage of Project Cycle No\. of staff weeks USD Thousands (including travel and consultant costs) Lending FY96 21\.31 FY97 129\.77 FY98 352\.97 FY99 28\.32 Total: 532\.37 Supervision/ICR FY99 39\.59 FY00 24 94\.10 FY01 17 71\.79 FY02 23 91\.10 FY03 11 46\.78 FY04 6 42\.94 FY05 12 57\.32 FY06 11 52\.40 FY07 6 39\.95 FY08 7 39\.27 Total: 117 575\.24 ­ 36 ­  Annex 5\. Beneficiary Survey Results As a part of final evaluation, rapid beneficiary surveys/interviews were conducted in March 16 ­ 22, 2007 for Township Water Supply (TWS) and from June 15 to 23, 2007 for Rural Water Supply and Sanitation (RWSS) components\. 1\. Key Findings from Beneficiary Rapid Survey: Township Water Supply (TWS) A rapid survey of the TWS component beneficiaries was conducted and key findings relevant to the TWS component objectives are summarized in the table below: Key Findings from the TWS Beneficiary Rapid Survey Description Beneficiaries from Beneficiaries from Muang Xay Nampapa Muang Khoua Nampapa Time spent by more than 70% of beneficiaries for 20 ­ 30 30 - 60 water fetching, minutes/day Percentage of beneficiaries has the view that the 100 100 TWS component has met its objective in supplying good quality and sufficient quantity of water\. Percentage of beneficiaries has the view that their 70 33 income has increased due to the TWS component\. Percentage of beneficiaries has the view that their 100 100 health has improved due to the TWS component\. Percentage of beneficiaries has accepted to water 95 10 tariff increment\. 2\. Key Findings from Beneficiary Interviews: Rural Water Supply and Sanitation (RWSS) An assessment on sustainability and impacts of the RWSS on the target communities was undertaken through beneficiary interview and observation covering 43 sample beneficiary households in 9 target villages of three districts\. The findings of the assessment are as follows: Oudomxay Province\. A summary of the impacts of the activities on hygiene behavior and health are listed below: Boiling water for drinking is a unique water cleaning practice of the communities\. Most of the surveyed households boil water for drinking when they are at home but only 23\.5% of the households handle safe water practice regularly; with the other 73\.5% still drink un-boiled water when they are working out side of the village\. Most of the selected interviewees like and have gotten used to using a latrine\. The households who do not have latrines are mostly disadvantaged new settler ­ 37 ­  households and people who mostly live in their farmed land far away from the village\. From the interviews, it is observed that over 60% of the interviewees currently follow safe practices on hand washing, and 44% on cleaning and washing of cooking/eating utensils\. Diarrhea and skin disease cases reported by the surveyed households, is identical only at 18%\. Over 55% of selected interviewees have considerable knowledge on both diarrhea infection in human and diarrhea prevention; but conversely about 70% of the households have poor knowledge on skin disease prevention\. Household methods for diarrhea treatment has considerably changed, about 53% of surveyed households gained full access to public health service at village and district level and the other 26% take modern medicine only\. The hygiene education team made significant achievement; the assessment indicated that 63% of the surveyed households get information about disease prevention from the project health workers\. Operation and maintenance interviews indicated that: The selected interviewees have a good sense of responsibility for operation and maintenance (O&M) of RWWS facilities and strong commitment to bearing all O&M task and related costs; 98% of surveyed households are able to pay the water fee; the rest does not want to pay because their water supply system is seriously broken and can not supply water to their community during the year; Almost 82% of selected interviewees observed that the village water supply volunteers are able to handle basic maintenance works; but Only 52% of surveyed households reported that preventive maintenance (PM) activity has been carried out regularly, another 48% expressed that the PM is undertaken only if there is no water at tap stands; Only 55\.5% of the selected schemes have regularly performed water fee collection\. From the assessment, it is observed that the water and Sanitation Committees (WATSAN) are not functioning to full capacity and need more support from both government and donor agencies for a certain period\. Phongsaly Province\. A summary of the impacts of the activities on hygiene behavior and health are listed below: Boiling water for drinking is unique water cleaning practice of the communities\. Most of the surveyed households boil water for drinking when they are at home; but only 2% of the households follow safe drinking water practice regularly; with the other 88% often drink un-boiled water when they are working out side of the village and other 10% still handle unsafe Drinking water practice\. ­ 38 ­  The assessment indicated that 56% of the interviewees have moderately followed safe practices on hand washing, and 40% for cleaning and washing of cooking/eating utensils\. Number of surveyed households having access to project sanitation is rather low\. The percentages of adults and children using latrines are identical at 51%\. Main reason why the surveyed households do not use latrines is most of them are unable to build latrines without support from the project\. Diarrhea and skin disease cases reported by the surveyed households are 42% and 5% respectively\. According to the assessment, it is indicated that over 70% of selected interviewees have poor knowledge on both diarrhea and skin disease prevention\. Household methods for diarrhea treatment has moderately changed, about 25% of surveyed households gained full access to public health service at village and district level, 20% of the households take modern medicine only and other 42% still take traditional medicine\. The hygiene education team made reasonable achievement; the assessment indicated that 55% of the surveyed households get information about disease prevention from the project health workers\. Nevertheless, refreshing courses on hygiene education still to be provided to the beneficiary households to fulfill the project objectives\. Operation and Maintenance interviews indicated that: From the assessment, it is observed that the selected interviewees were moderately confident to take responsibility and bear all operation and maintenance activities and related costs\. 88% of surveyed households are able to pay the water fee; the rest does not want to pay because their water supply system is not working properly or seriously broken\. Almost 81% of selected interviewees observed that the village water supply volunteers are able to handle basic maintenance works; but Only 47% of surveyed households reported that preventive maintenance (PM) activity has been carried out regularly, another 53% expressed that the PM is undertaken only if there is no water at tap stands\. Only 22% of the selected schemes have regularly performed water fee collection and O&M Fund of each User Group rarely exists\. Consequently, it is implied that the RWSS User Groups are rarely functioning\. ­ 39 ­  Annex 6\. Stakeholder Workshop Report and Results ­ 40 ­  Annex 7\. Summary of Borrower's ICR and/or Comments on Draft ICR 1\. Transport Access and Strengthening Institutional Capacity Background\. The Provincial Infrastructure Programme, implemented by the provinces of Oudomxay and Phongsaly and supported by an IDA Credit was launched in 1998 and will close at the end of June 2007\. The project was designed to help raise living standards in Phongsaly and Oudomxay\. In particular it would: (a) Provide year-round access to rural communities\. (b) Provide treated water to major towns\. (c) Provide low-cost water and sanitation to rural communities\. (d) Build local government capacity\. Implementation\. The following outputs were achieved through the Transport Access component: Oudomxay 199 km road rehabilitation 217\.6 km of routine and emergency maintenance Road signs and markings on 101 km of national roads Improvements to DCTPC office and testing laboratory Phongsaly 117 km road rehabilitation 193 km routine and emergency maintenance Construction of Boun Neua Airfield and access road and supply of navigation equipment Cable ferry at Muang Khoua Construction of DCTPC and 7 district office buildings, fully equipped The RCMS provided technical assistance in the areas of road design, preparation of bid documents, procurement, contract supervision and quality control\. Training was provided to technical staff through external courses and classroom / on-the-job training by the RCMS\. Implementation of institutional strengthening component provided the following training: Training Oudomxay Phongsaly Degrees 38 14 Under degrees 28 - English 69 10 Finance 30 12 Planning 60 21 Poverty reduction - 811 Study tours 14 18 other 8 27 Total 247 913 ­ 41 ­  Benefits\. The project achieved the required outputs as detailed in the key performance indicators as follows: Formal training courses in management, financial and technical training were held for more than 1,100 staff from DCTPC, DPI and DoF\. Staff who were trained continued to work on the project and applied their new skills in management of the project\. All construction and maintenance contracts were managed and supervised by DCTPC staff assisted by the consultant\. A total of 187 km of roads in Oudomxay and 137 km in Phongsaly were upgraded and rehabilitated as well as the construction of the airfield and cable ferry in Phongsaly\. As a result of the road rehabilitation works a significant reduction in travel time was achieved as follows: M\. Xay to M\. Pakbeng reduced from 10 hours to 2½ - 3 hours\. M\. Xay to M Khoua reduced from 5 hours to 1½ hours M\. Boun Neua to B\. Pakha reduced from 2 hours to about 40 minutes Other benefits accrued from the project include: Economic growth through improved access Improved ferry crossing at M\. Khoua Airport at Boun Neau, now with 2 airlines operating Equipment and facilities at DCTPC for future project management Development of local contracting industry Economic analysis\. A review of the economic analyses provided in the PAD gave the following conclusions: The road rehabilitation strategy as applied on this project provided the most economical approach given the condition of the old pavement and traffic projections - all under the assumption of normal loading of heavy vehicles\. What it could not predict was the serious overloading problem, which could affect the life of the road and consequently the benefits accruing\. The airport at Boun Neua will remain economically viable only as long as the road from Pak Nam Noi to Ban Yo remains unimproved Social/environmental Issues\. The Road rehabilitation works have had no adverse impact on the environment\. However, paving the roads has reduced the dust problem through villages\. Land acquisition was required for the airport construction as detailed in the PAD, however no resettlement was required\. The increased traffic volumes and speed could cause road safety problems\. Road signs and markings have been provided on most project roads, the remainder being provided in the near future by MCTPC\. ­ 42 ­  Factors affecting outcome\. Several factors have been identified that affected the outcome and could affect the long term sustainability of the project as follows: Factors outside government control: Road closure and damage caused by landslides, embankments, culvert washouts, underground springs\. Factors subject to government control: Maintenance, overloading, retaining skilled staff Factors affecting cost: Cost increases due to design assumptions Lessons learned\. Many lessons were learned from implementation of the project relating to the following: Technical Pavement assessment/design Road alignment design Retaining wall design Procurement Institutional Detailed study of capacity needed before project start Allow gradual expansion of activities to allow time for staff training Supervision resources must relate to size and complexity of contracts Financial management needs to be strong and in place at project start Conclusion and Recommendations The project has achieved the required outputs as detailed in the PAD\. These include: 316 km of roads upgraded to all weather bituminous pavement Construction of airfield at Boun Neua Construction of cable ferry crossing at Muang Khoua 52 staff have obtained university degrees at international and national universities\. A further 28 staff received under-degrees at national institutions\. 335 staff have been trained in planning, financial management, technical management and English language Altogether 1,170 people at province, district and village level have received education and training through the project\. The project can therefore be rated as successful\. However due to the conditions existing at the start of the project in terms of transport infrastructure and institutional capacity, the scope of the project was insufficient to fully address all the needs of the provinces\. There are therefore some key areas remaining for further development\. In summary these include: Priority provincial roads in Oudomxay and Phongsaly Further staff development Further contractor development ­ 43 ­  Road maintenance by village groups (more focus on poverty alleviation in rural communities) Road and traffic management (including implementation of load restrictions) Program Impact\. The project outputs have resulted in significant benefits to the provinces and to road users which will aid future development in the region\. The project has also provided improved institutional capacity in planning, financial management, contract management, quality control etc\. Sustainability\. The large investment in the project roads will only provide the expected benefits if access is maintained throughout the whole design life\. This can only be achieved if there is a robust maintenance regime in place backed up by adequate maintenance funding\. Providing these staff remain in their posts and continue to gain experience through the provincial activities, both provinces can be confident that they will have the capacity to manage future projects and provincial works with minimal outside assistance\. Finally, there is now a healthy local contracting industry available for the ongoing maintenance programme and for future rehabilitation works\. These contractors have developed skills in bid preparation and contract management and have demonstrated their ability to compete with the international and other larger Lao contractors Recommendations\. To ensure the sustainability of the assets provided under this project and the further development of the provincial economies, the following recommendations are made: MCTPC must continue to provide adequate maintenance funds for the project roads and other priority roads in the provinces\. The overloading issue must be addressed urgently\. Road signs and marking must be provided on the remaining project roads\. Trained staff in key positions must be retained in the provinces and used on future projects\. The provincial authorities should try to ensure that any agricultural development is carried out in a sustainable manner and with minimum impact on the environment\. The construction manual prepared by the RCMS should be reviewed by MCTPC with a view to its adoption as a standard reference manual for all provinces and donor funded projects\. A follow-on project should be considered to provide for the continuing economic development of the two provinces 2\. Urban Water Supply (UWS) Background\. UWS is one of the four components under the Provincial Infrastructure Project (PIP) which is supported by an IDA Credit and was launched in 1998 and will close on 30 June 2007\. ­ 44 ­  The objectives of the UWS component were to (a) provide sufficient urban water supplies of reliable quality to residents in Muang Xay of Udomxai Province and in Muang Khoua of Phongsaly Province that save their time for water fetching and meet their basic health and hygiene needs, and (b) offer benefits for government staff from the departments and the Nampapa managers, accountants, and operators from the project through training and capacity building\. The outcomes/objectives of the UWS component were satisfactorily achieved as supported by its outputs and KPIs\. Outputs\. The achieved outputs of the UWS component are depicted below: Muang Xay Nampapa, Udomxai Province A new river intake on Nam Ko River with pumps @ 79 m3/h and pipelines which bring new raw Nam Ko water and the old spring source to the new water treatment plant\. A new water supply plant with a capacity of 3,800 m3/day, and completed with chemical dosing, rapid and slow mixing, sedimentation, filtration, and disinfection facilities\. A new clear water reservoir with a capacity of 1,860 m3 and a new bulk flow meter\. An improved water distribution network extended services to Muang Xay residents\. A new booster pump @ 26 m3/h and service reservoir at Houikhoum of 120 m3\. Muang Khoua Nampapa, Phongsaly Province A new river intake on Nam Pak River with pumps and pipelines which bring new raw Nam Pak water and the old spring source to the new water supply plant\. A new water supply plant with a capacity of 1,000 m3/day, and completed with chemical dosing, rapid and slow mixing, sedimentation, filtration, and disinfection facilities\. A new clear water reservoir and a new bulk flow meter\. A new water distribution network extended services to Muang Khoua residents\. Institutional Strengthening/Capacity Building\. The following study, study tours, and training courses have been organized and conducted for better planning and improved operational ability of the local governments to execute, operate and sustain the Muang Xay Waterworks and Muang Khoua Nampapas: Degree Study Study Tours English Language Study Computer Studies Training Courses in Planning for UWS Training Courses in Water Supply Technologies ­ 45 ­  Training Courses in Financial Management and Computerized Billing Systems for UWS Training Courses in Project Management and Procurement for UWS Training Courses in Operation and Maintenance of UWS Benefits\. The UWS component achieved the planned outputs as detailed in the following Key Performance Indicators (KPIs): Number of Benefited Residents: The number of Muang Xay residents who are served with project-supplied water is 19,330 persons which are 88% of the targeted number of beneficiaries (i\.e\. 22,000 persons), and the number of Muang Khoua residents who are served with project-supplied water is 2,376 persons which are 34% of the targeted number of beneficiaries (i\.e\. 7,000 persons)\. Time Reduction of fetching Water: It was recorded that 71% of the households, i\.e\. 4,559 households and 390 households in Muang Xay and Muang Khoua respectively, have reduced significant time for fetching water and time saving are used for farming and other business activities\. Water Quality Monitoring: Both Muang Xay Nampapa and Muang Khoua Nampapa conduct pH and Jar Test of raw water daily, residual chlorine test in the water distribution systems monthly and detailed water quality analyses annually\. No incident on poor water quality had been reported in the past years\. Number of Studies/Training Courses Conducted: In total 60 studies and training courses were conducted for UWS component during 1999 to 2005 inclusively\. Number of Staff Received Training: The numbers of staff who had attended study tours/training courses regarding UWS were 69 and 21 persons from Udomxai and Phongsaly Provinces respectively\. 82 % of the staff (74 out of 90 persons) who have received training remain working in the UWS sector in Udomxai and Phongsaly Provinces\. Use of Appropriate Modern Technologies: Computerized billing systems are introduced and used by both Muang Xay Nampapa and Muang Khoua Nampapa\. Economic and Financial Analysis\. In the PAD, the investments in Muang Xay and Muang Khoua Nampapas showed Financial Internal Rate of Return (FIRRs) of 11\.52% and 10\.28% respectively\. In light of very limited available data, no FIRRS were calculated after completion of the sub-projects\. Both Muang Xay and Muang Khoua Nampapas utilized the standard least-cost/cost effectiveness methodology which incorporates technical, environmental, financial, and social criteria into the decision-making process\. The rationale for adopting a cost effectiveness methodology is that for UWS project benefits are difficult to quantify in a reasonably reliable manner, especially those pertaining to the main health benefit of UWS which was not collected under the project, and also the environment\. While more than 70% of the households who have received and are using the project water supply facilities have saved 20 ­ 60 minutes per day from fetching water\. This time can be used by households for various more productive activities, however, it is very hard to put precise figure on the saving in time to money value of poor residents from Muang ­ 46 ­  Xay and Muang Khoua\. Nevertheless, qualitatively the economic value of time saving and health benefit are sufficient to justify investment costs in Muang Xay and Muang Khoua Nampapas\. Social/Environmental Issues\. The UWS component of the PIP had no adverse impact on environment\. The adverse impacts during construction were minimal\. Land acquisition of two households and resettlement of one household were satisfactorily compensated in line with the Bank's OD 4\.30 June 1990 on Involuntary Resettlement for construction of river intake facility at Muang Xay\. While the provision of improved water supply has promoted social and economic development of the Muang Xay and Muang Khoua, the untreated waste water has potential negative consequences if not dealt with properly\. The local government and related departments will have to take a long term and developmental view to manage the use of water resources and to ensure that waste water generated would be handled properly without causing detrimental impacts to their environment over pursuing social and economic benefits in the short term\. Implementation\. Factors outside the control of government or implementing agency: There was no factor which affected implementation which was outside the control of government or implementing agencies\. Factors subject to government control: A number of key sector policies and plans issued by the central government have been particularly favorable to project implementation, such as government's decentralization policy and strengthening local government, as well as speeding up development in the northern region and taking step to participate in the Economic Quadrangle cooperation agreement that includes China, Thailand, Myanmar and the northern region of Lao\. Clear specific target for improvements in safe water supply has also been set by Government\. However, the sustainability of Nampapas, and better service and water quality management still requires further attention\. Factors generally subject to implementing Agency Control: The project management was reasonably effective and the coordination role of the central and local governments was particularly important for the project implementation\. The progress of the sub- projects relied a great deal on the enthusiasm of the local government staff and the time they devoted to working with the Nampapas\. If further project funds could have been provided to capacity building activities, greater support could have been given to improving the management of Nampapas, in terms of water tariffs setting, financial management and accounting practices, and operation & maintenance of Nampapas\. Sustainability\. The two Nampapa impose one time water connection fees, monthly water meter rental fees, and water tariffs to cover water production costs (O&M only)\. The Oudomxay Nampapa which supply safe water to Muang Xay urban area has increase water tariffs annually to enhance cost recovery\. Financial sustainability of Oudomxay Nampapa (O&M only) is likely\. The Muang Khoua Nampapa has maintained same water tariffs for domestic consumers and commercial users since 2001\. The over design of Muang Khoua water treatment ­ 47 ­  plant and the poverty of its users are two main reasons which make cost recovery very difficult for Muang Khoua Nampapa\. Financial sustainability of Muang Khoua Nampapa has to inject more efforts to make it likely\. UWS Component Costs\. The estimated and actual costs of Muang Xay and Muang Khoua water supply sub-projects are depicted as following: No UWS Component Appraisal Estimate, IDA/Bank Loan, Actual at USD USD Completion, USD 1 Muang Xay UWS 1,925,000 1,732,000 1,731,164 2 Muang Xay Office Equipment 80,000 80,000 202,095 3 Muang Khoua UWS 800,000 720,000 700,881 4 Muang Khoua Office Equipment 40,000 40,000 23,344 5 Training 60,000 60,000 127,902 6 Technical Assistance 400,000 400,000 358,617 Total 3,305,000 3,032,500 3,144,003 Lessons Learned\. Key lessons learned from the UWS component are shown as followings: The design of water supply plants must be based on demand to minimize over- design\. Demand assessment must be conducted at the project preparation stage and must take into consideration that poor people will still continue to use existing un-safe water sources for washing and bathing, other than drinking and cooking purposes\. All possible water sources must be considered for the water supply schemes and the life time cheapest and reliable water sources should be recommended\. Failure to consider this issue, could lead to either abandon of the proposed water source, or jeopardize the sustainability of the facilities constructed\. The cost of operation and maintenance (O & M) must be considered in project preparation stage\. During project preparation, it must avoid recommendations for any high cost systems of O & M which the financially constrained Nampapa and the majority poor town residents could not afford them\. The principle of user financing has worked well in Muang Xay and Muang Khoua\. However, for the very poor residents specific guidelines for reaching them, including subsidies and lower services levels should be considered\. It is clear that there are still significant barriers preventing households within project areas from connecting to the project--supplied water\. A specific set of procedures need to be adopted to ensure that coverage is maximized\. Better coordination amongst the concerned departments with responsibilities for the sector would help to improve the efficiency of the UWS component and the skills available for implementation\. Experience from the UWS component has shown that where there has been a good working relationship between different departments this has resulted in improved implementation of the UWS component in terms of either efficiency or the ability to mobilize wider funds for further activities with the project areas\. Attention to both construction and management has helped ensure sustainable development\. The emphasis that the Bank gave to post-construction management ­ 48 ­  was greater than for national projects and has had a positive impact on sustainability\. The focus on skills development, quality and management aspects has had a great impact on the sustainability of investments\. Life time training of water supply plant managers, accountants and operators is critical to the sustainability of the UWS component\. Government funding must be made available initially to ensure adequate training is taking place\. Conclusions and Recommendations The UWS component of the PIP has achieved the required development objectives and outputs as detailed in the PAD\. A "satisfactory" overall outcome rating of he UWS component is justified on the following grounds: The relevance of the PDO to country and provincial priorities, and consistency with the Bank's Country Assistance Strategy\. Provision of sufficient urban water supplies of reliable quality to Muang Xay and Muang Khoua\. Provision of subsidies to Muang Xay and Muang Khoua Nampapas to sustain their operations, and subsidies to Nampapas reflect a reducing trend\. Muang Xay Nampapa has maintained annual water tariff increment since 2001 and it is likely to achieve financial sustainability by the end of 2007\. Local governments priority to expand water supply services and coverage to their residents, even though financial viability have not featured high on the list of priorities\. Overall Bank performance is rated "satisfactory" for the following reasons: Project formulation based on sector work\. Project design and preparation was supported by a team of experts with a range of appropriate skills\. Introduction of cost recovery and computerized billing system to the Nampapas\. Quality of supervision Aide Memoires satisfactory, identifying comprehensively implementation problems, and recommending solutions\. Supervision of social and environmental safeguards, procurement and financial management\. Borrower performance is rated "satisfactory" due to: The local government's effective coordination role of the project, guiding and assisting Muang Xay and Muang Khoua Nampapa in implementation issues\. Completion of all planned investments of UWS component timely\. Contribution of project outputs to achievement of project development objectives\. The local government and the Nampapas are also adequately staffed, despite the financial difficulties faced\. Local government's support to ensure cost recovery and to maintain water tariffs at a level adequate to meet O&M costs\. ­ 49 ­  To ensure the sustainability of the assets provided under the UWS component of the PIP, the following recommendations are made: An urgent need to improve both the numbers of trained people and the quality of training\. Such progress will require focusing national development efforts on formal and non-formal education, including language, vocational and skills training\. Training and skill development of Nampapa staff must be life long activities as they have great impact on the sustainability of investments, the Nampapas might not have available funding meeting the need initially, local government could consider to subsidy training and skill development on regular basis which will eventually pay off\. Retention of trained staff should be emphasized as it will enhance the sustainability of the water plants\. Muang Khoua Nampapa should make a concerted effort to extend water distribution networks in order to meet design capacity\. In addition, the Nampapa should also improve its standard of financial record keeping\. Assistance is still needed from International Organizations, in particular in training and skill development of local Nampapas and in Lao language where more Nampapa staff could benefit from the activities\. Training courses for their managers and operators in "Business Management of Water Supply Utilities"; "Water Losses and Control"; and "Improved Operational Efficiency of Piped Water Supply Systems" are urgently needed\. 3\. Rural Water Supply and Sanitation Oudomxay Province Executive Summary Oudomxay Province is in the north of Lao P\.D\.R\., a mountainous area where several ethnic minorities live, particularly Lao Theung communities\. The province borders Bokeo, Luang Namtha and Phongsaly Provinces of Lao P\.D\.R\., and is situated at a strategic crossroad with neighboring countries - China, Myanmar, Cambodia, Thailand and Vietnam\. The Oudomxai province, with population totaling 264,838, consists of seven districts comprising 7 small towns and 585 villages\. The 12 ethnic groups living in this province are mostly subsistence farmers and cultivate highland crops in an area that IS 65% mountainous\. Average GDP is approximately US$408 per capita\. The existing coverage of water supply and sanitation services in Oudomxai province is about 68% and 43% respectively\. Oudomxai is an isolated Province, typically poor, and had a little or no basic infrastructure services before 1994, with a minimum investment support from external support agencies and NGOs\. Therefore, on 21 December 1998, Oudomxay and Phongsaly Provinces jointly signed a credit agreement with the International Development Association (IDA) of the World Bank Group for the Provincial Infrastructure Project (PIP)\. Principally a roads and transport infrastructure project, the PIP also aims to improve urban water supply in Xay Town, Oudomxay, and Khoua Town, Phongsaly; provide rural water supply and sanitation services to remote villages in 3 ­ 50 ­  districts of Oudomxay (Beng, Pakbeng and Houn) and 3 districts in Phongsaly (Mai, Boun Tai, and Khoua); and focus on the institutional and capacity strengthening aspects of each component\. The ODX PIP had four components: 1\. Transport Access Component (or Road Component), 2\. Township/Urban Water Supply Component (UWS), 3\. Rural Water Supply and Sanitation Component (RWSS), 4\. Institutional Strengthening and Capacity Building\. This 'Component Implementation Report' is focused on the Rural Water Supply and Sanitation (RWSS) Component of the ODX PIP\. The RWSS component is called the Hygiene Awareness, Sanitation and Water Supply (HASWAS) sub-Project\. Similarly other components will also separately produce the ICRs to integrate all four ICRs in to a 'Project Completion Report', which will be compiled by the Oudomxai Department of Communication, Transport, Post and Construction (DCTPC) for submission to the Province and World Bank\. The HASWAS sub-project included elements of all four main Provincial Infrastructure Project components: 1\. Capacity-building/ strengthening of local governments; 2\. Delivery of basic rural infrastructure; 3\. Development of local private contractors; and 4\. Effective formation of community user groups\. The HASWAS sub-project comprised of the following elements: 1\. Promoting hygiene-related behavioral changes in communities, health centers, and schools; 2\. Encouraging appropriate demand-based, community-managed investments in water supply and sanitation, and piloting subsidy schemes to benefit the poorest; 3\. Strengthening personnel and institutional capacity in six focus districts and two provincial centers in hygiene promotion and service delivery and support; 4\. Applying the Lao Sector Strategy and Guideline National Framework, with continual refinement through a participatory learning process\. At the same time, modeling pilot approaches to (a) community-based hygiene, sanitation and water supply improvements, (b) appropriate capacity building and (c) structured learning, for replication in other districts and other provinces; 5\. Strengthening intra and inter sectoral collaboration and coordination, and building up local private enterprise\. ­ 51 ­  Final Accomplishment of RWSS Component during 1998 - 2006: Original Plan Revised Plan in 2002 Accomplishment Made To provide RWSS services to To provide RWSS services to Rural Water Supply services provided to total 24,000 in 90 villages in Beng, 33,620 in 125 villages in number of 52,006 persons in 117 villages\. Houn and Pakbeng districts Beng, Houn and Pakbeng Rural Sanitation services provided to total districts number of 56,807 persons in 126 villages\. To provide RWSS services to Rural Water Supply service provided to 4,812 7,680 students in 64 schools in students in 31 schools\. Beng, Houn and Pakbeng districts To provide RWSS services to Rural Water Supply service provided to 7 18 clinics in Beng, Houn and clinics (covering 19,620 populations)\. Pakbeng districts Total population covered: 133,245 Total Community Total actual Community Contribution made Contribution around USD was USD 735,107\.42 325,800 Total Government Total actual Government Contribution made Contribution USD 36,150 was USD 76,289\.00 Total estimated IDA IDA contribution total USD 1,015,625\.23 contribution USD 767,350 Improved capacity for better Training provided on 12 topics to more than management and improved 247 staff of local partners in 3 districts and institutional performances ODX Province Application of Lao PDR Applied through ODX PIP and also influenced RWSS Strategy other NGOs projects and now in International Fund for Agricultural Development supported Oudomxai Community Initiative Support Project Construction of one provincial Constructed of one provincial and three district and three district Nam Saat Nam Saat Offices Offices Learning from HASWAS in Oudomxai Province1: Phongsaly Province Executive Summary\. Phongsaly Province is the northernmost province of the Lao People's Democratic Republic (Lao PDR)\. The province shares border with Oudomxay and Luangprabang Provinces of the Lao PDR, with La District, Yunnan Province of China and with Dien Bien Phu district, Laichao Province of Vietnam\. The Phongsaly province, with population totaling 165,947 people, consists of seven districts comprising 7 small towns and 606 villages\. The 23 ethnic groups living in this province are mostly subsistence farmers and cultivate highland crops in an area that is 99\.6% mountainous\. Average GDP is approximately US$238\.37 per capita\. The existing coverage of water supply and sanitation services in Phongsaly province is about 11% and 3% respectively\. 1 Paper produced by Oudomxai Provincial Department of Public Health and Provincial Nam Saat for 30th WEDC Conference\. ­ 52 ­  Phongsaly is an isolated mountainous Province, typically poor, and had a little or no basic infrastructure services before 1994, with a minimum investment support from external support agencies and NGOs\. Therefore, on 21 December 1998, Oudomxay and Phongsaly Provinces jointly signed a credit agreement with the International Development Association (IDA) of the World Bank Group for the Provincial Infrastructure Project (PIP)\. Principally a roads and transport infrastructure project, the PIP also aims to improve urban water supply in Xay Town, Oudomxay, and Khoua Town, Phongsaly; provide rural water supply and sanitation services to remote villages in 3 districts of Oudomxay (Beng, Pakbeng and Houn) and 3 districts in Phongsaly (Mai, Boun Tai, and Khoua); and focus on the institutional and capacity strengthening aspects of each component\. The PSL PIP had four components: 1\. Transport Access Component (or Road Component), 2\. Township/Urban Water Supply Component (UWS), 3\. Rural Water Supply and Sanitation Component (RWSS), 4\. Institutional Strengthening and Capacity Building\. This 'Component Implementation Report' is focused on the Rural Water Supply and Sanitation (RWSS) Component of the PSLPIP\. The RWSS component is called the Hygiene Awareness, Sanitation and Water Supply (HASWAS) Sub-Project\. Similarly other components will also separately produce the ICRs to integrate all four ICRs in to a 'Project Completion Report', which will be compiled by the Phongsaly Department of Communication, Transport, Post and Construction (DCTPC) for submission to the Province and World Bank\. The HASWAS sub-project included elements of all four main Provincial Infrastructure Project components: Capacity-building/ strengthening of local governments; Delivery of basic rural infrastructure; Development of local private contractors; and Effective formation of community user groups\. The HASWAS Sub-Project comprised of the following elements: Promoting hygiene-related behavioral changes in communities, health centers, and schools; Encouraging appropriate demand-based, community-managed investments in water supply and sanitation, and piloting subsidy schemes to benefit the poorest; Strengthening personnel and institutional capacity in six focus districts and two provincial centers in hygiene promotion and service delivery and support; Applying the Lao Sector Strategy and Guideline National Framework, with continual refinement through a participatory learning process\. At the same time, modeling pilot approaches to (a) community-based hygiene, sanitation and water supply improvements, (b) appropriate capacity building and (c) structured ­ 53 ­  learning, for replication in other districts and other provinces; Strengthening intra and inter sectoral collaboration and coordination, and building up local private enterprise\. Final Accomplishment of RWSS Component during 1998 ­ 2006, more detail in the table below: Planned and Achievement Original Plan Accomplishment Made To provide RWSS services to 18,000 in 75 Rural Water Supply services provided to 19,360 persons in 76 villages in Boun Tai, Khoua and Mai villages\. Districts Rural Sanitation services provided to 12,975 persons in 55 villages\. To provide RWSS services to 6,240 students Rural Water Supply service provided to 1,927 students in 16 in 52 schools in Khoua, Mai and Bountai schools\. Districts To provide RWSS services to 18 clinics in Rural Water Supply service did not provide to any clinics\. Khoua, Mai and Bountai Districts Total population covered: 34,262 Including: a) WS: 20,015 b) S: 14,247 Total Community Contribution ~ Total actual Community Contribution made was USD 325,800 USD 735,107\.42 Total Government Contribution ~ Total actual Government Contribution made was USD 23,250 USD 76,289\.00 Total estimated IDA contribution ~ IDA contribution total USD 1,015,625\.23 USD 767,350 Improved capacity for better management Training provided on 12 topics to more than 247 staff of local and improved institutional performances partners in 3 districts and ODX Province Application of Lao PDR RWSS Strategy Applied through PSL PIP and also influenced other International Organization and NGOs projects\. Construction of one provincial and three Constructed of one provincial and three district Nam Saat district Nam Saat Offices Offices ­ 54 ­  Annex 8\. Comments of Cofinanciers and Other Partners/Stakeholders ­ 55 ­  Annex 9\. List of Supporting Documents Lao PDR Agricultural Sector Memorandum: An Agricultural Sector Strategy (Report No\. 13675-LA)\. March 1995\. World Bank\. Lao PDR Social Development Assessment and Strategy Report (Report No\. 13992-LA) August 1995\. World Bank\. Lao PDR Sector Memorandum: Priorities for Rural Infrastructure Development (Report No\. 16047-LA)\. February 1997\. World Bank\. Lao PDR Country Assistance Strategy (Report No\. 15284)\. January 1996\. World Bank\. Lao PDR Provincial Infrastructure Project (Cr\. 3131-LA); Mid-Term Review and Supervision Report ­ May 2002\. Lao PDR Provincial Infrastructure Project (Credit No 3131-LA) Implementation Completion Report: Transport Access and Capacity Development Components\. April 2007\. Lao PDR Provincial Infrastructure Project (Credit No: 3131-LA) Final Implementation Report: Urban Water Supply Component\. June 30, 2007\. Oudomxai Provincial Infrastructure Project (Cr\. 3131-LA) HASWAS Sub-Project Implementation Completion Report (1998-03/2007)\. August 2007\. Phongsaly Provincial Infrastructure Project (Cr\. 3131-LA) HASWAS Sub-Project Implementation Completion Report (1998-03/2007)\. October 2007\. Lao - Poverty Reduction Strategy Paper (PRSP) and Joint Staff Advisory Note (Report No\. 29966)\. November 2004\. ­ 56 ­  IBRD 29417R CHINA CHINA 102º 103º PHONGSALY VIETNAM LAO PEOPLE'S DEMOCRATIC REPUBLIC MYANMAR PROVINCIAL INFRASTRUCTURE PROJECT OUDOMXAY LAO Gulf of PEOPLE'S Tonkin DEM\. REP\. Vientiane THAILAND MuangMuang Ou Nua Ou Nua Andaman CAMBODIA V I E T N A M Muang Gnot-Ou Muang Gnot-Ou Sea Nam Gulf of 22º Thailand Ou 22º This map was produced by the Map Design Unit of The World Bank\. C H I N A The boundaries, colors, denominations and any other information shown on this map do not imply, on the part of The World Bank MUANGMUANG Group, any judgment on the legal status of any territory, or any PHONGSAL PHONGSALY Ban Hatxa Ban Hatxa endorsement or acceptance of such boundaries\. Muang Boun-Neua Muang Boun-Neua Ban Yo Ban P H O N G S A L Y Ban Pakha Ban Pakha Muang Boun-Tai Muang Boun-Tai M YA N M A R MuangMuang SamphanSamphan Taichang aichang BanBan MeochaiMeochai MonsavanMonsavan Muang Mai Muang Mai Ban Pak Ban Pak Nam Noy Nam Noy Muang Khoua Muang Khoua 21º 21º Muang Namo Muang Namo Muang La Muang La OUDOMXAYOUDOMXA (MUANG XAY) (MUANG XAY) Beng ROAD REHABILITATION AND SPOTS IMPROVEMENTS Nam BOUN NEUA AIRFIELD INSTITUTIONAL STRENGTHENING Muang Beng Muang Beng RURAL WATER SUPPLY AND SANITATION Nam Tha OUDOMXAY CABLE RIVER CROSSING WATER SUPPLY SYSTEM WITH WATER TREATMENT PLANT Muang Houn Muang Houn URBAN ROADS 20º SELECTED TOWNS AND VILLAGES SELECTED DISTRICT CAPITALS Muang Pakbeng Muang Pakbeng PROVINCIAL ROADS NATIONAL ROADS (PAVED) MekongRiver NATIONAL ROADS (UNPAVED) RIVERS 0 10 20 30 40 50 AIRFIELD DISTRICT BOUNDARIES KILOMETERS PROVINCE BOUNDARIES INTERNATIONAL BOUNDARIES 101º 102º 103º JULY 2008

REVIEW

P106170

 Document of The World Bank Report No: ICR00001313 IMPLEMENTATION COMPLETION AND RESULTS REPORT (TF-90077) ON A GRANT IN THE AMOUNT OF SDR 6\.6 MILLION (US$ 10 MILLION EQUIVALENT) TO THE ISLAMIC REPUBLIC OF AFGHANISTAN FOR A MANAGEMENT CAPACITY PROGRAM June 12, 2012 Governance and Public Sector Afghanistan South Asia Region  CURRENCY EQUIVALENTS (Exchange Rate Effective June 04, 2012) Currency Unit = Afghani (AFN) US$ 1\.00 = AFN 50 FISCAL YEAR: March 20-March 21 ABBREVIATIONS AND ACRONYMS AEP Afghan Expatriate Program MIP Management Internship Program ARTF Afghanistan Reconstruction Trust MoCI Ministry of Commerce and Fund Industries CDS Capacity Development Secretariat MoE Ministry of Education GDPD General Directorate of Program MoJ Ministry of Justice M Design and Management GoA Government of Afghanistan MoM Ministry of Mines HRM Human Resource Management MoWA Ministry of Women Affairs IARCS Independent Administration Reform PAR Public Administration Reform C and Civil Service Commission ITA International Technical Assistance PMU Program Management Unit LEP Lateral Entry Program PRR Priority Reform & Restructuring Program M&E Monitoring and Evaluation TAFSU Technical Assistance and Feasibility Support Unit MAIL Ministry of Agriculture and TER Technical Evaluation Report Livestock MCP Management Capacity Program Vice President: Isabel M\. Guerrero, SARVP Country Director: Robert Saum, SACAF Sector Manager: Antonius Verheijen, SASGP Project Team Leader: Satyendra Prasad, SASGP ICR Team Leader: Richard Spencer Hogg, SASGP  Afghanistan Management Capacity Program CONTENTS Data Sheet A\. Basic Information B\. Key Dates C\. Ratings Summary D\. Sector and Theme Codes E\. Bank Staff F\. Results Framework Analysis G\. Ratings of Project Performance in ISRs H\. Restructuring I\. Disbursement Graph A\. Basic Information\. i B\. Key Dates \. i C\. Ratings Summary \. i D\. Sector and Theme Codes \. ii E\. Bank Staff \. ii F\. Results Framework Analysis \. ii G\. Ratings of Project Performance in ISRs \. v H\. Restructuring (if any) \. v I\. Disbursement Profile \. v 1\. Project Context, Development Objectives and Design \. 1 2\. Key Factors Affecting Implementation and Outcomes \. 3 3\. Assessment of Outcomes \. 8 4\. Assessment of Risk to Development Outcome\. 13 5\. Assessment of Bank and Borrower Performance \. 14 6\. Lessons Learned \. 17 7\. Comments on Issues Raised by Grantee/Implementing Agencies/Donors \. 19 Annex 1\. Project Costs and Financing \. 20 Annex 2\. Outputs by Component \. 21 Annex 3\. Grant Preparation and Implementation Support/Supervision Processes \. 23 Annex 4\. Summary of Grantee's ICR and/or Comments on Draft ICR \. 24 Annex 5\. List of Supporting Documents and MCPs Interviewed \. 28 MAP A\. Basic Information AF: Management Country: Afghanistan Project Name: Capacity Program Project ID: P106170 L/C/TF Number(s): TF-90077 ICR Date: 10/05/2009 ICR Type: Core ICR GOVERNMENT OF Lending Instrument: TAL Grantee: AFGHANISTAN Original Total USD 10\.00M Disbursed Amount: USD 11\.05M Commitment: Revised Amount: USD 10\.00M Environmental Category: C Implementing Agencies: Independent Administrative Reform & Civil Service Commission Cofinanciers and Other External Partners: B\. Key Dates Revised / Actual Process Date Process Original Date Date(s) Concept Review: 10/27/2006 Effectiveness: 10/31/2007 10/17/2007 Appraisal: 12/27/2006 Restructuring(s): Approval: 02/13/2007 Mid-term Review: 09/29/2010 Closing: 03/31/2010 12/31/2011 C\. Ratings Summary C\.1 Performance Rating by ICR Outcomes: Moderately unsatisfactory Risk to Development Outcome: High Bank Performance: Moderately satisfactory Grantee Performance: Moderately satisfactory C\.2 Detailed Ratings of Bank and Borrower Performance (by ICR) Bank Ratings Borrower Ratings Moderately Moderately Quality at Entry: Government: unsatisfactory unsatisfactory Implementing Quality of Supervision: Moderately satisfactory Moderately satisfactory Agency/Agencies: Overall Bank Overall Borrower Moderately satisfactory Moderately satisfactory Performance: Performance: i C\.3 Quality at Entry and Implementation Performance Indicators Implementation QAG Assessments Indicators Rating Performance (if any) Potential Problem Project Quality at Entry No None at any time (Yes/No): (QEA): Problem Project at any Quality of No None time (Yes/No): Supervision (QSA): DO rating before Moderately Closing/Inactive status: Satisfactory D\. Sector and Theme Codes Original Actual Sector Code (as % of total Bank financing) Central government administration 50 General public administration sector 50 Theme Code (as % of total Bank financing) Poverty strategy, analysis and monitoring 100 E\. Bank Staff Positions At ICR At Approval Vice President: Isabel\.M\.Guerrero Praful\.C\.Patel Country Director: Robert Saum Alastair\.J\.Mckechnie Sector Manager: Antonius Verheijen Ijaz Nabi Project Team Leader: Satyendra Prasad Anne Tully ICR Team Leader: Richard Spencer Hogg ICR Primary Author: Richard Spencer Hogg F\. Results Framework Analysis Project Development Objectives (from Project Appraisal Document) To achieve sustained improved performance in the management capacity of key departments dealing with any or all of the common functions including financial management, human resource management, policy and regulatory design, and administration\. This should ultimately result in improved utilization and cost effectiveness of budgetary resources and faster and better development results on the ground\. ii Revised Project Development Objectives (as approved by original approving authority) Not Applicable (a) PDO Indicator(s) Original Target Formally Actual Value Values (from Revised Achieved at Indicator Baseline Value approval Target Completion or documents) Values Target Years Indicator 1 : Numbers of MCP's in key centre and sub-national positions Value quantitative or 0 175 161 Qualitative) Date achieved 10/17/2007 12/31/2011 12/31/2011 Comments 161 appointments are made till date which includes resignations, terminations and end of (incl\. % contract appointments\. Current active number of MCPs is 95\. achievement) Departments with MCPs achieving rating of satisfactory (or equivalent) following annual Indicator 2 : performance assessment Value quantitative or 0 70% 0 Qualitative) Date achieved 10/17/2007 12/31/2011 12/31/2011 Comments Monitoring mechanism for measuring departmental outcomes is weak and was not (incl\. % established properly\. achievement) (b) Intermediate Outcome Indicator(s) Original Target Actual Value Formally Values (from Achieved at Indicator Baseline Value Revised approval Completion or Target Values documents) Target Years Indicator 1 : Appointment of MCPs Value (quantitative 0 175 161 or Qualitative) Date achieved 10/17/2007 12/31/2011 12/31/2011 Comments 161 appointments are made till date which includes resignations, terminations and end of (incl\. % contract appointments\. Current active number of MCPs is 95\. achievement) Indicator 2 : Percentage of appointments at sub-national level Value 0 20 5 (quantitative or Qualitative) Date achieved 10/17/2007 12/31/2011 12/31/2011 iii Comments 9 MCP appointments made at sub-national level\. 4 resigned due to various reasons\. (incl\. % achievement) Indicator 3 : Focus MCPs on 10 priority ministries Value 0 70% 54\.2% (quantitative or Qualitative) Date achieved 10/17/2007 12/31/2011 12/31/2011 Comments 54\.2 % of MCPs are targeted at the priority ministries\. (incl\. % achievement) Indicator 4 : HR practices are merit based n/a Annual Audit of HR All appointments Practices conducted in accordance to the Civil Service Law, Value Civil Servants Law and other regulations (quantitative of the IARCSC\. The or Qualitative) Audit department of IARCSC conducts review of HR activities of GDPDM annually\. Date achieved 10/17/2007 12/31/2011 12/31/2011 Comments (incl\. % achievement) Indicator 5 : Percentage terminations following performance appraisal process Value 0 5 3\.5 (quantitative or Qualitative) Date achieved 10/17/2007 12/31/2011 12/31/2011 Comments 5 terminations carried out till date\. (incl\. % achievement) Departments with MCPs achieving rating of satisfactory (or equivalent) following annual Indicator 6 : performance assessment Value 0 70% 0 (quantitative or Qualitative) Date achieved 10/17/2007 12/31/2011 12/31/2011 Comments Monitoring mechanism for measuring departmental outcomes is weak and was not (incl\. % established properly\. achievement) iv G\. Ratings of Project Performance in ISRs Actual Date ISR No\. DO IP Disbursements Archived (USD millions) 1 06/26/2008 Moderately Satisfactory Moderately Satisfactory 0\.00 2 03/17/2009 Moderately Satisfactory Moderately Satisfactory 0\.55 Moderately Moderately 3 03/09/2010 3\.31 Unsatisfactory Unsatisfactory Moderately 4 12/28/2010 Moderately Satisfactory 6\.47 Unsatisfactory 5 01/07/2012 Moderately Satisfactory Moderately Satisfactory 10\.59 H\. Restructuring (if any) Not Applicable I\. Disbursement Profile v 1\. Project Context, Development Objectives and Design 1\.1 Context at Appraisal By 2002, years of conflict had eroded Afghanistan‘s public sector\. An administrative structure still existed in many parts of the country after the war, but few senior staff were left in Kabul to manage relations with the provinces, and even fewer resources remained to deliver any services\. Given the low skills base and the need for an immediate impact on the ground, donors launched various initiatives to raise government capacity, but progress in building capacity in government institutions has been slow\. Many efforts relied more on substituting for civil service capacity than strengthening it, and often included the following range of modalities: regular civil servants on standard government terms; civil servants receiving higher salaries or top-ups via government or donor-funded initiatives; contract positions in the civil service filled by national or international consultants; national staff in NGOs, the United Nations, and international agencies on secondment to the government; and contractors employed either directly or through donors to carry out development projects\. Several civil service reform programs were implemented in the 2000s in order to strengthen public administration\. The Independent Administration Reform and Civil Service Commission (IARCSC) was established in 2003 with a mandate to lead civil service reforms\. The priority reform and restructuring program (PRR) was introduced to improve how critical departments in key ministries functioned and to enable these departments to recruit staff on merit, and at modestly better pay\. Other activities included promulgating laws and regulations for the civil service\. At the same time several programs were launched to build or inject capacity\. The government initiated the Technical Assistance and Feasibility Studies Unit in 2003, with support from the World Bank and Afghanistan Reconstruction Trust Fund (ARTF), to provide the civil service with skilled national and international expertise to carry out technical feasibility studies\. But the unit provided mainly short-term inputs and did little to build longer term capacity\. In 2002–04 the government, through the ARTF, approved the Afghan Expatriate Program and Lateral Entry Program\. (These two programs were merged in 2005\.) The former program sought to hire a small number of expatriate Afghans as senior advisers, while the latter aimed to address the widespread shortage of competent and experienced civil servants in upper- and middle- management positions in key ministries and agencies, offering ―lateral‖ entry to suitably qualified Afghans, many of them from the Diaspora\. Both programs were succeeded by the Management Capacity Program (MCP) in 2007, which aimed primarily to develop a cadre of senior tashkeel civil servants in line ministries, who would undertake reform in departments such as finance, procurement, human resources, and policy and planning\. The MCP provided line ministries with the resources and implementation structure to recruit highly qualified staff transparently through merit to fill key ―Tashkeel‖ positions, to create a management team accountable to the minister that provides a critical mass to implement ministry reforms through strengthening systems and enhancing standards\. The 1 MCP focused primarily on supporting the execution of common functions at senior or managerial levels, including policy and strategy development, project management, financial management, procurement and human resource management\. In addition, it also facilitated critical positions in the change management process in various ministries as well as senior key line management positions of core sector functionality in those ministries that contribute to economic development, such as education, health care, and infrastructure sectors\. Rationale for Bank Assistance Building government capacity to deliver services was one of the primary areas of focus of the donor community after the conflict\. Public administration reform was essential to rebuilding the state, institutionalizing improved governance and combating corruption\. The Bank had extensive experience in promoting public administration reform in Afghanistan through a series of development policy credit/grants intended to bolster reforms\. The MCP followed two previous capacity injection projects; Afghan Expatriate Program (AEP) and Lateral Entry Program (LEP) designed to attract expatriate and qualified Afghans from different backgrounds and areas of work to key ministries\. Both programs were funded through the Afghanistan Reconstruction Trust Fund (ARTF)\. Considering the comparative advantage of ARTF with respect to the institutional knowledge and lessons learnt from these previous operations, there was strong rationale for the Bank‘s involvement in MCP\. 1\.2 Original Project Development Objectives (PDO) and Key Indicators (as approved) The original project objective was ―To achieve sustained improved performance in the management capacity of key departments dealing with any or all of the common functions including financial management, human resource management, policy and regulatory design, and administration\. This should ultimately result in improved utilization and cost effectiveness of budgetary resources and faster and better development results on the ground‖\. 1\.3 Revised PDO (as approved by original approving authority) and Key Indicators, and reasons/justification Not Applicable\. 1\.4 Main Beneficiaries, All line ministries and agencies of the Government of Afghanistan (GoA) were the intended beneficiaries of the project\. However positions in the judiciary, military, law and enforcement agencies or politically appointed positions were not eligible to receive funding\. Through the MCP, line ministries and agencies are expected to receive support to strengthen one or several of the basic functions of public administration\. The program was expected to primarily support common function senior management positions\. Areas covered under common functions were financial management (budgeting and accounting), human resource management (recruiting, performance monitoring, benefits management, 2 career management and severance), policy and regulatory design, and general administration and procurement\. 1\.5 Original Components (as approved) Component One: Provision of Management Services on Demand\. This component was designed to provide experienced managerial staff to line ministries/agencies to assume line management responsibility for executing common functions as well as key managerial responsibility in some sectoral ministries that contribute to key areas of economic development\. Positions under civil service grades 1, 2 and 3 under the current eight-grade system received support through MCP funding\. Positions filled through MCP were authorized under the ministry ―Tashkeel‖ or establishment structure\. Under this component it was intended that MCP recruits would be provided with two year contracts at the beginning which could be renewed for a further one year\. Assignment of newly recruited MCP experts into the line ministry positions was facilitated through a Memorandum of Understanding (MoU) signed between the Capacity Development Secretariat (CDS) also known as the General Directorate of Program Design and Management (GDPDM) of IARCSC and the line ministry\. The ARTF Management Committee (MC) approved in principle an allocation of USD 30 million for three years with an initial allocation of USD 10 million to cover technical assistance requirements and the first year of program costs\. Component Two: Program Management This component was aimed to strengthen the CDS of GDPDM within the IARCSC which was the implementing agency of the project\. The CDS was responsible for the management of the program including outreach and communications with line ministries; screening and evaluating proposals; managing and overseeing recruitment of executives; managing the monitoring and evaluation of candidates‘ performance in the employing ministries; contract management and program financial management; and reporting on and accounting for program results\. 1\.6 Revised Components Not Applicable\. 2\. Key Factors Affecting Implementation and Outcomes 2\.1 Project Preparation, Design and Quality at Entry Since 2002, the government has used a variety of approaches and projects to acquire operational and advisory expertise under contractual arrangements including the Afghan Expatriate Program (AEP), the Lateral Entry Program (LEP), Technical Assistance and Feasibility Support Unit (TAFSU), the Priority Reform and Restructuring (PRR) ―Super Scale‖, and the hiring of numerous experts mobilized by donors in specific sector 3 contexts\. These programs were introduced as part of an attempt to make the Government/Civil Service more competitive as an employer in the face of a limited pool of skilled Afghans and a labor market where NGOs and international organizations competed with government for the best qualified Afghans\. The AEP was originally designed to finance the services of experienced Afghan professionals who were willing to return to the country to participate in the reconstruction effort as senior advisors\. It was complemented in 2004 by the LEP which was designed to bring Afghan nationals working in-country or regionally, into line positions at senior and middle management levels on a contractual basis\. Both programs were originally financed through the ‗third‘ window of the ARTF, which had been financed to bring qualified Afghans into government\. In 2005 both schemes were merged and financed by the ARTF through its investment window as the Civil Service Capacity Building Project, TF053940\. MCP was designed with a view to improve upon the shortcomings of AEP and LEP\. From its inception, the AEP‘s operational objectives were intuitively defined, but there was ambiguity on what specific results to expect, making it difficult to measure effectiveness\. LEP on the other hand, while it was successful in attracting some highly qualified Afghans from national and regional markets into line ministry positions (not advisory) had the unintended negative effect of encouraging line ministries to avoid the implementation of other on-going civil service reforms such as PRR\. LEP was also undermined by capacity constraints on part of the Independent Appointments Board (IAB) of IARCSC which was tasked with the implementation of the new pay and grading reform\. Both programs recruited relatively few staff: the Afghan Expatriate Program recruited only 95 Afghans into the government and the Lateral Entry Program some 138\. In 2007 the Civil Service Capacity Building Project was re-designed as the MCP\. Substantial risks were identified during the design phase which were expected to impede the achievement of MCP objectives\. These included the risk of failing to attract sufficient skilled staff even with the improved MCP salary scales, considering the small size of the talent pool and competition from NGOs and donors\. A second major risk identified was the expected resistance from within the civil service among other civil servants who remained on the normal civil service pay scale\. This risk was expected to be partly mitigated by the establishment of a transparent process of recruitment, clarity about the roles and responsibilities of the MCP recruits and the temporary nature of their employment\. A third risk was that the program would continue to support the appointment and retention of candidates who made little substantial contribution to the program‘s objectives\. It was envisaged that an annual performance audit of the program would help mitigate this risk along with a continued emphasis on merit based appointments and transparency in appointments\. The risks and the anticipated mitigation measures during the time of appraisal are set out in Table 1 below\. The PDO of the project was ambitious\. The ―demand driven‖ approach to provide managerial capacities to line ministries was largely ad-hoc and rarely part of a wider government or ministry wide capacity building strategy\. Communication and outreach activities were inadequate to inform the line ministries of the purpose of the project\. As a result, during the first two years of project implementation, a large number of positions 4 requested by the line ministries were not aligned to their strategic plans\. Instead of following an ―across the board‖ approach to all ministries, it would have been useful to prioritize certain key service delivery ministries\. This would have allowed the MCP to be used much more strategically to build the performance of critical ministries\. During the later stages of implementation (2010-2011), this approach was eventually followed and ministries such as Ministry of Mines (MoM), Ministry of Commerce & Industries (MoCI), Ministry of Agriculture and Livestock (MAIL) and Ministry of Education (MoE) were supported with cohorts of experts to create a critical mass of MCPs to implement the ministry reform initiatives\. However, this change of approach came too late in the project life time (December 2011) to adequately impact its objectives\. Table 1: Risks and Mitigation Measures Risks Identified Mitigation Measures (At Appraisal) Unavailability of Skilled Candidates Competitive Salary scales, Senior Managerial Tashkeel Positions in Ministry and Better Communication and Outreach Measures Resistance from Existing Civil Servants Clear Definition of MCP Roles, Transparent Process of Recruitment and Temporary Nature of Appointments Appointment and Retention of Non-Performing Annual performance Audits Candidates Capacity Building of National Staff (Civil GoA to Train and Mentor the Next Generation Servants) and Knowledge Transfer of Managers\. Beyond the Scope of MCP 2\.2 Implementation Implementation of MCP has never been easy\. A mid-term review (MTR) conducted in September 2010 and subsequent supervision missions repeatedly raised the following issues which were further explored during the ICR mission\. Inadequate Funding: The initial funds committed to the project through the Afghanistan Reconstruction Trust Fund (ARTF) were inadequate to accommodate all the requests made by ministries/agencies for MCP appointees\. This led to frustration on part of many Ministers\. However, while additional finance was available from the approved ‗earmarked‘ ARTF funds, there was concern in the Bank to scale up too rapidly given capacity constraints in the implementing agency, the time it took to recruit and uncertainty about impact\. 1 Salary Negotiations: MCP salaries were determined in an ad-hoc manner based on salary history, rather than salary scales\. As a result some Director-Generals (grade 1) received near to the MCP ceiling of USD $7,000 while others received much less\. The inequities in pay between comparable posts across the civil service that have been created due to MCP will need to be resolved under the follow-on CBR program\. During 1 USD $35 million was originally approved by the ARTF Management Committee, but only USD $15 million was committed\. 5 interviews with the MCP experts, the ICR mission noted that the salary negotiations between the MCP appointees and the Civil Service Commission have been unsatisfactory\. A considerable number of MCPs had grievances about the salary packages offered to them, citing inequities with other MCPs\. Low Quality of Applications: For many skilled posts, there were too few qualified applicants\. This reflects the highly competitive labor market conditions, lack of skilled Afghan professionals, and perception that even high paying public sector jobs are not desirable when compared to donor financed jobs\. Poor quality of the applicants has resulted in re-advertisements for many of these positions and the associated delays created a source of frustration for the MCP-receiving ministers\. Capacity Development for MCP Recruits: In some ministries and agencies the MCP recruits have faced logistical problems for several months such as not having access to a dedicated computer or phone because of procurement delays and/or other reasons\. Further, the Management Capacity Program itself had no dedicated resources to support MCPs once appointed to ministries, such as professional or job related development training\. The CBR project will need to resolve both these issues for the different cadres of civil servants that it wishes to create for a well performing and structured Afghanistan Civil Service\. Focus on Sub-National Positions: It was envisaged during the design of the program that 20 per cent of total MCP recruitments would be at the sub-national level\. This objective has not been fulfilled\. Only a total of 7 MCP appointments have been made at the sub-national level by December 2011\. This was not entirely the fault of the implementing agency, which advertised for sub-national staff, but largely the result of combination of Ministry preferences to keep senior staff in Kabul, insecurity in some of the provinces and lack of a developed incentive structure to get staff to apply to hardship areas\. 2\.3 Monitoring and Evaluation (M&E) Design, Implementation and Utilization The results framework for the project was inadequate to assess the actual outcomes of the project activities\. While there is anecdotal evidence that individual MCPs made a difference to department performance, too much reliance was placed on ‗inputs‘, such as the total number of recruitments and terminations rather than focusing on indicators pertaining to service delivery improvements and budget execution performance\. Monitoring of line ministry departmental performance by IARCSC was weak and was not addressed properly under the project design\. The PDO level indicator ―Departments with MCPs achieving rating of satisfactory (or equivalent) following annual performance assessment‖ is too broad and the project does not detail any underlying mechanism to measure performance of the line ministry departments under this indicator\. Due to shortfall in original budget allocated adequate Technical Assistance (TA) support to strengthen the monitoring and evaluation unit of GDPDM could not be provided under the project\. Further, there was no formal high level oversight of the MCP by either the IARCSC leadership or a more broadly based cross-ministerial committee\. As a result 6 there was weak government oversight to determine if the program was achieving its objectives and no mechanism to achieve consensus on corrective actions to be taken in a timely manner to address implementation issues\. The performance appraisal process for MCP recruits established at GDPDM was strong\. All MCPs were appraised at the end of six months of their appointment, at the end of their first year and annually thereafter\. The performance appraisal process is a 360° review involving the appointee, his/her supervisor and four subordinates selected by MCP program staff\. The monitoring and evaluation of project activities also suffered from frequent changes of Bank Task Team Leaders (4 TTLs over the life of the project) and inadequate transfer of institutional memory during these changes\. It is a recommendation of this ICR that to achieve effective results on the ground for all present and future projects of this nature in fragile institutional contexts such as Afghanistan, task-teams implementing such projects should be based in country with longer term tenures to work alongside the implementing partners\. 2\.4 Safeguard and Fiduciary Compliance Regular implementation support missions (ISM) by the Bank ensured fiduciary compliance during the life of the project\. However the mid-term review (MTR) of the project highlighted weaknesses in the internal control system of the implementing agency (GDPDM) which included lack of monthly reconciliation of bank books and inadequate internal audit arrangements\. The scope of the internal audit unit of IARCSC mandated to carry out internal audit of the project was only limited to checking compliance of the project with government rules and regulations to be followed for submission of payment request (form M16) to Ministry of Finance, and did not cover the activities of the project as prescribed in the agreed financial management arrangements\. The MTR and the last implementation support mission Aide Memoire (AM) also noted a number of deficiencies in the procurement arrangements of the project\. These include submission of incomplete procurement documents for prior review which caused significant delays, deficiencies in the selection process of individuals and re-opening of some vacancies without obtaining prior Bank approval\. 2\.5 Post-completion Operation/Next Phase A much larger project named Capacity Building for Results (CBR) Facility has been designed by the Bank as a successor to the MCP\. Many of the lessons of the MCP have contributed to the design of the CBR: ï‚ As mentioned earlier, the approach towards implementation of the project changed from 2010 onwards\. Instead of the ‗scattergun‘ approach of providing ―ad-hoc‖ MCP experts to large number of line ministries and agencies, it was considered that clustering of MCPs in critical line ministries in important common function positions such as HR, Procurement and Financial Management (FM) would lead to better results and improved service delivery\. But this change 7  of strategy was effected too late during the project life time to impact project results and outcomes as set out in the PDO\. ï‚ A major concern of the MCP has been the lack of skills and expertise of lower rank civil servants who were subordinate to the MCP experts\. The MCP could only recruit staff to grades 1, 2 and 3 of the civil service and this became a serious bottleneck in many ministries which needed a second tier of managers under the MCP experts to execute the ministry mandates in Kabul as well as in the provinces\. The new CBR initiative addresses this issue head on and focuses on the creation of different cadres of civil servants under Senior Management Group (SMG), Common Function (FM, Procurement, HR and Admin) and Professional Cadres (Health Specialists, Economists, Mining Engineers etc\.) with definitive career development plans\. This could pave the way for the third generation of civil service reforms and the genesis of an Afghanistan Civil Service (ACS) structure in line with more developed civil services such as in UK and New Zealand\. At the end of the project in December 2011, contracts for more than 100 MCP experts were active\. Based on discussions with the GDPDM/IARCSC these contracts were extended till July 31, 2012 with an understanding that all active positions will be re- advertised and recruited as part of the new CBR project\. At the time of writing, the migration of MCP's into the CBR program was awaiting a formal decision by the Steering Committee (SC) of the CBR comprised of the Minister of Finance and the Chairman of the IARCSC\. The technical recommendation being considered by the SC was that MCP contracts would be brought into the CBR framework for the period until the end of the MCP contract period\. MCP's would retain their pay scales if this was higher than the CBR pay scales (for around 15 persons) until the end of their contracts\. At the end of their contracts, individuals would need to reapply for their posts if they wished and if appointed their salaries would be consistent with the CBR pay scales\. This formulation if accepted would ensure that there was a smooth transition between the two projects\. 3\. Assessment of Outcomes 3\.1 Relevance of Objectives, Design and Implementation (to current country and global priorities, and Bank assistance strategy) Capacity building of the civil service has been a major concern of the donor community from 2002 to-date\. But much of this capacity building effort has been to pay for externally funded staff outside the ‗tashkeel’ to carryout civil service functions\. The MCP was different\. It was designed to build capacity from within the civil service by recruiting qualified Afghans as contract civil servants to fill ‗tashkeel‘ positions\. The objective was to transform government‘s capacity to deliver services from within\. The project to some extent has been able to improve the utilization and cost effectiveness of donor resources flowing through the national budget and importantly contribute to the overall legitimacy of the state in the eyes of citizens\. The Bank‘s new ISN (approved by the Board in April) 8 will maintain this objective for the Bank engagement in Afghanistan over the Transition Period through to 2014\. Afghanistan‘s experience of capacity development over the last 10 years is far from unique\. The immediate post-conflict experience of most low- and middle-income countries—such as Georgia, Liberia, Serbia, Sierra Leone, and Timor-Leste—has been similar to Afghanistan‘s, especially in their initial widespread dependency on mostly ad hoc, donor-driven technical assistance and salary supplementation schemes to fill the vacuum left by the lack of government capacity immediately after the conflict\. During the immediate transition local consultants‘ salaries often increase sharply, as the best and brightest leave the civil service (if they had not already) to join donor-funded programs or NGOs on much higher wages\. Rebuilding the civil service after such interventions is therefore extremely difficult without donor-supported salary-supplement schemes, as most skilled civil servants show little interest in working directly for the government\. With regard to design and implementation, the main lessons from MCP (mentioned later) and other previous projects reflect the weak capacity of the IARCSC in implementing large and complex civil service capacity building projects, as well as the need to align the placement of appointees within a broader strategic framework\. One MCP recruit will not change a Ministry, but a cluster of MCPs supported by a clear Ministry reform plan and with committed ministerial leadership might\. 3\.2 Achievement of Project Development Objectives (including brief discussion of causal linkages between outputs and outcomes, with details on outputs in Annex 2) The project development objective ―To achieve sustained improved performance in the management capacity of key departments dealing with any or all of the common functions including financial management, human resource management, policy and regulatory design, and administration\. This should ultimately result in improved utilization and cost effectiveness of budgetary resources and faster and better development results on the ground‖ is considered ambitious by this ICR\. The project was initially designed for 3 years and was extended for another year in 2010 after the MTR\. Initial recruitments of MCP experts started much later than project effectiveness in October 2007\. Part of this delay was caused by the protracted mobilization of International Technical Assistance (ITA) to assist GDPDM with Human Resource Management (HRM) issues, Monitoring and Evaluation (M&E) and Communication and Outreach\. Procurement issues caused major delays throughout the project\. During the first year of project implementation line ministries had little knowledge of MCP objectives which resulted in incomplete proposals and inadequate terms of References (ToR) for the requested positions causing delays in procurement and recruitment\. This ICR also feels that the outputs and outcomes under the project were disconnected\. The results framework of the project was flawed and did not reflect the actual intended outcomes of the project\. The outputs as measured by the results indicators mentioned in the project documents are based on the performance of the project in terms of quantitative targets achieved such as total number recruited at center and sub-national positions, 9 percentage of terminations etc\. On the other hand, the outcomes of the project as defined by the PDO should have been captured by improvement in business processes, budget execution and service delivery results accruing to the end user\. Brief discussion of the project components is mentioned below: Provision of Management Services “On Demandâ€? During the life of the project a total of 153 appointments were made by IARCSC across 28 ministries/agencies\. During the first two years of project implementation, a number of positions requested by the line ministries were rejected by IARCSC due to their nature and incomplete terms of references (ToR)\. The first procurement plan under the project was approved by the Bank in August 2008\. The following table represents the total number of positions requested by the ministries/agencies as well as the number of approved positions by end December 2011\. Table 2: Positions by Ministries / Agencies Ministry Position Positions Applications proposal requested approved received received August 2008 – 7 174 83 924 July 2009 August 2009 – 37 373 74 1714 July 2010 August 2010 – 43 107 0 /a 1776 December 2011 Source: General Directorate of Program Design and Management (IARCSC) /a: recruitment continued under the previous procurement plan During four years of implementation, more than 650 positions were requested by the line ministries/agencies and approximately 4650 applications in total were received for the positions that were approved and advertised\. A total of 34 MCP experts resigned during the life of the project and contracts ended for another 16 MCP recruits\. The MTR and the last Supervision Mission Aide Memoire (December 2011) have discussed the advantages of recruiting cohorts or ―clusters‖ of MCP experts in line ministries/agencies which started from late 2009 under the project\. The ministries which received clusters of MCP experts and improved their functions considerably relative to other ministries which received fewer experts include Ministry of Finance (MoF), Ministry of Commerce and Industry (MoCI), Ministry of Mines (MoM) and Ministry of Agriculture and Livestock (MAIL)\. The distribution of MCP experts in different line ministries/agencies is represented in the following graph\. 10  12 10 8 6 4 2 0 MoE ANSA MoCI MoCIT MoIC HOO MoEW MoJ MoM MoPW MRRD MoWA OoP MoEc MoHE MoUA IARCSC MoPH MoF MoLSAMD MAIL MoCN MoTCA The project was unsuccessful in recruiting sufficient number of people in sub-national positions\. Over the project implementation period of four years only 7 MCP appointments were made at sub-national level as against a target of 20 per cent of total appointments under the project\. Recruitments of sub-national positions have suffered because of security reasons, lack of suitable incentives for such positions and insufficient infrastructure and logistical facilities in the provinces\. These constraints are also likely to affect the Capacity Building for Results (CBR) program as well since a large number of positions to be funded by the CBR Facility will be targeted at the provinces\. This ICR recommends the implementing partners for the CBR program and the Bank to work together towards devising suitable incentives for attracting qualified Afghan nationals for sub-national positions\. Program Management This component was aimed at strengthening the capacity of the Capacity Development Secretariat which was later renamed as GDPDM\. At the time of project effectiveness, this component was provided with a total of USD 5 million for overall program management including outreach and communication, technical evaluation of ministry proposals, recruitment and contract management\. The program management unit at GDPDM also received International Technical Assistance (ITA) during the initial implementation period in terms of executive search/recruitment/HR management and M&E of the project under this component\. However TA support was not successful in building capacity in GDPDM due to lack of proper co-ordination and engagement\. A request for further technical assistance from GDPDM under this component could not be accommodated due to budget constraints and protracted administrative processes\. The program management unit (PMU) at GDPDM had significant weaknesses in terms of staff strength and capacities\. Attrition of staff from the MCP PMU made project implementation difficult considering the small size of talent pool and the competitive labor market in the country\. The Human Resources (HR) and Monitoring and Evaluation (M&E) department of the GDPDM in particular were faced with severe staff shortages and lack of technical support\. 11 There was no significant involvement of other departments of the IARCSC in management and oversight of the MCP\. As a result GDPDM leadership exercised full control over program management\. In the views of this ICR, this concentration of power and responsibilities in terms of managing the senior most civil servants of the Government in a standalone directorate of IARCSC was not beneficial to the project\. Communication and information sharing with other departments would have provided more flexibility and strategic direction to the project\. In spite of these difficulties, GDPDM managed to recruit some excellent MCPs, place them in ministries, monitor their individual performance and within the constraints of any operation in a fragile conflict affected environment such as Afghanistan, achieve a degree of success in terms of capacity development in some limited areas\. This was not as much as the PDO required, and depended on the individual qualities of the MCPs recruited, but the PDO was always over-ambitious\. 3\.3 Efficiency This section is not applicable for this project\. 3\.4 Justification of Overall Outcome Rating (combining relevance, achievement of PDOs, and efficiency) Rating: Moderately unsatisfactory (MU) There is no doubt that the project has recruited many well qualified Afghans who, anecdotally, appear to have raised the standard of management in their Ministries\. But this is extremely difficult to measure systematically as no baseline data was collected to allow for such measurement\. The project M&E system could not capture very clearly ministry outcomes and the cause and effect linkages between MCP appointments and improvements in service delivery\. To this extent the project falls short of its stated development objectives\. The intention of the project was to significantly enhance budgetary performance and service delivery standards of the line ministries with which it worked\. Strictly, this was not achieved, although towards the end of the project life a shift of approach towards the clustering of MCP experts in critical line ministries does appear to have made a significant difference\. The project was unable to recruit sufficient number of MCP experts during its years of operation\. Lack of qualified candidates was the major reason for this shortfall\. But delays in No Objection (NOL) issuances by the World Bank for qualified candidates throughout the implementation period made the recruitment process lengthy and complicated which acted as a deterrent to the achievement of PDOs\. Discussions with the Bank‘s Financial Management and Procurement units revealed that incomplete documentation and safeguards on the part of the implementing agency were the primary reason for these delays\. Regular Bank supervision and guidance on financial management and procurement standards improved the quality of document submission and reporting which subsequently reduced the administrative delays during the later stages of the project\. The project could not deliver on sub-national recruitments\. In spite of the difficulties, only 7 MCP recruitments in provincial positions over a period of four years of project 12 implementation is poor, but this was not entirely in the hands of the GDPDM leadership to deliver, but depended on combination of factors, including lack of Ministry demand, lack of individual incentives, poor security, etc\. 3\.5 Overarching Themes, Other Outcomes and Impacts (a) Poverty Impacts, Gender Aspects, and Social Development None of the project development objective indicators directly dealt with poverty reduction and social development aspects\. It is therefore impossible to say to what extent these benefitted from the project\. The number of women inducted as MCPs under the project was too small to create a critical mass which would facilitate any cultural change in the civil service\. Furthermore, no incentive mechanisms were designed under the project to make the civil service a more attractive environment for women\. (b) Other Unintended Outcomes and Impacts (positive or negative) The strongest unintended outcome of MCP was that it helped expand the technocrat pool from which future leaders of Afghanistan would be drawn\. For instance, the current Director General Budget in Ministry of Finance, the Deputy Ministers for Policy and Planning in Ministry of Commerce and Industry (MoCI) and Ministry of Mines (MoM) were all previously recruited through the MCP\. 4\. Assessment of Risk to Development Outcome Rating: High The outcomes of any project in a fragile and conflict affected context are associated with substantial risks\. In Afghanistan civil service reform is one of the most delicate and politically sensitive areas because of political, economic and ethnic considerations\. Technocratic approaches to state building in Afghanistan have historically had to contend with the nature of politics in the country, where formal office and position are used as resources to balance competing elite interests\. The Afghan state—while having a highly centralized, unitary character as embodied in successive Constitutions—has always had weak central control and has needed to build coalitions of common interest with a strong periphery\. The use of state position and office as bargaining tools in the wider political process has a long history, ensuring that attempts to introduce modern, merit-based public sector reforms face an uphill struggle\. In hindsight the MCP recruitment and selection process should have been subject to more careful oversight from within government itself\. To leave this process almost exclusively to a single unit within the IARSC was a high risk strategy, and put considerable burden on that department\. The PDO of MCP was extremely ambitious to be achieved within a short period of 3 years\. Better performance of line ministries in terms of service delivery to end users and efficient use of budgetary resources is a long term goal for the Government and the 13 donors\. In a weak capacity environment like Afghanistan very little is likely to be achieved in just 3 years\. But nevertheless MCP experts managed to improve capacities in key departments such as HR, Finance, Policy and Planning and Administration in a number of key ministries including Ministry of Finance (MoF), Ministry of Commerce and Industry (MoCI), Ministry of Education (MoE) and Ministry of Agriculture, Irrigation and Livestock (MAIL)\. The project could not deliver on the number of sub-national recruitments due to the absence of proper incentive measures for those positions\. This poses a significant risk for the follow-on Capacity Building for Results (CBR) project\. 5\. Assessment of Bank and Borrower Performance (relating to design, implementation and outcome issues) 5\.1 Bank Performance (a) Bank Performance in Ensuring Quality at Entry Rating: Moderately unsatisfactory (b) Quality of Supervision Rating: Moderately satisfactory (c) Overall Bank Performance Rating: Moderately satisfactory Quality at Entry The MCP was initiated at a time when there was considerable demand for capacity injection into the civil service\. Its design drew on the lessons from the implementation of the Afghan Expatriates Program (AEP) and Lateral Entry Program (LEP)\. MCP satisfied the need for a unified program which followed a single set of criteria for identifying need, recruitment, remuneration and supervision\. However it had two principal design weaknesses: firstly, it adopted a scattergun approach to providing capacity injection to ministries\. It would have been far better to ensure a) that capacity injection was linked to a clear ministry reform plan, and b) provided a cluster of MCPs that could have operated at scale\. Neither of these was achieved through the life of the project\. Preparation and implementation of a ministry reform plan was never a condition of receiving MCP appointees, while, at the same time, too much faith was given to the transformative power of one or two qualified MCPs to change a ministry‘s culture and service delivery performance\. Secondly, it was over-ambitious in terms of what it could achieve within three years\. In a fragile and conflict affected environment like Afghanistan affecting long term institutional change requires a much longer time horizon\. Given the delays in recruitment of MCP staff there was very little time for the project to make its mark\. Thirdly, its results framework did not capture the necessary indicators to measure ministry outcomes\. As a result it is difficult to measure its impact\. There is some anecdotal evidence that 14 good MCPs made a difference to Ministry outputs and helped improve management performance, but there was never any systematic evidence collected that this actually led to improved outcomes\. In terms of design, the project had only one major component dealing with the provision of management services\. Interviews with various MCP experts during the ICR mission indicate that a separate component on training and capacity building of the MCP recruits would have delivered better results\. Quality of Supervision Three major issues affected the implementation of the project\. First, the Bank team had four task team leaders during the course of the project\. This rapid turnover of TTLs was detrimental to effective and continuous supervision of the project\. Secondly, the quality of some of the supervision was variable\. As a result the project suffered from significant delays in NOL approvals issued by the Bank team\. These delays were not entirely the fault of the Bank team but in part were caused by incomplete documentation provided to the Bank which included deficient terms of references (ToR) and technical evaluation reports (TER) for the recruitments, incomplete withdrawal applications and procurement plans\. Thirdly, many of the MTR recommendations in late 2010 were never taken forward because the project was overtaken by planning for its successor the CBR, which took up large amount of Bank staff time\. Rather than re-structure the project it was decided to incorporate many of the recommendations and lessons learnt from MCP into the new project\. For the preparation of this ICR, a significant number of MCP experts were interviewed by the project team whose names are provided in annex 5\. Interviews were designed to capture the advantages of recruiting clusters of MCPs to that of individual positioning of these experts\. The ICR team interviewed cohorts of MCPs based in Ministry of Mines (MoM), Ministry of Education (MoE) and Ministry of Agriculture, Irrigation and Livestock (MAIL) to assess the performance of these ministries\. Interviews were conducted with individual MCPs present in Ministry of Justice (MoJ) and Ministry of Women Affairs (MoWA) to ascertain the significance of the cluster approach\. Focus group discussions were held with MCPs in specific common function positions such as HR, FM and Procurement to understand the shortcomings of the MCP and improve upon them while implementing CBR\. In addition, the ICR team also benefitted from the views provided by the supervisors (Deputy Ministers) of the MCP experts\. The ICR team also reviewed several policy notes prepared during the design of the CBR which contained valuable insights on issues such as civil service cadre development, training of potential CBR recruits and creation of a Management Internship Program (MIP)\. These topics were not included under the MCP structure and were developed after in-depth discussions with various stakeholders including the MCP experts\. 5\.2 Borrower Performance (a) Government Performance Rating: Moderately unsatisfactory 15 (b) Implementing Agency or Agencies Performance Rating: Moderately satisfactory (c) Overall Borrower Performance Rating: Moderately satisfactory Government Performance Since 2002, civil service reform has been an important government priority\. After implementing projects such as AEP and LEP, MCP was designed to build capacity within the civil service\. A separate IDA financed project named Civil Service Reform Project (CSRP, P097030) was developed simultaneously to implement public administration reforms in five key ministries\. While there were significant linkages between the MCP and CSRP as MCP provided the skilled managers to the ministries to carry out the planned activities under CSRP, the synergies between the two were never adequately exploited\. The two programs were also implemented by two different departments within the IARSC which made coordination between them more difficult\. At the same time other government capacity building initiatives such as the Civilian Technical Assistance Program, which provided non-tashkeel technical assistance to ministries at much higher wage rates than MCP, were never properly coordinated with the MCP\. Nevertheless, it is important to recognize firstly, that there was considerable demand for MCPs on the part of government ministries that the project was unable to meet\. Ministers valued the contribution of MCP appointees, and while the project could have been better embedded within an overall ministry led reform process, it was recognized across government as an important way to build capacity within the civil service rather than in project implementation unit enclaves\. Secondly, given the nature of the overall reform environment with large numbers of externally funded staff implementing a series of often disconnected donor driven interventions, it was extremely difficult for government to harmonize capacity development approaches around the MCP alone\. Implementing Agency Performance The implementing agency for MCP was the General Directorate of Programs Design and Management (GDPDM) unit of the IARCSC\. According to the implementation arrangements stated in the PAD, oversight of the project was assigned to the Public Administration Reform (PAR) Steering Committee of the Government\. However, in practice communication linkages between the MCP Project Management Unit (PMU) and the PAR Steering Committee were never established properly\. As a result GDPDM functioned as a standalone department within IARCSC with no reporting obligation to the higher echelons of the Government\. A majority of MCP experts interviewed during the ICR mission and preceding supervision missions have raised concerns on substantial delays in payment of salaries\. One of the reasons for the delayed salary payments was the low special account ceiling approved for MCP expenses\. Still, delays in payments in some cases for more than 6 months poses serious questions about the financial management and documentation 16 systems of the GDPDM\. In addition, a considerable number of MCPs had grievances about the salary packages offered to them citing inequities with other MCPs in similar positions\. The MCP salary scales were determined in an ad-hoc manner based on salary history rather than the salary scales approved for the project\. In spite of this, it should be acknowledged that GDPDM had had to deal with a series of Bank TTLs who bought little consistency to the relationship\. Project funding to finance international TA to support the department was inadequate and was quickly exhausted, and while discussions took place to recruit new international TA to support the project this was overtaken by planning for the new CBR follow-on project to the MCP\. 6\. Lessons Learned (both project-specific and of wide general application) There are both more general lessons of approach and specific lessons from implementation\. Design On design the main lesson is that capacity injection schemes like MCP need to be aligned with a wider reform process\. Unless they are it is difficult to see how injecting capacity alone in an unreformed ministry will make any difference to performance\. The strength of MCP will only be fully realized when it is tied to a wider strategic reform pathway\. To this extent capacity injection has to be part and parcel of a whole of ministry reform program, which includes MCP appointees as part of a package of wider ministry support\. The second lesson is that capacity injection has to be at scale\. Dropping one or two MCPs into a ministry and expecting them to make a difference is fanciful\. The real effect and impact will only be achieved by ensuring a ‗cluster‘ approach to MCP placement\. In this way a ministry gets the full benefit of the program at scale\. The consequence of this is the approach has to be selective and phased\. Not all of government can benefit at the same time\. The third lesson is that the PDO needs to SMART (Specific, Measurable, Achievable, Realistic and Time bound)\. There is no point having a wonderful and smooth running capacity injection program if at the end of the day you do not know its impact on improving government services\. Much more work therefore needs to go into understanding and measuring the linkages between capacity inputs and ministry outputs and this needs to be captured adequately in the results framework and identification and articulation of appropriate indicators\. Implementation The following experiences from MCP bear special attention: Inclusion of Middle-management and Junior Professionals under MCP: The MCP only catered to the senior grades of the Afghan Civil Service (Grades 1 & 2)\. A common issue raised by a majority of the MCP experts was the deficient skill levels and lack of 17 support for lower grade staff in their ministries/agencies\. Under future such programs, such as CBR, these issues need to be addressed through the creation of a Senior Management Group (SMG), Common Function and Professional Staff cadres\. Recruitment under common function and professional staff cadres should be expanded to include lower grades of the civil service\. Training and Capacity Building of Recruits: Many MCP experts expressed their need for on-the-job training and capacity building during the interviews\. MCP had no training component to address these issues\. A key lesson is that such programs require a dedicated project component on training and capacity building of recruits through specialized courses and exposure visits to other countries as part of the overall approach to capacity development\. Sub-National Outreach: The civil service infrastructure at sub-national levels in Afghanistan is extremely weak\. The MCP envisaged to build line ministry functioning in the provinces but failed to mobilize expert personnel at the relevant positions\. Future programs (such as CBR) must develop appropriate measures to increase sub-national recruitments, including tackling the issue of appropriate hardship allowances, to bring about changes in provincial recruitment and service delivery across Afghanistan\. Country Based Bank Task Team: MCP faced enormous amount of delays in NOL approvals and continuous change of Bank task team leaders (TTL) throughout the project period\. A country based Bank task team with longer term continuity will significantly increase project performance in fragile contexts such as Afghanistan\. Transparent Salary Negotiations: A majority of MCP experts expressed their grievances on the determination of salary scales which were largely based on their salary history\. Salaries should be based on the skills, qualifications and experience required for the positions rather than personal salary history\. This is a general lesson but has also been incorporated into the CBR which will emphasize the establishment of fixed salary scales for the different categories of civil servants it intends to support\. Quality of Recruits: While it was sometimes difficult for the program to recruit good quality experts, when it did they made all the difference to the success of the program\. This is an important lesson for the future and shows the importance of maintaining a high standard in terms of caliber of experts even at the risk of not recruiting at all\. Discontinue/Merge other parallel capacity building initiatives: Interviews with several MCP recruits reflected that similar civil service capacity building programs such as Civilian Technical Assistance program (CTAP) are creating negative incentives for the MCP staff\. CTAP supports advisory level positions which are not part of the Government Tashkeel (Establishment) and salary scales under CTAP are generally two to three times of MCP scales\. Such proliferation of capacity development programs should be avoided as it undermines the overall reform effort\. 18 7\. Comments on Issues Raised by Grantee/Implementing Agencies/Donors (a) Grantee/Implementing agencies The government‘s response lays particular stress on the fact that the MCP was never allowed to expand to its total allocation of $35 million, as it was overtaken by its successor program, the Capacity Building for Results initiative, so it could never achieve its planned recruitment of staff at sub-national level, that during individual ministry assessments all MCP teams displayed an increase in percentage of expenditures in critical ministries, and that far from lacking oversight from other departments, the GDPDM was fully embedded within the IARCSC\. On the basis of the achievements of the MCP the IARCSC-GDPDM believe the project warrants an overall ―Highly satisfactory‖ rating\. While we recognize the government‘s disappointment, we do not feel that such a rating would be warranted in the circumstances nor would it be supported by the evidence\. The MCP had both design and implementation failings\. As this ICR makes plain these were not necessarily the fault of the implementing agency, but often reflected the broader difficulties of operating in Afghanistan, and lack of an overall capacity development plan\. Nevertheless, the project never collected the necessary evidence to indicate level of project achievement against PDO\. While it is clear that some MCPs performed extremely well, there were significant weaknesses in the overall approach which were only addressed towards the end of the project lifetime\. While it is true that failure to appoint MCPs at sub-national level was result of combination of factors, a more concentrated effort might have seen better results in this regard\. At the same time, it is important to acknowledge that the GDPDM had to contend with a series of Bank TTLs over the life of the project\. This inevitably caused some inconsistency in messaging and supervision of the project\. (b) Cofinanciers/Donors Not applicable (c) Other partners and stakeholders (e\.g\. NGOs/private sector/civil society) Not applicable 19 Annex 1\. Project Costs and Financing (a) Project Cost by Component (in USD Million equivalent) Actual/Latest Appraisal Estimate Percentage of Components Estimate (USD (USD millions) Appraisal millions) provision of management 27\.00 30\.00 111 services (on demand) program management 3\.00 5\.00 166 Total Baseline Cost 30\.00 35\.00 116 Physical Contingencies Price Contingencies Total Project Costs 30\.00 35\.00 116 Project Preparation Costs Total Financing Required 30\.00 35\.00 116 (b) Financing Appraisal Actual/Latest Type of Estimate Estimate Percentage of Source of Funds Cofinancing (USD (USD Appraisal millions) millions) Trust Funds 0\.00 0\.00 Afghanistan Reconstruction Trust 10\.00 15\.00 150 Fund 20  Annex 2\. Outputs by Component Provision of Management Services “On Demandâ€? The project recruited a total of 161 MCP experts over a period of four years against a target of 175 over the same period\. Recruitments under MCP started almost 10 months after the effectiveness of the project\. Initially the line ministries were slow to grasp the objective of MCP and thus requested a variety of positions to be funded through MCP which were outside its mandate\. Many of these positions were not aligned to the ministry strategic plans and reflected ad-hoc requirements\. Performance of the communication and outreach activities of the GDPDM in informing the line ministries about the MCP approach and objectives could be termed as unsatisfactory in this regard\. This is also supported by the information provided in table 2 above\. The number of positions approved is considerably lower than the requested number of positions throughout the project period\. The MCP was able to attract talented and qualified Afghan nationals from the Diaspora and other private and donor-funded positions into the core Civil Service\. The program was able to create a critical mass of champions in ministries such as Ministry of Finance (MoF), Ministry of Commerce and Industries (MoCI), Ministry of Agriculture, Irrigation and Livestock (MAIL) and Ministry of Mines (MoM) who led their ministry-wide reform processes\. The majority of the MCP recruits possessed at least an undergraduate degree\. About 25 per cent of the MCP experts obtained a post graduate qualification or a Master‘s in Business Administration (MBA)\. The ICR mission noted that administrative procedures associated with the verification of educational documents caused major delays in postings and salary payments of the selected individuals\. Sub-national recruitments needed more attention under the program\. GDPDM failed to achieve significant numbers for sub-national positions during the project life-time\. It is important that under CBR, the IARCSC needs to prepare a well-designed strategy for provincial recruitments given the enormous responsibility it bears with respect to the Transition period and beyond\. A snapshot of challenges faced by some of the regional offices of Ministry of Agriculture, Irrigation and Livestock (MAIL), Ministry of Public Health (MoPH) and IARCSC is provided in Table 3 below\. Table 3: Sub-national Challenges Ministry/Agency Department/Directorate Challenges Helmand Provincial Office (i)Lack of Infrastructure (ii)Vacant positions and lack of skilled staff\. (iii)Lack of Tashkeel (Establishment) for certain areas such as forestry and research\. MAIL Nangarhar Valley Development (i)Shortage of budget under operations and development component (ii)Inadequate office facilities (iii)Shortage of managerial and technically skilled staff (iv)Lack of training facilities for staff MoPH Farah Provincial Office (i)Security Condition 21  (ii)Lack of female doctors (iii)Low salaries for P&G staff IARCSC Kandahar Regional Office (i)Lack of professional cadres at provincial levels (ii)Educational and training programs for the P&G staff (iii)Inadequate office Infrastructure (iv)Lack of a comprehensive capacity development plan Some Achievements under the “Clusterâ€? Approach During late 2009/early 2010, the program started recruiting batches or ―clusters‖ of MCPs for key ministries\. A brief account of the achievements of this approach for some of the ministries is mentioned below\. ï‚ Ministry of Commerce & Industries (MoCI): The MCP expert for International Trade department facilitated the World Trade Organization (WTO) accession process and the South Asian Free Trade Agreement (SAFTA) has been signed\. The MCP expert for the Business Licensing Department conducted a capacity needs assessment and has prepared a Capacity Development Plan\. Six zonal offices are now connected to the online database\. The MCP expert has also modified the legal framework for licensing\. ï‚ Ministry of Finance (MoF): The MCP expert for State Owned Enterprises (SoE) has led the liquidation of a number of government establishments according to the Privatization Policy of the government\. The MCP appointee for the large taxpayers office have simplified the tax filing procedures as a result of which taxpayers compliance have increased from 60% to 90%\. An Aid Effectiveness Policy Unit under the Aid Management Directorate has been established and a capacity development plan has been prepared\. ï‚ Ministry of Communication and Information Technology (MoCIT): MoCIT has three MCPs currently, Director General of Information and Communication Technology, Director General of Planning and International Relations and the Head of the National Data Center\. Specific achievements include designing of eighty government websites under the E-Government Interoperability Framework Standards and collection of statistical data for telecommunications, postal and IT services from 34 provinces\. Overseas training for 32 staff members of MoCIT has been facilitated through the Ministry of Foreign Affairs\. 22 Annex 3\. Grant Preparation and Implementation Support/Supervision Processes (a) Task Team members Responsibility/ Names Title Unit Specialty Lending Anne Tully Senior Operations Officer OPCFC Public Sector Management, TTL Nigel Peter Coulson Senior Public Sector Specialist SASGP TTL Ranjana Mukherjee Senior Public Sector Specialist SASGP Public Sector Management Hossai Mahak Aliffi Team Assistant SASPF Program Assistance Vidya Kamath Program Assistant SASGP Program Assistance Supervision/ICR Satyendra Prasad Senior Governance Specialist SASGP TTL Richard Spencer Hogg Governance Adviser SASGP TTL (ICRR) Deepal Fernando Senior Procurement Specialist ECSO2 Procurement Monali Chowdhurie -Aziz Senior Public Sector Specialist WBIOG Public Sector Management Asif Ali Senior Procurement Specialist SARPS Procurement Kenneth O\. Okpara Sr Financial Management Specialist SARFM Financial Management Asha Narayan Financial Management Specialist SARFM Financial Management Zohra Farooq Financial Management Specialist SARFM Financial Management Rahimullah Wardak Procurement Specialist SARPS Procurement Vishal Gandhi Consultant SASGP Public Sector Management Public Sector ; Monitoring and Maha Ahmed Consultant SASGP Evaluation Jalpa Patel Consultant SASGP Public Sector Management Vidya Kamath Program Assistant SASGP Program Assistance Mohammed Edreess Sahak Team Assistant SASEP Program Assistance Kaushik Sarkar Consultant SASGP Public Sector Management (b) Staff Time and Cost Staff Time and Cost (Bank Budget Only) Stage of Project Cycle USD Thousands (including travel No\. of staff weeks and consultant costs) Lending FY07 0 0 Total: 0 0 Supervision/ICR FY07 BB – 4\.83 20,971\.38 FY08 BB – 9\.13 55,971\.42 FY09 BB – 22\.02 113,313\.36 FY10 BBTF – 28\.70 125,743\.69 FY11 BBTF – 15\.35 106,206\.11 FY12 BBTF – 4\.10 31,039\.89 Total: 453,245\.85 23 Annex 4\. Summary of Grantee's ICR and/or Comments on Draft ICR BORROWER’S EVALUATION Implementation Completion and Results Report ARTF funded Management Capacity Program (MCP) The Independent Administrative Reform and Civil Service Commission (IARCSC) of the Government of Islamic Republic of Afghanistan (GoIRA) implemented the ARTF (Afghanistan Reconstruction Trust Fund) funded Management Capacity Program (MCP) to achieve sustained improved performance in the management capacity of key departments of GoIRA ministries dealing with any or all of the common functions, including financial management, policy and regulatory design, and administration\. The implementation was spread over 4 & ½ years from 2007 to 2011\. Within IARCSC, the General Directorate of Programs‘ Design and Management (GDPDM), formerly Capacity Development Secretariat (CDS) was responsible for the implementation of MCP\. The GDPDM is the lead IARCSC general directorate on institutional capacity development, project design and management, and donor relation and coordination\. The mandate of GDPDM includes development, review, and coordination of strategic options for delivering development programs as part of Public Administration Reform (PAR) in the context of Afghan National Development Strategy (ANDS)\. The MCP was a successor to a series of earlier operations of World Bank to support civil service reform in Afghanistan\. The two interventions envisaged in MCP were: ï‚ Provision of executive services ―on demand‖ and to provide experienced managerial level staff to ministries; and, ï‚ To put in place an establishment for the efficient management of the program that evolves into a permanent service of the IARCSC\. These interventions had the objective of improving performance of management capacity of key departments of GoIRA ministries and thereby contributing to enhanced and cost effective utilization of budgetary resources and better delivery of public services\. 24 During the lifetime of the project, a total of 193 positions were processed under the MCP\. The MCP appointees were placed across 28 ministries / agencies of GoIRA including provinces\. During the initial years, the implementation of the program was supported by a consulting firm (Adam Smith International) which helped to improve the foundations of a robust and transparent recruitment process as well as a sound monitoring & evaluation (M&E) system\. GDPDM has used lessons learnt from other projects to improve the management of MCP, increase the number of MCP applicants and the number of MCP support requests from Ministries, improve the MCP Appointee selection process for more transparency, and adopt a clustering approach for a more holistic support through MCP\. The GDPDM has strived hard to ensure transparency in the MCP recruitment process\. The recruitment was fully aligned with the principles of merit based recruitment process under the civil servants‘ law\. The decision making process had involvement of beneficiary ministries / agencies at all stages of recruitment\. Commissioners of IARCSC‘s Boards chaired the panels and external experts such as university professors and sector specialists were invited to assist and observe the MCP interviews and provide their inputs in the recruitment process\. The salary scale which is approved by steering committee where the World Bank was the observer has always been the base for any salary determinations\. The confusion has mostly been arisen due to different understanding of three different task team lead for the MCP\. The recommended revisions in using the scale have always been adapted by the IARCSC\. Referring to past salary history of candidates was one of recommendations made by previous WB task team who was clearing the NoLs\. The market distortion caused by donor salary top ups has always been a challenge in determining salary for a candidate under the MCP\. The M&E section of GDPDM developed a standardized M&E system inclusive of comprehensive tools to assess departmental performance of MCP experts at regular intervals (baseline, six months, annual, two years and on ad-hoc basis)\. The assessment reports / feedback were regularly shared with respective departments including MCP experts and other stakeholders to portray the ratio of change in the aforementioned intervals within the departments under the support of MCP\. While the system served very well for performance assessment of individual MCP experts, at the systems level, measuring change for broader objectives of improved service delivery proved to be challenging\. Frequent communication regarding the requirement of system modification took place with the Bank Task Team\. However, on account of limited timeframe of the program and preoccupation of both Bank Task Team and GDPDM with designing a follow on operations of MCP namely, the Capacity Building for Results (CBR) Facility, further enhancement to the MCP M&E tools could not be taken up\. Service delivery and budget execution performance are two long term indicators which were difficult to be achieved over the life cycle of the MCP\. However, despite such constraints, the GDPDM provided the Bank with data indicating the extent to which MCP experts had been effective in improving the delivery of services and executing their departments‘ budgets\. For example, during the individual Ministry assessments, all MCP teams displayed an increase in percentage of expenditure in critical Ministries, e\.g\. Ministry of Finance, 25 Agriculture, Health and etc\. As a result of this impact, the procurement process and contract management systems also improved and most of these Ministries qualified for Direct Funding by donors and direct procurement authority\. The overall goal of the government is to improve the delivery of public services which primarily takes place at sub-national level\. Capacity for service delivery needs to improve dramatically at sub-national level to ensure on-going legitimacy of the state and the peace and stability of Afghanistan\. MCP had a target of allocating twenty percent of the appointments for sub-national level positions\. This could not become feasible primarily on account of the preferences of ministries/ agencies to prioritize for their immediate needs of strengthening management capacity at central level\. Secondly, the program as envisaged intended to expand to a total allocation of USD 35 million which would have supported 240 positions\. However, within the available resources, only 153 appointments could be supported under the program, limiting the planned subsequent expansion to sub- national level\. The follow-on program namely the CBR Facility, with its revamped approach and enhanced allocation is likely to respond to the requirement of expanding the program to sub-national level\. Further, the MCP could only recruit staff to grades 1, 2 and 3 of the civil service and this became a serious bottleneck in many ministries which needed a second tier of managers under the MCP experts to execute the ministry mandates in Kabul as well as in the provinces\. Considering the lessons learnt from the implementation of MCP, GDPDM has emphasized on the expansion of the scope of the project to support the second and third tier managers under the follow-on CBR Facility\. Also, GDPDM initiated injecting clusters into the line ministries during the last year of MCP implementation which led not only to the recognition of MCP at the country level but also increased the productivity of the respective government ministries\. The MCP experts contributions in their respective areas of work was endorsed and felicitated by the President and their respective supervisors (mostly deputy ministers) and three of them have been promoted to the positions of deputy ministers (Ministry of Commerce and Industries, Ministry of Mines and Ministry of Labor, Social Affairs Martyred and Disabled)\. The program assumed that MCP appointees do not need any additional capacity development and that the ministries / agencies to which they are appointed will provide them office facilities, etc\., for their effective functioning\. The IARCSC signed MoUs with respective ministries / agencies and the responsibility of providing MCP experts with necessary office supplies, such as computer, phone etc\., rested with respective ministry / agency\. There was no provision in the program to step in and provide an alternative in cases where the ministries / agencies failed to respond to the needs of MCP appointees in a timely manner\. The GDPDM continued with its promotional activities to sensitize the ministries / agencies in this regard\. Further, in coordination with other capacity development programs, implemented by IARCSC, the MCP appointees were included in the exposure visits to other countries (Korea, Italy, India) to widen their knowledge and upgrade their skills\. 26 MCP implementation was fully embedded in IARCSC and its relevant departments played crucial roles in the management of MCP\. For example, Appointments Boards‘ Commissioners chaired and led the recruitment process\. All cases of grievances / complaints regarding MCP recruitment process were processed by the IARCSC Appeals Board\. The MCP expert‘s performance evaluation forms were attested by the Chairman\. All financial arrangements of MCP were coordinated with the Finance department of the Commission\. GDPDM also coordinated and communicated MCP‘s provincial related agendas with the IARCSC Provincial Affairs Directorate (PAD)\. GDPDM‘s communication and outreach department frequently shared the MCP progress reports with IARCSC‘s Communication and Media Relations Directorate\. It is therefore not a correct conclusion that there was no significant involvement of other departments of the IARCSC in management and oversight of the MCP and GDPDM leadership exercised full control over program management\. In fact, the foremost and significant achievement of MCP was to mainstream the CDS, an erstwhile PMU of IARCSC responsible for MCP implementation into GDPDM, a full-fledged general directorate of IARCSC with a defined mandate such that the processes of GDPDM were fully embedded with the processes of other directorates of IARCSC\. Under a visionary leadership accompanied by competent staff, the IARCSC-GDPDM has been able to transform MCP into a well-known project at country level, signified in Kabul Conference and acknowledged by the President indicating the impact it made in the government\. The overall implementation progress of the project is strongly believed to be “Highly satisfactoryâ€? and not “Moderately satisfactoryâ€?\. The Kabul Conference marked a new phase in the partnership with donor community namely, the Kabul Process\. The Afghan Government‘s program has been defined by measurable benchmarks contained in National Priority Programs (NPPs) that represent the prioritized requirements of the ANDS\. The hallmark of the Kabul Process is Afghan leadership and ownership\. Earlier, the Consultative Peace Jirga of June 2010 was an expression of national consensus and gave a mandate to adopt a ―whole of the state‖ approach and ―whole of government‖ path to national renewal\. The essence of the ―whole of the state‖ is constitutionalism and the essence of the ―whole of government‖ approach is structural reform to create an effective, accountable and transparent government that can deliver services to the population and safeguard national interests\. The IARCSC is implementing the NPP3 for ―efficient and effective government‖ following the ―whole of government‖ approach and has now taken lead in implementing Capacity Development programs for Afghan Civil service under the overall Public Administration Reform agenda that follows a ―whole of ministry‖ approach\. The cluster approach promoted by MCP towards later part of its implementation lays the foundations of a ―whole of ministry‖ approach which has now been fully embedded in the MCP follow-on program – ―Capacity Building for Results (CBR) Facility‖\. 27 Annex 5\. List of Supporting Documents and MCPs Interviewed World Bank: Management Capacity Program (MCP) Documents (P106170) MCP Implementation Support Mission Aide Memoire (February, 2009) Implementation Status and Results (March 2010) Implementation Status and Results (November 2010) Mid-Term Review (October-November 2010) Implementation Status and Results (December 2011) MCP Technical Annex Implementation Completion Report for AEP and LEP, IARCSC (August 2010) Assessment of the TAFSU, AEP and LEP Review of the Lateral Entry Program (LEP), NORAD (May, 2006) Interviews Mr\. Rohullah Osmani, Director General, GDPDM Mr\.A\.Foshanji, Director (Operations), GDPDM Mr\.Faizan Ahmad, Director (Human Resources), Ministry of Women‘s Affairs Mr\.A\.W\.Arian, General Director for Policy and Planning, Ministry of Education Mr\.Khair Mohammad ―Niru‖, Director General, Manpower & Labor Affairs Regulations, Ministry of Labor, Social Affairs, Martyrs and Disabled (MoLSAMD) Mr\.J\.H\.Samadey, Director (HR), MoLSAMD Dr\.Q\.Qaeym, Director General, Directorate of Oil & Gas Survey, Ministry of Mines (MoM) Ms\.G\.Habibyar, Director (Policy), MoM Mr\.M\.W\.Etabar, Director (Finance & Accounts), Ministry of Agriculture, Irrigation and Livestock (MAIL) Mr\.M\.Y\.Hotak, Director (Human Resources & Capacity Development), MAIL Prof\.S\.W\.Ataye, Director (Policy, Planning and Foreign Affairs), Ministry of Justice (MoJ) Mr\.A\.N\.Baizayee, Director General (HR), Ministry of Education (MoE) Mr\.M\.Ebrahim, Director (Finance), MoM Ms\.M\.Akbari, Director (Investment Promotion), MoM Mr\.S\.Z\.Hashemi, Director (Legal), MoM Mr\.M\.Aqa, Director General (Treasury), Ministry of Finance (MoF) Mr\.H\.Jalil, Director of Aid Management Directorate, MoF 28  60°E 65°E 70°E 75°E To U Z B E K I STA N Dushanbe hob Am uD ar y Murg a TA J I K I STAN To Chardzhev To TAJ IK IS TA N To ˘ Kulob To Shazud Dushanbe To ˘ Qurghonteppa AFGHANISTAN TUR KM E N I S TA N Faisabad h ¯ ¯ JAWZJAN ndz Pya BALKH ¯ KUNDUZ mi r Taloqan ¯ ¯ Pa Kunduz Kondoz ¯ h Sheberghan ¯ Mazar-e ¯ Sharıf ¯ TAKHAR ¯ s BADAKHSHAN Saripul u Tirich Mir (7690 m) To Samangan ¯ Baghlan ¯ K Meymaneh Mary ¯ SAMANGAN ¯ BAGHLAN ¯ ¯ F A R YA B u ndu z I R d To SH ¯o eQ J Chitral To SAR IP SARIP UL y n 35°N Mashad Mor gh¯ Da ¯ ry a- Bazarak H PAiN ¯ ¯¯ NURISTAN ab P ¯ B A D G H ¯S I ¸ ¯ Mahmud-e Raqı ¯¯ ¯ ¯ ¯ KAPISA Nuristan ¯ ¯ ¯ 35°N a Bamyan ¯ ¯¯ ¯ PARWAN Asadabad ¯ ¯ r o Qal‘eh-ye Now ¯ Charıkar LAGHMAN ¯¯ ¯ KUNAR To p a e ¯ R a n g ¯ ¯ m i s u s Mehtarlam Mardan Chaghcharan ¯ B A M YA N KABUL KABUL ¯ ¯ Herat ¯ ır¯d Har¯ u Jalalabad ¯¯ ¯ PAK IS TAN WA R D A K Meydan Shahr ¯ INDIA ¯ Khyber Pass ¯ LOGAR NANGARHAR H E R AT GHOR To Peshawar DAY KUNDI Pol-e ‘Alam Nili PAKTIA Ghaznı ¯ Gardız ¯ us d an G H A Z N¯ Ind ISLAMIC He lm I KOWST To Kowst Kohat 0 50 100 150 Kilometers REPUBLIC Sharan rah ¯ ¯ OF IRAN Fa ¯ URUZGAN 0 50 100 Miles FA R A H Tarın Kowt ¯ ut ¯r Ha ¯ Farah ¯ I ¯ P A K T¯K A ¯ ZABUL Qalat ¯ h Kh¯ s a ak rn¯ Ta Hamun-e ¯ ¯ Saberı ˛¯ ¯ Lashkar Gah ¯ Arghandab Kandahar ¯ To AFG H ANISTAN Zhob Dasht-I Margo PROVINCE CAPITALS Zaranj NATIONAL CAPITAL N ¯M R O Z I ¯ HILMAND ¯ KANDAHAR RIVERS Helm To and Quetta MAIN ROADS 30°N Gowd-e RAILROADS Zereh IBRD 33358R1 30°N OCTOBER 2011 This map was produced by the Map Design Unit of The World Bank\. PROVINCE BOUNDARIES The boundaries, colors, denominations and any other information shown on this map do not imply, on the part of The World Bank Group, any judgment on the legal status of any territory, or any INTERNATIONAL BOUNDARIES 60°E PA KI S TA N 65°E endorsement or acceptance of such boundaries\. 70°E

REVIEW

P034301

Document of The World Bank Report No: ICR0000548 IMPLEMENTATION COMPLETION AND RESULTS REPORT (MULT-28200) ON A GRANT FROM THE MULTILATERAL FUND IN THE AMOUNT OF US$13 MILLION TO THE ISLAMIC REPUBLIC OF PAKISTAN FOR A OZONE DEPLETING SUBSTANCES PHASE OUT PROJECT September 21, 2007 Environment and Water Resource Management Unit South Asia Sustainable Development South Asia Region  CURRENCY EQUIVALENTS (Exchange Rate Effective July 17, 2007) Currency Unit = Pakistan Rupee (PKR) US$ 1\.00 = PKR 60\.45 FISCAL YEAR January 1 ­ December 31 ABBREVIATIONS AND ACRONYMS CBR Central Board of Revenue MoE Ministry of Environment CFC Chlorofluorocarbon, an ozone MP Montreal Protocol on Substances that depleting substance Deplete the Ozone Layer CP Country Program MLF Multilateral Fund for the Implementation of the Montreal Protocol CPU Country Program Update MT Metric Ton, a unit of measure equivalent to 1,000 kilograms CTC Carbon Tetrachloride, an ozone MTR Mid-Term Review depleting substance DAL Domestic Appliances Ltd\. NBP National Bank of Pakistan ExCom Executive Committee of the NDFC National Development Finance Multilateral Fund Corporation FI Financial Intermediary ODP Ozone Depleting Potential FY Fiscal Year ODS Ozone Depleting Substance GEO Global Environmental Objectives OTF Ozone Projects Trust Fund GOP Government of Pakistan PCR Project Completion Report IA Implementing Agency PSR Project Status Report ICR Implementation Completion RMCPL Refrigerators Manufacturing Co\. Report Pakistan Limited IOC Incremental Operating Costs SGA Sub-Grant Agreement LC Letter of Credit UNEP United Nations Environment Programme MDI Metered Dose Inhalers UNIDO United Nations Industrial Development Programme MELG&RD Ministry of Environment, Local Government, and Rural Development Vice President: Praful C\. Patel Country Director: Yusupha B\. Crookes Sector Manager: Karin E\. Kemper Project Team Leader: Ernesto Sanchez-Triana ICR Team Leader Ernesto Sanchez-Triana  PAKISTAN Montreal Protocol Ozone Depleting Substances Phase Out Project CONTENTS A\. Basic Information\. i B\. Key Dates\. i C\. Ratings Summary\. i D\. Sector and Theme Codes \.ii E\. Bank Staff\.ii F\. Results Framework Analysis\.iii G\. Ratings of Project Performance in ISRs \. iv H\. Restructuring (if any)\. v I\. Disbursement Profile\. v 1\. Project Context, Global Environment Objectives and Design \. 1 2\. Key Factors Affecting Implementation and Outcomes \. 6 3\. Assessment of Outcomes\. 11 4\. Assessment of Risk to Development Outcome\. 13 5\. Assessment of Bank and Borrower Performance \. 13 6\. Lessons Learned \. 15 7\. Comments on Issues Raised by Borrower/Implementing Agencies/Partners \. 17 Annex 1\. Project Costs and Financing\. 18 Annex 2\. Outputs by Component \. 19 Annex 3\. Economic and Financial Analysis\. 20 Annex 4\. Bank Lending and Implementation Support/Supervision Processes \. 21 Annex 5\. Beneficiary Survey Results\. 23 Annex 6\. Stakeholder Workshop Report and Results\. 24 Annex 7\. Summary of Borrower's ICR and Comments on Draft ICR \. 25 Annex 8\. Comments of Cofinanciers and Other Partners/Stakeholders\. 32 Annex 9\. List of Supporting Documents \. 33 Annex 10\. Additional Annexes\. 34 MAP IBRD 33460  A\. Basic Information PHASE OUT OF ODS Country: Pakistan Project Name: PRE Project ID: P034301 L/C/TF Number(s): MULT-28200 ICR Date: 09/21/2007 ICR Type: Core ICR Lending Instrument: SIL Borrower: GOP Original Total USD 13\.0M Disbursed Amount: USD 8\.6M Commitment: Environmental Category: B Global Focal Area: O Implementing Agencies: Ministry of Environment (Ozone Cell) National Bank of Pakistan Cofinanciers and Other External Partners: B\. Key Dates Process Date Process Original Date Revised / Actual Date(s) Concept Review: 10/17/1994 Effectiveness: 08/04/1997 08/04/1997 Appraisal: 07/15/1995 Restructuring(s): Approval: 01/23/1997 Mid-term Review: 09/17/2004 Closing: 06/30/2001 12/31/2006 C\. Ratings Summary C\.1 Performance Rating by ICR Outcomes: Satisfactory Risk to Global Environment Outcome Low or Negligible Bank Performance: Satisfactory Borrower Performance: Satisfactory C\.2 Detailed Ratings of Bank and Borrower Performance Bank Ratings Borrower Ratings Quality at Entry: Moderately Satisfactory Government: Satisfactory Quality of Supervision: Satisfactory Implementing Agency/Agencies: Satisfactory Overall Bank Overall Borrower Performance: Satisfactory Performance: Satisfactory C\.3 Quality at Entry and Implementation Performance Indicators Implementation QAG Assessments Performance Indicators (if any) Rating Potential Problem Project No Quality at Entry None i  at any time (Yes/No): (QEA): Problem Project at any Quality of Yes None time (Yes/No): Supervision (QSA): GEO rating before Satisfactory Closing/Inactive status D\. Sector and Theme Codes Original Actual Sector Code (as % of total Bank financing) Central government administration 2 2 Other industry 98 98 Theme Code (Primary/Secondary) Pollution management and environmental health Primary Primary E\. Bank Staff Positions At ICR At Approval Vice President: Praful C\. Patel Joseph Wood Country Director: Yusupha B\. Crookes Mieko Nishimizu Sector Manager: Karin Erika Kemper Maritta R\. V\. B\. Koch-Weser Project Team Leader: Ernesto Sanchez-Triana Jitendra J\. Shah ICR Team Leader: Ernesto Sanchez-Triana ICR Primary Author: Mary-Ellen Foley ii  F\. Results Framework Analysis Global Environment Objectives (GEO) and Key Indicators(as approved) The objective of the project is to assist Pakistan's transition into non-CFC technology\. The project will help Pakistan reach its objective by: (i) supporting the GOP's proposed program to phase out ozone depleting substances (ODS); (ii) implementing cost effective priority subprojects identified in the Country Program for technical conversions; and (iii) building local capacity to identify, develop and implement ODS phaseout\. Revised Global Environment Objectives (as approved by original approving authority) and Key Indicators and reasons/justifications Not applicable (a) GEO Indicator(s) Original Target Formally Actual Value Indicator Baseline Value Values (from Revised Achieved at approval Target Completion or documents) Values Target Years Indicator 1 : Help Pakistan achieve its commitments under the Montreal Protocol for phaseout of CFCs, which are (i) 50% phaseout by 2005, and (ii) 85% phaseout by 2007\. Initially 640 ODS MT (calculated on the basis of the 7 17 subprojects were Value Zero\. No phaseout had subprojects in the completed (quantitative or been done when the foam and amounting to the Qualitative) project started\. refrigeration phaseout of 1,243 sectors identified ODS MT\. at the time of approval)\. Date achieved 01/15/1997 12/31/2006 12/31/2006 Comments 100% of 640 ODS MT from subprojects identified at approval plus an additional (incl\. % 603 ODP MT resulting from additional subprojects identified during the achievement) project's life\. Indicator 2 : Build local capacity to identify, develop and implement ODS phaseout\. Ozone Cell has Ozone Cell will be been enabled to able to sustain sustain ODS ODS Phaseout Phaseout after Value Ozone Cell established Country project closure and (quantitative or during project Programme after complete phaseout Qualitative) preparation\. Bank project of CFC by 2010\. closes and Capacity of NBP complete phaseout was strengthened to of CFC by 2010\. identify, develop and implement ODS phaseout\. Date achieved 01/01/1996 12/31/2006 12/31/2006 iii  Comments (incl\. % achievement) (b) Intermediate Outcome Indicator(s) Original Target Formally Actual Value Indicator Baseline Value Values (from Achieved at approval Revised Completion or documents) Target Values Target Years Indicator 1 : Implement cost effective priority subprojects, identified in the Country Programme for technical conversion to replace use of CFCs\. Value Seven subprojects About 10 (quantitative or identified at the time the subprojects within 17 subprojects were Qualitative) project was approved\. 48 months of GA completed\. signing\. Date achieved 01/15/1997 12/31/2006 12/31/2006 Comments (incl\. % achievement) G\. Ratings of Project Performance in ISRs Actual No\. Date ISR Archived GEO IP Disbursements (USD millions) 1 10/04/2000 Satisfactory Unsatisfactory 1\.65 2 12/19/2000 Satisfactory Satisfactory 2\.12 3 06/17/2001 Satisfactory Satisfactory 2\.17 4 12/28/2001 Satisfactory Satisfactory 2\.34 5 06/14/2002 Satisfactory Satisfactory 3\.62 6 12/03/2002 Satisfactory Satisfactory 4\.72 7 06/01/2003 Satisfactory Satisfactory 5\.09 8 12/30/2003 Satisfactory Satisfactory 5\.20 9 06/29/2004 Satisfactory Satisfactory 5\.31 10 12/28/2004 Satisfactory Satisfactory 5\.80 11 01/06/2005 Satisfactory Satisfactory 5\.80 12 05/13/2005 Satisfactory Satisfactory 6\.59 13 07/01/2005 Satisfactory Satisfactory 6\.69 14 01/13/2006 Satisfactory Satisfactory 7\.89 15 07/20/2006 Satisfactory Satisfactory 8\.23 16 06/22/2007 Satisfactory Satisfactory 8\.62 iv  H\. Restructuring (if any) Not Applicable I\. Disbursement Profile v  1\. Project Context, Global Environment Objectives and Design The Montreal Protocol Ozone Depleting Substances Phase Out Project channeled grant funding from the Multilateral Fund (MLF) for the Implementation of the Montreal Protocol to Pakistan to finance the incremental costs of conversion to ozone friendlier technology for a group of subprojects in two industrial sectors\. This contributed to the Government of Pakistan's ability to reduce demand for chlorofluorocarbons (CFC) and thereby, assisted it in meeting its obligations to the Montreal Protocol (MP)\. The country and sector background and rationale for World Bank assistance is described below\. 1\.1 Context at Appraisal Country and Sector Background Preceded by two decades of relatively fast economic growth and moderate inflation, in 1993 the Government of Pakistan embarked on a program of macroeconomic adjustment and structural reform that aimed to enhance the country's economic performance\. Pakistan's economic growth, along with greater population growth, urbanization, and industrialization posed significant challenges to the country's environment\. In response, a National Conservation Strategy was adopted in 1992 followed by an Action Plan for 1993-1998 that aimed to improve natural resource management\. Provincial environmental strategies, as well as a new comprehensive environmental law, were developed\. Pakistan's commitment to address environmental problems also included the ratification in 1992 of the Vienna Convention, the Montreal Protocol, the London Amendment, and of the Copenhagen Amendment in 1995\. These instruments were the response of the international community to control the production and consumption of substances that scientific assessments found to be causing the thinning of the Earth's ozone layer, resulting in more harmful ultraviolet radiation (UV-B) reaching the surface of the Earth\. Ozone depleting substances (ODS) controlled by the MP are categorized as Annex A substances (CFC and halon), Annex B substances (including carbon tetrachloride (CTC)), Annex C substances (including hydrochlorofluorocarbons (HCFCs)), and Annex E substances (methyl bromide (MeBr))\. Developed countries that are Parties to the MP initially committed to phase out Annex A substances by the year 2000 (which was accelerated to 1996 in a 1993 adjustment to the MP)\. Recognizing the special situation of developing countries, Article 5 of the MP established that developing countries with an annual consumption level of Annex A substances of less than 0\.3 kg per capita could benefit from a ten-year grace period, up to 2010\. Moreover, Article 5 countries were automatically eligible to receive technical and financial assistance from the Multilateral Fund (MLF) to meet the agreed incremental costs for complying with the Protocol's control measures\. With an estimated annual per capita consumption of 0\.018 kg of ODS substances at the time of project appraisal, Pakistan was also eligible for MLF assistance\. 1  Government of Pakistan ODS Phaseout Strategy The Ministry of Environment, Local Government, and Rural Development (MELG&RD) led the development and implementation of the national program to comply with Pakistan's obligations under the MP\. MELG&RD defined three program components, namely: (i) the development of a phase out strategy; (ii) setting up of institutional arrangements to implement the strategy, and (iii) an investment component comprising technical and financial assistance to enterprises for the adoption of non-ODS technologies\. Taking advantage of Pakistan's eligibility to receive MLF assistance, MELG&RD sought support for the development and implementation of these components from the four MLF implementing agencies: the World Bank; United Nations Environment Programme (UNEP); United Nations Development Programme (UNDP); and the United Nations Industrial Development Organization (UNIDO)\. With UNEP's assistance, Pakistan prepared its strategy, or Country Program (CP) in 1996 which laid out the investment, non-investment, institutional and policy actions that the country would undertake to phase out ODS and comply with its MP obligations\. The main sectors targeted by the CP were domestic and commercial refrigeration, as well as foam\. Under the CP, the Government of Pakistan's (GOP's) main role consisted of providing information, financial incentives in the form of lower tariffs on equipment and materials required for conversion to non- CFC technology, and instituting a ban on imports of CFC-based equipment\. The CP further envisioned that, responding to such stimuli, the industry would decide how and when to convert to non-ODS technology\. The following table summarizes Pakistan's obligations under the MP by ozone depleting substance\. Consumption is defined in the Protocol as imports plus production (not applicable in the case of Pakistan), minus exports of ODS\. BASELINE CONSUMPTION OF ODS IN PAKISTAN AND MP OBLIGATIONS Montreal Protocol (ODP MT) CFC Halon Methyl CTC TCA Bromide Baseline consumption (1995-1997) 1679\.4 14\.2 14* 412\.9** 2\.3** Allowed consumption during 1999-2004 1679\.4 14\.2 14 412\.9 2\.3 Allowed level of consumption in 2005 839\.7 7\.1 11\.2 62\.00 1\.61 Allowed level of consumption in 2007 251\.91 7\.1 11\.2 62\.00 1\.61 Allowed level of consumption in 2010 0 0 11\.2 0 0\.69 Allowed level of consumption in 2015 0 0 0 0 0 Source: World Bank and Ozone Cell (2002), "The Islamic Republic of Pakistan: Country Programme Update"\. *1995-1998 baseline **1998-2000 baseline The second component, institutional arrangements for the implementation of the CP, received support from UNDP and included the establishment of an Ozone Cell within MELG&RD to develop and implement all ODS-related activities within Pakistan and to guide the country's ODS phase out program\. Activities undertaken by the Ozone Cell included assisting in the preparation of legislation, developing public awareness campaigns, making ODS-related information available, and facilitating the enterprises' coordination with the MLF implementing agencies\. The final component was the provision of technical and financial assistance to enterprises for the adoption of non-ODS technologies (the investment component)\. This component was to be 2  supported by UNIDO and the World Bank\. Whereas the former would focus on small and medium-scale subprojects, the original intention in GOP's strategy was that the Bank would work with the larger enterprises in the foam and refrigeration sectors\. Country Program Update During the implementation of the CP it was seen that there was a need to reassess the level of ODS consumption on a sector level\. First, a number of ODS-consuming firms had not been identified in the CP and some sub-sectors were excluded\. Second, exogenous factors led to the restructuring of the composition of relevant markets, with some firms exiting the market and others increasing their market share while overall growth in these economic sectors continued\. This meant that the level of reductions of ODS from projects was not necessarily reducing baseline consumption\. In this context, Pakistan received funding in 2002 to carry out a Country Programme Update (CPU) with the World Bank's assistance\. The CPU's objectives were to provide information on recent ODS use, correct any past data reporting inconsistencies and incorporate into an overall ODS phaseout strategy the sectors and ODS consumption not targeted in the original CP\. According to the CPU, total ODS consumption in Pakistan amounted to 2,300\.7 ODP MT as of December 2002 (excluding HCFC)\. This amount indicated that between 1995 and 2002, the level of consumption decreased slightly overall, and increased in two sectors (solvents and halon) despite ongoing MLF projects and in light of the impending 50% MP reductions in Annex A substances by 2005\. The following table compares actual ODS consumption by controlled substance in 1995 and 2002 with Pakistan's MP compliance baseline\. The phaseout achieved up to 2002 at the subproject level through MLF and implementing agency support (also included in the table) did not translate to significant consumption reductions at the national level\. COMPARISON OF ODS CONSUMPTION BY CONTROLLED SUBSTANCE ODS Consumption in Phase out Compliance Remaining CP (ODP MT) achieved 2002 baseline consumption in 1995 thru MLF CPU (ODP MT) subprojects 2002 CFC 2102\.7 691\.83 1679\.4 1646\.71 Halons 21 0 14\.4 16\.95 Methyl 0 0 14 0 Bromide TCA 12\.8 0 2\.3 0 CTC 614\.9 0 412\.9 636\.9 Source: World Bank and Ozone Cell (2002), "The Islamic Republic of Pakistan: Country Programme Update"\. The outcomes of CP implementation also underscored the need for more interventions from the GOP\. When the CP was developed, one regulation was in place ­ a ban on the trade of ODS with non-Parties to the MP\. In the following years, a number of additional regulations were phased in\. Key regulations included: i) a licensing system introduced in 1998 by MELG&RD and the Ministry of Commerce (MoC) to allow only registered companies to import ODS; ii) an Import Policy Order (SRO 895(1) 99 Import Policy) to restrict the level of ODS imports; and iii) the 2000 Ozone Depleting Substances policy which among others, introduced a progressive CFC quota reduction schedule starting in 2003\. 3  1\.2 Original Global Environment Objectives (GEO) and Key Indicators The objective of the project was to assist Pakistan's transition to non-CFC technology\. The project aimed to help Pakistan reach its objective by: (i) supporting the GOP's proposed program to phase out ODS; (ii) implementing cost-effective priority subprojects identified in the Country Program for technical conversions; and (iii) building local capacity to identify, develop and implement ODS phaseout\. The project utilized an Umbrella Grant Agreement under which the GOP and the Bank agreed on the overall objectives of the project, as well as on the eligibility and operational criteria to assess and support the implementation of technology conversion subprojects\. The Agreement was followed by a Memorandum of Agreement signed by the Economic Affairs Division, MELG&RD, and the Financial Intermediary (National Development and Financial Corporation- NDFC)\. MELG&RD, as lead agency for implementing the country program, was responsible for overseeing the project on behalf of the GOP and for ensuring that subprojects were consistent with the ODS Country Program\. MELG&RD had the responsibility for issuing the final clearance of subprojects that were presented for funding, as well as for implementing a policy framework to encourage early phaseout of ODS\. As financial intermediary, NDFC's responsibilities included: assisting in promotion of subproject identification, administering funds allocated by the Bank to subprojects endorsed by ELG&RD and approved by the Executive Committee of the MP and by the Bank, evaluating financial viability of enterprises based on the eligibility criteria agreed with the Bank, disbursing grants to subproject beneficiaries, and supervising subproject implementation\. MLF's resources from the Bank were channeled through NDFC to ODS users to cover the incremental costs of ozone protecting technologies, understood as the difference between the cost of complying with MP targets and the costs that would be incurred without the MP\. After each subproject had been endorsed by MELG&RD and the appraisal reports had been approved by the Bank and the Executive Committee of the MP, sub-grant agreements were signed between NDFC and subproject beneficiaries according to a model sub-grant agreement approved by the Bank\. Subprojects also included technical assistance for technology transfer, design, safety, training, and implementation to beneficiaries\. The original project indicators used by the Bank to monitor performance of ODS projects were established by the MLF and the Bank's MP Unit\. Main indicators included ODP phased out during and after project implementation; disbursement rate; compliance with baseline CFC equipment disposal requirements; time from approval of subproject to signing of the sub-grant agreement; cost effectiveness; and time to project completion\. Individual project completion reports (PCRs) for each subproject that were required by the MLF contain further details on these indicators and actual performance\. MELG&RD was responsible for monitoring the overall project and achieving the subprojects' ODS phaseout targets, while enterprises remained responsible for implementing their own subprojects\. NDFC was required to prepare reports for MELG&RD and the Bank, monitor compliance of enterprises (including equipment disposal agreements), prepare jointly with enterprises subproject completion reports upon final implementation of each subproject, and monitor compliance with environmental and safety standards, among other requirements\. 4  1\.3 Revised GEO (as approved by original approving authority) and Key Indicators, and reasons/justification The original global environment objectives were not revised\. However, they were slightly reoriented to focus more directly on compliance with GOP's Montreal Protocol obligations through the original project approach ­ implementation of subprojects and building local capacity to develop and implement ODS phaseout projects ­ rather than on the CP\. As previously mentioned, during the implementation of the project it was found that some sectors using CFC had not been identified in Pakistan's Country Programme\. By looking at CFC consumption (import) data, it was seen that CFC use was greater than first assessed in the CP\. For example, there was one large sector of thermoware in rigid foam insulation that had not been identified by the CP (which subsequently was included under the ODS Project through two subprojects)\. ODS consumption was reevaluated in different sectors and enterprises, as well as the total ODS consumption of the country in the Country Program Update\. The Bank assisted the Government in preparing the CPU, which also laid out the strategy for the phased reduction and phaseout of controlled substances by the year 2010, as scheduled under the Montreal Protocol (halon, CFC and CTC)\. It encompassed initiatives to strengthen general and sector specific policies, and deliver technical assistance to ensure compliance with the phase out of ODS\. The CPU identified the final project activities required to completely end the use of CFC in manufacturing in Pakistan\. The ODS Project objective was therefore slightly recast to better align enterprise-level CFC phaseout with Pakistan's impending Montreal Protocol CFC reductions (50% by 2005, 85% by 2007, and 100% by 2010) and its associated quota system\. 1\.4 Main Beneficiaries The primary target group as identified at appraisal was CFC-consuming enterprises in the foam and the refrigeration manufacturing sectors\. The project anticipated that more firms from the refrigeration and foam sectors than originally identified at the time of appraisal (seven subprojects) would benefit from the financial assistance to convert to non-CFC technologies\. By the end of the Project, a total of 21 subprojects had been approved for these sectors by the MLF (including four subprojects that were later cancelled due to beneficiary choice or liquidation)\. The project also included a technical assistance component to strengthen the Financial Intermediary's (i\.e\., NDFC) technical capabilities in ODS-related data collection, project implementation review and supervision\. This component had a significant impact as it helped NDFC to develop managerial skills and technical understanding of ODS-related issues that were crucial to advance project implementation\. Finally, the GOP benefited from the Project in that it helped deliver multilateral financing for incremental costs associated with complying with the MP\. In turn, global benefits were accrued insofar that additional emissions of ozone-depleting substances were avoided\. 1\.5 Original Components (as approved) The two original components of the ODS Phase-out Project were: 1) an investment component which would include approximately 10 subprojects and 2) a Financial Intermediary (FI) Fee, which was used by NDFC, along with additional Bank resources, to fund technical assistance to 5  strengthen NDFC's technical capacity for project implementation\. These components were captured as follows by the Grant Agreement: No\. Component Finance allocation (US$ million) 1\. Subprojects 12\.61 2\. Financial Intermediary Fee 0\.39 Total 13\.00 An additional US$2 million was envisioned as counterpart funding to contribute to meeting the incremental costs of converting to non-CFC technology\. The design of the Project is directly related to the achievement of objectives in that the FI effectively served as an executing agency for all subprojects in Component 1 and enabled funds to be channeled to the beneficiaries for technology conversion and ODS phaseout while safeguarding MLF funding\. Implementation of Component 1 served to strengthen the FI's administrative capacity over the course of the project\. 1\.6 Revised Components The above components were not revised\. In practice, counterpart funding amounted to nearly US$3 million (see Annex 10\.1 for a breakdown by subproject)\. 1\.7 Other significant changes The closing date was extended twice primarily because i) some subprojects experienced delays at the appraisal and implementation stages; ii) additional CFC users were identified at a later stage, leading to required revisions of the country strategy to comply with ODS phaseout obligations; and, ii) a disconnect between early GOP policy and investment grants, resulting in reduced incentives for timely technological conversions\. (See next section for further discussion)\. 2\. Key Factors Affecting Implementation and Outcomes 2\.1 Project Preparation, Design and Quality at Entry The umbrella project was modeled on other ODS phaseout projects under the Bank in its role as one of four implementing agencies of the MLF\. The modality served its purpose well, enabling an overall agreement to be reached with the GOP on ODS phaseout while individual subprojects were approved by an external body (the Executive Committee of the MLF) on a rolling basis based on demand over the duration of the grant agreement\. The umbrella ceiling amount of US$13 million was sufficient to absorb the total cost of subprojects and fees approved by the MLF\. The design was appropriate for the capacity and needs of the Government of Pakistan\. The prominent role in project implementation that was given to the designated Financial Intermediary, NDFC, permitted program continuity in times of flux within the Ministry of Environment (MoE)1\. 1The Ministry of Environment, Local Government and Rural Development was bifurcated in pursuance of Cabinet Division notification number SRO\.826 (1)/2002 and an independent Ministry of Environment was established on April 22, 2002\. 6  Some of the limitations of the design are apparent when looking at the actual duration of the ODS Project in comparison to the planned timeframe\. The closing date was extended twice for a total duration of ten years instead of 4\.5 years\. In retrospect, the planned duration was perhaps overly ambitious due to several reasons described next\. In the first place, the duration of the project had been largely based on the expected subproject demand as identified in Pakistan's first Country Program; an ODS consumption assessment and action plan, prepared with the assistance of UNEP (one of the MLF Implementing Agencies)\. However, during project implementation, two important developments occurred: first, initially identified subprojects did not move forward and were eventually cancelled; and second, additional ODS users were later identified in several sectors\. Another reason for the length of implementation was apparent at the subproject design level\. During subproject technical appraisal, some projects were significantly modified to account for unforeseen changes\. These changes were at times a departure from Executive Committee approval criteria and time was needed to devise a plan that met the needs of the beneficiaries while still fulfilling MLF requirements\. These changes were due to the lag in time between preparation and approval of funding, changes in enterprise business and their markets and to some extent, initial assessments in the project preparation phase were rushed\. These challenges in subproject implementation are directly linked to the most significant aspect not foreseen in project design ­ the critical role of concurrent government policy to provide added incentive for enterprises to convert to alternative production technologies\. Enterprise demand for subprojects was limited to available grant funding and not to changes in the market, which provided more economic gain in the short-term given high growth rates in the sector and low CFC cost\. This omission in project design was more common in earlier Bank ODS umbrella projects\. In fact, this aspect was later added by the Bank in new umbrella projects and was subsequently adopted by the MLF as a new strategic approach to ODS phaseout assistance: the linking of policy to investment incentives to achieve sustained ODS phaseout\. Nonetheless, the dialogue instituted with the GOP through the project (reaching its pinnacle during the CPU preparation) did lay the path for policy development\. The Government of Pakistan did implement more comprehensive regulations beginning in 2000 and when these came into effect, the pace of project implementation in the refrigeration sector quickly accelerated\. The GOP has sought to complement such regulations with adequate training for officials who are responsible for their enforcement\. This is illustrated by the Refrigerant Management Plan (RMP) which is implemented by UNIDO and aims to train senior customs officials, along with other activities, including training technicians and supplying servicing equipment\. The regulations enacted by the Government, coupled with careful planning for the implementation of investment projects, have been fundamental to ensure that Pakistan is in compliance with its obligations with the MP\. An action plan was prepared in 2003 to eliminate the use of CFCs in the manufacturing sector on a priority basis so as to end the manufacturing of CFC-based refrigerators, while commencing activities in the servicing sector to ensure sufficient CFC supply in the coming years\. With the quota system imposed by the Government and CFC in the manufacturing sector completely phased out, Pakistan is in compliance\. 7  2\.2 Implementation Some of the factors that affected implementation were beyond the control of the GOP and the implementing agency\. Technology itself played a less prominent role in the project outcome as might have been expected, however, it was a factor in terms of its appeal to enterprises as compared to the pace of project initiation once a subproject was approved by the MLF\. Some enterprises requested changes in equipment and at times in technology, to adapt to new market circumstances\. This led to some delays during the technical appraisal\. Non-CFC technology was readily adopted by the foam sector, in part because the technology was well-proven and the alternatives were marginally higher in cost than CFC\. However, in the refrigeration sector enterprises were reluctant to switch over to non-CFC technology because, among other reasons, more than one technology was available and enterprises were reluctant to take the lead and preferred to "wait and see", especially in the absence of regulatory and market pressures to reduce the high cost differential between CFC-12 and the alternatives\. Some resistance was also encountered in regards to cyclopentane, which was the cheapest technology in terms of operating costs but what was perceived to be dangerous and requiring high upfront costs\. Moreover, early in implementation, cyclopentane suppliers were difficult to find\. Another factor which had an impact on project implementation and outcomes was the role of the MLF and the guidelines and policies governing the use of grant funding\. The MLF Executive Committee issued decisions and guidelines throughout ODS Project implementation which were expected to be adhered to by the Implementing Agencies and respective executing agencies and consultants\. Although these decisions were aimed at making the most effective use of funding and to foster sustainable outcomes, they were at times difficult to apply in the midst of implementation\. Implementation of some of these decisions were perceived to be ambiguous or irrelevant by the beneficiaries and executing agents and led to some minor delays\. Additionally, a few external events added to delays in the project\. For example, after "9/11" subprojects at the equipment procurement stage suffered some delay because of travel restrictions imposed on technicians from European suppliers who were needed to provide training and complete equipment installation and commissioning\. Implementation was also affected by factors subject to government control\. The major reason for delay in project implementation was that incentives offered to enterprises to convert to non-CFC technology were not sufficient to compensate for the gains to be had in the market\. Regulatory pressure in parallel with the grant funding by the MLF would have created a fairer playing field for the enterprises by establishing conditions conducive towards the introduction of cleaner technology and alternatives to the market\. This factor was exemplified in the case of Dawlance and United Refrigeration\. These two major projects in the refrigeration sector were cancelled in early 2001 at the request of the enterprises because they had not found it financially feasible to implement projects while CFC prices were low\. Their withdrawal caused other enterprises with ODS subprojects to delay implementation because of fears of losing market share to these firms\. Once the GOP import quota system came into effect and began to impact CFC prices, the two enterprises reapplied for technical and financial assistance (but received much reduced assistance from the MLF)\. The critical role of Government policy was apparent in the speed of implementation of the last group of subprojects to be approved by the MLF for Pakistan in the foam and refrigeration sectors in 2003 and 2004\. By this time GOP had instituted several important regulations\. These 8  subprojects were completed within three years of approval ­ a significant departure from the average duration of subprojects under the umbrella project of six years\. Another source of delay which also created an avoidable financial burden to enterprises participating in the ODS Project, was the difficulty in obtaining duty waivers for implemented non-CFC equipment mainly due to lengthy procedure\. Because the equipment was being funded to cover incremental costs of converting to non-CFC technology under the Protocol, the MLF requested Governments to exempt equipment of duties\. The responsible authority for the issuance of waivers of the customs duty and sales tax was the Central Board of Revenue (CBR)\. However, due to a high turnover of concerned officials in CBR, the implementation of the policy was never widely adopted and a waiver had to be sought on a case-by-case basis during the life of the project\. This resulted in the delay of clearance of machinery imported under the project and the incurrence of demurrage, which at sometimes was higher than the customs duty\. Finally, factors subject to the implementing agency's control affected project implementation\. NDFC was initially chosen as a Financial Intermediary by the Government of Pakistan\. During implementation, NDFC was merged with NBP and project implementation came to a halt\. It took some time to streamline procedures and regain momentum\. Once NBP assumed the role of Financial Intermediary, it was able to partly overcome this hurdle by contracting the original MP project staff to continue MP project implementation\. However, due to changes in upper management, and because of revision of policies post-merger, disbursement approvals continued to take more time than necessary\. 2\.3 Monitoring and Evaluation (M&E) Design, Implementation and Utilization The monitoring and evaluation framework focused on key measurable indicators planned at project inception\. These included ODP phased out versus that planned to be phased out; the cost- effectiveness of a specific intervention (the cost divided by the amount of phaseout); and destruction of CFC-based equipment (indicating sustainable phaseout)\. In addition, the disbursement rate and time elapsed from appraising subprojects to signing of subgrant agreements were indicators of the progress at the overall umbrella project level\. Data was collected through several monitoring mechanisms\. NBP tracked implementation based on main progress and financial indicators and reported to the Bank on a semi-annual basis\. The data was, in turn, reported through the Bank's progress and financial database of subprojects to the MLF Executive Committee on an annual basis for monitoring\. Upon completion, a PCR evaluating main results was required and submitted to the MLF for each subproject\. In practice, the monitoring and evaluation framework was easily implemented and provided complete information at any given time\. This is due primarily to having easily measurable indicators and strong external demand (the MLF) for detailed and frequent reporting on project progress\. In fact, a separate mechanism was set up by the MLF to monitor subprojects with implementation delays (determined by the time needed to reach key project milestones)\. Several subprojects with some delays benefited from the increased surveillance ­ because of the pressure of possible cancellation under the mechanism, beneficiaries were compelled to ensure implementation did not stall completely\. The main sustainability indicator, that baseline equipment used to manufacture with CFC was destroyed, was captured through a certificate of destruction passed on to the Ministry of Environment\. With project completion, full monitoring responsibility of project beneficiaries will fall on MoE and subproject files will be provided by NBP\. (See Annex 10, Table 10\.1 for 9  performance of individual subprojects for some of the main project indicators and individual subproject completion reports for detailed evaluation of subproject results)\. 2\.4 Safeguard and Fiduciary Compliance The project was rated as EA Category B (partial assessment) because with the main objective being environmental protection, there was no possibility of major environmental impacts\. During preparation, subprojects were evaluated by international experts to ensure the design was in line with accepted environmental and safety norms and that the replacement chemical was one of the approved replacement substances under the MLF\. Project beneficiaries were also required to comply with all country environmental and health regulations and standards related to their operations and to receive clearances from local authorities before new operations commenced, as required\. In cases of safety issues surrounding some of the replacement substances (i\.e\., hydrocarbons), safety, training and audit measures were included in the subproject design\. The utilization of NBP as a financial intermediary served to ensure fiduciary compliance\. It was responsible for ensuring that enterprises and suppliers complied with procurement and financial management/disbursement policies of the Bank\. During implementation NBP staff received guidance on Bank policies as well as MLF eligibility criteria to safeguard the MLF grant\. This included support from Bank procurement and financial management specialists and training through Bank-organized, annual FI workshops\. Procurement and financial management reviews were conducted on a regular basis in accordance with Bank guidelines\. 2\.5 Post-completion Operation/Next Phase Transition to normal, non-CFC based operations was the end objective of each subproject\. After the satisfactory completion of the conversion, the enterprise resumed operations and reported on its project in terms of cost, phaseout, technology choice and sustainability\. Some enterprises transitioning to alternatives with higher costs at the time of subproject approval were paid incremental operating costs to sustain operations for a limited amount of time\. However, it is assumed that with the new technology and GOP ODS policy, regular operations will continue\. The Government of Pakistan is responsible for compliance with MP obligations\. As such, enterprises in sectors where CFC was once utilized are under the direct supervision of GOP\. GOP is aware of its obligations to the Protocol and its role in ensuring that CFC phaseout is sustainable\. A post-impact study might provide additional insight in a few years on how enterprises have sustained their operations and utilized the new equipment\. Pakistan is well ahead of the CFC phaseout schedule but periodic monitoring and control of the end-use of CFCs is as important as monitoring the supply to ensure that the country remains in compliance\. Pakistan has signaled its strong commitment to continue phasing out the use of ODS, as required by the MP\. The GoP has implemented projects in other sectors besides refrigeration and foam\. In particular, with UNIDO's assistance, Pakistan has completed 32 projects in the solvent sector out of a total of 34 identified projects\. GOP has further imposed a ban on the import of CTC with immediate effect through SRO\. (1)/2007 dated 28th May, 2007\. Important actions have been also carried out regarding halons\. There have been no imports of halons over the last two years and the Halons Banking and Recycling System has been established at Lahore\. Finally, in pursuance of an agreement between GOP and the MLF, a notification regarding the imposition of a ban on halons is also in the pipeline\. 10  3\. Assessment of Outcomes 3\.1 Relevance of Objectives, Design and Implementation (to current country and global priorities, and Bank assistance strategy) The project was consistent with the Government's priorities\. Pakistan is committed to comply with its obligations as a party to the Montreal Protocol\. GOP has aimed to ensure that meeting such obligations does not affect the competitiveness and economic performance of enterprises and facilities in key sectors\. In this context, the objectives of the project responded to Pakistan's interests as it (i) supported the GOP's ODS phaseout program by providing financial and technical assistance to support firms' conversion to non-ODS technologies; (ii) implemented 17 cost-effective priority subprojects including an umbrella project in the foam sector and another in the refrigeration sector; and (iii) built local capacity to identify, develop, and implement ODS phaseout, both in the MoE's Ozone Cell, and in NBP\. 3\.2 Achievement of Global Environmental Objectives (including brief discussion of causal linkages between outputs and outcomes, with details on outputs in Annex 2) The main objective of the ODS Project was to facilitate the transition to non-CFC use in several sectors\. Ten subprojects were expected to be fully committed within 48 months of the Grant Agreement's effectiveness with an expected total phaseout of 640 MT of CFC\. The objective was fully achieved as evidenced by the complete cessation of CFC-manufacturing technology in the 17 subprojects that were eventually implemented under the ODS Project (more than the original 10 subprojects target), for a total of 1,243 MT of CFC phased out\." Under the main project component, 21 subprojects were approved in the refrigeration and foam sectors only despite the fact that the ODS Project had not excluded possible activities in other sectors\. Other Implementing Agencies assisted Pakistan in ODS phaseout in the remaining sectors\. Four of the subprojects were umbrella subprojects ­ three in the foam sector and one in the refrigeration sector\. Thermoware I and II, two group projects approved by the MLF to assist 26 enterprises, were treated as one subproject in implementation\. Conversely, the implementation of the two remaining umbrella projects (one in foam and one in refrigeration) was done on an individual beneficiary level (with a total of 10 separate subgrant agreements)\. In the end, 81% of the subprojects approved were implemented due to four cancellations\. Two of the cancellations were attributed to bankruptcy\. Similarly, in the large Thermoware subprojects, several enterprises went out of business\. In all these cases, CFC phaseout was achieved\. The Dawlance and United Refrigeration projects were cancelled on the request of the enterprises because they did not find it financially feasible to implement projects while CFC prices were low\. The firms were subsequently converted in the last refrigeration umbrella subproject by 2006\. By the closure of the ODS Program, the total phase out target of 1,243 MT was met at a cost to the MLF of US$6\.73/ kilogram\. The cost effectiveness, when factoring counterpart funding by the beneficiaries was US$9\.11/ kilogram\. This includes consumption by Dawlance and United Refrigeration and the closed Thermoware enterprises\. The project's main indicator of success is that enterprises in the two manufacturing sectors in Pakistan that were covered by the project (foam and refrigeration) have successfully transitioned to non-CFC technology and are no longer consuming CFCs as of the end of 2006\. The gradual 11  reduction in consumption of CFC in the manufacturing sector, a total of 1,243 ODP MT, has allowed Pakistan to stay in compliance and meet its 2005 fifty percent CFC consumption reduction targets\. The performance of individual subprojects in regards to the indicators outlined in Section 1\.2 is partly captured in Annex 10, Table 10\.1\. Under the Financial Intermediary fee component, planned objectives were likewise achieved on a longer trajectory than had been first envisioned\. NBP's fees were based on the percentage of disbursement made to the enterprises (3% of the amount)\. However, due to implementation and administrative delays, the cost of business significantly increased for NBP since its fees were capped at the amount of the disbursed grants but project duration more than doubled\. Support of a national consultant contracted by the Bank became necessary to assist NBP in some of its requirements under the project, such as with the subproject PCRs\. 3\.3 Efficiency (Net Present Value/Economic Rate of Return, cost effectiveness, e\.g\., unit rate norms, least cost, and comparisons; and Financial Rate of Return) ODS conversion projects provide neither economic return nor financial return to the enterprises affected\. Out of the allocated umbrella amount of US$12\.61 million for subprojects, the MLF approved 21 projects for the Government of Pakistan at a value of US$9\.17 million with an overall planned cost effectiveness of US $7\.13/kilogram\. The actual cost to the MLF was US$8\.36 million for the phase out of 1,243 MT in 17 subprojects\. The resulting cost effectiveness of US$6\.73/kilogram is close to the lowest cost/kg thresholds set by the MLF for the foam and refrigeration sub-sectors (which range from US$6\.23 to US$16\.86) that were covered by the project\. 3\.4 Justification of Overall Outcome Rating (combining relevance, achievement of GEOs, and efficiency) Rating: Satisfactory The project's overall outcome rating is satisfactory, as a complete cessation of CFC- manufacturing technology was achieved in the subprojects covered by the ODS Project and a total of 1,243 MT of CFC were phased out\. A "highly satisfactory" rating would have been achieved if the project had not incurred delays in implementation, which resulted in additional CFC emissions to the environment\. 3\.5 Overarching Themes, Other Outcomes and Impacts (if any, where not previously covered or to amplify discussion above) (a) Poverty Impacts, Gender Aspects, and Social Development Not applicable\. (b) Institutional Change/Strengthening (particularly with reference to impacts on longer-term capacity and institutional development) The implementation of the ODS Project under the NBP and MoE has resulted in the augmentation of capacity in both institutions\. Project implementation came to a halt after NDFC was merged with NBP, and it was only after NBP contracted the original MP Project staff that project implementation resumed\. Once project implementation regained momentum, NBP gained 12  a better understanding of procedures surrounding the appraisal and implementation of environmental protection projects\. Through the project, it has become a conduit for building awareness among the general public on environmental protection\. NBP staff capacities were extended beyond financial appraisal to the ability to manage projects requiring a technical understanding paralleled with that of external MLF policies and guidelines on a myriad of project implementation details\. Relatively high turnover in the Ozone Cell in the Ministry of Environment slowed down project implementation\. However, overall cooperation with the Government was good throughout the project\. Ozone Cell and MoE officers were receptive to NBP and the Bank's efforts in involving GOP in overseeing the progress of the project\. This was particularly the case after 2002 during the preparation of the Country Program Update where its success was directly dependent on GOP's lead in the process\. (c) Other Unintended Outcomes and Impacts (positive or negative, if any) A positive unintended outcome arising from the project was an increase in broad environmental awareness of stakeholders (NBP and the beneficiaries)\. In addition, beneficiaries are now in the position to market their products as "ozone-friendly," or "green" which is an added marketing advantage\. Another unintended outcome was a slight change in the market due to external factors and the ability of some enterprises with new equipment and production methods to fill resulting market gaps\. 3\.6 Summary of Findings of Beneficiary Survey and/or Stakeholder Workshops (optional for Core ICR, required for ILI, details in annexes) No survey or workshop was conducted for the Core ICR\. 4\. Assessment of Risk to Development Outcome Rating: Low or Negligible Project implementation was delayed by a number of factors, ranging from those outside of the control of the government (including market circumstances and changes in MLF policies) to those that GOP could have addressed earlier (such as the issuance of customs waivers and the imposition of comprehensive regulations on the use of CFCs)\. However, the GOP remained committed to fulfilling its obligations as a party to the MP and therefore maintained strong ownership of the project throughout its design and implementation\. 5\. Assessment of Bank and Borrower Performance (relating to design, implementation and outcome issues) 5\.1 Bank (a) Bank Performance in Ensuring Quality at Entry (i\.e\., performance through lending phase) Rating: Moderately Satisfactory 13  The performance of the Bank in terms of delivering grant funding for subprojects is rated as moderately satisfactory which is applied to the identification, preparation and obtaining MLF approvals of respective subprojects\. The identification of the subprojects was well conceived keeping in mind the capacity of enterprises, technology options and the industrial environment\. The Bank assisted the GOP to prepare 21 subprojects (including four umbrella subprojects) comprising of 80 units small, medium and some large\. The absence of a project implementation manual and insufficient corresponding training arranged for the NBP staff is a factor contributing to delay in project implementation\. However, on average, the Bank performance in project preparation is rated as moderately satisfactory\. (b) Quality of Supervision (including of fiduciary and safeguards policies) Rating: Satisfactory Quality of supervision is rated satisfactory as there was strong continuity in the supervision efforts (only three task managers over a ten-year project duration) and there was clear and substantial achievement of target outcomes\. On average, more than three to four supervision missions per year were made in the initial years\. (c) Justification of Rating for Overall Bank Performance Rating: Satisfactory The overall Bank performance is rated satisfactory, given a successful outcome, in terms of ODS abatement achieved, in terms of helping Pakistan meet its broader Protocol-mandated phaseout deadlines and in terms of the performance management framework that was introduced during the latter part of project implementation\. 5\.2 Borrower (a) Government Performance Rating: Satisfactory The Ozone Cell in MoE and NBP/NDFC, the FI, were staffed adequately for project implementation\. Performance of both these actors was in general satisfactory\. NBP kept 2-3 staff assigned full time to the project in the early years\. The Ozone Cell provided adequate support from its core staff\. Policy support for the project could ideally have consisted in the issuance of rules earlier in the project\. Such a measure would have gotten the attention of the industry and made it easier for the financial intermediary (NBP) to accelerate the pace of subproject preparation and processing\. The Ozone Cell working under the MOE was helpful during the implementation of the projects and played an active role\. There were some quick transfers and postings in the Ozone Cell which resulted in delays in formulating policies\. However, this was managed efficiently by the newest staff member who had some prior experience in the Ozone Cell\. The non- or delayed issuance of certificates of duty waiver by the Central Board of Revenue (CBR) was also one of the causes of delay in the implementation of the project\. 14  (b) Implementing Agency or Agencies Performance Rating: Satisfactory Enterprises visited by the World Bank mission were generally satisfied with the Financial Intermediary\. Hence, it is clear that NBP performed creditably and maintained substantial compliance with its reporting obligations under the Grant Agreement\. Financial management, disbursement and procurement arrangements were found satisfactory, although there were some shortcomings in the initial period of project implementation\. A detailed review of financial management arrangements/risk assessment was not undertaken at the time of appraisal; however, detailed reviews were carried out during implementation review and agreement was reached on a set of actions that were implemented to improve financial management\. Shortcomings were overcome through guidance from Bank staff and commitment on the part of NBP financial management staff\. Staffing, internal controls, fund flow and financial reporting were largely adequate\. Acceptable annual audit reports and quarterly financial management reports of the project were mostly submitted to the Bank on time and there were no audit issues\. Continuous follow up by NBP/Bank resulted in most of the subprojects maintaining separate books of account, including fixed assets registers, and having these audited\. Financial ratios and cost effectiveness of the subprojects was also worked out after follow up by the Bank\. Subprojects contributed their share in the project cost and also created charge (for assets financed) in favor of NBP/NDFC\. The project was not subjected to review by the Bank's Quality Assurance Group (QAG)\. During the initial stage, the project withdrew a small amount of US$ 100,000, as an initial advance into the Special Account\. Therefore, the NBP continued to follow the Special Commitment procedure for Letters of Credits, even for small amounts, for import of goods\. Regular coaching on withdrawal of funds procedures was made available to NBP staff throughout the life of the project\. Based on the Bank's advice, the project increased the initial advance up to the allowed authorization of US$500,000, to avoid submission of applications for issuance of Special Commitment for small amounts\. As required, the NBP did not submit Withdrawal Applications on regular monthly intervals\. (c) Justification of Rating for Overall Borrower Performance Rating: Satisfactory The borrower's overall performance is rated satisfactory as both the Ministry of Environment and the NBP responded effectively to the challenges that arose during project implementation\. Both MoE and NBP faced various difficulties, including significant organizational changes and the need to undergo a learning process to strengthen their capacity to oversee and facilitate the implementation of technically complex subprojects\. Although these factors were associated with the lengthening of project duration, both organizations fulfilled their functions and contributed to the achievement of the project's objective\. 6\. Lessons Learned (both project-specific and of wide general application) During the implementation of the umbrella projects (where there were more than one enterprises involved) it would have been more appropriate that the selection of machinery be based on each individual enterprises' technical and working capability so that the equipment supplied met their 15  working environment\. This was not the case in the Thermoware project where one type of equipment was procured for a group of enterprises with different levels of capacity and resources to maintain and use the equipment properly\. The key in umbrella projects is to strike a balance between individual enterprise needs and the overall resources available\. Finding common denominators does lead to more cost-effective approaches but they should not overshadow any differences between the beneficiaries\. The Montreal Protocol provides for a CFC phaseout schedule for Article 5 countries which is supported by MLF assistance to these countries\. In most of the subprojects, the enterprises also contributed counterpart funding because the grant was at times insufficient (due to cost- effectiveness thresholds set by the MLF) and could not be used for specific equipment that enterprises selected (because of MLF eligibility rules)\. In these cases, it was found that enterprises were extremely pro-active in implementation and in making choices on technology options\. There were cases, however, where no contribution was made by the enterprise (the grant covered the full incremental costs)\. It was found that these enterprises had less of a stake in the equipment and consequently were not as careful with using and maintaining the equipment\. In projects that involve funding the private sector to transform a market, it is advantageous to have some counterpart contribution to ensure ownership\. In cases where subproject implementation was deliberately stalled because of a lack of enterprise commitment, it would have been helpful to the FI to have a "stick" to encourage enterprises to move forward in implementation\. The Executive Committee did have a cancellation procedure for projects identified as having delays\. Many of the Pakistan subprojects entered the list and remained in the list until completion\. However, they escaped cancellation due to steady, albeit slow progress\. The early ODS conversion subprojects generally were implemented apart from Government policies and rules to restrict the supply and demand of ODS\. This was partly a result of the initial MLF approach to assist countries develop ODS strategies (Country Programs) and to then approve investment activities as stand-alone subprojects in specific sectors without linking them to national or sector ODS consumption levels\. Institutional strengthening and capacity building activities were also treated separately\. Performance-based, sector or national approaches to CFC phaseout which combine policy and investment measures in one project and provide for a project management unit within the Government have now become the norm in the MLF\. The lessons drawn from the Pakistan ODS Phase-out Project support the findings that sustainable phaseout hinges upon Government policy action early on and a project design that promotes Government involvement in implementation through capacity building and other support measures\. Although an assessment of economic costs and benefits to the country to convert to non-ODS technology and to implement the MP is beyond the scope of this report, some broad conclusions can be made based on experiences from implementation of the ODS Project\. The MLF covered the majority of the conversion costs; however, costs were incurred by the beneficiaries through duties and demurrage on equipment and short-term losses by enterprises that did convert and had to compete with the enterprises that continued using CFC\. Some of the benefits were technological upgrades which allowed enterprises to become more competitive and to expand their markets\. They could also advertise that their products were ecologically sound\. As discussed above, project implementation took longer than originally planned for various reasons\. Consequently, supervision efforts were conducted over a timeframe that was twice as long as had been originally envisioned, resulting in above average supervision costs\. Delays in project implementation could have been reduced if the GOP had implemented early on some of 16  the policies that it eventually implemented\. However, these measures would have not sufficed to address other factors that affected project implementation, such as the events of 9/11\. Additionally, the project's supervision costs could have been reduced if the FI's staff had been exhaustively trained in all aspects of project implementation\. Still, efforts were made to reduce supervision costs, as supervision missions were reduced from five to a maximum of three, and after the national consultant had been hired, to a maximum of two\. Greater interaction of Bank staff and providing guidance to the implementing agency/follow up helped a great deal in improving financial management of the project\. Staff continuity also paid off\. Finally, one important lesson learned was that a capacity needs assessment would have been helpful to determine what type of training NBP needed to ensure it was able to deliver on its obligations in the earlier stages of the project\. 7\. Comments on Issues Raised by Borrower/Implementing Agencies/Partners (a) Borrower/implementing agencies Minimal changes and additions were provided by the Ministry of Environment of the Government of Pakistan and have been incorporated in ICR (See copy of letter in Annex 7)\. In addition, the GOP provided a contribution to the ICR which is also found in Annex 7 as a short report\. NBP's comments are captured in Annex 8\. (b) Cofinanciers Not applicable\. (c) Other partners and stakeholders Not applicable\. 17  Annex 1\. Project Costs and Financing (a) Project Cost by Component (in USD Million equivalent) Appraisal Estimate Actual/Latest Components Percentage of (USD millions) Estimate (USD millions) Appraisal INVESTMENT COMPONENT 12\.61 8\.34 66\.14 TECHNICAL ASSISTANCE COMPONENT (Agency Fee) 0\.39 0\.25 64\.10 ODS Phase-out / Charges 0\.0 0\.03 103\.00 Total Baseline Cost 13\.00 8\.62 66\.31 Physical Contingencies 0\.00 0\.00 Price Contingencies 0\.00 0\.00 Total Project Costs 13\.00 8\.62 66\.31 Project Preparation Facility (PPF) 0\.00 0\.00 Front-end fee IBRD 0\.00 0\.00 Total Financing Required 13\.00 8\.62 66\.31 (b) Financing Appraisal Actual/Latest Source of Funds Type of Estimate Estimate Percentage of Cofinancing (USD (USD Appraisal millions) millions) Borrower Commercial Credit 2\.00 2\.96 148\.00 Montreal Protocol Investment Fund 13\.00 8\.62 66\.31 18  Annex 2\. Outputs by Component The project covered two manufacturing sectors with a total final phaseout of 1,243 ODP MT at a cost of US$8\.34 million under the first component of the Project\. All subprojects complied with project completion requirements set forth by the Bank and the MLF ­ phaseout of CFCs was achieved; baseline equipment was destroyed (where applicable) and non-CFC manufacturing is underway\. With the completion of these projects, the Government of Pakistan has closed CFC- based manufacturing in the country in these two sectors\. MLF Funds Planned Cost- Cost- Approved Disbursed ODP Phaseout ODP Phased effectiveness effectiveness Sector Funds (US$) (US$) Approved Out (US$/Kilogram) (US$/Kilogram) Foam 5,933,784 5,470,732 866 866 6\.85 6\.32 Refrigeration 2,967,851 2,893,252 377 377 7\.87 7\.67 Total 8,901,635 8,363,984 1,243 1,243 7\.16 6\.73 The second component consisting of technical assistance and the FI fee for NBP/NDFC had a US$390,000 allocation\. Actual disbursement was US$255,594\. 19  Annex 3\. Economic and Financial Analysis (including assumptions in the analysis) Not applicable\. 20  Annex 4\. Bank Lending and Implementation Support/Supervision Processes (a) Task Team members Names Title Unit Responsibility/ Specialty Lending Jitendra J\. Shah Country Sector Coordinator EASRE Task Team Leader (Lending) Supervision/ICR Paul Jonathan Martin Sr\. Environmental Specialist AFTEN Task Team Leader (Supervision) Mosuf Ali Consultant SASDN Technical Anwar Ali Bhatti Financial Analyst SACPK Financial Mgmt Mary-Ellen Foley Operations Officer ENVMP Technical (MP) Afzal Mahmood Program Assistant SASDO Task Team Support Hasan Masood Mirza Consultant SACPK Procurement Ernesto Sanchez-Triana Senior Environmental Engineer SASDN Task Team Leader Hasan Saqib Sr Financial Management Specialist SARFM Financial Mgmt Bert Veenendaal International Consultant SARES Process Expert Carla P\. Vale de Holguin Research Analyst SASDN Support to ICR Review Cecilia Belita Senior Program Assistant SASSD Task Team Support (ICR) Jack H\. Williams E T Temporary WBIVP Task Team Support (b) Staff Time and Cost Staff Time and Cost (Bank Budget Only) Stage of Project Cycle No\. of staff weeks USD Thousands (including travel and consultant costs) Lending FY94 30\.25 FY95 99\.28 FY96 92\.17 FY97 49\.45 FY98 0\.00 FY99 7\.54 FY00 0\.04 FY01 0\.00 FY02 0\.00 FY03 0\.00 FY04 0\.00 FY05 0\.00 21  FY06 0\.00 FY07 0\.00 Total: 271\.15 Supervision/ICR FY94 0\.00 FY95 FY96 0\.00 FY97 55\.91 FY98 78\.56 FY99 142\.49 FY00 46\.94 147\.73 FY01 14\.22 101\.98 FY02 9\.84 74\.71 FY03 8\.81 91\.79 FY04 15\.88 137\.77 FY05 27\.49 174\.97 FY06 113\.18 110\.64 FY07 17\.79 103\.52 Total: 154\.15 1220\.11 Note: Information on number of staffweeks for FY04-FY99 not available 22  Annex 5\. Beneficiary Survey Results Not applicable\. 23  Annex 6\. Stakeholder Workshop Report and Results Not applicable\. 24  Annex 7\. Summary of Borrower's ICR and Comments on Draft ICR GOVERNMENT OF PAKISTAN MINISTRY OF ENVIRONMENT OZONE CELL ------ PAKISTAN OZONE DEPLETING SUBSTANCES PHASE OUT PROJECT (FOAM AND REFRIGERATION SECTOR) Implementing Agency World Bank IMPLEMENTATION COMPLETION REPORT 29th June, 2007 25  PAKISTAN OZONE DEPLETING SUBSTANCES PHASE OUT PROJECT (FOAM AND REFRIGERATION SECTOR) COMPLETION REPORT (i) Assessment of the operation's objective, design, implementation, and operational experience OBJECTIVE The objective of the project was to assist Pakistan in the transition from CFC-based technology into non-CFC technology by: (i) Supporting the Government of Pakistan's proposed program to phase out Ozone Depleting Substances (ODS); (ii) Implementing cost-effective subprojects, identified in the Country Program (CP) for technical conversion; and (iii) Building local capacity to identify, develop and implement ODS phase out subprojects\. The country strategy considered the possibility of taking advantage of the Multilateral Fund (MLF) funds and assistance available for Article 5 countries of the Protocol\. With the MLF's resources and support of the United Nations Environmental Program (UNEP), the Government of Pakistan developed the Country Programme (CP), which defined actions to phase-out ODS\. Also, with the support from United Nations Development Program (UNDP), the Government of Pakistan created the Ozone Cell, Ministry of Environment in 1996 to facilitate implementation of the CP\. The project with the World Bank also helped to receive MLF's resources for assistance in technical and financial terms to support enterprises that wished to convert to non-ODS technologies\. The objective of the project followed the actions identified by the CP to achieve compliance with the Montreal Protocol (MP)\. DESIGN The design of the project was based on the Country Program and was adequate\. The CP contained a first estimation of ODS consumption in Pakistan, that was developed using end-user data for the refrigeration and foam sectors and import data for the Halons and solvents sector\. The CP established that refrigeration and foam were priority for conversion for Pakistan\. The ODS phase-out strategy in the CP gave responsibility to the Government for increasing public awareness about use of ODS and to the enterprises for converting to the non-ODS technology of their choice\. The project had two components - US$ 12\.61 million for subprojects for enterprise conversion to non-ODS technologies and US$ 0\.39 million for payment of the fees of the National Bank of Pakistan (NBP), which acted as Financial Intermediary (FI), for a total of US$ 13 million\. The design of the project also included umbrella sub-projects\. The 26  inclusion of umbrella projects strengthened the project's design because it set the basis for cooperation and definition of targets in the reduction of ODS, while allowing flexibility to provide financial support to the enterprises\. Identification and preparation of project document was carried out well in accordance with the guidelines of Montreal Protocol and to the utmost satisfaction of the sub-project beneficiaries within ambit of rules\. Phase out of project was supported by the MLF assistance, but in some cases the grant funding was not sufficient and the project beneficiaries had to contribute from their own resources for the change in technology\. The implementation of the project took more than double time that was originally envisioned\. However, it was not because of the design but due to evidence arose during project implementation that the estimates of ODS consumption contained in the CP were inaccurate, as some important enterprises and sub-sectors had not been taken into consideration\. Keeping in view the need to include more enterprises and sub-sectors in the country's strategy to comply with MP's obligations, the Government of Pakistan prepared a Country Program Update (CPU) in 2003\. The CPU developed a strategy to phase-out controlled substances by 2010, as required by the MP\. Based on the CPU, the project's targets were revised to achieve compliance with the reduction of ODS as per schedule envisaged in the MP\. IMPLEMENTATION The novelty of non-CFC technologies reduced the interest for conversion of enterprises in some sectors\. For example, the availability of more than one technology in the refrigeration sector delayed conversion due to the fact that the enterprises preferred to see the experience of other firms with new technologies, and also to observe the trend of the market for adopting any specific technology\. Although the operational cost of the cyclopentane was low, yet enterprises were reluctant to switch over to cyclopentane due to safety concerns and high capital cost\. Since in the beginning the prices of CFCs were lower as compared to non-CFCs, the refrigeration industry was hesitant to switch over to non-CFCs\. Another reason regarding slow implementation was frequent changes in MLF rules and guidelines for the use of grants\. The MLF Executive Committee issued new decisions and guidelines on numerous occasions during project implementation\. Several sub-projects were already being implemented and it was at times difficult for these sub-projects to comply with new decisions and guidelines without a delay in their implementation\. Besides above, the progress of the projects was hampered on a couple of occasions such as the event of 9/11 in 2001 and merger of Financial Intermediary National Development Finance Corporation (NDFC) with National Bank of Pakistan (NBP) in 2002\. 27  OPERATIONAL EXPERIENCE The implementation of the project accelerated as the Government of Pakistan introduced regulatory measures to provide more incentives for conversion to non-ODS technologies\. These regulatory measures reflected Pakistan's commitment to comply with the Montreal Protocol\. The regulations included the:- Introduction of an import authorization/licensing system in July 1998 to regulate and monitor the imports of ODS in the country\. Adoption of the Import Policy Order in 1999 (SRO 895(1)99 Import policy, dated 3rd August, 1999)\. Putting in place in 2000 the regulation ECC-196/16/2000, dated 27th November, 2000 that modified the custom duty tax in favor of CFC-free components and introduced a CFC quota reduction schedule\. Prohibition established through SRO 489(I)2000 to import used compressors, air- conditioners, refrigerators and other second-hand household machines Imposition of ban on import of CFC-based refrigerators and deep freezers in fiscal year 2002 ­ 2003\. Ozone Cell, Ministry of Environment in collaboration with the Directorate General of Training & Research (Customs) and the United Nations Industrial Development Organization (UNIDO) also arranged training of 200 Customs officials to enhance their capacity to curb illegal import of ODS\. Besides, training of 3000 technicians in the servicing sector under Refrigeration Management Plan (RMP) is also in progress through UNIDO\. (ii) Assessment of the outcome of the operation against the agreed objectives; Major target of the implementation of the project was achieved by assisting Pakistan to convert the CFC-based technology into non-ODS technology\. Financial and technical assistance provided by MLF accelerated the implementation of the CPU\. World Bank implemented 17 cost-effective technical conversion sub-projects, and helped strengthen the capacity of the Ozone Cell and NBP\. As per CP, the project was originally expected to help phase-out 640 MT of CFC in four and a half years\. However finally, 1,243 MT of CFCs (almost double the initial target) were phased-out over a period of ten years\. Out of 21 identified sub-projects, 17 sub-projects were implemented successfully and CFC was phased out\. Remaining 4 sub-projects were cancelled, as either enterprises became bankrupt or went out of business\. As a result of the implementation of these sub-projects, the refrigeration and foam industries in Pakistan have completely switched over to ozone friendly technology\. 28  Pakistan is in strong position to stay in compliance with its 2007 reduction obligations after the technological conversion of these industries coupled with introduction of regulatory measures taken by the Government to reduce the use of ODS\. (iii) Evaluation of the borrower's own performance during the preparation and implementation of the operation, with special emphasis on lessons learned that may be helpful in the future; The Ozone Cell, Ministry of Environment was created to facilitate and coordinate with the implementing agencies for the implementation of the CP and CPU to fulfill obligations under the MP\. The capacity of the Ozone Cell was enhanced since its creation to identify and manage technological conversion projects\. The Cell had a good coordination with the World Bank and NBP and provided adequate support to the NBP\. The NBP deputed adequate staff to work full time in the project, particularly in the initial years\. This helped the Financial Intermediary to provide services of high quality to the enterprises that participated in the phase out program\. It may be noted that NBP consistently complied with its monitoring obligations and conducted disbursement and procurement arrangements as required by the World Bank\. NBP and the Ozone Cell played a vital role through their dedicated and devoted efforts in the phase out plan under the MP\. (iv) Evaluation of the performance of the Bank, any co-financiers, or of other partners during the preparation and implementation of the operation, including the effectiveness of their relationships, with special emphasis on lessons learned The World Bank helped the Government of Pakistan to identify and prepare a total of 21 subprojects (including 4 umbrella projects) that comprised 80 small, medium and large enterprises\. It also helped in delivering resources and grants, and obtaining MLF approval for these subprojects\. The design of the subprojects was appropriate considering the characteristics of the enterprises, the available technologies, and the industries' context\. The Bank carried out supervision missions regularly to ascertain timely implementation of the projects\. This helped to meet the project's ODS abatement goal and support Government of Pakistan to manage project preparation and implementation\. (v) Description of the proposed arrangements for future operation of the project The Government of Pakistan is fully committed to comply with its obligations under the MP\. Pakistan is ahead of its CFC phase-out schedule and the Government is making all out efforts to remain in compliance\. It includes continuing enforcement of regulatory measures to control the end-use and supply of CFCs\. Ozone Cell will periodically visit the enterprises that have converted to non-CFC technology to ensure that they are operating with the new ozone friendly technology\. 29  SUGGESTIONS: 1\. Before closing the projects formally, final visits to the sub-projects may be carried out jointly by the Ozone Cell, Ministry of Environment, National Bank of Pakistan and World Bank to ensure that all the sub-projects are operating with new technology/equipment\. 2\. It would be appropriate if one of the team members from National Bank of Pakistan is allowed to continue coordination with the Ozone Cell for a period of at least six months for assistance, if any, required in connection with the completed projects\. 30  31  Annex 8\. Comments of Cofinanciers and Other Partners/Stakeholders Comments of the Financial Intermediary, the National Bank of Pakistan Received during the ICR Mission Quality Of Technical Appraisal: NBP reported that some enterprises remarked that the technical appraisals performed by the World Bank consultants did not fully provide for actual incremental costs with the result that extra costs had to be borne by the enterprises\. Project Implementation Manual: NBP was of the view that project implementation could have been speedier had an operational manual been prepared for the guidance of the financial intermediary for project implementation and the appraisal of the project\. Incentives and penalties: NBP felt it did not have sufficient instruments at its disposal to enforce timely implementation by subproject beneficiaries who could not be penalized for delay\. NBP would have liked to have the option of reducing, say, the reimbursement entitlement in respect of incremental operating cost or alternatively enforcing a penalty for delay, paid for from enterprise entitlements\. In the absence of such wherewithal, NBP is of the view that much of the overall delay in project implementation remained outside of its control\. It is felt that this contention would be moot had there been adequate regulatory compulsion\. Technical Training for Staff: NBP suggested that there should have been provision for basic technical training of its staff, relative to the technological issues relevant to process conversion in various sub-sectors\. Initially NBP faced problems in understanding the technical issues/terms related to conversion\. However, after hiring of a National Consultant this problem was resolved\. This also helped the World Bank in identifying new eligible projects for conversion\. Supervision Frequency: NBP made the comment that frequent Bank supervision missions were critical in supporting implementation\. Two per year was considered optimal\. Canceled Projects and Compensation: NBP is of the view that all the work they did for a project should have been compensated, even if the project was eventually cancelled\. This did not happen in the two cases where the projects were cancelled and NBP received no compensation, although it had undertaken a financial appraisal and other activities\. In this regard, NBP expressed its dissatisfaction with the disbursement-fee arrangement\. In their opinion, it would have been preferable to anticipate such situations by adding a clause for compensation in such special cases\. From the perspective of the World Bank and the MLF, however, it is clear that a disbursement-based fee arrangement is to be preferred, both from the standpoint of simplicity, and because it ensures that fees are tied to performance\. It entails some risk for NBP, but it may be noted that they have again accepted a disbursement-tied fee arrangement\. Incremental Operating Cost (IOC) Disbursement: Finally, it was observed that IOC disbursements were problematic until the Bank decision to link IOC disbursement to actual expenditures for raw material purchases\. 32  Annex 9\. List of Supporting Documents 1\. The World Bank\. Report No\. 14990-PAK\. Pakistan Montreal Protocol ODS Phase Out Project, in the form of a Memorandum and Recommendation, Country Department I Director to the Regional Vice President (South Asia Region)\. January 15, 1997\. 2\. OTF Grant Number TF-028200-PAK\. Ozone Projects Trust Fund Grant Agreement between Islamic Republic of Pakistan and International Bank for Reconstruction and Development, Acting as Trustee of the Ozone Projects Trust Fund\. February 7, 1997\. 3\. Amendment 4\. Montreal Protocol Ozone Depleting Substances Phase-Out Project: Mid-Term Review\. Aide Memoire ­ September 13-17, 2004\. 5\. The World Bank and the Ozone Cell, Ministry of Environment, Government of Pakistan\. The Islamic Republic of Pakistan: Country Programme Update\. December 2003\. 6\. Other documents kept in Project Files and in Iris, including subproject completion reports\. 33  Annex 10\. Additional Annexes Table 10\.1 List of Subprojects and Associated Performance Counter-part Funding Funding Cost Effective- Total Cost Enterprise Name CFC to CFC Phased Date of MLF Date of Funding Approved Disbursed ness (US$ per Effective-ness Phaseout (MT) Out (MT) Approval Completion Disbursed (US$) (US$) kg) (US$ per kg) (US$) 1Refrigerators Manufacturing Company Pakistan Ltd\. - - Nov-98 Cancelled Returned - - - - 2United Refrigeration Industries Ltd\. - - Jul-98 Cancelled Returned - - - - 3Dawlance P\. Ltd\. - - Jul-98 Cancelled Returned - - - - 4Domestic Appliances Ltd\. (DAL) - - May-96 Cancelled Returned - - - - Pakistan Air-conditioning Engineering Co\. P\. Ltd\., 5(PAECO) 20 20 Dec-00 Aug-05 176,681 176,681 70,619 8\.97 12\.55 6Mumtaz Engineers 14 14 Dec-00 Nov-05 204,736 182,866 18,800 13\.16 14\.51 7Diamond Group of Industries 64 64 Nov-97 Feb-05 563,339 558,939 146,113 8\.72 11\.00 8Master Group 205 205 Jul-95 Feb-05 1,211,000 1,204,000 465,000 5\.87 8\.14 9Jaguar Industries 40 40 Nov-99 Jun-05 279,280 273,667 55,000 6\.84 8\.22 10Singer Pakistan Ltd\. 18 18 Nov-97 Jul-04 205,893 205,893 238,225 11\.57 24\.95 11Synthetic Products Enterprises (Pvt) Ltd\. (SPEL) 14 14 Nov-97 Jan-02 160,625 136,829 - 10\.06 10\.06 12Kold Kraft Ltd\. 12 12 Nov-97 Dec-02 175,000 171,435 8,500 14\.91 15\.65 13United Foam Industries 29 29 Nov-98 Dec-01 178,200 178,200 32,500 6\.23 7\.37 14Saleem Automotive Industries Ltd\. 3 3 Nov-98 Mar-99 33,875 31,603 - 12\.64 12\.64 15Shadman Electronic Industries P\. Ltd\. 16 16 Jul-98 Nov-02 236,936 236,936 24,450 15\.26 16\.83 16Razi Sons 60 60 Nov-95 Nov-02 493,262 493,274 59,000 8\.22 9\.20 17Umbrella project: Thermoware I 240 240 Nov-97 Oct-06 1,600,000 1,390,525 52,000 5\.80 6\.02 18Terminal umbrella: Thermoware II 106 106 Jul-98 Oct-06 718,900 557,052 - 5\.27 5\.27 19Cool Industries Ltd\. (Waves) 118 118 Nov-97 Dec-06 841,750 841,750 506,000 7\.13 11\.42 Foam Umbrella: Pakistan Insulation, Simpson Wire, HEPCO, Indus Plastic, Workman, Thermocraft 20Engineering 107 107 Dec-03 Dec-06 658,973 646,643 172,923 6\.04 7\.66 Refrigeration Umbrella: Dawlance, United 21Refrigeration, Ice Age, 29 small enterprises 181 181 Apr-04 Dec-06 1,126,855 1,077,691 1,110,512 5\.95 12\.09 TOTAL 1,243 1,243 8,865,305 8,363,984 2,959,642 6\.73 9\.11 34  Table 10\.2 Subproject Approvals and Completion by Year Subprojects 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 Total Approved 2 1 6 7 1 2 -- -- 1 1 -- -- 21 Physical -- -- -- -- 1 -- 1 4 -- 1 5 5 17 and Financial completion Table 10\. 3 Subproject size in US$* No\. Size Range Count Percentage 1 Less than $100K 1 5\.90 2 $100K - $199K 4 23\.52 3 $200K - $499K 5 29\.41 4 $500K - $1,000K 4 23\.52 5 More than $1,000K 3 17\.65 TOTAL 17 100\.00 *Excludes 4 cancelled subprojects\. 35  36

REVIEW

P069896

Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review BJ-GEF Forests & Adjcnt Lnds Mgmt (FY06) (P069896) Report Number : ICRR0021359 1\. Project Data Project ID Project Name P069896 BJ-GEF Forests & Adjcnt Lnds Mgmt (FY06) Country Practice Area(Lead) Benin Environment & Natural Resources L/C/TF Number(s) Closing Date (Original) Total Project Cost (USD) TF-57165 30-Nov-2011 5,987,121\.05 Bank Approval Date Closing Date (Actual) 29-Jun-2006 31-May-2013 IBRD/IDA (USD) Grants (USD) Original Commitment 6,000,000\.00 6,000,000\.00 Revised Commitment 5,987,121\.05 5,987,121\.05 Actual 5,987,121\.05 5,987,121\.05 Prepared by Reviewed by ICR Review Coordinator Group Maria Vanessa J\. W\. van Holst Christopher David Nelson IEGSD (Unit 4) Corlazzoli Pellekaan 2\. Project Objectives and Components a\. Objectives According to the GEF Financial Agreement, the objective of the Benin Forest and Adjacent Land Management project was “to assist the Recipient in its efforts to lay down the foundation for a collective integrated ecosystem management system of its forest and adjacent lands” (GEF Trust Fund Grant Agreement 2006, pg\. 20)\. Page 1 of 24  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review BJ-GEF Forests & Adjcnt Lnds Mgmt (FY06) (P069896) This objective remained constant throughout the life of the project, even when a follow-up project (with a different identification numbers (P131051/P132431) provided additional financing (Financing Agreement 2013, pg\. 5)\. The objective in the PAD was different from the legal agreement\. The PAD’s project objectives were “(i) to increase and enhance the carbon storage capacity by enriching degraded gazetted forests and planting trees in forest adjacent lands, (ii) to enhance protection of biological diversity within sustainable multiple-use production forests and explore suitable areas and/or species for ecotourism, (iii) to prevent land and water degradation in forests and adjacent lands, (iv) to preserve genetic diversity within forest species that are collected by rural populations for medicinal and consumptive uses, (v) to improve the use and efficiency of traditional energy by developing and implementing national fuel-wood master plan, (vi) to develop a communication and education strategy in rural and urban areas to raise awareness on integrated ecosystem approaches and also to reduce national demand for forest-based resources, (vii) to develop innovative monitoring and evaluation methods and systems for future use by local communities and national authorities demonstrating changes in ecosystem management patterns” (PAD, pg\. vii)\. While the PAD’s objectives are more detailed and nuanced, in accordance with OPCS and IEG guidelines this review will use the objective in the Grant Agreement against which to assess the project’s achievements\. b\. Were the project objectives/key associated outcome targets revised during implementation? No PHEVALUNDERTAKENLBL c\. Will a split evaluation be undertaken? No d\. Components Component 1: Institutional Support and Capacity Building (Original Estimated Cost: US$0\.04 million from GEF Financing\. Actual Cost: US$1\.59 million)\. This component sought to strengthen the institutional, technical and financial capacity of the forestry administration, private operations, and NGOs intervening in the project\. The aim was to improve their overall performance and achieve an integrated ecosystem management of natural resources\. Key activities included training to improve community partnership and performance, essential equipment, public awareness campaign, and reinforcing the monitoring and evaluation unit within the Directorate of Forestry and Natural Resources (DFNR) (PAD, para\. 23)\. Component 2: Community-Based Management of Forest Resources (Original Estimated Cost: US$5\.87 million (US$4\.52 million from GEF Financing, US$1 million from Government of Benin, and US$0\.35 million from local communities: Actual Cost: US$4\.26 million)\. This component aimed at ensuring viable long-term management of forest resources through participatory management plans drawn and implemented by adjacent village communities\. Key activities supported the preparation, implementation, Page 2 of 24  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review BJ-GEF Forests & Adjcnt Lnds Mgmt (FY06) (P069896) and management of forest adjacent lands\. They also included income generation activities compatible with forest management plans (PAD, para 24-28)\. Component 3: Sustainable Fuel Wood Production and Marketing (Original Estimated Cost: US$500,000 from GEF Financing\. Actual Cost: US$210,000)\. This component sought to reduce forest degradation caused by unsustainable exploitation for firewood and charcoal production\. It aimed at piloting an approach to promote the production and utilization of wood fuel from the sustainably managed forests\. Key activities in this component included: increasing demand and supply for wood-fueled from sustainably managed forests, travel to learn from Senegal, shift fiscal and regulatory policies, and create rural fuelwood marketing\. This component aimed at also supporting the development and promotion of energy efficient technologies (PAD, para 29)\. Component 4: Project Management (Original Estimated Cost: US$940,000 GEF Financing\. Actual Cost: US$560,000)\. This component aimed at strengthening the effectiveness and quality of project operations\. The project was managed by the Directorate of Forests and Natural Resources (DFRN) (PAD, para\. 30)\. The project experienced one restructuring and received additional financing\. The following modifications were made to the components during the restructuring of May 9, 2011: Under Component 2: Community-Based Management of Forest Resources\. The extension of the closing date to May 2013 enabled the preparation of nine additional Participatory Forest Management Plans and the implementation of five additional Plans\. No new micro-projects were funded under the restructured project, instead focus shifted to the implementation of existing micro-projects (ICR, para\. 17)\. Component 3: Sustainable Fuel Wood Production and Marketing\. The component activities were refocused to promote better use of existing tools and techniques, and to improve the distribution chain of fuelwood in project areas (ICR, para\. 17)\. Component 4: Project Management\. Funds were increased slightly to support the PIU\. Technical advisory services activities were removed (ICR, para\. 17)\. When additional financing of a US$2 million credit and a US$5\.56 million GEF grant were provided in March 2013, existing components were augmented and a new component was added\. The following changes were made to the components and their costs: Component 1: Institutional Support and Capacity Building (revised estimated cost US$1\.46 million)\. Additional financing sought to support the construction and rehabilitation of forest department infrastructure\. It also sought to procure equipment and vehicles essential for forest surveillance and patrolling by decentralized foresters\. Other key activities included: training in integrated ecosystem management for key stakeholders (ICR, para\. 17)\. Component 2: Community-Based Management of Forest Resources (revised estimated cost US$4\.45 million)\. Additional resources were allocated to demarcate forest boundaries, restoring degraded surfaces, rehabilitating old plantations, enhancing agroforestry, and managing rangelands and protected zones for Page 3 of 24  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review BJ-GEF Forests & Adjcnt Lnds Mgmt (FY06) (P069896) long-term conservation of forests\. These activities were part of the forest management plans, which were developed in a participatory manner (ICR, para\. 17)\. Component 3: Sustainable Fuel Wood Production and Marketing (revised estimated cost US$0\.17 million)\. Resources were provided to create additional rural wood markets and fuelwood plantations to cover the entire project invested area (ICR, para\. 17)\. Component 4: Project Management (revised estimated cost US$0\.55 million)\. This component continued to support the project management unit through the technical capacity building and monitoring and evaluation of the project activities (ICR, para\. 17)\. New Component 5: Endowment of Conservation Trust Fund (Estimated Cost: US$930,000, Actual Cost: US$930,000)\. This component sought to support the endowment of a conservation trust fund under the West African Savannah Association (FSOA\.) The Fund would provide long-term financing to the core recovery costs of the Northern Savannah National Park (ICR, para\. 17)\. e\. Comments on Project Cost, Financing, Borrower Contribution, and Dates Project Cost\. At appraisal, the total cost of the project was estimated at US$7\.35 million (PAD, pg\. vi and ICR, para\. 44)\. The actual disbursement at the end of the project, including additional financing, was US$13,589,788 (ICR, pg\. 5)\. Financing\. The appraised amount of finance needed for this project at appraisal was US$6 million (PAD, pg\. vi)\. The original GEF fund was in the amount of US$5,990,000 (TF-57165)\. Funds disbursed were also US$5,990,000 (ICR, pg\. 5)\. Two additional funds provided finances to the project as part of the additional financing: • Global Environment Facility Trust Fund Grant in the amount of US$6 million (Global Environment Facility Trust Fund Grant No\. TF-14109)\. Funds disbursed: US$5,555,556 (ICR, pg\. 5)\. • International Development Association a credit (IDA-52060) in the amount of Special Drawing Rights 1,400,000 (approximately US$2 million)\. Funds disbursed: US$2,044,232 (ICR, pg\. 6)\. Hence, a total of US$13,589,788 of grants and credits were provided for this project\. Borrower Contribution\. The legal agreements do not stipulate that the borrower would make a financial contribution to the project\. According to the PAD, the Government of Benin would contribute US$15 million through a separate Poverty Reduction Strategy Credit and an additional $1 million through counterpart funds for the GEF project (PAD, pg\. vi)\. Local communities would contribute in cash, labor, or Page 4 of 24  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review BJ-GEF Forests & Adjcnt Lnds Mgmt (FY06) (P069896) in-kind an equivalent of US$350,000 as co-financing for the micro-projects (PAD, pg\. vi and GEF Financing Agreement)\. According to additional information provided to IEG by the World Bank project team, the Government of Benin provided US$18 million during the first phase of the project (P069896) and US$9 million during the second phase of the project (P132431/P131051) (World Bank Staff Interview, October 2018)\. Dates\. The original project (P069896) was approved on August 24, 2006, and became effective on March 27th, 2007\. It underwent a midterm review on November 9th, 2009\. The original closing date was November 30th, 2011\. A level 2 restructuring of the original project was approved on May 2011\. This restructuring extended the closing date to May 2013\. Additional financing was approved in March 2013 (P132431/P131051)\. The additional financing was effective on October 28th, 2013 with an original closing date of May 31, 2016\. In October 2015, the project was extended from May 31, 2016, to January 31, 2018 and the project finally closed on this date\. 3\. Relevance of Objectives & Design a\. Relevance of Objectives In brief, the objective was to assist the government to lay down the foundation for a collective integrated ecosystem management for its forests and adjacent lands Country Context: The country of Benin, located in West Africa, relies heavily on the agriculture sector with a little less than half of its populations employed in this sector\. At appraisal, the country had 2\.6 m ha of forests classified as following (i) gazetted forests (1\.3 m ha), (ii) national parks (750,000 ha), (iii) hunting zones (580,000 ha), and (iv) reforestation areas (4,000 ha) (PAD, para 4)\. The country’s strong reliance on agriculture has led to as much as 70,000 ha of forest cover disappearing each year (PAD, para 5)\. Other causes of forest degradation include increased population pressure, inefficiency, unsustainable agricultural practices, poverty, bushfires, firewood and charcoal production, animal husbandry practices, and non- recognition of potential for multiple global benefits (PAD, para\. 5)\. As a result, this project sought to address the technical, social and economic constraints related to deforestation in Benin\. The project aimed at addressing these systemic issues by laying the foundation for a collective integrated ecosystem management approach to reforestation\. The objective at appraisal aligned with the Government of Benin’s Forestry Strategy (November 2002), which emphasized the need for empowering local communities to take greater responsibility for the protection of forest assets\. The Strategy also supported promoting alternative income-generating activities Page 5 of 24  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review BJ-GEF Forests & Adjcnt Lnds Mgmt (FY06) (P069896) that do not degrade the forests\. The Government of Benin had also drafted a National Biodiversity Protection Strategy and Action Plan (March 2012) and the National Action Plan against Desertification (adopted November 1999) (PAD, para 6)\. Alignment with Country Strategy: The project’s objectives aligned with Benin’s First Poverty Reduction Support Credit (Poverty Reduction Support Credit, 2005)\. This report states that the funds would be used to support three sectors (health, basic education, and rural and semi-urban water), and support the continuation of the Environment and Urban Development and Forest Management Programs (Poverty Reduction Support Credit 2005, pg\. 2)\. Key outputs of this credit were to be used to create 6 participatory forest management plans\. In the Country Assistance Strategy (2009-2012), the Government of Benin strategic objectives included (i) accelerating the private sector (ii) improving access to basic services and (iii) promoting better governance and strengthening institutional capacities (CAS 2009, para\.50-63)\. The project contributed to the CAS’s second strategic objective, in particular, the outcome “improve the environment and urban sanitation improvement\.” While the project may have contributed to this outcome, the project’s objective was not the main priority of the outcome\. The key indicators and milestones for for the CAS outcome were not related to the project’s indicators on forest management and reforestation\. Instead, the CAS indicators sought to achieve changes in paved roads, access to basic services, and increase use of waste-water management system\. When analyzing the CAS indicators and the project objective, it is clear that this project did not fully align with the outcome area\. In the current Country Partnership Strategy (2013-2017), the project contributes to the third pillar of “increasing Sustainable Growth, Competitiveness and Employment” and the outcome “improved natural resource management\.” There is stronger alignment between the project’s objective and the CPS outcome in the CPS FY2013-2017 than in CAS FY2009-2012\. Although there is not full alignment, the project’s objective contributed to and supported the Government of Benin’s development policies and the Bank’s country partnership strategy\. The relevance of the project’s objective was therefore rated substantial\. Rating Substantial b\. Relevance of Design The project sought to establish a collective integrated ecosystem management system of its forest and adjacent lands\. The underlying theory of change implied an implementation of a multi-dimensional holistic approach that aimed at addressing the systemic challenges that were placing pressure on forests and adjacent lands, while simultaneously creating institutional and cultural change to address such challenges\. The multi-dimensional holistic approach included outcomes related to the following dimensions: Page 6 of 24  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review BJ-GEF Forests & Adjcnt Lnds Mgmt (FY06) (P069896) • Technical - Strengthen the institutional, technical, and financial capacity of forest administrations, the private operators, and NGOs intervening in the project in order to improve their performance and achieve an integrated ecosystem management of natural resources (PAD, para\. 23), • Social - Ensure long-term management of forest resources through contractual participatory management plans in order to guarantee the long-term protection of these forests and improve the income and livelihood of people (PAD, para\. 24), • Economic - Promote production and utilization of wood fuel from sustainably managed forests (PAD, para\. 29)\. Previous Experience: The project’s design drew from lessons learned and experiences in the Natural Resources Management Project (PGRN) which was closed in 1999\. This project tested a number of inter- related pilot activities related to community-based management of watersheds, wildlife reserves and gazetted forests (PAD, para\. 8)\. The Bank also had similar experiences integrating ecosystem management in forestry projects in other African countries such as Senegal, Kenya, and Chad\. The strategy and activities of the project were thoughtfully crafted\. During the restructuring in 2011, many of the intermediate indicators were either revised or dropped\. Further changes to the indicators were made in 2013 when the Additional Financing (AF) was provided\. After the AF and restructuring in 2013 there was adequate alignment between activities and indicators\. The project design would have benefited from a handful of indicators related to technical capacity\. Rating Substantial 4\. Achievement of Objectives (Efficacy) PHEFFICACYTBL Objective 1 Objective To assist the Recipient in its efforts to lay down the foundation for a collective integrated ecosystem management system of its forest and adjacent lands Rationale The project sought to establish the foundation for a collective integrated ecosystem management system of its forests and adjacent lands\. The underlying theory of change called for the implementation of a multi- dimensional holistic approach that aimed at addressing systemic challenges that placed pressure on forest and adjacent lands, while simultaneously creating an institutional and cultural environment that would Page 7 of 24  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review BJ-GEF Forests & Adjcnt Lnds Mgmt (FY06) (P069896) support a multi-dimensional (technical, social and economic) holistic approach to a collective ecosystem management\. The assessment of results of the project in this review are organized by outcome dimensions listed below: Technical Dimensions - Strengthen the institutional, technical, and financial capacity of forest administrations, the private operators, and NGOs intervening in the project in order to improve their performance and achieve an integrated ecosystem management of natural resources (PAD, para 23)\. Outputs: • 16 Technical Forest Management Units were organized and functional to cover 19 gazetted forests (Target Met, Target: 12, ICR, pg\. 20)\. • 1,823 community representatives were trained in integrated ecosystem management (Target Met, Target: 1,700, ICR, pg\. 20)\. Trainings included : Enhanced Production Systems (SAP), the Conversation management of water and soil (GCES), and GDRN\. • 829 forestry personnel were trained in integrated ecosystem management (Target Met, Target: 800, ICR, pg\. 20)\. • 112 foresters in technical units for forest management (CTAFs) were trained in improved agricultural techniques (Target met, Target: 100, ICR, pg\. 49)\. • 120 forestry staff were trained in management based results (Target Met, Target: 120, ICR, pg\. 45)\. • 735 agricultural producers were trained in improved agricultural techniques (Target Met, Target: 600, ICR, pg\. 49)\. • Reference study on the biological diversity of 19 gazetted forests completed\. • An ethnobotanical study of Djidja territory was completed\. • An inventory of the Ouémé-Okpara confluence was completed\. • An inventory and ethno botanical atlas of the garden of medicinal plants of Djidja was completed\. • Identification of Elephant Circuits in the Goungoun and Sota Forests\. • Two databases were created: (i) Ecological, Evaluation and Environmental Monitoring database, and (ii) Database for monitoring of the biodiversity of the project\. • Construction of 5 CTAF buildings, 13 forester posts, and forestry seed laboratory at DGEFC (ICR, pg\. 84) • Rehabilitated 4 forestry inspections buildings and 2 forestry inspector chief residencies\. Repaired 24 km of access roads\. • Drilling of 2 out of 5 planned wells at forest outposts (ICR, pg\. 84) • Acquisition of equipment included: satellite images of orthophoto plans, 75 GPS acquired, 100 clinometers, 100 forest compasses, and 16 pickups cars , 5 station wagons, and 150 motorcycles, 14 generators\. Outcomes: Page 8 of 24  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review BJ-GEF Forests & Adjcnt Lnds Mgmt (FY06) (P069896) As a result of the technical support, 16 Technical Units were functioning\. Each unit had the equipment necessary for effective surveillance\. In addition, each technical unit was responsible for implementing activities per the forest management plan (ICR, pg\. 48)\. They were tasked with submitting periodic reports to the Government of Benin (ICR, pg\. 48)\. Newly formed community-based organizations (CBOs) had the skills to manage contracts, budgets, collect fees, project manage re-forestation and other activities\. The CBOs received financial management, account principles, and participatory methods training\. These skills were used to determine the use of community funds collected through the rural charcoal markets fee system and distribution (World Bank Staff Interview, October 2018)\. According to the ICR, the project supported the creation of an increased and strong civil society through the establishment of the CBOs (ICR, para\. 53)\. Forest agents, including gazetted forest management units (called CTAF) and other staff, developed technical capacities in forest management skills, tree planting, start-up and maintenance of tree nurseries (ICR, para\. 54)\. They conducted forest inventories and were responsible for the management and drafting of forest management plans (ICR, para\. 54)\. The creation of gazetted forest management units (CTAF) enabled the decentralization of forest sustainability management (World Bank Staff Interview, October 2018)\. According to a source quoted in the ICR the strengthening of technical capacity in forest management institutions in Benin has been associated with a decreasing deforestation rate in the project area between 2007 and 2016 of 2\.83 percent which was slower than the deforestation rate at the national level of 3\.73 percent (paragraph 37)\. Social Dimensions - Ensure long-term management of forest resources through contractual participatory management plans in order to guarantee the long-term protection of forests and improve the income and livelihood of people (PAD, para\. 24) Outputs: • 19 Participatory Forest Management Plans under implementation (Target Met, Target: 19, ICR, pg\. 20)\. • 193 community-based organizations (CBO) were created and operational (Target Met, Target: 70, ICR, pg\. 20)\. • All 19 gazetted forests were initially demarcated (World Bank Staff Interview, October 2018)\. • 328 income-generating activities developed and implemented, of which 60% included women beneficiaries (Target Met, Target: 169, ICR, pg\. 20 and pg\. 50)\. Outcomes: Page 9 of 24  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review BJ-GEF Forests & Adjcnt Lnds Mgmt (FY06) (P069896) The project supported the implementation of 19 Participatory Forest Management Plans (PFMPs) compared with a baseline of 5, which were possible due to the creation and strengthening of the technical capacity of CBOs (ICR, para\. 35)\. The majority of the forest management activities planned under the PFMP are currently being implemented within the forest areas concerned (ICR, pg\. 47)\. Some of the activities that are currently being carried out are: forest enrichment, production of seedlings, creation and protection of forest plantation, forest boundary demarcation, establishment and monitoring of fuelwood and rural charcoal markets, alternative income generating activities, conversation of some of the threatened species, and training for communities and CBOs (World Bank Staff Interview, October 2018)\. The government provided additional resources over the 5 years that it took to develop the plans\. As a result of the project, there has been an increase in collaboration between several players\. For example, CBOs and the General Directorate of Forest and Natural Resource Management have collaborated in the yearly renewal and implementation of contracts for forest management in all 19 gazetted forests (ICR, para\. 35)\. CBOs have continued to participate in post-project activities, including the development of updates for PFMP (2019-2020) and next management period (2020-2030)\. Collaboration between forest agents and community members in lands adjacent to the forests improved\. Forests agents provided technical assistance for participants in income-generating activities (ICR, para\. 36)\. Community members participated in a range of forest management activities including the design, and implementation of plantation\. They also participated in reforestation and surveillance missions and community reporting of violations to commune authorities (ICR, para\. 35)\. This collaboration was formalized through the forest policy and forest management plans\. Activities have become institutionalized, such as regular planning and evaluation of annual work plans at the administration and forest level and the co- management of the forest based on the forest management plans (World Bank Staff Interview, October 2018)\. Overall there has been a lack of conflict during and after the participatory boundary marking exercise (for all gazetted forests), which delineated forest boundaries\. The project has helped the facilitation of common understanding on the departure of farmer’s fields from gazetted forests with respect for harvest times (ICR, para\. 35)\. While no formal agreements have been signed, there was a consensus that formed between farmers and forest administrations on an appropriate timeline for the departure of farmers from the gazette forests (World Bank Staff Interview, October 2018)\. For example, in the Trois Rivieres gazetted forests 200 farmers stopped planting in 2017 within the forests, and an additional 200 farmers are expected to stop planting in 2018 (World Bank Staff Interview, October 2018)\. The income-generating activities (IGA) involved over 4,000 direct beneficiaries and played an important role in shifting behavior away from unregulated activities within the gazetted forests\. Participating in income- generating activities, enabled participants to move away from activities related to unsustainable extraction of forest resources (ICR, para\. 36)\. An evaluation of the income-generating activities revealed that 85% of respondents stated that prior to the project they had taken part in charcoal making or farming within forest boundaries, but after participating in the micro-projects they stopped these activities\. In addition, 15% of Page 10 of 24  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review BJ-GEF Forests & Adjcnt Lnds Mgmt (FY06) (P069896) respondents stated they had significantly reduced conducted unregulated activities in gazetted forests (ICR, para\. 36)\. In addition, the number of individuals entering the forest from unregulated extraction’s dropped significantly with reported reasons ranging from new knowledge of forest value to improved economic outlook due to income-generating activities, and reduced time to conduct extraction activities (ICR, para\. 36)\. Income also increased for IGA participants (or promoters)\. For example, an analysis of 14 beneficiaries working on livestock raising showed an average increase of 16 animals per promoter to 63 animals per promoter\. The additional income over a 4 to 8 months period ranged from FCFA20,000 to 330,000 with an approximate average of FCFA88,400 per promoter (ICR, para\. 55)\. A Commercial Fair was also organized, in Cotonou in November 2017, to provide products access to a larger market\. According to the ICR, the fair attracted 4,500 visitors with all products sold and making over US$40,000 in sales (ICR, para\. 56)\. About eighty-six individuals who “on the basis of seeing these successful enterprises made personal investments in new IGAs” (ICR, para\. 56)\. The income-generating activities supported by the project also had a positive effect on women participants\. Women participants were able to expand their businesses and earn income to cover household costs, such as additional food, school fees, and health costs (ICR, para 52)\. Women entrepreneurs started or expanded businesses related to raising chickens, goats, pigs, sheep, processing of cassava (gari) and shea butter (karate)\. In some cases, women participated in the Commercial Fair held in Cotonou in November 2017 and they signed contracts for supplying gari, rabbits, and honey on a regular basis to Cotonou supermarkets (ICR, para\. 52)\. Moreover, 2,000 individuals were beneficiaries of contracts with the forestry administration for producing seedlings for plantations, tree planting, plantation maintenance, and plantation surveillance (ICR, para\. 57)\. Roughly 80% of GEF funds were allocated to these contracts, constituting a significant income generation for local communities (ICR, para\. 57)\. Economic Dimension – Promote production and utilization of wood fuel from sustainably managed forests (PAD, para\. 29)\. Output: • Guidelines on sustainable production of forest wood developed\. • 530 charcoal producers trained on improved production techniques (Target met, Baseline: 60, Target: 160, ICR, para\. 36)\. • 25 rural fuelwood markets developed with 3 additional markets currently under development in the former project zone (Target not met, Target: 30, ICR para\. 36)\. • 20 rural fuelwood markets under the participatory forest management plan guidelines created (Target met, Target: 10, ICR pg\. 45)\. • 165 ha of surface area with community fuelwood plantations established in lands adjacent to the forests (Target met, Target: 150, ICR para\. 36)\. Page 11 of 24  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review BJ-GEF Forests & Adjcnt Lnds Mgmt (FY06) (P069896) • Developed and aired in 12 local radio documentary on reforestation efforts (ICR, pg\. 85)\. Sustainable charcoal production led to an increased effectiveness and efficiency of the market, with fewer losses through theft, consistency of supply for buyers, and easier access to buyers for producers with the cut in the middle-men (ICR, paras\. 36 and 37)\. Due to a change in the taxation system, there has also been an increased income for local communities’ authorities and the government\. The fuelwood markets have remained operational signaling efficiency for buyers, suppliers, and producers (ICR, para\. 37)\. The project also supported the establishment of the Conservation Trust Fund, which provided long-term sustainable financing for conservation and biological diversity of Benin’s Northern Savannah ecosystem\. The Trust Fund was fully capitalized and operational\. The initial capital disbursement was of US$ 930,000 (ICR, pg\. 52)\. Outcomes: The project’s activities restored 8,059 ha of degraded forests in 19 forest ecosystems (Target Met, Original target 7,700 ha, ICR, para 36)\. According to independent study, the rates of deforestation and degradation within the gazetted forests in the project zone were lower (2\.83% forest loss) than in the rest of the country (3\.373% forest loss) (ICR, para\. 37)\. In addition, 713 ha have been enriched, a process by which degraded areas are replanted with species particularly adapted to the ecology of that specific forest (Target Met, Baseline 500 ha, Target: 600 ha ICR, para 36)\. This restoration method had the benefit of “closing” the existing empty spaces within a forest (ICR, pg\. 51)\. At least 3,189 ha were reforested with a range of forest tree species within the 19 gazetted forests (Target Met, Baseline 1000, Target: 1900, ICR, pg\. 50)\. Moreover, 35 plant species in these forests were identified in the baseline study of biodiversity and these species benefited from conservation measures that were implemented (Target Met, Target 20, ICR, pg\. 50)\. This review rates the project’s efficacy as substantial\. Overall the project assisted the government in laying the foundation for a collective integrated ecosystem management system of its forests and adjacent lands\. It achieved this by increasing the capacity of forest agents and supporting the flourishment of civil society through the strengthening capacities of CBOs to develop participatory forest management plans\. As a result, collaboration improved between different partners, including forest agents and the community in the project area\. This partnership laid the foundation for potential conflict resolution of future disagreements\. Moreover, income-generational activities, production of fuel from sustainably managed forests provided alternatives to deforestation and changed destructive behavior in forests in the short to medium-term to some extent\. While the national deforestation rates continue to be extremely high, the project’s holistic approach led to the restoration of degraded forests, and reforestation in the project area\. Rating Substantial PHREVDELTBL Page 12 of 24  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review BJ-GEF Forests & Adjcnt Lnds Mgmt (FY06) (P069896) PHREVISEDTBL 5\. Efficiency Analysis in the PAD: At appraisal, it was determined that the project was not amenable for the usual cost- benefit analysis because many activities produced benefits that were difficult to quantify in economic terms (PAD, pg\. 49, para\. 1)\. Instead, efficiency was assessed through an incremental cost analysis\. The PAD estimated the incremental cost of implementing the GEF grant and achieving global and local environmental benefits and compared these to a baseline scenario of implementing forestry interventions as designed in the project\. The incremental cost was the difference between the cost of the baseline scenario (US$15\.00 million) and the cost including the GEF financing (US$22\.35 million)\. Therefore, the total incremental cost of the project was estimated at US$7\.35 million (ICR, para 44)\. The PAD asserted that “experience from other decentralized projects, efficiency gains are expected by devolving management to local communities” and that these “experiences indicate that the increased costs associated with decentralization would be offset by increased benefits in terms of conservation of forest resources and the adoption of more sustainable management practices” (Annex 9, pg\. 49)\. Annex 15 in the PAD lists local, national and global environmental benefits (pg\. 60)\. Analysis in Additional Financing: The assertion that environmental benefits would exceed the project’s incremental costs was supplemented by economic and financial analysis which was also conducted, utilizing a similar methodology to the original PAD, when additional financing was provided to the project (ICR, para\. 44)\. The economic analysis in the additional financing project paper examined the economic viability of the project at the national level, estimating quantifiable direct and indirect benefits of the additional financing, with the annual contribution from the Government estimated at US$3 million (Project Paper February 2013, para\. 47)\. The analysis confirmed the projects’ overall economic and financial viability with an Internal Rate of Return (IRR) at 14%, an Economic Rate of Return (ERR) at 17% with a positive Net Present Value (NPV) estimated at US$ 11\.75 million (ICR, para\. 44 and Project Paper February 2013, para\. 48)\. Analysis in the ICR: The project generated a diverse set of economic benefits including income-generating subprojects, regulated and functioning wood fuel markets, and other intangible benefits\. Only benefits based on the estimated ex-post economic assessments, mostly the income-generating activities and the wood fuel markets, were included in the analysis for the ICR\. It is also noted in the ICR that “Data were on revenue, operational costs and profits for individual IGAs was not collected systematically”\. The ICR also noted that the information collected covered mainly social aspects, information from interviews with participants, and assessments of the environmental impact and sustainability, and presenting a partial economic assessment of the sample of IGAs (ICR, Annex 4, pg\. 71)\. On average, net income generated by most of the IGAs of second set varies from low to average (between approximately US$192 – 385/yr (110,000 – 210,000 FCFA/year), while income of the third IGA generation in average shows slight increase to high average level\. Among those who benefitted from IGAs the benefit/cost ratio was above 1 and an IRR of 8-12% (ICR, para\. 46 and Annex 4, Table 4\.4)\. This result, however, reflected the higher end of all the results reported for the IGAs\. For income levels at the lower level of the distribution the B/C ratios were below unity\. The ICR also stated that the analysis of wood fuel markets “demonstrated financial viability … during the third year of Page 13 of 24  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review BJ-GEF Forests & Adjcnt Lnds Mgmt (FY06) (P069896) the project implementation with a positive overall NPV and a higher than 18 benefit-cost ratio” (ICR, para\. 48) but without data to back up this assertion\. Since data for an NPV estimate for the fuel wood markets was apparently available, there was also no reason given for the absence of a rate of return estimate for fuel wood markets in the ICR\. Project Management: The project management costs were approximately 7% of total costs, in line with the original budget in the PAD (ICR, para 49)\. While there was a two-year project extension and the project was restructured, the restructured indicators were met within the budget, demonstrating greater efficiency (ICR, para\. 49)\. There were low staff turn-over and no significant procurement issues\. Given the unsystematic manner in which the information on the results of IGAs was collected, the acknowledgement in the case of the fuel wood market that “some key elements of the data are missing” which “does not allow for the reasonable assessment” (Annex 4, pg\. 74), and the fact that the estimated benefit/cost ratios greater than unity and rates of return for IGA projects between 8 to 12 percent were based on the most optimistic results during the project’s implementation with rates of return barely comparable to the opportunity cost of capital, this review has assessed the efficiency of this project as modest\. Efficiency Rating Modest a\. If available, enter the Economic Rate of Return (ERR) and/or Financial Rate of Return (FRR) at appraisal and the re-estimated value at evaluation: Rate Point value (%) *Coverage/Scope (%) Available? 0 Appraisal  17\.00 Not Applicable 0 ICR Estimate 0 Not Applicable * Refers to percent of total project cost for which ERR/FRR was calculated\. 6\. Outcome The relevance of the project's objectives and its design were substantial\. Efficacy was also rated substantial because, overall, the project contributed towards laying the foundation for a collective integrated ecosystem management system of its forest and adjacent lands\. It increased the capacity of forest agents, the relevant government institutions, and supported the flourishment of civil society through the establishment of community based organizations\. By developing participatory forest management plans, collaboration improved between Page 14 of 24  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review BJ-GEF Forests & Adjcnt Lnds Mgmt (FY06) (P069896) different stakeholders, including forest agents and the communities\. Moreover, income-generating activities such as production of fuel from sustainably managed forests provided alternatives to deforestation and changed behavior in the short to medium-term\. Deforestation rates in the project area between 2007 (when the project started) to 2016 (two years before the project closed) declined to 2\.83 percent compared with the deforestation rate at the national level of 3\.73 percent\. The efficiency of this operation was, however, rated modest due to the unsystematic manner in which the information on the results of IGAs was collected, missing data on the economics of the fuelwood market, and the fact that despite estimated benefit/cost ratios greater than unity and rates of return for IGA projects between 8 to 12 percent these measures of efficiency were based on the most optimistic results during the project’s implementation and yet the estimated rates of return were barely comparable to the opportunity cost of capital\. \. Overall the outcome of the project had moderate shortcomings and its outcome is therefore rated moderately satisfactory\. a\. Outcome Rating Moderately Satisfactory 7\. Rationale for Risk to Development Outcome Rating There are four interrelated risks that could impact the sustainability of an adequate foundation for the collective integrated ecosystem management of forests and adjacent lands in Benin\. Financial: The General Directorate of Forest and Natural Resource Management scaled up it's staffing as a result of the project\. New technical forest management units in the General Directorate were established\. Unfortunately, due to lack of budget hiring has been frozen since 2013 and there has been no operational budget\. The lack of funds has led to problems with surveillance missions\. Return on forest investments created as a result of this project (such as taxes, fees, investments in plantations) were not sufficient to cover management costs\. A bridging fund, such as a Forest Trust fund, may be necessary to mitigate the risks until rents are sufficient to cover costs of operations and forest management, and fund management is simplified and improved (ICR, para\. 87)\. High level of deforestation and degradation rates: Despite project activities and results, deforestation and degradation rates in gazetted forests are extremely high (ICR, para\. 88)\. Key factors include (i) lack of capacity among the forest management technical unit (CTAF) agents, (ii) the need for continuous and increased focus on surveillance, reforestation, and regeneration activities, and (iii) continuous growth of population and pressures from agriculture (ICR, para\. 88)\. To reduce the pressure on the gazetted forests, more activities focusing on agricultural practices and provision of seeds would need to be implemented (ICR, para\. 88)\. Page 15 of 24  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review BJ-GEF Forests & Adjcnt Lnds Mgmt (FY06) (P069896) Level of Community collaboration and commitment: The relatively massive size of the forests in Benin and the difficulties in surveillance by the CTAF agents has led to serious encroachments within forests\. The relationships with communities will need to be carefully monitored with a continued investment in a participatory partnership approach to managing natural resources (ICR, para\. 89)\. Government Commitment: Changes in the political environment pose some risk as the government may in the future deprioritize the forestry sector or the co-management approach\. Given the Government of Benin’s dedicated and continuous efforts demonstrated throughout this project, this risk is considered low (ICR, para\. 90)\. a\. Risk to Development Outcome Rating Substantial 8\. Assessment of Bank Performance a\. Quality-at-Entry The quality of the design of the project was mixed\. On the one hand, the project introduced a participatory and multipronged approach that was holistic which integrated technical, social, and economic aspect to forest management\. This design was based on lessons learned from other projects that also emphasized the need to establish co-management process and create enabling environments for reform (ICR, pg\. 78)\. However, this review agrees with the ICR’s conclusion that the project intervention area which included 94% of gazetted forest by area was an “overly broad area (which) diminished the potential impact of the project” (para\. 79)\. In retrospect, as the ICR noted, “a more targeted approach allowing for greater surveillance over fewer gazetted forests may have had more impact on deforestation rates” (ICR, pg\. 79)\. The ICR also reflected that if the PDO had placed a greater focus on deforestation the project would have benefitted (ICR, para\. 79)\. The ICR also noted that the indicators in the first phase were overly ambitious and that the project either lacked or did not take into account baseline data\. During the initial restructuring in 2011, intermediate indicators were either revised or dropped, activities simplified, and funds reallocated (ICR, para\. 80)\. As noted already in Section 3b, it would have been useful to have more indicators relevant to technical capacity\. Implementation agreements, including fiduciary management, worked well\. On the other hand, the occupation of the position of project coordinator experienced turnover connected to changes in political arrangements (ICR, para\. 81)\. Counterpart funding from the Government was stated as in-kind contributions of offices and staff\. Government budgets slated to fund operating costs of field agents and CTAFs were not officially considered co-financing\. This proved “to be a serious stumbling block for Page 16 of 24  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review BJ-GEF Forests & Adjcnt Lnds Mgmt (FY06) (P069896) effective use of project-funded goods, including lack of fuel, or repairs for project-funded vehicles necessary to conduct surveillance missions” (ICR, para\. 82)\. Overall, the quality of entry is rated as moderately satisfactory\. While there were initial project design shortcomings, these were partially addressed through restructurings\. Quality-at-Entry Rating Moderately Satisfactory b\. Quality of supervision The quality of supervision was satisfactory throughout the life of the project\. The project benefited from having only 2 TTLs over the 12 years of the project, which enhanced supervision, implementation, and collaboration with the PIU (ICR, pg\. 34)\. Issues that arose during the implementation were identified and addressed with implementing partners\. The team proactively addressed challenges, early in the project’s implementation; “the team reinforced dialogue with authorities by increasing the number of supervision missions” (ICR, para\. 83)\. Local participants and beneficiaries were also included in the missions, to complement the overall participatory approach of the project (ICR, para\. 83)\. Similarly, when poor performance of the PDO level indicators was identified, the team developed and monitored an agreed-upon action plan to be implemented by the PIU\. The Plan was carefully tracked and modified\. By November 2016, the ISR indicator rating was at Satisfactory performance (ICR, para\. 84)\. The midterm review of the original project identified shortcomings in the initial project design\. These were addressed through the restructuring of the project\. There was good coordination between HQ-based and country management unit throughout the project (ICR, para\. 84)\. Reporting was timely, open, and honest\. This enabled the development of action plans and effective responses to issues that arose related to safeguards, procurement plans, and M&E (ICR, pg\. 34)\. Overall, the quality of supervision is rated to satisfactory for effective and timely management of the project\. Quality of Supervision Rating Satisfactory Overall Bank Performance Rating Moderately Satisfactory Page 17 of 24  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review BJ-GEF Forests & Adjcnt Lnds Mgmt (FY06) (P069896) 9\. Assessment of Borrower Performance a\. Government Performance The Government of Benin demonstrated strong ownership of the project\. It provided additional funds to ensure that the participatory forests management plans were completed, despite delays and additional costs\. The Government also hired additional forest agents, and monitoring and evaluation specialists to ensure the project had adequate resources\. While the commitment of the government was strong, the budget of the implementing agency has been frozen since 2013 and currently lacks an operating budget (ICR, para\. 87)\. This has put strains on key activities such as forest surveillance\. Government Performance Rating Satisfactory b\. Implementing Agency Performance The implementing agency of this project was the General Directorate of Forests and Natural Resource Management\. At the beginning of the project, the performance of the implementing agency was low, particularly in areas of monitoring and evaluation (World Bank Staff Interview, October 2018)\. However, targeted training including engaging with external experts, hiring additional staff, and preparing manuals significantly increased the implementing agency’s performance (World Bank Staff Interview, October 2018)\. The implementing agency worked to address and resolve issues as they came up, including related to financial management and monitoring and evaluation\. The implementing agency worked successfully to resolve issues related to project coordinator turn-over, procurement, and safeguards (ICR, para\. 81)\. The General Directorate of Forests and Natural Resource Management remained committed to the goals of co-management and participatory approaches even when they proved to be challenging to implement and required more time (World Bank Staff Interview, October 2018)\. Cooperation with the World Bank was high, action plans developed during the supervision mission were clear and there was consistent follow up depending the urgency of the actions to be taken (World Bank Staff Interview, October 2018)\. Implementing Agency Performance Rating Satisfactory Overall Borrower Performance Rating Satisfactory 10\. M&E Design, Implementation, & Utilization Page 18 of 24  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review BJ-GEF Forests & Adjcnt Lnds Mgmt (FY06) (P069896) a\. M&E Design The initial design of the monitoring and evaluation system set an ambitious mandate to have a data gathering system at the forest level\. The monitoring system also included a baseline, cross-department database network, and performance indicators (ICR, para\. 62)\. In the event, the initial baseline data was collected with uneven quality due to poor execution of the baseline data gathering (ICR, para\. 62)\. Also, the network database system did not become operational due to software design issues, as well as insufficient server capacity within the Government of Benin (ICR, para\. 62)\. The ICR reflected that the PDO “could possibly be more ambitious with regards to the outcomes a ‘laying the foundations’ for collective integrated ecosystem management system” (ICR, para\. 63)\. Moreover, the PDO could have also been more explicit in emphasizing the overall programmatic approach including key concepts such as culture change, capacity building, and economic opportunities\. The mid-term concluded that the indicators were too complex and they referenced undefined baselines with insufficient targeting\. During the restructuring, the M&E design was simplified and all the intermediate indicators were dropped (ICR, para\. 63)\. As reflected in the ICR, the results indicators “would have benefitted from better baseline data and more measurable indicators that would have more clearly reflected the rate of deforestation in the gazetted forest” (ICR, para 63)\. The indicators could have also better defined what “laying the foundation” for the collective integrated ecosystem management meant\. The results framework could have also benefited from more qualitative and activity specific indicators\. For instance, an indicator that measured the increase in institutional or technical capacity of forest agents\. b\. M&E Implementation According to the ICR, the monitoring and evaluation system faced several challenges\. To address an overall lack of capacity, two additional staff were brought into the M&E team\. Additional training was provided and an M&E plan and data collection manual were developed\. In 2011, the Ministry created a new functional and separate Monitoring and Evaluation Unit with focal points at the individual level\. This change created an improvement in data collection procedures, increased capacity, and simplified and better-targeted indicators (ICR, para 64)\. At this point, the implementation of M&E became satisfactory and remained for the duration of the project (ICR, para\. 64)\. During the additional financing, the M&E supervision was directed by the General Directorate of Forests and Natural Resource Management\. Unfortunately, surveillance at the forest level remained challenging in part due to operating budgets leading to a lack of funds for fuel and vehicle repairs\. The number of foresters in the field, although improved, was not sufficient for adequate surveillance\. There were also few incentives to Page 19 of 24  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review BJ-GEF Forests & Adjcnt Lnds Mgmt (FY06) (P069896) motivate the CTAF agents, as per diems were not provided for missions into the forest\. While the project has considered a range of solutions and approaches, “lack of surveillance missions into the interior of the forests remained a serious issue hampering the overall management of the gazetted forests” (ICR, para\. 65)\. c\. M&E Utilization The ICR included several examples of how the project utilized monitoring and evaluation data for decision making\. Two examples were: • Identifying the initial approach to the enrichment of natural forest as ineffective allowing for re-design of the enrichment activities by adopting a full plantation approach\. • Identifying the need for additional technical assistance for income-generating activities, particularly with regards to livestock health and financial accounting\. Overall, the monitoring and evaluation section is rated as substantial\. The monitoring and evaluation design was over-ambitious, but the restructuring provided the team an opportunity to reflect on more appropriate indicators and data processes\. The PIU also worked towards addressing some of the gaps in the M&E system by establishing a specialized unit, increasing the number of staff, and developing an M&E manual\. It is unfortunate that the project was unable to provide the necessary incentives to ensure successful surveillance missions into the forests\. The project also utilized data throughout the project to improve program quality\. M&E Quality Rating Substantial 11\. Other Issues a\. Safeguards The project was classified as Environmental Category “B” Partial Assessment\. At appraisal, it triggered the following safeguards: Environmental Assessment (OP 4\.01), Natural Habitats (OP/BP 4\.04), Involuntary Resettlement (OP/BP 4\.12), and Forests (OP/BP 4\.36) (PAD, para 67)\. No changes were made to the environmental safeguards during the additional financing (ICR, para\. 68)\. Under the additional financing, it was agreed that environmental screening would be undertaken for micro-projects and IGA applications (ICR, para\. 69)\. Page 20 of 24  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review BJ-GEF Forests & Adjcnt Lnds Mgmt (FY06) (P069896) The Environmental and Social Management Framework (ESMF) and the environmental assessments were publicly disclosed (ICR para\. 68)\. Overall, the project received predominantly Satisfactory ratings on environmental performance with some Moderately Satisfactory ratings (ICR, para\. 68)\. Environmental Assessment (OP 4\.01)\. The rating for this safeguard was downgraded to moderately satisfactory (MS) in May 2015 due to a poor environmental screening of the first batch of income generating activities\. The project unit conducted staff selection without recruiting an environmental and social safeguard specialist\. Issues with this safeguard continued into 2016 due to (i) poor quality of environmental screening checklists for income-generating activities; (ii) non-submission of screening sheets to the Beninese Environmental Protection Agency (ABE) for review and approval prior to implementing the IGAs; and (iii) non-compliance with environmental monitoring reporting requirement for all IGAs under implementation\. (ICR, para\. 69)\. The PIU addressed the checklist and hired a specialist\. The mission shared good examples of environmental monitoring projects with the PIU (ICR, para\. 69)\. While environmental screenings improved, challenges continued under the micro-projects and the MS ratings continued throughout the life of the project (ICR, para\. 69)\. Involuntary Resettlement (OP/BP 4\.12) A resettlement plan and process framework were prepared under the original project and when additional financing was provided (ICR para\. 70)\. The rating for this safeguard was also downgraded in May 2015 but later returned to Satisfactory (ICR, para\. 69)\. The project team received safeguard training during the initial project and renewed training for the Additional Financing portion of the project (ICR, para\. 70)\. The Grievance Redress Mechanism (GRM) was designed in line with traditional conflict resolution models that were operationalized at village level (ICR, para\. 70)\. b\. Fiduciary Compliance Financial management was rated Satisfactory throughout the life of the project\. Financial reports were submitted in a timely manner and were found to be satisfactory by the Bank\. Seven financial audits were completed under the original phase of the project and each was certified without reservation and the auditor’s reports were unqualified\. On the other hand, the audit report of 2010 was found by the Bank to be in non-compliance with the Bank’s standards due to issues with terms of reference for the independent auditor\. These issues were addressed and the audit report was amended to the Bank’s satisfaction\. During the first few years of the project implementation, a few issues arose including: (i) the use of a network of banks to secure the transfer of funds as part of financing of activities alternative income generations and (ii) the correction of deficiencies identified fixed asset management, including systematic underwriting of insurance policies\. These two issues were successfully resolved by the PIU\. Page 21 of 24  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review BJ-GEF Forests & Adjcnt Lnds Mgmt (FY06) (P069896) The original (first phase) of the project closed in May 2013 with the Financial Monitoring Report submitted, along with a final project audit completed in December 2013 (ICR, para\. 73)\. By all Bank financial standards, the project was rated satisfactory and deemed to have ‘closed well” (ICR, para\. 73)\. The financial agreements for the additional financing were based on the same arrangements as the original project (ICR, para\. 74)\. Improvements were made to existing specific procured for Income Generating Activities and to take into account lessons learned (ICR, para\. 74)\. Technical assistance in the form of additional financing was provided to individuals and groups participating in the income-generating activities\. (ICR, para 74)\. Procurement\. According to the ICR, procurement during the project generally functioned well with risk to compliance with procurement procuress and performance of contract administrated rated low to moderate (ICR, para\. 75)\. Within the original project, consistent issues were identified related to delays of payments and non-publication of awarded contracted (ICR, para\. 75)\. During the implementation of additional financing, procurement rating was moderately satisfactory due to the low implementation rate of procurement plan related to the micro projects (ICR, para\. 76)\. Overall, procurement processes were conducted in line with Bank policies and procedures (ICR, para\. 76)\. c\. Unintended impacts (Positive or Negative) Many of the IGA participants stated that with the additional income they were able to pay school fees\. It is possible that due to the project there was an increase in school attendance in the project zone among children of parents participating in IGA\. This data was not verified by the project team (ICR, para\. 58)\. d\. Other None 12\. Ratings Reason for Ratings ICR IEG Disagreements/Comment The efficiency rating of Moderately modest impacts the overall Outcome Satisfactory Satisfactory outcome rating\. Efficiency is rated modest as a result of Page 22 of 24  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review BJ-GEF Forests & Adjcnt Lnds Mgmt (FY06) (P069896) unsystematic data collection and estimates based on optimistic results which are barely comparable to the opportunity cost of capital\. While IEG agrees with the ICR's analysis of risks, it Risk to Development assessed the financial as well Negligible Substantial Outcome as the deforestation and degradation risks as substantial\. Moderately There were shortcomings in Bank Performance Satisfactory Satisfactory Quality at Entry Borrower Performance Satisfactory Satisfactory --- Quality of ICR Substantial --- Note When insufficient information is provided by the Bank for IEG to arrive at a clear rating, IEG will downgrade the relevant ratings as warranted beginning July 1, 2006\. The "Reason for Disagreement/Comments" column could cross-reference other sections of the ICR Review, as appropriate\. 13\. Lessons The following three lessons were the most apposite among the six included in the ICR, 1\. Invest in participatory bottom-up consultative approaches to forest management\. For example, the project invested in developing participatory community forest plants and creating a participatory boundary marking process\. While these processes took additional time and required technical specialists, the extended approach improved collaboration and decreased conflict (ICR, para\. 92)\. 2\. Targeted and specific interventions may be more effective than broad-reaching approaches\. For example, this project sought to work on 19 gazetted forests\. However, in forested areas where there was a higher level of concentration of project activities, the deforestation rates were lower (ICR, para\. 93)\. This project experienced an over-stretched budget and was therefore unable to support all the operational costs and surveillance missions\. For future projects, consider focusing implementation activities in targeted areas\. 3\. Income generating activities require technical support for effective implementation\. For example, the income-generating activities of this project were successful at increasing income, empowering women, and reducing pressure on forests\. However, for these activities to be successful, technical support in the form of basic accounting, marketing, and disease prevention (agriculture and livestock raising) is required (ICR, para\. 95)\. Page 23 of 24  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review BJ-GEF Forests & Adjcnt Lnds Mgmt (FY06) (P069896) 14\. Assessment Recommended? No 15\. Comments on Quality of ICR While the ICR provided adequate information, certain sections were repetitive, unfocused, and contained unnecessary background information\. The Efficacy section could have been better organized along technical, social, and economic dimensions\. The Efficiency section also lacked clarity on where certain information was being drawn from\. Overall, the ICR included candid analysis about the areas that worked and did not work within the project\. The report introduced qualitative evidence that added depth to the report\. Explanations were sufficient in the area of Monitoring and Evaluation and Bank Performance\. Indicator definitions, methodology, and disaggregated data on achievements were very thorough\. a\. Quality of ICR Rating Substantial Page 24 of 24

REVIEW

P078806

Document of The World Bank Report No\. 32277 SIMPLIFIED IMPLEMENTATION COMPLETION REPORT ISLAMIC REPUBLIC OF PAKISTAN POVERTY REDUCTION SUPPORT CREDIT CREDIT NO\. 39740 JUNE 20, 2005 Poverty Reduction and Economic Management South Asia Region  Simplified Implementation Completion Report For Programmatic Development Policy Lending Operations Operation ID: P078806 Operation Name: Pakistan Poverty Reduction Support Credit (PRSC) I Team Leaders: Manuela Ferro and Zahid Hasnain TL Unit: SASPR Report Date: June 20, 2005 1\. Program Data Name: Pakistan PRSC I L/C Number: Cr\. 39740 Country/Department: Poverty Reduction & Economic Management Region: SAR Sector/subsector: Economic Policy Theme: Fiscal Sustainability, Public Expenditure, Regulation, Education KEY DATES Original Revised/Actual PCD/PD: April 5, 2004 Effective: September 14, 2004 September 14, 2004 Appraisal: May 3, 2004 MTR: N/A N/A Approval: September 2, 2004 Closing: December 31, 2004 December 31, 2004 Borrower/Implementing Agency: Islamic Republic of Pakistan Other Partners: STAFF Current At Appraisal Vice President: Praful Patel Praful Patel Country Director: John W\. Wall John W\. Wall Sector Manager: Ijaz Nabi Ijaz Nabi Team Leader at ICR: Zahid Hasnain PRSC Task Leaders: Manuela Ferro, Zahid Hasnain ICR Primary Author: Zahid Hasnain  2\. Principal Performance Ratings (HS=Highly Satisfactory, S=Satisfactory, U=Unsatisfactory, HL=Highly Likely, L=Likely, UN=Unlikely, HUN=Highly Unlikely, HU=Highly Unsatisfactory, H=High, SU=Substantial, M=Modest, N=Negligible) Outcome: S Sustainability: L Institutional Development Impact: M Bank Performance: S Borrower Performance: S QAG (if available) ICR Quality at Entry: N/A S Operation at Risk at Any Time: N/A No 3\. Program Description 3\.a\. Description of program 1\. The decade of the 1990s in Pakistan witnessed a decline in per capita growth to 1\.2 percent per year from 3 percent per year in the 1980s, an increase in poverty, and stagnation in social indicators\. The military government that came to power in 1999 initiated wide-ranging reforms aimed at stabilizing and reviving the economy\. These included improving fiscal balances, privatizing public sector enterprises, reforming the banking sector, and taking steps to strengthen public and corporate governance\. These reforms have continued under the elected government, in power since 2002\. 2\. Pakistan's Poverty Reduction Strategy Paper (PRSP), entitled "Accelerating Economic Growth and Reducing Poverty: The Road Ahead", was completed on December 31, 2003, and is a comprehensive strategy for addressing poverty in its various dimensions\.1 It emphasizes policies to sustain rapid growth as the main vehicle for poverty reduction and is grounded on four pillars: (i) achieving sustained high and broad-based economic growth, focusing particularly on the rural economy, while maintaining macroeconomic stability; (ii) improving governance and consolidating devolution, both as a means of delivering better development results and ensuring social and economic justice; (iii) investing in human capital, with a renewed emphasis on effective delivery of basic social services; and (iv) targeting the poor and vulnerable, to bring the marginalized sections of the population and backward regions into the mainstream of development, and to make marked progress in reducing existing inequalities\. 3\. The Government is planning to draft a Poverty Reduction Strategy Paper Progress Report over the next two months\. This document is expected to review progress in policy implementation and economic outcomes, as well as update the status of key economic and social indicators, drawing on new data sources, such as the Core Welfare Indicators Questionnaire (CWIQ), expected to become available in shortly\. The Government has also prepared a Medium 1The Government of Pakistan's PRSP can be found at www\.finance\.gov\.pk/poverty/prsp_03\.pdf\. 2  Term Development Framework, a five-year plan outlining the federal public sector investments required to meet the growth and poverty reduction objectives outlined in the PRSP\. 3\.b\. Description of operation 4\. As envisioned in the Bank's Country Assistance Strategy, discussed by the Board on June 11, 2002, the PRSC I was the first of a series of three proposed operations that would support the implementation of the Government of Pakistan's reform program as laid out in its PRSP\. PRSC I, in an amount of $300 million, was disbursed in September 2004\. The Bank is currently in advanced preparation of PRSC II, which is planned to be presented before the Board during the second quarter of 2005/06\. PRSC I drew on the lessons learnt under previous programmatic operations, in particular Structural Adjustment Credit 1 and Structural Adjustment Credit 2\. The program was also informed by a number of Bank analytical reports covering areas such as oil and gas, power, public expenditure management, financial management, procurement, devolution, and rural factor markets\. 5\. PRSC I was closely aligned with the four reform pillars outlined in the PRSP\. As Pakistan's poor growth performance was at the root of the increase in poverty incidence over the 1990s, the main thrust of the PRSP and the PRSC program is on a set of policies to sustain rapid growth\. Within this broad PRSP agenda, and given that many of the responsibilities for improving service delivery in education, health, and water and sanitation rest with provincial and local governments, the program also focused on critical policy and institutional reforms that are in the domain of the federal government\. The operation also launched analytical work to strengthen safety nets\. The operation focused primarily on reforms to accelerate growth, on measures to improve procurement and financial management, and to provide a national policy framework and incentive structure for accelerating poverty reduction and improvements in education and health\. The first year of the PRSC program overlapped with and complemented the last year of implementation of the macro stabilization program supported by the IMF with a Poverty Reduction Growth Facility (PRGF)\. 4\. Achievement of Objectives and Outputs 6\. The achievement of the objectives and outcomes is rated as satisfactory\. Pakistan's overall macroeconomic and growth performance have been strong, and reforms in a number of areas, such as privatization, tax administration reforms, and telecommunications deregulation have progressed well\. In other areas, notably power sector, and in civil service reforms, progress has been much slower, and these are among the focal areas of the dialogue under PRSC II\. 7\. The following provides an assessment of achievement of objectives and outputs for each of the prior actions of PRSC I (given in bold in Annex 1), as well as outcomes of the broader reforms supported under the program\. Outcomes of PRSC I Prior Actions 8\. Macroeconomic stability: highly satisfactory\. The maintenance of macroeconomic stability was a prior action of PRSC I\. Pakistan's macroeconomic performance over the past two years has been impressive (Table 1)\. In 2002/03 GDP growth at factor cost was 5\.1 percent, 3  which increased to 6\.4 percent by 2003/04, and is projected to increase by 8\.4 percent in 2004/05\. Growth in the past year has been broad based, with the Agriculture, Industry, and Services sector increasing by 7\.5 percent, 10\.2 percent, and 7\.9 percent respectively\. The fiscal deficit (excluding grants) decreased from 3\.7 percent of GDP in 2002/03 to 2\.4 percent by 2003/04, and is projected to be 3\.2 percent for 2004/05\.2 While the freezing of retail petroleum prices from May 2004 to December 2004, and again from March 2005 onwards, had a significant impact on collections of the Petroleum Development Levy, tax and non-tax revenues have been higher than targeted\. The ninth and final review of the IMF's Poverty Reduction and Growth Facility (PRGF) was completed in December 2004\. Performance under the PRGF has been strong, at times exceeding expectations with respect to quantitative performance criteria\. One area of concern is inflation, which, fuelled by a combination of rising food prices, and a strong growth in private sector credit over the past year, increased to 9\.3 percent (year-on-year) for the period July-May of 2004-05, and will surpass the revised target of 7 percent for the year\. Table 1\. Pakistan: Selected Indicators, 2000/2001 to 2004/2005 2000/01 2001/02 2002/03 2003/04 2004/05 Proj\. Real GDP fc (annual change in percent) 1\.8 3\.1 5\.1 6\.4 8\.4 Gross National Savings (% of GDP) 15\.6 19\.0 21\.8 20\.1 19\.9 Real per capita GDP (annual change in percent) -0\.2 1\.2 3\.1 4\.3 5\.7 Consumer prices (annual change in percent) 4\.4 2\.5 3\.1 4\.6 9\.5 Consolidated government budget balance (in % of GDP) Excluding grants -4\.3 -5\.5 -3\.7 -2\.4 -3\.2 Including grants -3\.3 -3\.6 -1\.4 -1\.8 -2\.3 Consolidated government primary balance (in % of GDP) Including grants 2\.3 2\.0 3\.0 1\.8 1\.1 Excluding grants 1\.3 0\.1 0\.5 1\.2 0\.2 Total government debt (in % of GDP) 88\.8 80\.2 74\.3 67\.8 62\.8 Domestic government debt (in % of GDP) 43\.3 40\.4 39\.3 36\.3 32\.7 Exports (growth rate, percent) 2\.3 19\.1 13\.8 13\.0 Imports (growth rate, percent) -7\.5 20\.2 20\.1 32\.9 Current account balance excluding official transfers (in % of GDP) 0\.1 3\.8 1\.4 -1\.6 Gross reserves (in millions of U\.S\. dollars) 1,679 4,330 9,521 10,556 10,100 Source: IMF\. 9\. Fiscal policy: satisfactory\. Cabinet approval and submission to the National Assembly of the Fiscal Responsibility and Debt Limitation Bill was a prior action for PRSC I\. The Bill aims to lock in the gains made in fiscal and debt management over the past four years, through the reduction of the revenue deficit to zero by June 30, 2008 and the maintenance of a surplus thereafter; a reduction in the total debt to 60 percent of GDP or lower by June 2013; and protection of PRSP expenditures\. The National Assembly passed the Bill in March 2005, the 2 Pakistan's Federal Bureau of Statistics completed in May 2004 a comprehensive revision of the national accounts statistics\. The base year was moved from 1980/81 to 1999/00 and several new sectors of economic activity were included\. The results of this revision are a nominal GDP for 1999/00 and subsequent years that are about 20 percent higher than previously estimated levels\. This ICR uses the "new" GDP series\. 4  Senate approved it in June 2005, and it is expected to be passed into Law after the assent of the President\. 10\. Power sector: less than satisfactory\. Reform of the power sector remains a critical priority both for accelerating growth and reducing the sector's drain on the budget\. The Government in April 2004 approved an Action Plan (a PRSC I prior action), aimed at improving the financial viability of the sector through better governance, reduced costs, rationalized tariffs, and more targeted and transparent subsidies\. Implementation of the action plan has proceeded over the past year with mixed success\. The government established a Policy Implementation Cell in the Ministry of Water and Power to coordinate and manage the reform effort, notified subsidy and tariff policies, and notified the individual generation and transmission entity tariffs\. The successful bidding in February 2005, of Karachi Electric Supply Corporation, and the IPO, in March 2005, of 20 percent shares of Kot Addu Power Company (with this IPO, 56 percent of Kot Addu shares are in private hands) were major achievements\. Less progress has been achieved in the other key areas of the Plan ­ on corporate governance, revenue enhancement, cost minimization, corporatization, private sector participation and capacity building ­ in large part due to the delay in the notification of the tariffs for the unbundled entities\. 11\. Telecommunications: highly satisfactory\. Pakistan has made rapid strides in de- regulating the fixed line market, and in increasing competition in the mobile segment\.3 The government approved a fixed line policy on January 2004 (a PRSC I prior action), with the objective increasing customer choice, promoting infrastructure development through increased private investment and competition and increasing rural access\. As a result of this policy, 12 new Long Distance International (LDI), and 84 new Local Loop (LL) licenses have been awarded by the Pakistan Telecommunications Authority (PTA)\. These new companies are presently in the process of operationalizing their services\. The new mobile policy (a PRSC I prior action) opens the way for increased competition in the sector, and under it two additional licenses were issued to two foreign companies in April 2004, thus increasing the total number of mobile operators in the country to six\. The successful bidding for the strategic sale of 26 percent shares of Pakistan Telecommunications Company (PTCL) took place on June 18, 2005, the largest such transaction in Pakistan's history\. 12\. Deregulation has had a positive impact in terms of growth and reduction in costs\. Growth of the mobile sector has been impressive, with the number of mobile connections increasing from approximately 3\.5 million in 2003 to approximately 8\.5 million by end 2004\. Tariffs have been reduced, with free roaming introduced by many of the mobile operators, and reduction in activation charges\. Overall teledensity (fixed and mobile) has increased from 4\.3 per 100 in 2002/03 to 8\.5 per 100 by end December 2004\. 13\. Procurement: less than satisfactory\. Procurement reform had been on the agenda of the government for close to a decade, but with little substantive progress\. Therefore, the notification (in June 2004) of new procurement rules (a PRSC I prior action), conforming to international best practice, by the Pakistan Procurement Regulatory Authority (PPRA) was a significant achievement\. These rules apply to all procurement of goods carried out by the federal 3 The World Bank provided technical assistance to the Government for establishing a regulatory framework for the telecommunications sector 5  government line departments, as well as those of state-owned enterprises and semi-autonomous organizations\. 14\. Progress has slowed however, since the notification of these rules\. Some key pending follow-up measures include the notification of supporting implementing regulations (these have been drafted, but are awaiting approval by the PPRA board); the development of a monitoring and reporting mechanism; and the creation of second tier appeals procedure, which would allow aggrieved bidders recourse to a body other than the implementation agency for the redressal of their grievances\. 15\. Financial management: satisfactory\. The government's reform program in public financial management has advanced in a number of key areas\. The Controller General of Accounts (CGA) organization has been strengthened, and the timeliness of reporting and reliability of public accounts and audit reports has improved substantially\. Under the Bank- funded Project for Improved Financial Reporting and Auditing (PIFRA), a new computerized accounting system and a new chart of accounts is being developed, although progress in computerizing the sites has been slow\. Legislative oversight has improved with the establishment of Public Accounts Committees at the federal level (a PRSC I prior action), as well as in the provinces\. The federal Public Accounts Committee has made good progress in reviewing audit reports, and in tracking and monitoring cash recoveries from public officials in government departments and other public institutions\. Less progress however, has been achieved in clearing backlogs of audit reports and audited accounts, due in large part to the poorer quality of the older audit reports that resulted in a large number of audit paragraphs being placed before the Committee\. In addition, and subsequent to PRSC I approval, there has been a decline in some provinces in the accuracy of financial reporting (a PRSC I prior action), in particular due to problems in reconciling district accounts\. 16\. Investing in Human Capital: satisfactory\. The government recognizes that Pakistan's social indicators lag well behind those of countries at comparable levels of income\. Low public expenditures on health and education, either expressed in per capita terms or as a share of GDP, have been one important factor behind Pakistan's poor performance, and the PRSP targets significant increases in education, health, water and sanitation and other key sectoral expenditures\. PRSC I prior actions specified increased consolidated budgetary allocations in education and health (to at least 2 percent and 0\.7 percent of GDP respectively)\.4 Progress on the actual utilization of these allocations has been mixed\. Consolidated education expenditures increased to 2\.16 percent of GDP (old) in 2003-04, but health expenditures, at 0\.59 percent of GDP (old), fell short of the budgetary allocation\. 17\. Improving the effectiveness of these expenditures is equally important for improving outcomes\. The actual delivery of public services in these sectors rests with provincial and local governments, and preliminary results suggest that provincial incentive programs such as the provision of free textbooks, and stipends for girls are producing notable results, particularly in 4 These PRSC I prior actions were based on the "old" GDP series\. As per the new series, the targets for education and health would be 1\.67 percent and 0\.58 percent of GDP respectively 6  Punjab\.5 The federal government also has a key role to play in policy formulation, increasing and diversifying the number of service providers, monitoring and evaluation, and in piloting innovations that can then be replicated and scaled up by provincial and local governments\. One important area that affects quality of education is the assessment of student learning achievement, and the government has launched the National Education Assessment System (a PRSC I prior action), which is a sample-based national assessment of student learning, with standardized tests conducted at grade 4 and grade 8 levels\. The pilot testing of Grade 4 students in Language and Mathematics was conducted throughout the country in April 2004\. This is the first time in Pakistan that a national and cross-provincial baseline of student achievement is being measured against the national curricula\. In order to improve the quality of teaching, the government is also in the process of developing minimum standards for assessing teacher competencies\. 18\. In health, the government has engaged in public-private partnerships to expand the provision of preventive and curative services in TB DOTS, Malaria and HIV/AIDS services (a PRSC I prior action)\. Contracts have been signed with 12 NGOs, and service delivery has commenced from the fourth quarter of 2004\. A set of monitoring indicators and a monitoring mechanism are being put in place including third party assessment of service quality and outputs\. The services through these NGO contracts are expected to provide access to TB DOTS to about 10 million population; provide insecticide treated bed nets and prompt diagnosis and malaria treatment services to about 7-8 million in 23 high risk districts; and voluntary counseling and testing services through 16 centers in 14 cities\. Outcomes of the Broader Reform Program Supported Under PRSC I 19\. Fiscal policy: Pakistan's tax-to-GDP ratio is low in comparison to similar developing countries, in part due to the narrow coverage of buoyant taxes, such as the GST, and limited coverage of agriculture, but also due to weaknesses in tax administration\. The reform of the Central Board of Revenue (CBR) is a priority for the government, and is being supported by the World Bank's Tax Administration Reform Project\. A system of Universal Self Assessment with risk-based audit was introduced in 2002, to minimize taxpayers' interaction with tax officials, and therefore to change the culture of extortion that has characterized tax collection in Pakistan\. CBR is being reorganized along functional lines, along with changes in human resource management, and to this effect Large Taxpayer Units have been established in Karachi and Lahore, and Medium Taxpayer Units (MTUs) have been set up in Lahore, Karachi, Peshawar, and Rawalpindi\. These MTUs will become part of 12 regional tax offices, expected to be established by December 2005, which will co-locate sales tax and income tax, providing for greater sharing of information and removing of duplication\. 20\. Privatization: Pakistan's privatization program has continued to advance at a good pace during the last two years\. Despite a difficult international environment, the program made headway by targeting domestic investors for smaller transactions, by disinvesting government shares in state owned companies through the stock markets, and through large strategic transactions and management transfers\. Key transactions include the sale of United Bank 5 A school census conducted in October 2004 shows a 13 percent enrollment increase in government primary schools in Punjab as compared to average annual 1\.5 percent increases documented during the past decade\. 7  Limited (in October 2002); Habib Bank (in January 2004); the bidding for 76 percent share and management control of Karachi Electric Supply Corporation (in February 2005); the bidding for 51 percent share and management control of National Refinery Limited (in May 2005); and the bidding for 26 percent share and management control of Pakistan Telecommunications Company (in June 2005)\. In addition, a number of transactions are at an advanced stage and are expected to be completed over the next six months, including Pakistan State Oil, and Pakistan Petroleum Limited\. 21\. Oil and gas: In addition to its fiscal repercussions, the freezing of retail petroleum prices also had a negative impact on the cash flows of oil marketing companies\. Natural gas wellhead and consumer prices have been adjusted on July 1, 2004 and January 2005, based on fluctuations in international oil prices, and in accordance with the determination of the Oil & Gas Regulatory Authority (OGRA)\. While this enables the sector to remain financially solvent, there has been no progress on restructuring the first slab for household consumers, or in making the subsidy to the fertilizer industry transparent and through the Budget\. 22\. Civil service reform: The Government recognizes the importance of improving the quality of the civil service in order to increase the effectiveness of its poverty reduction programs and to improve service delivery\. Supported by the World Bank Public Sector Capacity Building Project, the government is making good progress in providing technical training to its middle and senior level officers\. However, progress in civil service restructuring has been slow\. While a broad civil service reform strategy was formulated, and a Civil Service Reform Unit (CSRU) created (in November 2003) to manage and oversee the reform process, there has been little concrete follow-up action on the plan to create an elite National Executive Service, or on the creation of a District Service to further devolution\. Progress on pay and pensions reform has also been limited\. A Pay and Pensions Committee was constituted in 2004 to examine compensation reforms for civil servants to create better incentives for recruitment and retention, to remove a number of distortions and inequities in the pensions system, as well as to reduce the unfunded financial liability to the government\. The Bank provided technical assistance to the Committee, which presented its recommendations to the government in May 2005\. However, a preliminary assessment of the measures announced in the 2005/06 budget suggests that the Government decided against adopting the main reforms recommended by the Committee\. 23\. Targeting the Poor and the Vulnerable: While the Government's poverty reduction strategy relies on rapid, broad-based growth as the most effective way to accelerate poverty reduction, targeted programs aimed at addressing poverty and vulnerability directly are also an important component of the government's PRSP\. Pakistan has a number of government and non-government programs targeted to the poor and the destitute, such as income support programs like Zakat and the Food Support Program, micro-finance facilities, such as the Pakistan Poverty Alleviation Fund, and public works programs like the Khushal Pakistan Program\. To date, a majority of these have been significantly under-funded, and there has been no rigorous analysis of their coverage, impact and effectiveness in targeting\. In order to improve targeting, coverage, and the administration of these programs the government, with Bank technical assistance, is presently conducting a comprehensive evaluation of its safety net programs\. This is the first such evaluation of its kind in Pakistan\. The government has also recognized that the poverty alleviation effectiveness of the safety nets programs will remain well below its potential, 8  as long as the key determinants of poverty--including poor health, high fertility, and lack of education--are not systematically addressed\. To this end, the government is in the process of developing pilots for conditional cash transfer (CCT) interventions to improve the utilization of TB DOTS services, as well as to improve primary school enrollments of children in poor families\. 5\. Major Factors Affecting Implementation and Outcome 24\. Political factors were the major reason why outcomes were less than satisfactory in certain sectors, such as power, civil service reforms, and oil and gas\. For example, the implementation of a regionally differentiated tariff regime, and increasing tariffs for household consumers, were politically difficult decisions, particularly for a coalition government\. Overall, political risks have diminished over the past three years\. The transition to a democratically elected government (in October 2002) took place without major incident, and the subsequent change in leadership within the ruling political coalition (in August 2004) also proceeded smoothly and without causing any disruption\. Regional tensions have also subsided over the past year, and there is encouraging progress towards the normalization of relations with India\. However, the tensions in Balochistan and in the tribal areas along the border with Afghanistan, continue to pose a challenge and, if they escalate, could negatively impact growth and investment in the future\. 25\. Delays in implementation, insufficient institutional capacity, and adverse exogenous shocks remain the biggest risks to the government's reform program\. With respect to exogenous shocks, increased international oil price will act as a drag on growth, and have increased the oil import bill in the first three quarters of 2004-05 by 31 percent over the same period in the previous year\. Depending on the Government's policy choices, in particular the extent to which it chooses not to collect PDL, it poses threats to the maintenance of macro-economic stability and/or consumes revenues that could be used towards PRSP expenditures\. Inflation has also increased over the past year, due in part to the rapid growth of M2 over the past two years and more recently due to the increase in fuel prices\. There is also a need to remain vigilant regarding the impact of rapidly expanding credit on banking sector non-performing loans\. Growth could also fall short of the ambitious targets set out in the PRSP, due to security concerns that limit investments, or adverse weather conditions that negatively impact agricultural production\. 26\. While technical and institutional capacity of the government is gradually being strengthened, more needs to be done, particularly with regards to the recently formed local governments that have the main responsibility for service delivery\. In addition, continuing political tensions between the provincial and local governments could negatively affect the achievement of the government's human development targets\. The upcoming local government elections this year will have an important bearing on the political relations between the provincial and local governments, and on the functionality of local governments\. 6\. Bank and Borrower Performance 27\. Overall Bank performance during the identification, preparation, and appraisal of PRSC- 1 was satisfactory\. The Bank's multi-sectoral team sustained a high-level and intense dialogue with the government\. The operation was informed by the lessons of past adjustment operations 9  (SAC 1 and SAC 2) as well as the considerable analytical work undertaken over the past three years\. The interaction with other development partners has also been satisfactory\. The PRSC complemented the IMF's PRGF, and it is expected that the PRSC will be the main vehicle to improve collaboration and consistency of program support by Pakistan's largest donors\. UK's DFID has proposed to provide budget assistance to the Government in parallel to the PRSC, and the US has also expressed interest in broadly aligning its economic assistance with the PRSC program\. 28\. Borrower performance has been largely satisfactory\. The government's PRSP, which this program supported, was prepared with extensive stakeholder consultation\. The government worked well with the Bank preparation team, with the Ministry of Finance assuming an overall leadership, coordination, and monitoring role\. \.Continuity in leadership of the key economic policy team in the government, in the Ministry of Finance in general, and within the PRSP Secretariat in particular, greatly aided the ownership and implementation of the program, and will remain necessary to insure the success of subsequent operations\. 7\. Findings and Implications for Subsequent Operation(s) in Series 29\. Given that Pakistan is a federation, with major service delivery responsibilities devolved to provincial and local governments, it is important that future PRSCs focus on key policy reforms that are within the domain of the federal government\. PRSCs would therefore continue to need to be complemented with provincial adjustment operations, such as those in Punjab and NWFP, which could focus more heavily on service delivery improvements\. 30\. The approach of using a one-tranche operation appears to be working well\. The CAS advocates the use of a series of one-trance adjustment credits to the federal and provincial governments that will provide predictable and performance based budgetary support, and will also help the Bank manage risks by pacing its assistance with the government's ability to pursue reforms, and to give assurance of just-in-time support\. 31\. As Pakistan's three-year arrangement under the IMF's Poverty Reduction and Growth Facility (PRGF) ended in December 2004, future PRSC's will need to pay greater attention to the monitoring of key macroeconomic indicators\. Future PRSCs will also need to be informed by a number of analytical activities currently underway (on labor markets, safety nets, disease surveillance, civil service pensions, and on gender)\. 32\. Subsequent PRSCs will also need to support, and be informed by, development of timely and reliable sources of data\. There are good prospects for a comprehensive strategy to be developed within the next few months to strengthen Pakistan's statistical systems\. The last major national household survey providing a national poverty headcount and social sector outcome indicators was conducted in 2001-02\. Currently two major surveys --- the CWIQ and a Household Income and Expenditure Survey (HIES) ­ are in the field, and will provide social sector and poverty data by July 2005 and December 2005 respectively, and will therefore provide much needed data to inform subsequent operations, in particular PRSC 3\. 10  ANNEX I Outcomes of reforms supported under PRSC I and indicative triggers for PRSC II (PRSC I prior actions in bold) PRSC II INDICATIVE REFORMS SUPPORTED UNDER PRSC I OUTCOMES TRIGGERS PRSP Pillar I: Growth and Macroeconomic Stability Macroeconomic Stability and fiscal policy Maintained macroeconomic stability Improved macroeconomic Maintenance of macroeconomic performance, with growth stability To lock in the gains of improved debt accelerating from 5\.1 percent in and fiscal management, the Government 2002/03 to 6\.4 percent in 2003/04, To improve the efficiency of submitted to the National Assembly the and 8\.4 percent in 2004/05; the direct tax collection, the Fiscal Responsibility and Debt fiscal deficit declining from 3\.2 Government will establish a Limitation Bill\. percent in 2002/03 to 2\.4 percent Large Taxpayer Unit in Lahore, and three Medium Taxpayer Accelerated implementation of the medium in 2003/04, and to 3\.2 percent in Units, in Karachi, Rawalpindi term program of CBR reforms 2004/05 and Peshawar respectively\. Measures towards budget management Fiscal responsibility bill passed by Government will improve the reform, to improve the level and the National Assembly in budget preparation process\. effectiveness of public expenditures February 2005, and by the Senate in June 2005, and awaiting Specifically, it will approval of the President\. o Develop linkages between Large Taxpayer Units established current and development in Karachi and Lahore, and spending Medium Taxpayer Units o Improve the efficiency of established in Karachi, Lahore, PSDP expenditures Rawalpindi, and Peshawar\. Extend the MTBF beyond health and Medium Term Budgetary population sectors\. Framework (MTBF) piloted in two ministries (Health and Population Welfare) Improved Investment Climate The Government approved an Action Power subsidy policy approved Timely implementation of key Plan for the overall recovery of the and notified, and Policy measures in the power sector power sector Implementation Cell established Action Plan in the Ministry of Water and The government will have completed Power\. Privatization: the government privatization of Habib Bank limited\. will bring to the point of sale a Habib Bank privatized in selected list of companies To increase access and reduce the costs February 2004; bidding for of telecommunications services, the Karachi Electric Supply The Government will revise Government approved: Corporation in February 2005; labor legislation to improve labor market flexibility o A telecommunications policy, bidding for Pakistan allowing free entry of new private Telecommunications Company in To improve management of operators to compete with PTCL June 2005 water resources the Government will approve a National Water o A mobile policy with the objective of 12 new Long Distance Policy, and establish an Apex introducing further competition, International (LDI), and 35 new Body for the sector and a namely through licensing of new Local Loop (LL) licenses technical secretariat to support mobile operators\. awarded by the Pakistan Telecommunications Authority this Body Transparent Pricing Framework and semi- (PTA) yearly adjustment mechanism of retail tariffs for natural gas notified, and price Two new mobile licenses adjustments implemented consistently awarded, increasing total number 11  PRSC II INDICATIVE REFORMS SUPPORTED UNDER PRSC I OUTCOMES TRIGGERS of providers from 4 to 6 Teledensity (per 100) increased from (source: Pakistan Telecommunications Authority): o Fixed line: 2\.7 in 2002/03 to 3\.2 in December 2004 o Mobile: 1\.6 in 2002/03 to 5\.3 in December 2004 o Total: 4\.3 in 2002/03 to 8\.5 in December 2004\. Natural gas wellhead and consumer prices adjusted on July 1, 2004 and February 2005\. No progress on rationalizing lifeline consumer slab PRSP Pillar II: Governance and Devolution To improve the efficiency and Key follow-up actions on To improve the timeliness and transparency of public procurement, the procurement ­ adoption of accuracy of financial statements, Government adopted national implementing regulations, and the CGA will achieve the procurement rules, compatible with establishment of monitoring and following reconciliation international best practice\. reporting mechanism ­ still benchmarks respectively for pending expenditures, receipts, suspense To improve the timeliness and accuracy accounts, and intergovernmental of financial statements, the CGA Reconciliation for expenditures, accounts on a quarterly basis, achieved the following reconciliation receipts, suspense accounts, and with effect from the reporting benchmarks respectively for intergovernmental accounts (as of quarter ended 31 December expenditures, receipts, suspense January 2005) were as follows: 2004: accounts, and intergovernmental accounts on a quarterly basis, with o Federal: 99%, 100%, 99%, 98% o Federal: 99+%, 100%, 99%, effect from the reporting quarter ended o Punjab: 85%, 96%, 100%, 99% and 97% 31 December 2003: o Sindh: 87%, 90%, 100%, 100% o Provinces: 95%, 95%, 95%, o Federal: 99%, 100%, 98%, and 95% 99% o NWFP: 97%, 90%, 100%, 100% o Provinces: 90%, 90%, 90%, and 95% Replaced by (OPCFM guidance): o Balochistan: 74%, 40%, 95%, To improve legislative and public 100% Adoption of IPSAS Cash oversight over public expenditures, the Accounting Federal Public Accounts Committee was established by the National Assembly The Federal Public Accounts Creation of integrated link Committee achieving progress in between budget module and The new computerized accounting system tracking and monitoring cash payments processing and (PIFRA) will have been extended to at recoveries\. accounting least 8 accounting sites 18 computerized accounting sites Preparation of Implementation Comprehensive civil service reform established as of March 2005 Strategy, Methodology, and Plan strategy drafted; broad contours of the of Action under IPSAS 2 National Executive Service defined Civil Service Reform Unit created in Establishment Division to The Government will decide on manage overall reform process next steps in civil service reform, including creation of the Pay and Pensions Committee National Executive Service, and notified to provide reform pay and pensions reform\. recommendations on civil service pay and pensions recommendations, by May 2005 12  PRSC II INDICATIVE REFORMS SUPPORTED UNDER PRSC I OUTCOMES TRIGGERS PRSP Pillar III: Investing in Human Capital Education To improve access to, and quality of, Consolidated education To improve access to, and education services, consolidated expenditures increased from 1\.96 quality of, education services, education expenditures for 2003/04 percent of GDP (old) in 2002-03 consolidated education increased to at least 2 percent of GDP, to 2\.16 percent of GDP (old) in expenditures for 2004/05 will consistent with the targets set out in the 2003-04 increase to at least 2\.1 percent of PRSP GDP, consistent with the targets The pilot assessment of Grade 4 set out in the PRSP To improve the monitoring and students in Language and evaluation of education outcomes, the Mathematics conducted in April To improve the quality of National Education Assessment System 2004 teaching, minimum standards for (NEAS) is under implementation, in line assessing teacher competencies with the approved schedule\. First pilot National Curriculum Advisory at the Federal level will be assessment of Grade 4 (two subjects) Board established to conduct developed\. conducted\. technical review of curriculum, and to recommend further Curriculum revision under implementation improvements\. for grades 1-12 Health To improve access to, and quality of, Consolidated health expenditures To improve access to, and health services, consolidated health increased from 0\.56 percent of quality of, health services, expenditures for 2003/04 increased to at GDP (old) in 2002-03 to 0\.59 consolidated health expenditures least 0\.7 percent of GDP, consistent with percent of GDP (old) in 2003-04 for 2003/04 have increased to at targets set out in the PRSP least 0\.8 percent of GDP, Contracts signed with 12 NGOs consistent with targets set out in To expand the provision of preventive for provision of TB DOTS, the full PRSP and curative health services, the malaria, and HIV/AIDS services, Government contracted NGOs for the and service delivery expected to Outcome oriented, performance- provision of TB DOTS, malaria and start in fourth quarter of FY05 based interventions will be HIV/AIDS services designed, and pilot launched, in areas with low enrolment rates and low immunization coverage To improve health monitoring, the national public health surveillance system will be strengthened\. PRSP Pillar IV: Targeting the Poor and Vulnerable Social Safety Nets The government will have initiated a Safety nets evaluation in process\. Based on an evaluation of comprehensive evaluation of the various Pilot conditional cash transfer government's safety net safety net programs to assess the coverage, targeting efficiency, and adequacy of the programs to improve utilization of schemes, reforms will be program benefits TB DOTS and primary school initiated to improve coverage enrollment being developed and targeting of safety nets 13

REVIEW

P096594

 ICRR 12272 Report Number : ICRR12272 ICR Review Operations Evaluation Department 1\. Project Data: Date Posted : 10/03/2005 PROJ ID :P092663 Appraisal Actual Project Name :First Development Policy Project Costs 300 300 Loan US$M ) (US$M) Country :Indonesia Loan/ US$M ) Loan /Credit (US$M) 300 300 Sector (s):General ): public US$M ) Cofinancing (US$M) administration sector; General finance sector L/C Number :L4761 FY ) Board Approval (FY) 04 Partners involved : Closing Date 03/31/2005 03/31/2005 Evaluator : Panel Reviewer : Group Manager : Group : Michael R\. Lav Zeynep Taymas Kyle Peters OEDCR 2\. Project Objectives and Components a\. Objectives To improve: (1) macroeconomic stability and creditworthiness; (2) the investment climate, and (3) public financial management and the anti -corruption program\. b\. Components (or Key Conditions in the case of Adjustment Loans ): (1) macroeconomic stability and creditworthiness (a) prior actions: (i) government debt/GDP reduced to less than 60 percent in December, 2003; (ii) US$ 1 billion international bond offering successfully placed in March 2004, and (iii) majority shares divested in all banks owned by the Indonesian Bank Restructuring Agency (IBRA), which was completed in November 2004; (b) next steps: (i) continue fiscal stabilization while addressing spending shortfalls in key areas; (ii) develop and implement a debt management strategy, and (iii) continue financial sector strengthening (including passage of Deposit Insurance Law) and diversification\. (2) Improve Investment Climate in order to increase the investment rate by 3-5 percent of GDP and further strengthen the financial sector through reduced role of state -owned banks and an increase in the share of the financial assets of the NBFIs by 5-10 percentage points from the current base of 15-20 percent of financial system assets (2003)\. (a) prior actions: (i) Deposit insurance law was passed and an amendment issued to establish Bank Indonesia as lender of last resort, (ii) A large taxpayers office was further expanded, and (iii) formal arrangements have been agreed between the Bank of Indonesia and the Ministry of Finance regarding bank closures and systemic financial sector emergency situations \. (b) next steps: (i) further improve financial safety net; (ii) strengthen NBFIs; (iii) expand modern tax offices; (iv) reduce nuisance and harmful taxes and charges; (v) complete draft amendment of Law 34 to change from negative to positive list for regional tax items; (vi) develop a medium term plan for infrastructure that encourages private public partnership, and (vii) develop a medium term action plan and framework to coordinate the development of Small and Medium Scale Enterprises (SMEs)\. (3) Improve Public Financial Management and Anti -Corruption to increase accountability and transparency in government financial management and public procurement and to strengthen the institutional framework for addressing corruption\. (a) prior actions: (i) State Treasury and Audit Laws were passed and Implementing Regulations for State Finance Law issued; (ii) organizational reforms in Ministry of Finance were launched to, among others, separate the budget and treasury functions; (iii) Presidential Decree on public procurement was issued; (iv) special audit program for state-owned enterprises continues to be implemented, and (iv) Anti-Corruption Commission and Anti- Corruption Court were established\. (b) next steps: (i) phase in the Treasury Single Account; (ii) improve oversight of taxes and customs; (iii) reform Attorney General's Office, accelerate prosecution of corruption cases, strengthen capacity of the Anti-Corruption Commission and Anti-Corruption Court, and ratify new Presidential Instruction on Anti - Corruption Measures\. c\. Comments on Project Cost, Financing, Borrower Contribution, and Dates The project cost US$300 million financed entirely by an IBRD Loan \. The loan was appraised in November, 2004, approved by the Board on December 21, 2004, made effective on December 22, 2004, and closed on schedule on March 31, 2005\. 3\. Relevance of Objectives & Design : This DPL was proposed in the last CAS and was designed to play a major role as Indonesia "graduated from the IMF supported program\." It was discussed in the context of the December 2003 meeting of the Consultative Group on Indonesia\. Its objectives (supporting GDP growth, reducing debt which was too high, improving the investment climate, reducing corruption and improving public financial management ) are fully relevant\. 4\. Achievement of Objectives (Efficacy) : All of the components and key conditions were implemented, leading to the following achievement of objectives : (1) Improve Macroeconomic Stability and Creditworthiness \. (Substantial Achievement\.) Indonesia is on track to meet its medium term targets including GDP growth of 5 1/2 percent growth, the budget deficit maintained at less than 1 percent of GDP (although no information is given in the ICR about meeting priority expenditures ), mobilization of between 0\.6 and 0\.9 percent of GDP in additional non-oil and gas tax revenue, and improvement of Indonesia's credit rating to B+ (S&P rating in December, 2004)\. Despite these successes, the ICR notes rising inflation (projected by the IMF at 8 percent for 2005) partly due to lagging increases in domestic interest rates, which adds pressure to the exchange rate and puts at risk progress in macroeconomic stability \. The ICR does not explicitly state that a debt management strategy has been formulated or implemented, though the upgrade in Indonesia's credit rating suggests progress in this area \. (2) Improve Investment Climate\. (Substantial Achievement\.) Indonesia is on track to achieve the medium term targets of increasing the share of investment in GDP by 3-5 percent and fostering the growth of non -bank financial institutions (NBFIs) by raising the share of financial assets in NBFIs by 5-10 percent\. Investment as a share of GDP rose 2 percent (from 18\.9 percent of GDP in 2003 to 20\.9 percent) in 2004 and is projected to increase by 1\.7 percent (to 22\.6 percent) in 2005\. NBFI assets as a share of total financial assets increased by 4\.5% in 2004 (from 22\.5 percent in 2003 to 27 percent in 2004\.) The ICR does not comment on the development of a medium term plan for infrastructure nor on development of a medium -term action plan for SMEs\. (3) Improve Public Financial Management and Anti -Corruption\. (Substantial Achievement\.) Accounting standards are nearing adoption, and an unaudited, consolidated financial statement for the Central Government was completed in 2004 for the first time ever\. Implementation of the Treasury Single Account (TSA) and the account consolidation activity plan are not yet complete, but the Cash Management regulation that underpins the TSA is virtually complete and a pilot designed to test the TSA is underway \. An investigation unit in the Inspector General Office was established and has proven 13 cases of misconduct\. The Anti-Corruption Commission and Anti- Corruption Court are operating and have pursued a high profile case against the Election Board \. 5\. Efficiency : As is usual with adjustment operations, there is no information on which to evaluate efficiency of the project from the country perspective\. (The ICR notes that Bank preparation costs and time were much lower than average, which is reflected in the rating of Satisfactory for Bank performance, but is not direct evidence on the efficiency of the operation itself\.) 6\. M&E Design, Implementation, & Utilization: Monitoring and Evaluation was an integral part of this operation, with Monitoring and Evaluation steps and surveys identified for each of the core areas including some on a quarterly and others on an annual basis \. 7\. Other (Safeguards, Fiduciary, Unintended Impacts--Positive & Negative): 8\. Ratings : ICR IEG Review Reason for Disagreement /Comments Outcome : Satisfactory Satisfactory Institutional Dev \.: Modest Modest Sustainability : Likely Likely On balance, the OED Review agrees with the rating of "Likely", though the increase in inflation and depreciation of the Rupiah in 2005 is worrisome\. Bank Performance : Satisfactory Satisfactory Borrower Perf \.: Satisfactory Satisfactory  Quality of ICR : Satisfactory NOTES: NOTES - When insufficient information is provided by the Bank for IEG to arrive at a clear rating, IEG will downgrade the relevant ratings as warranted beginning July 1, 2006\. - ICR rating values flagged with ' * ' don't comply with OP/BP 13\.55, but are listed for completeness \. 9\. Lessons: Government needs to take the lead in formulating and implementing a reform program \. Adjustment operations can only support reforms owned by the government \. Especially in these cases, DPLs can be effective if they focus on a few reforms each of which has a broad impact \. 10\. Assessment Recommended? Yes No Why? This is a major adjustment operation for a major Bank borrower \. If follow-on DPLs are approved, a combined assessment for this and the follow -on operations should be pursued \. If there is no follow-up on this first DPLs, it would be important to learn why this has happened \. 11\. Comments on Quality of ICR: While acknowledging that this is a simplified ICR, there are gaps in presentation of material as noted in section 4\. In addition to these, the ICR should have mentioned the loan amount \. However, enough material is presented to reach a judgment on the operation, and the material presented is well -organized\.

REVIEW

P002060

 Borno state water supply project Report No: ; Type: Report/Evaluation Memorandum ; Country: Nigeria; Region: Africa; Sector: Urban Water Supply; Major Sector: Water Supply & Sanitation; ProjectID: P002060 Nigeria: Borno State Water Supply Project (Loan 2528-UNI) The Implementation Completion Report (ICR) on the Nigeria Borno State Water Supply Project (Loan 2528- UNI, approved in FY85), prepared by the Africa Regional Office, was reviewed by the Operations Evaluation Department (OED)\. The loan for US$72\.0 million, was closed on June 30, 1995, two years behind schedule\. A balance of US$5\.0 million was canceled\. The Borrower provided substantive comments which are in general agreement with, and are attached to, the ICR\. This was the third Bank loan to the water and sanitation sector in Nigeria and the first to the State of Borno\. Its main objectives were: (i) to provide an adequate and reliable supply of safe water to the residents of Maiduguri, the capital of Borno; (ii) to strengthen the Borno State Water Board (later renamed Borno State Water Corporation, BSWC); and (iii) to provide the basis for effective sanitation in Maiduguri\. These objectives were to be achieved through construction of facilities to draw water from the Lake Alau dam, treat and distribute it; technical assistance to BSWC, training of its staff, and provision of operational facilities and equipment, and studies for a new tariff system and a sanitation master plan\. Of the total costs, about 88 percent was allocated to physical facilities and 12 percent to institutional components and studies\. Most of the physical components were constructed after substantial delays, first due to political interference in the procurement process and, later, to the slow release of counterpart funds as a result of deteriorating central government finances\. Some operational problems are emerging, especially at the treatment plant and pumping stations, where some key machinery and equipment have proven to be ill adapted to local climatic conditions\. The number of new service connections and standpipes, however, is still about 40 percent below projections\. As a result, the service coverage is only about 50 percent, compared with the appraisal projection of 90 percent\. Institutional achievements were minimal\. BSWC's operating losses have increased significantly since the start of the project and its financial situation is weaker than at project inception\. This is because current tariffs are less than ten percent of the required level estimated at appraisal\. Prospects for substantial tariff increases to improve BSWC's finances are poor as already low regional (and national) income levels have been declining for the past decade due to lower oil export revenues and macro mismanagement\. Today, BSWC depends heavily on regular state government subsidies\. Despite the postponement of loan closing, only limited training was carried out on an ad-hoc basis without clearly defined objectives\. Most of the studies were not implemented\. OED rates project outcome as unsatisfactory and institutional development impact as negligible\. The sustainability of benefits is rated as unlikely, due to continuing operational problems and BSWC's weak finances\. These ratings are consistent with those in the ICR\. Bank performance is rated as unsatisfactory, lower than in the ICR, because of the inadequate focus on institutional issues in project appraisal and the failure of the Bank to recommend decisive changes during supervision\. The key lesson from this project is the inadvisability of committing funds for large scale expansion of facilities before addressing critical institutional issues\. At the time of appraisal, BSWC operated under Borno State's civil service structures that were weak and were, therefore, unlikely to provide a viable basis for an income earning utility\. A strong commitment by the Borrower to carry out fundamental institutional reforms, including establishing an adequate level of financial and operational autonomy, needed to be secured prior to project appraisal\. In addition, when the implementing agency is extremely weak, Bank supervision needs to pay substantial and continuous attention to the project's institutional capacity building components\. When supervision attention focused primarily on physical investment implementation at the expense of other components (as can be seen in this project by the acceptance of an ad-hoc training program), both project implementation capacity and sustainability are jeopardized\. The third related lesson from the failures of the project is that the project's physical investment in new infrastructure should have been minimized to keep it in line with BSWC's limited implementation capacity\. Instead of undertaking a major expansion of both water supply and distribution infrastructure, the project should have been focused on strengthening BSWC while enhancing water availability by improving rehabilitation and maintenance of existing water systems\. The ICR is of good quality, especially in its analysis of the problems faced in project implementation\. The plan for future operation of the constructed facilities is strong, with specific target dates for the preparation of programs for preventive maintenance, control of unaccounted-for water, and a plan for tariff increases and efficiency improvements\. No audit is planned at this time\.

REVIEW

P035697

 ICRR 11291 Report Number : ICRR11291 ICR Review Operations Evaluation Department 1\. Project Data: Date Posted : 08/14/2002 PROJ ID : P035697 Appraisal Actual Project Name : Mongolia Coal Project Project Costs 61\.91 61\.30 US$M ) (US$M) Country : Mongolia Loan/ US$M ) 35\.00 Loan /Credit (US$M) 33\.30 Sector (s): Board: EMT - Mining and Cofinancing 15\.59 19\.90 other extractive (100%) US$M ) (US$M) L/C Number : C2854 Board Approval 96 FY ) (FY) Partners involved : Japan Bank for Closing Date 12/31/2001 12/31/2001 International Cooperation Prepared by : Reviewed by : Group Manager : Group : Ramachandra Jammi Andres Liebenthal Alain A\. Barbu OEDST 2\. Project Objectives and Components a\. Objectives The main objective of the project was to reverse the decline in Mongolia's coal production by increasing sustainable production levels at the Baganuur mine to 4 million tons per year\. Additional, associated objectives were for Baganuur Joint Stock Company (BJSC) to: 1) develop financial self-sufficiency; 2) increase equipment productivity and improve efficiency; 3) operate as an independent commercial company; and 4) operate in an environmentally acceptable manner over the long term \. b\. Components The principal components of the project were : 1) procurement and commissioning of equipment to rehabilitate the Baganuur coal mine operation; 2) procurement and turnkey installation and commissioning of equipment for a coal -handling plant consisting of crusher, linear stacker, underground reclaimer and train -loader; and 3) technical assistance to BJSC including in -country and overseas training to : (a) improve mine operations and mine supervision practices and procedures; (b) develop mine maintenance management and materials management systems; (c) upgrade financial and cost accounting /management information systems; and (d) improve environmental management capabilities \. c\. Comments on Project Cost, Financing and Dates The total cost of the project was US$ 61\.3 million compared to the appraisal estimate of US$ 61\.9 million\. The lower project cost was mainly due to good procurement procedure and competitive pricing \. The savings from procurement of trucks enabled BJSC to buy more equipment than originally planned \. The project closed on schedule on 12/31/2001\. 3\. Achievement of Relevant Objectives: The achievements in respect of the project objectives are as below : Coal production and mine rehabilitation : BJSC commissioned modern and new coal handling facilities, and undertook major internal reforms to improve corporate management and efficiency \. Although the original annual production target of 4 million tons (and the revised target of 3\.5 million tons) was not achieved, BJSC consistently met the demand for coal and avoided disruptions in coal supply to the economy as whole and to urban populations in particular\. Production and rehabilitation were affected by serious financial problems from late 1998 to 2000, during which the government failed to implement agreed coal price increases and regular payments for coal \. However, the situation began to improve in the first half of 2001\. The achievement of this objective is rated Moderately Satisfactory \. Financial self-sufficiency: BJSC became a financially independent company with no direct subsidies from the government\. But it remains vulnerable because the government continues to regulate coal prices, and is also its largest shareholder and main customer \. The achievement of this objective is considered Moderately Satisfactory\. Equipment productivity and efficiency : BJSC was unable to meet the important performance indicator of excavator productivity\. The achievement of this objective is rated Unsatisfactory \. Operation as an independent commercial company : BJSC made a successful transformation to a joint stock company from being managed by the Ministry of Energy, Geology and Mines (MEGM)\. Modern financial accounting, budgeting and cost accounting have been introduced and adopted \. The achievement of this objective is component is rated Satisfactory \. Environmental Sustainability: BJSC implemented an Environmental Management Program under the project, and created a small Environmental Management Unit \. The company implemented the first land reclamation program since 1999, and continues to reclaim at a pace that equals spoils creation \. The achievement of this objective is component is rated Satisfactory \. Technical Assistance was generally successful in respect of : mine operations, supervision and maintenance; establishing new cost and financial accounting systems; and environmental management \. A new Coal Sector Strategy was prepared covering a pre -feasibility study for coal deposits in Tavan Tolgoi, development of the Shive Ovoo mine, the role of the government in the coal sector and a new long -term mine plan for BJSC\. The project yielded an ex-post EIRR of 24% which was the same as at appraisal \. The ex-post FIRR was estimated to be 23%, considerably higher than the 15% at appraisal\. Incremental economic NPV was estimated at US$ 14\.3 million against US$17 million at appraisal, both computed at a discount rate of 12%\. However, numerous changes in sign of the incremental cash flows make the ex -post IRRs somewhat unreliable\. 4\. Significant Outcomes/Impacts: BJSC converted from an outdated system to a modern mobile overhead coal removal system, and commissioned modern and new coal handling facilities; and BJSC made a succesful transformation to a financially independent company with no direct subsidies from the government, from being managed by the Ministry of Energy, Geology and Mines \. 5\. Significant Shortcomings (including non-compliance with safeguard policies): Government's failure to meet its commitments to ensure timely payment from its power plants to BJSC and to implement step-by-step increases in the US$ equivalent price of coal, particularly during late 1998 to late 2000, had a significant impact on BJSC's productivity and efficiency \. Project implementation was delayed by an year due to delay in procurement of key IDA -finance mining equipment -- an action that was under the implementation agency's control -- adversely affecting equipment performance targets\. As a consequence of the above : 1\. Arrears climbed to 277 days revenue equivalent by end -2001; 2\. By end-2001, BJSC's debt to total capitalization reached 88%, restricting the company's ability to borrow for its short-term and investment needs; and 3\. Productivity of excavators was only 277 tons/excavator/day against the target of 492 by end-2001\. (However, it is recognized that a steep decline in the world price of copper in 1998 was an important external factor which began increasing arrears in payments for BJSC's coal, as the ERDENET copper concern -- by far the largest electricity consumer in the country -- was unable to make payments for electricity use, which in turn undermined the ability of the power plants to pay for BJSC's coal )\. 6\. Ratings : ICR OED Review Reason for Disagreement /Comments Outcome : Satisfactory Moderately Satisfactory A largely successful technical and structural transformation of BJSC was not sufficient to achieve the production target, or to make the company financially viable \. The important indicators of accounts receivables and excavator productivity were considerably short of their targets \. The rating is consonant with the ICR's description of the overall outcome as "marginally satisfactory" (ref\. Sec 4\.1 of ICR) but such a rating is not available on the ICR's 4-point scale\. Institutional Dev \.: Substantial Substantial Sustainability : Likely Likely Sustainability is only marginally Likely \. The poor financial state of BJSC is only partially mitigated by its largely successful technical and structural transformation, the new government's positive moves on  coal prices, improved payments since October 2000, and an apparently viable long-term plan\. Bank Performance : Satisfactory Satisfactory Borrower Perf \.: Satisfactory Satisfactory Borrower performance is considered only marginally Satisfactory, due to its inability to fulfil important commitments in the Development Credit Agreement, even though significant external factors constrained its ability to comply \. Quality of ICR : Satisfactory NOTE ICR rating values flagged with ' * ' don't comply with OP/BP 13\.55, but are listed for completeness\. NOTE: 7\. Lessons of Broad Applicability: The financial and productivity impacts of the performance of downstream user companies must be clearly factored into any comprehensive approach to rehabilitating the energy sector; and Undue attention to numerical targets may detract from attention to more strategic goals \. 8\. Assessment Recommended? Yes No Why? The project attempted a far-reaching transformation in the coal sector, in a difficult country and external environment\. A careful look at this experience can yield valuable lessons and applications for similar situations\. 9\. Comments on Quality of ICR: The ICR covers all issues in a detailed and balanced manner \. providing clear monitoring indicators \. The quality of the ICR is considered Satisfactory \.

REVIEW

P038334

PPAR Project Performance Assessment Report PPF Project Preparation Facility RERC Rajasthan Electricity Regulating Commission RES Renewable Energy Source RPSRP Rajasthan Power Sector Restructuring Project RSEB Rajasthan State Electricity Board RVPN Rajasthan Transmission Company RVUN Rajasthan Generating Company SEB State Electricity Board SERC State Electricity Regulatory Commission SPN Supervision Development Objective (rating) TA Technical Assistance USAID United States Agency for International Development Fiscal Year Government: April 1-March 3 1 Director-General, Evaluation : Mr\. Vinod Thomas Director, Independent Evaluation Group (World Bank) : Ms\. Cheryl Gray Manager, Sector Evaluations (IEGSE) : Ms\. Monika Huppi Task Manager : Mr\. Peter Freeman  IEGWB Mission: Enhancing development effectiveness through excellence and independence in evaluation\. About this Report The Independent Evaluation Group assesses the programs and activities of the World Bank for two purposes: first, to ensure the integrity of the Bank's self-evaluation process and to verify that the Bank's work is producing the expected results, and second, to help develop improved directions, policies, and procedures through the dissemination of lessons drawn from experience\. As part of this work, IEGWB annually assesses about 25 percent of the Bank's lending operations through field work\. In selecting operations for assessment, preference is given to those that are innovative, large, or complex; those that are relevant to upcoming studies or country evaluations; those for which Executive Directors or Bank management have requested assessments; and those that are likely to generate important lessons\. To prepare a Project Performance Assessment Report (PPAR), IEGWB staff examine project files and other documents, interview operational staff, visit the borrowing country to discuss the operation with the government, and other in-country stakeholders, and interview Bank staff and other donor agency staff both at headquarters and in local offices as appropriate\. Each PPAR is subject to internal IEGWB peer review, Panel review, and management approval\. Once cleared internally, the PPAR is commented on by the responsible Bank department\. IEGWB incorporates the comments as relevant\. The completed PPAR is then sent to the borrower for review; the borrowers' comments are attached to the document that is sent to the Bank's Board of Executive Directors\. After an assessment report has been sent to the Board, it is disclosed to the public\. About the IEGWB Rating System IEGWB's use of multiple evaluation methods offers both rigor and \.a necessary level of flexibility to adapt to lending instrument, project design, or sectoral approach\. IEGWB evaluators all apply the same basic method to arrive at their project ratings\. Following is the definition and rating scale used for each evaluation criterion (additional information is available on the IEGWB website: http:lhorldbank\.orglieg)\. Outcome: The extent to which the operation's major relevant objectives were achieved, or are expected to be achieved, efficiently\. The rating has three dimensions: relevance, efficacy, and efficiency\. Relevance includes relevance of objectives and relevance of design\. Relevance of objectives is the extent to which the project's objectives are consistent with the country's current development priorities and with current Bank country and sectoral assistance strategies and corporate goals (expressed in Poverty Reduction Strategy Papers, Country Assistance Strategies, Sector Strategy Papers, Operational Policies)\. Relevance of design is the extent to which the project's design is consistent with the stated objectives\. Efficacy is the extent to which the project's objectives were achieved, or are expected to be achieved, taking into account their relative importance\. Efficiency is the extent to which the project achieved, or is expected to achieve, a return higher than the opportunity cost of capital and benefits at least cost compared to alternatives\. The efficiency dimension generally is not applied to adjustment operations\. Possible ratings for Outcome: Highly Satisfactory, Satisfactory, Moderately Satisfactory, Moderately Unsatisfactory, Unsatisfactory, Highly Unsatisfactory\. Risk to Development Outcome: The risk, at the time of evaluation, that development outcomes (or expected outcomes) will not be maintained (or realized)\. Possible ratings for Risk to Development Outcome: High Significant, Moderate, Negligible to Low, Not Evaluable\. Bank Performance: The extent to which services provided by the Bank ensured quality at entry of the operation and supported effective implementation through appropriate supervision (including ensuring adequate transition arrangements for regular operation of supported activities after loanlcredit closing, toward the achievement of development outcomes\. The rating has two dimensions: quality at entry and quality of supervision\. Possible ratings for Bank Perfomance: Highly Satisfactory, Satisfactory, Moderately Satisfactory, Moderately Unsatisfactory, Unsatisfactory, Highly Unsatisfactory\. Borrower Performance: The extent to which the borrower (including the government and implementing agency or agencies) ensured quality of preparation and implementation, and complied with covenants and agreements, toward the achievement of development outcomes\. The rating has two dimensions: government performance and implementing agency(ies) performance\. Possible ratings for Borrower Performance: Highly Satisfactory, Satisfactory, Moderately Satisfactory, Moderately Unsatisfactory, Unsatisfactory, Highly Unsatisfactory\.  iii Contents Principal Ratings \. v Key Staff Responsible\. v \. Preface\. vii Summary \. ix 1 \. Background and Context\. 1 The Power Sector in India\. 1 The Power Sector in Rajasthan \. 3 2 \. The Project \. 5 Project Objectives \. 5 3\. Implementation \. 7 Safeguards\. 8 4 \. Monitoring and Evaluation \. 9 Implementation \. 10 Utilization \. 10 5\. Project Outcomes \. 11 Financial Recovery of the Power Sector - Negligibly Achieved \. 17 Other Project Outcomes \. 22 6\. Ratings \. 25 Relevance of Objectives and Design \. 25 Efficacy \. 26 Efficiency \. 26 Overall Rating \. 27 Risks to Development Outcome \. 27 Bank Performance \. 27 Borrower Performance \. 29 7\. Lessons\. 30 Learning the Lessons from Similar Projects \. 30 Lessons from the Design and Implementation of the RPSRP \. 31 Annex A \. Basic Data Sheet\. 33 This report was prepared by Robert Lacey\. Consultant\. who assessed the project in June\. 2009\. Peter Freeman was the Task Manager and Romayne Pereira provided administrative support\. Principal Ratings - - - - - ICR * ICR Review * PPAR Outcome Moderately Satisfactory Moderately Moderately Unsatisfactory Unsatisfactory Risk to Moderate High Substantial Development Outcome Bank Performance Moderately Satisfactory Unsatisfactory Moderately Unsatisfactory Borrower Moderately Satisfactory Unsatisfactory Moderately Satisfactory Performance * The Implementation Completion Report (ICR) is a self-evaluation by the responsible Bank department\. The ICR Review is an intermediate IEGWB product that seeks to independently verify the findings of the ICR\. Key Staff Responsible Division Chief/ Project Task ManagerLeader Sector Director Country Director Appraisal Magdalena V \.Manzo Alastair J\. McKechnie Edwin R\. Lim Completion Rohit Mittal Salman Zaheer Fayez S\. Omar  vii Preface This is the Project Performance Assessment Report for the India: Rajasthan Power Sector Restructuring Project (Loan 4594-IN), for which the World Bank approved a loan of US$l80 million equivalent on January 18,2001\. At appraisal, the total project cost (excluding interest during construction) was estimated to be US$221\.5 million, with US$39\.5 million provided from the resources of the State of Rajasthan and its power utilities, and US$2 million in a grant from USAID\. At project closure, US166\.2 million (92\.3 percent) of the total loan amount had been disbursed and the balance of US$13\.8 million was canceled\. The final total project cost was US$221\.3 million\. The project was selected for assessment because of the important lessons it provides for the design and implementation of projects supporting the ongoing process of power sector reform in India, especially at State level\. There were also considerable differences in project outcome ratings between the Implementation Completion Report (ICR) and IEG's ICR Review which merited further analysis\. The PPAR will, moreover, provide input to IEG's evaluation of the World Bank Group's experience with safeguard and sustainability policy over the past decade\. IEG gratefully acknowledges the contribution of the local environmental consultant, Mr\. A\.K\. Roy, concerning this aspect\. IEG prepared this report based on an examination of the relevant Project ' Appraisal Document (PAD), ICR, legal agreements, project files and archives, as well as other relevant reports, memoranda and working papers\. Discussions were also held with Bank staff in both Washington DC and New Delhi\. An IEG field mission visited India in June 2009, conducted site visits, and discussed both the project and the effectiveness of Bank assistance with relevant officials and stakeholders in Rajasthan and New Delhi\. The mission appreciates the courtesies and attention given by these interlocutors as well as the support provided by the New Delhi office of the World Bank\. Following standard IEG procedures, copies of the draft PPAR were sent to relevant Central and State Government officials for their review, and responses received have been incorporated\. Summary This is the Project Performance Assessment Report for the India: Rajasthan Power Sector Restructuring Project (RPSRP, Loan 4594-IN), which was intended to support the restructuring and reform of the power sector in the Indian State of Rajasthan\. The performance of the State's power sector prior to 2000 was characterized by a sharp demandsupply imbalance, frequent outages, and inadequate coverage\. The sector was a major fiscal burden due to high distribution losses, low earning capacity, poor cost recovery and heavy debt reliance\. In 1999, the Government of Rajasthan (GOR) initiated a reform program beginning with the unbundling of the Rajasthan State Electricity Board into five separate entities - a generating company, a transmission company, and three distribution companies\. Private sector participation in generation was envisaged, and the distribution companies were destined for privatization\. The program was to be implemented against the background of India-wide power sector reforms aimed at introducing greater efficiency through competition, commercialization, market liberalization, and increased private sector participation\. The Rajasthan project was not an isolated case, but was the last in a series of five state power sector restructuring projects, the first of which (for Orissa) was approved in May, 1996\. The project, approved on January 18,2001, had the following development objectives (PDOs): " to (a) support the ongoing power sector reform process in Rajasthan leading to higher sector efficiency and financial recovery; and (b) to improve power supply by removing the critical bottlenecks in the power distribution and transmission system\." This was to be achieved through investments in the transmission and distribution systems, the establishment of a fully functioning regulatory commission, the satisfactory implementation of a financial restructuring plan, and private investment in the distribution sub-sector\. Taking account of the progress made towards achievement of the PDOs, and the assessments of relevance, efficacy and efficiency, IEG's overall project outcome rating is moderately unsatisfactory\. While the relevance of the objectives was substantial, design relevance was modest\. The design failed to take adequate account of political realities in Rajasthan, and major risks were underestimated or even ignored\. The preparation team envisaged a long term engagement of the Bank in Rajasthan's power sector, involving several follow-up operations which did not, in the event, materialize\. Project design was over-ambitious, and the objectives were out of proportion to the financial resources made available\. Major risks were underestimated or not taken into account at all\. Intermediate targets (especially projected tariff increases and privatization of the distribution companies) proved unrealistic\. The covenant in respect of the privatization of the distribution companies was especially unrealistic\. While the attainment of the objective to remove critical distribution and transmission bottlenecks through investments has permitted a better quality of supply to a larger number of consumers, efficiency gains must be set against the serious failure to achieve financial equilibrium\. Distribution losses, although lower than they were, are still nearly 27%, which is high by international standards\. Collection and billing efficiencies are quite impressive, but were already doing well in this area before the project, and so limited credit can be claimed for this aspect\. Demand/supply imbalances remain, and still lead to power shortages especially during peak demand periods\. The regulatory function is weak and subject to political interference\. The financial recovery objective has not been achieved\. Afier the first financial restructuring plan (FinRP) failed, a second plan was elaborated in 2003 following the dropping of the covenanted objective of private investment in distribution\. Although this plan was predicated on more modest tariff adjustments, these too proved unattainable, and a third plan began to be implemented in November, 2005\. The ICR's cautious optimism concerning this third FinRP was based on a better performance than the plan predicted in FY05 and reduced losses in FY06\. However, the respite was short-lived - losses rose again in FY07 before soaring to unprecedented levels in FY08 and FY09\. In the latter year, they were 2\.5 percent of the State's GDP\. By March 2009, accumulated losses amounted to US$73 for every Rajasthani\. The build-up in unpaid subsidies had reached almost US$2 billion by the same date\. Financial weakness on the scale recently recorded will, sooner rather than later, undermine the gains from project-financed improvements, through lack of funds for investment and maintenance\. The main causes of the power sector's persistent and worsening financial weakness can be summarized as (i) failure to adjust tariffs adequately (or, indeed, at all since December, 2004); (ii) highly subsidized power for agriculture, the financial consequences of which were exacerbated by prolonged drought; (iii) higher growth of demand than of supply from Rajasthan's installed generation capacity, forcing greater reliance on expensive purchases from India's wholesale market; and (iv) sharp increases in power purchase costs\. The Regulator's credibility has also been adversely affected by political interference in tariff determination\. The Monitoring and Evaluation (M&E) design was, moreover, of poor quality\. There were few quantitative indicators and no systematic translation of broad project objectives into measurable targets\. M&E improved considerably during implementation\. Overall, IEG rates the quality of M&E design and implementation as modest\. The Bank performed diligently in supporting the transmission and distribution companies' implementation of the project-financed investments, advising on the wider investment program, and building the entities' technical and managerial capacity\. Supervision of the financial aspect was, however, much less impressive\. By mid 2004, experience from the other four state power sector restructuring projects, as well as from Rajasthan itself, strongly indicated that a financial recovery would be unattainable so long as the issue of subsidized power for agriculture remained unaddressed\. As this is a national issue, with strong political economy overtones, resolution is likely to be long term\. An opportunity was missed to restructure the project and remove the financial recovery objective rather than embarking on a third FinRP\. With the more limited and realistic goals of improving the availability and quality of electricity supply in Rajasthan, the RPSRP could have succeeded\. IEG's overall rating of Bank performance, taking account of design and supervision, is moderately unsatisfactory\. The GOR's early reform efforts were commendable, and its failure to sustain momentum must be seen in the context of national political economy issues\. The transmission and distribution companies performed well, not only in implementing the project-financed investments, but in continuing their enhancement and expansion programs after project closure\. The Borrower rating, overall, is moderately satisfactory\. While it is unlikely that there will be backtracking on the unbundling and other institutional changes already achieved, or on the determination to complete the pilot feeder renovation program in rural areas successfully, the key condition for longer term sustainability of the improvements is the financial recovery of the sector\. There is little realistic prospect for this in the short-to-medium term\. In the longer term, the State's ambitious investment program could lead to reduced power purchase costs, while at a national level the momentum of power sector reform is being sustained, albeit at a slower pace\. Overall, IEG assesses the risks to development outcome as significant\. A number of important lessons can be gleaned from the design and implementation of this project: A thorough analysis should be made of the political economy of the reform program to be supported by the project, at both State and national levels\. This should be done not only through extensive consultations at both a local and national level, but also through a realistic appraisal of national policies - such as those determining power subsidies to agriculture - which affect project outcomes\. These should be addressed at the level of country policy dialogue\. A careful assessment of international trends in power sector private investment in developing countries should also be part of the exercise\. Risks to project outcome should be carefully analyzed and taken into account\. In particular, attention should be paid to climatic hazards and to subsidy regimes in other States and their likely impact on the political viability of proposed reforms\. Covenanted objectives should reflect a realistic judgment of the leverage accorded by investment projects on complex policy issues, and of factors outside the control of the project\. More systematic monitoring of experience in other, similar projects (particularly in the same country) would have helped to avoid the repetition of over-ambitious design apparent in the five State power sector restructuring operations in India\. Even though convincing evidence may not have been fully available at the preparation stage, the opportunity should have been taken during implementation to restructure and simplifl the project\. Such monitoring would facilitate a clearer and more objective assessment of progress towards achievement of the project development objectives during supervision missions\. It is noteworthy that in the case of all five State power  xii sector restructuring projects in India, Implementation Status and Results Reports continued to rate progress towards the development objectives as satisfactory, when it must already have been obvious that certain objectives were highly unlikely to be attained\. Vinod Thomas Director-General Evaluation 1\. Background and Context The Power Sector in India 1\.1 Awareness of key developments in India's national power sector is essential in order to fully understand the sector's evolution and remaining challenges in the State of Rajasthan\. At the time of the Rajasthan Power Sector Restructuring Project (RPSRP)'s preparation in the late 1990s, India's power sector was characterized by inadequate and inefficient supply\. Peak capacity and energy supply shortages were estimated, respectively, at about 20 percent and 10 percent\. Demand was inflated by inappropriate pricing policies, while supply was held back by insufficient investments and implementation bottlenecks\. Distribution system losses, both technical and non-technical, were very high, in some states in excess of 50 percent, while transmission losses were also high by international standards\. The sector's financial performance was highly unsatisfactory with low or zero returns and no contributions to investment from internal sources\. Commercial losses of the State Electricity Boards (SEBs) had reached almost one percent of India's GDP at the time1\. 1\.2 Among the actions taken by the Government of India (GOI) to address these challenges, the following are the most relevant to the evolving situation in ~ a j a s t h a n ~ : The Electricity Regulatory Commission Act of 1998 provided for the establishment of a Central Electricity Regulatory Commission (CERC) and State Electricity Regulatory Commissions (SERC) in an attempt to rationalize the tariff setting process and reduce political interference in it\. The Electricity Act of 2003 brought together structural and regulatory reforms designed to foster competitive markets, encourage private participation, and transform the role of the state from provider to regulator\. The Act directed the unbundling of SEBs and the creation of SERCs\. In addition, it provided for open access for both producers and consumers across State boundaries and promoted power trade\. The Act's stipulations were further developed in the statements of National Electricity Policy (2005), National Tariff Policy (2006), and Integrated Energy Policy (2007)\. Thanks to actions by the CERC and the GO1 bulk power tariff reforms have improved grid discipline on a national level, encouraged more efficient use of generating capacity and fostered the development of a wholesale power market operating across State boundaries\. The publicly owned pan-India transmission company, ' Project Appraisal Document Government of India: Ministry of Power: "Status of Power Sector Reforms," October, 2007\.  POWERGRID, has become a profitable and well managed enterprise with a substantial resource mobilization capacity3\. An intensive rural electrification campaign has brought power to an increasing number of villages, though the percentage of rural households with access to electricity is still only 44 percent\. 1\.3 Despite these reforms, a major demand-supply mismatch remains\. At the end of March 2009, the peak deficit was 11 percent and the energy supply deficit just over 10 percent\.4 Inadequate power supply was cited as the most severe constraint faced by Indian enterprises\.' There are a number of reasons for this\. First, although supply has increased significantly faster than in the past, demand has rown much more rapidly than foreseen thanks to India's improved growth performance\.! Second, although private investment in generation and transmission capacity has started to pick up, it has been much slower to materialize than anticipated, mainly because the electricity utilities at State level, which are the main off-takers, are not creditworthy\. Moreover, the regulatory risk, again particularly in the States, is regarded as high\. Third, public sector project implementation remains constrained by technical limitations in the main government equipment supplier, delays in clearances for hydro projects, and poor sequencing in project planning\. Fourth, the emphasis on boosting the rural economy has placed especially heavy demands on the State transmission and distribution networks, increasing their activities in areas where their costs are higher and their compensation lower7\. Fifth, although significant power sector reforms have been made during the past decade, progress has been slower than expected and highly variable, particularly at State level; some States are yet to apply, even partially, the directives of the 2003 Electricity Act\. 1\.4 Recognizing that India's power sector performance lags seriously behind that of its main international competitors, the GO1 has embarked upon an ambitious investment and institutional development program known as "Power for All by 20 12\." It involves, inter alia, a substantial increase in generation capacity (to 200 GW compared to a current 147 GW), relying as much as possible on private investment; expansion and improvement of transmission and distribution networks; and revamping the ongoing Accelerated Power Development and Reform Program, which will provide incentive and investment funds to State power utilities to reduce their technical and non-technical losses, and improve services to consumers\. 3 World Bank: India: Fifth Power System Development Project (PI 15566), Project Appraisal Document\. It should be noted that these figures reflect the slowing of demand growth due to the international recession\. A year earlier, at the end of March 2008, the peak deficit was 16\.6 percent\. Investment Climate Assessment, 2007 Between 2004 and 2008, India's GDP grew by 8 percent per year in real terms, but electricity generation grew by only 4\.9 percent\. ' -- Delivery costs in rural areas are higher, while rural consumer pay tariffs well below cost for which the utilities should receive a subsidy from the State governments\. However, this subsidy is frequently inadequate and in any case rarely fully paid\. This is certainly a major issue in Rajasthan\. The Power Sector in Rajasthan 1\.5 Rajasthan, with a population of 56\.5 million, is among the poorer States in India with a per capita income of US$7 10 in 2008, compared to a national average of US$ 1,0168\. In terms of area, it is India's largest State\. It covers 342,269 square kilometers, roughly equivalent to the size of Germany\. The State encompasses most of the inhospitable Great Indian Desert (Thar Desert)\. The economy is primarily agricultural and pastoral\. Wheat and barley are cultivated over large areas as are pulses, sugar cane and oilseeds\. Cotton and tobacco are significant cash crops\. Rajasthan is the largest wool-producing State in India and the second largest producer of oilseeds\. Agriculture relies heavily on irrigation - the northwestern part of the State is irrigated by the Indira Gandhi Canal, and in recent years pumped groundwater has become increasingly important elsewhere\. The main industries are mining, agro-industry and textiles\. The State is the second largest producer of polyester fiber in India\. Important chemical plants are located near the city of Kota in western Rajasthan\. Mining and quarrying activities include marble, lignite, copper, and zinc, while the State is the second largest cement producer in India\. More recent sources of growth are information technology (IT) and tourism\. Rajasthan is now among India's preferred destinations for IT companies, and North India's largest IT park, covering 12 square kilometers, is located near the State capital, Jaipur\. Five years ago, less than one-third of tourists visiting India went to Rajasthan; the figure now exceeds two-thirds\. 1\.6 Until 2000, Rajasthan's power sector was dominated by the Rajasthan State Electricity Board (RSEB), a vertically integrated utility formed in 1957\. The State had access to just over 4,000 MW of generating capacity, of which 1,300 were fully owned and operated by RSEB\. The system covers a large geographic area, of which two thirds is desert, with low population density\. In 1998, per capita electricity consumption was 302 kWh, lower than the average in India\. Electricity sales were growing at an annual average of 7 percent, while the estimated energy supply deficit was 15 percent (up from 7\.8 percent in 1991), and the peak deficit 23 percent, both well above national averages\. The sector had over 380,000 outstanding applicants for electricity, most of whom had been waiting for years, and whose needs could not be satisfied due to lack of generation capacity\. Only 40 percent of the population had access to the power network, and inadequate power supplies, due mainly to funding constraints, had become a major drag on the State's economic development\. Operations were characterized by long service interruptions, unacceptably high voltage and fkequency swings, over-loaded transmission lines and substations, and technical and commercial system losses of over 40 percent\.g Financial performance was characterized by low earning capacity, poor cost recovery, heavy debt reliance and tight liquidity\. Inadequate investments were the result of the policy of successive governments to charge low tariffs to residential and agricultural consumers\.lo * Government of Rajasthan: Directorate of Economics and Statistics; Government of India: Ministry of Finance: Census of India, 2008\. It is generally accepted that losses under the RSEB were underestimated\. 'O Project Appraisal Document  1\.7 In May 1999, the Government of Rajasthan (GOR) issued a policy statement outlining the reform of the power sector\. In June 2000, the Power Sector Reform Bill was passed by the State legislature\. This bill provided for the restructuring of the sector, and in particular the unbundling of the RSEB into five entities - a generating company (RVUN), a transmission company (RVPN), and three distribution companies\. The Act also strengthened the role of the Rajasthan Electricity Regulating Commission (RERC)\. 1\.8 The Bank played a significant role in supporting these reforms through its policy dialogue with the GOR and power sector entities\. Its engagement in Rajasthan was not an isolated exercise\. It stemmed from more widespread Bank support for improved power sector performance at the State level through unbundling of the State Electricity Boards, enhancing service quality, especially in rural areas, creating independent regulatory systems, strengthening payment discipline, and financial recovery\. By the time the RPSRP was appraised, similar projects were already ongoing in four other states - Orissa, Haryana, Andhra Pradesh and Uttar Pradesh\. Rajasthan was to be the last\. Their approval and closing dates and outcome ratings are summarized in Table 1\.1\. Table 1\.1 The Five Bank-Supported State Power Sector Restructuring Projects Name of Approval Date of Outcome Rating Outcome Rating Project date Closure (according to ICR) (according to IEG ICR Review) Orissa PSRP 05/14/96 06130104 Unsatisfactory Unsatisfactory Haryana 0 1115/98 12131/00 Unsatisfactory Moderately PSRP Unsatisfactory Andhra 02118/99 0813 1/03 Satisfactory Satisfactory Pradesh PSRP Uttar Pradesh 04125100 12131104 Unsatisfactory Unsatisfactory PSRP Rajasthan 0 1118101 06130106 Moderately Moderately PSRP Satisfactory Unsatisfactory 1\.9 The objectives of the five projects were similar, though not identical\. In all five, power sector technical and financial recovery was the anticipated result of unbundling and prospective privatization\. While technical progress has been variable, in none of the five has private sector participation in distribution or transmission materialized, nor has sustainable financial recovery been achieved\. 2\. The Project Project Objectives 2\.1 The development objectives (PDO) of the RPSRP, as stated in the PAD and Loan Agreement, are as follows: "(a) to support the ongoing power sector reform process in Rajasthan leading to higher sector eflciency andJinancia1recovery; and (b) to improve power supply by removing the critical bottlenecks in the power distribution and transmission system\. " 2\.2 This was to be achieved through: (a) the establishment of a fully functioning electricity regulatory commission; (b) the satisfactory implementation of a financial restructuring plan, resulting in the financial recovery of the five successor companies to the 05 RESB by ~ ~ 2 0"; and (c) private participation in distribution by having strategic investors in place by end-2002\. Investments in the transition and distribution systems would result in improved voltage levels, reduced outages and technical losses, and increased energy availability in the service areas affected by the investments\. The investments financed by the project (some of them pilot schemes) were intended to be only a relatively small fraction of the total investment to be undertaken by the utilities, and especially the distribution companies benefiting from private investment, over the life of the project\. Project Components and Costs 2\.3 Project components, with their costs at appraisal and closure, are shown in table 2\.1, while table 2\.2 shows the financing\. With regard to the latter, the project was able to utilize US$166\.2 million of the total loan amount of US$180 million\. The balance of US$13\.8 million was cancelled\. l 1 The financial years referred to in this report are, unless otherwise indicated, those of the Government of Rajasthan, i\.e\. April 1-March 3 1\. Table 2\.1 Project Components and Costs Component Description Cost (US$million) Closure cost as percentage of Appraisal cost At At Appraisal Closure A\. Loss A\. 1\. Procurement of transformers and distribution materials 46\.7 52\.5 112 reduction to replace poorly planned distribution systems, especially in rural areas, characterized by inefficiently lengthy, low tension lines, with more frequently spaced, smaller transformers, power factor correcting capacitators, and high tension lines capable of carrying larger loads with small conduction losses\. A\.2\. Replacement of bare conductors on low tension lines by insulated aerial bunched cables to reduce non-technical losses B\. Transmission B\.1\. Expansion and improvement of the networks to supply 153\.0 148\.2 97 and distribution about one-third of the additional 750,000 consumers system expected during the project period, incorporating (a) new and improved 33,000 volt (33kV) substations and lines to reduce technical losses and improve system reliability; and (b) new and improved 220 and 132 kV substations, along with new and extended associated transmission lines\. B\.2\. Maintenance (long delayed) and modernization of existing substations\. C\. System and C\.1\. Replacement of 300,000 error-prone, easy-to-interfere- 13\.6 14\.8 109 consumer with mechanical meters by modern, accurate, tamper-proof, metering static (electronic) static meters\. C\.2\. Inter-company boundary metering to measure power and energy exchanges\. (2\.3\. Metering to record and allocate the aggregate energy used by the consumers connected to each of Rajasthan's 8,400 11kV feeders\. D\. Technical This component aimed to strengthen the capacity of the 7\.7 5\.6 73 assistance regulating and operating entities to adapt to the new business environment\. Consultancy services were to be provided for (a) management of the reform process; (b) institutional development of the transmission company and the RERC;(c) the formation of joint venture distribution companies; (d) a socio-economic study of the impact of the sector reforms; (e) off-grid renewable energy development for remote areas of the State; ( f ) management of power sector impacts on the environment; and (g) demand-side management and energy efficiency initiatives which were to be cofinanoed by a USAID grant of US$2 million\. D\. Information This component aimed to support a public information 0\.5 0\.2 40 and campaign to increase public awareness and acceptance of the dissemination sector reform program\. It was to finance strategy, media campaigns, and the organization of workshops and meetings with the general public\. TOTAL 221\.5 221\.3 100  Table 2\.2 Project Financing (US$ millions) Source of funding Type of Appraisal Actual Percentage of financing appraisal Borrower's own 60\.0 32\.7 59\.0 resources Local commercial banks Loan 24\.8 25\.0 100\.8 USAID co-financing Grant 2\.0 1\.2 60\.0 IBRD Loan 180\.0 166\.2 92\.3 1 TOTAL 1 266\.8 1 225\.1 1 84\.4 Notes: The total financing requirement include IBRD's fiont end fee of US$1\.8 million and, at appraisal, interest during construction, which was estimated at US$45\.1 million\. Source: ICR 3\. Implementation 3\.1 No significant problems arose during implementation of the investment components\. The procurement and installation of meters was successfully completed\. This, in turn, enabled the distribution companies to identify the 100 worst 11kV feeders, which were made the initial target of a Feeder Renovation Program applying the "LT-less" concept12\.~he targets for the reinforcement and expansion of the transmission and distribution systems were exceeded\. 3\.2 Although procurement was generally satisfactory, some issues arose\. Complaints and delays were caused initially by differences between the procurement procedures of the former RSEB and those applicable in a Bank project\. Several of the 55 packages prepared during appraisal and launched after approval contained lot sizes that were too large for Indian manufacturers, who were both the most likely source for much of the equipment, and often the only interested bidders\. Arranging smaller packages so as to ensure such firms are not impeded fiom tendering would not hamper international competitive bidding, since international suppliers would be at liberty to bid for an entire package of lots\. Mis- procurement was declared for a total of $2 million worth of minor works (since Bank procedures had not been followed), and this amount was canceled from the loan\. 3\.3 Client agencies, especially the transmission company, reported to IEG that the technical assistance (TA) provided under the project was useful\. The State had already made considerable progress with the reform program prior to appraisal - in particular, the unbundling of RSEB was largely complete\. The TA was, therefore, able to build on this to provide a variety of benefits in the form of institutional strengthening of the unbundled entities and design of new systems and procedures\. 12 That is, the systematic replacement of long, low tension lines by low loss, high voltage lines augmented by appropriately sized and more frequently located transformers\.  3\.4 Two closely linked issues which rapidly arose during implementation were the multi- year drought in Rajasthan and the covenanted privatization of the distribution companies13\. The former had a strongly deleterious impact on the sector's financial situation, discouraging private participation in distribution\. Prevailing conditions in both the Indian and international markets had, moreover, become unfavorable to the privatization of distribution assets\. The Rajasthan counterparts wanted, nevertheless, to continue pursuing the goal with a rewording of the Project Agreement to the effect that they would endeavor to achieve it by project closure\. However, the text they proposed was not enforceable as a covenant, and the covenant was, therefore, deleted\. In the opinion of the supervision team's legal adviser, "one of the objectives of the Project is to assist in the implementation of the power sector reform program and the program includes several aspects in addition to privatization of distribution\. Therefore, deleting the privatization covenant will not materially affect the project objectives\. Hence, the decision to delete the covenant may be made at the level of the Country Director\." This conclusion was, in IEG's view, justified because, first, private participation in power distribution elsewhere in India had not resulted in improved transparency, accountability, or efficiency; and, second, Rajasthan's power sector had introduced alternative forms of private participation such as out-sourcing of billing, metering and the operation and maintenance of sub-stations, while attempting to encourage franchising in rural areas\. Moreover, the objective had become unattainable\. IEG considers, however, the inclusion of the covenant in the first place to have been inappropriate\. Safeguards 3\.5 The project was selected as one of about 30 case studies providing input to an evaluation of the application, efficacy and efficiency of World Bank safeguards policies\. These policies aim to prevent and mitigate undue harm to people and their environment, increase project efficacy and development impact, and provide a platform for stakeholder participation in project design and implementation\. 3\.6 Design\. The project was placed in Environmental Category B\. Environmental Management Plans (EMP) were prepared in line with the Environmental Framework and Safeguards Management Plan agreed with the Bank during appraisal\. A beneficiary survey was also planned\. l3 The covenant (Section 2\.07 of the Project Agreement) states that "Rajasthan shall [with the participation of the three distribution companies], no later than July 1 2002, offer at least a majority of its equity in each such distribution company for sale to the private sector under terms and conditions satisfactory to the Bank with the objectives of divesting such equity and transferring management control in accordance with a program and timetable for divestment satisfactory to the Bank\." 3\.7 Implementation\. Supervision missions kept regular track of compliance with environmental safeguards\. The environmental management framework developed at appraisal was used for all the major transmission schemes financed under the project\. The same framework has been incorporated by the transmission company into their project planning and implementation\. The ICR suggests that there was room for improvement in monitoring and reporting of EMP implementation at the level of individual investments, but the company has since addressed this, and in early 2008 obtained IS0 9000 certification\.14 Outside the transmission company, the Bank's environmental safeguards appear to have had little impact on the sector and there is no capacity to ensure continuity\. The ICR states that "the Distribution companies are working on \. integration of environmental management measures in their project planning and implementation\." However, there is no Environmental Unit in the companies to assume responsibility for this\. 3\.8 No resettlement was associated with the project, but there was a relatively small amount of land acquisition for new and expanded substations\. Although compensation was paid, this was done in accordance with India's social policy legislation (which, inter alia, does not provide for compensation for non-title-holders) rather than World Bank safeguards policy\. This was considered acceptable by the Bank's supervision team since there was no resettlement associated with the project\. The planned beneficiary impact survey has not yet been carried out, and there appears to be little intention to do so\. This is unfortunate, since lessons from other States show that communication with all stakeholders is important for building consensus for reform\. Bank supervision missions did not include any social development experts and, de facto, stopped monitoring this safeguards dimension in the last two years of implementation\. 4\. Monitoring and Evaluation Design 4\.1 Project preparation took place between 1998 and 2000, before it was common practice in the Bank to give serious attention to Monitoring and Evaluation (M&E) in all sectors, but even by the standards of that time design was weak\. There is no systematic translation of broad project objectives into quantifiable targets, with a clear causal chain and hierarchy between them, and no analytical framework for assessing the achievement or otherwise of objectives\. Indeed, quantifiable targets are few and far between, being confined to progress in metering and annual collections\. For example, goals such as "loss reduction" or "improved revenue generation" are included in the performance indicators table in the PAD without any measurable indicator attached to them or any way of assessing the extent to which achievements might be attributed to the project\. There are no indicators of the quality and reliability of power supply, or of the independence or predictability of regulation\. Except for (with hindsight, highly unrealistic) assumptions of a 26 percent annual increase in 14 According to the ICR, the transmission company was aiming for IS0 14001 certification,but the IEG mission was informed that IS0 9000, which they have obtained, is considered adequate for the purpose of environmental impact analysis\. agricultural, and a 10 percent annual increase in non-agricultural, tariffs, the PAD contains little quantified discussion of tariff policy and there are no tariff-related performance indicators\. Implementation 4\.2 The weakness of M&E design reflects in part insufficient baseline data\. These were impossible to define at appraisal due to the unbundling of the sector, and it was agreed in negotiations that they would be finalized during the first few months of implementation\. In the event, it took almost two years for the distribution companies to collect the information since data could only be made available through boundary metering15which was installed by the companies following their creation\. As time went on, the timeliness and quality of the data collections improved\. Additional indicators were added at the Mid Term Review (MTR)\. 4\.3 Although the ICR contains some usefkl statistics on the implementation of distribution and transmission improvements, as well as on the sector's financial performance, its log-frame makes little further use of the data collected\. The latter contains four development objective indicators and one intermediate indicator, reflecting the model in the PAD\. All are general and largely non-quantified\. Further research by IEG was, therefore, undertaken to determine State-wide progress of such key indicators as number of customers, percentage of coverage, quality of service and regulatory performance\. Utilization 4\.4 During project implementation, the data base of indicators for managerial and financial planning services gradually improved, although there was no electronic data base or management information system\. A consultancy contract for establishing such a data base and system was designed before project closure but implemented afterwards\. The system was ready for use by the end of 2007\. While it is being used for internal planning purposes within the transmission and distribution companies, including for decision-making concerning further system improvements, there is room for improvement in dissemination\. The quality of the websites of the State Energy Department and of the five power companies is variable\. The transmission company's site contains reasonably up-to-date technical and financial information\. The distribution companies' sites, by contrast, contain relatively little technical or financial data and the general information that is there is somewhat out-dated\. The Department's website contains little data after 2006\. 4\.5 The IEG mission was, nonetheless, provided with extensive information which not only shows that it exists but that it is available at least for internal utilization and planning purposes\. Overall, IEG rates the design, implementation and utilization of M&E as modest\. '' Boundary metering is provided to ensure an accurate measure of energy crossing the boundary between the jurisdiction of one Distribution Company and that of another\. This is required for accurate billing and for loss management and monitoring within each network\. 5\. Project Outcomes 5\.1 This Section reviews the outcomes of the project in accordance with its development objectives - (a) to support the ongoing power sector reform process in Rajasthan leading to higher sector efficiency and financial recovery; and (b) to improve power supply by removing the critical bottlenecks in the power distribution and transmission systems\. For greater clarity and ease of analysis, the sub-objective of higher sector efficiency is considered together with removing bottlenecks to improved power supply rather than with financial recovery\. These are closely connected and directly related to the physical investments and associated enhancements which the project supported\. The financial recovery objective is considered separately\. The overall assessment of the project outcome is given in Section 6 which discusses ratings\. Removal of Critical Power Supply Bottlenecks in Distribution and Transmission and Enhanced Sector Efficiency - Substantiallv Achieved Distribution 5\.2 The project was successful in assisting Rajasthan to address systemic bottlenecks and inefficiencies in the distribution system, which led to poor service quality for existing customers through overloading and impeded the expansion of the system for new consumers, notably in the rural areas\. These bottlenecks also contributed to substantial inefficiencies, especially high technical and non-technical system losses\. Specifically, the project supported the initial stages of the Feeder Renovation Program (FRP) and its associated metering plan, targeted especially to rural areas\. During the project's implementation period (2001-2006), a total of just under US$106 million was spent on the FRP (including metering), of which the project contributed US$67\.3 million, or about two-thirds\. Between project closure and March 3 1 2009, the State and the distribution companies went on to invest a further US$53 1 million on the program, reducing the project's share to just over 10 percent\. By that latter date, the FRP had reached 73 percent of the State target number of new rural feeders, while the number of villages benefitting had reached its target of 36,494\. Progress in the program's implementation is shown in Table 5\.1, while the project's direct contribution to distribution system investments is shown in Table 5\.2\. Table 5\.1: Rajasthan: Progress in Implementation of Feeder Renovation Program (FRP) Distribution No\. of small Aerial bundled cables Capital expenditure company transformers (ABC) utilized (km\.) on FRP (Rs\. millions) * Project closure Sources: 2006 data fiom ICR; other information fiom distribution companies\. 5\.3 The main focus of the project was in insulated aerial bunched cables (ABC) l 6 and in the rehabilitation and extension of the 33111 kilo-volt (kV) substations\. In all other distribution related items, it was directly responsible for less than 15 percent of the expansions (Table 5\.2)\. In IEG's view, however, the project's favorable impact on the program's development was much greater than might be suggested by its small share of the financing and of most of the physical investments\. It was the main source of funding for a pilot program in eight districts in which 100 of Rajasthan's worst feeders were located\. Prior to the pilot, the project had also financed the procurement and installation of meters on about 98 percent of Rajasthan's 8,400 11kV feeder lines\. This enabled the distribution companies to attribute losses and identify the worst feeders for the pilot program\. The pilot demonstrated that the "low-tension-less" approach could be successful\. It enabled the distribution companies to understand and resolve the numerous and complex technical problems involved, and the difficulties of managing the extensive FRP\.Based on the lessons fiom this experience, the three companies began to implement the FRP proper, starting with 1,125 feeders\. Most of these had been completed by project closure\. The project thus played a key role in justifying the concept of the FRP and laying the groundwork for the installation of the remaining 7,705 feeders\. l6 These make illegal consumer connection impractical - an important consideration, especially in remote rural areas\. Table 5\.2: Expansion and Enhancement of Rajasthan's Distribution Network and Related Facilities Financed by the Project and from All Sources During Project Implementation (2001-2006) Facility Unit Financed by Total Percentage the project expansion financed by the New and capacity- Numbers 583 augmented 3311 1 kilo- volt (kV)substations Mega-volt 814 amperes (MVA) 33 kV lines Kilometers 580 33 kV ca~acitator banks MVA 175 11/04 kV substations Numbers 13,800 11 kV lines Kilometers 5\.950 Low tension lines Kilometers 2,950 Meters Numbers 51 1,100 Aerial-bunched cables Kilometers 10\.000 Source: Distribution companies 5\.4 The ICR anticipated that the costs per feeder of the expanded program would be lower than those of the initial phases given that the distribution companies renovated the worst feeders early on\. This diminishing unit cost has not yet materialized - the cost per feeder of the first 1,145 feeders was Rs\.4\.25 million while the subsequent 5,327 feeders cost Rs\.4\.59 million each (although this does represent a small decrease in real terms)\. The ICR, however, also noted that construction standards need to be improved if the FRP is to produce sustained results\. The IEG mission was informed that higher standards are now being applied, and this may account for part of the unanticipated higher unit costs\. 5\.5 The project financed a major portion of the inter-company boundary metering which was completed during implementation\. The original target of 750,000 electronic static meters was well exceeded, and nearly 4\.5 million had been installed by project closure\. The expansion of metering has continued since, especially in the rural areas, where an additional 1\.2 million were installed between 2006 and 2009\. 5\.6 The implementation of the feeder renovation and metering programs had already resulted in a 30 percent drop in average distribution losses, a 30 percent increase in billed energy, and a reduction in the rate of transformer burn-outs of 10 percent or more by project closure\. The financial return on the FRP is, therefore, substantial\. The ICR calculated, and IEG confirms, that the capital and operating expenditures in the first phase of the program would be paid back within a maximum period of 3\.5 years\.  5\.7 While these results are encouraging, distribution losses, at 26\.8 percent, remain high by international, if not by Indian, standards17\. Transmission 5\.8 Rajasthan has accomplished a major reinforcement and expansion of its transmission system since 2001\. The growth in &e extra high voltage (EHV) network is particularly impressive (Table 5\.3)\. Table 5\.3: Growth in the EHV Network of Rajasthan's Transmission Company Since 2001 Facility Unit As on As on As on 3/31/01 3/31/07 5/31/09 400 kilo-volt (kV) Kilometers 287 620 1,358 lines 400 kV substations Number 1 4 4 400 kV capacity Megavolt-amperes 1,065 2,955 2,955 (MVA) 220 kV lines Kilometers 6,353 8,418 9,420 220 kV substations Number 39 54 65 220 kV capacity MVA 7,255 10,405 12,155 132 kV lines Kilometers 9,94 1 12,017 12,853 132 kV substations Number 175 259 28 1 132 kV capacity MVA 7,420 11,830 14,469 Source: Transmission Company 5\.9 Although transmission was the largest component of the project (US$148\.2 million out of US$221\.3 million), it financed only a small proportion of Rajasthan's total program (Table 5\.4)\. The main focus of the project was on the rehabilitation and extension of the 220 kV and 132 kV substations where it funded 3 1\.3 percent and 45\.3 percent of the improvements\. However, IEG shares the transmission company's view that the benefits of the project were, once again, more than the share of financing would imply\. The high standards of the procured materials and construction work served as a model for the company's main expansion program, and a great deal was learned about procurement and asset management as a result of the experience of working with the Bank\. 17 In 2007, the latest year for which comparative data is available, Rajasthan's losses of 30\.1 percent were lower than the 35\.3 percent Indian national average of States which had carried out sector unbundling reforms\. The averages for the other reforming States which had received Bank support were: Maharashtra 39\.5 percent, Andhra Pradesh 18\.6 percent, Haryana 3 1\.6 percent, Orissa 39\.6 percent, and Uttar Pradesh 45\.5 percent\. Table 5\.4: Expansion of Rajasthan's Transmission Networks Financed by the Project and from All Sources during Project Implementation (2001-2006) Facility Unit Financed by Total Percentage the project expansion financed by the project 220 kV lines Kilometers 49 1,790 2\.7 220 kV substations Number 800 2,550 3 1\.3 and extensions 22 kV capacity Mega-volt 100 1,450 6\.9 amperes (MVA) 132 kV lines Kilometers 272 1,536 17\.7 132 kV substations Number 586 1,295 45\.3 and extensions 132 kV capacity I MVA 1 275 1 1,800 1 15\.3 Source: ICR and Transmission Company\. Overall Sector Outcomes 5\.10 Since project approval, Rajasthan's power sector has seen considerable expansion and improvement, though key challenges - notably power shortages and acute financial weakness -- remain\. An overview is given in Table 5\.5\. The main outcomes of the investments in improved transmission and distribution have been (i) improved voltage levels (27 percent since 2001); (ii) reduced transmission losses (24 percent down); reduced distribution losses (30 percent down), increased net availability of power (plus 65 percent), thereby providing a more reliable and higher quality service to a consumer population which has risen by 47 percent\. Also noteworthy are the 58 percent increase in installed capacity (Table 5\.4) and the quadrupling of energy sales\. Table 5\.5: Rajasthan: Installed Generating Capacity (MW) A\. By Source of Supply 2001 Percent 2009 Percent Percentage increase 2001- I I I 2009 -- I -\. State generating company 1 1,302 1 32\.1 2,382 1 37\.1 1 82\.9 Total 1 4,056 1 100\.0 1 6,426 1 100\.0 1 58\.4 B\. By Source of Power Thermal 2,598 64\.1 3,837 59\.7 47\.7 Hydro 1,116 27\.5 1,394 21\.7 24\.9 Nuclear 342 8\.4 469 7\.3 37\.1 RES n\.a\. 0\.0 726 11\.3 n\.a\. Total 4,056 100\.0 6,426 100\.0 58\.4 Sources: PAD and Rajasthan Department of Energy\.  5\.1 1 Despite these improvements, Rajasthan still faces a serious demandlsupply imbalance\. Peak demand has risen by 72 percent since 2001, while over the same period per capita electricity consumption more than trebled from 302 kwh to 932 kwh per year\. Between 2001 and 2006, net availability kept pace with peak demand, but since 2006, the latter has outstripped the former by 5 percent\. The persistent imbalance is principally attributable to (i) higher than anticipated demand growth; (ii) continuing high distribution losses especially in rural locations; (iii) reduction in hydro output due to climatic factors; and (iv) the long time required to bring new generation capacity, whether public or private, on stream\. The imbalance has two main negative consequences\. First, while load shedding has considerably diminished since the early years of this decade, it still occurs, especially in periods of maximum demand just before the monsoon\. The distribution companies no longer have scheduled blackouts\. Although, in one sense, this indicates an improvement, commercial and industrial consumers complain that the unscheduled interruptions to power supply which now occur are more damaging for their operations\. Second, Rajasthan's power utilities are forced to purchase increasingly expensive energy from India's interstate wholesale market\. ' Table 5\.6: Rajasthan: Growth in Electricity Infrastructure, Demand and Supply 2001-2009 Financial year FYOl FY06 FY09 Number of consumers 5,601,438 6,721,5 13 8,257,866 Number of agricultural and rural consumers 2,012,274 2,670,841 3,044,922 Percentage rural and agricultural 35\.9 39\.7 36\.9 Peak demand (MW) 3,547 4,822 6,101 Net ilistalled capacity (MW) 4,056 5,453 6,426 Gross energy availability (MU) 22,498 35,496 78,350 Energy sales (MU) 13,923 21,682 52,695 Net energy availability (MU) 23,580 3 1,803 38,871 High tensionllow tension ratio 0\.86 0\.95 1\.09 Distribution losses (%I 38\.1 40\.2 26\.8 Transmission losses within State (%) 5\.8" 4\.6 4\.4 Kutir Jyoti connections (number)** 124,034 259,248 789,758 Peak deficit (%) -1\.2 -13\.2 -12\.7*** Enernv deficit (%) O -1 \. -3\.7 -3\.1*** Notes: * FY02 ** Kutir Jyoti is a Central Government financed program supporting the connection of rural households who live below the poverty line\. In April 2005, it was subsumed under the Rajiv Gandhi Grameen Vidyutikaran Yojana (RGGVY) rural electrification program\. *** FY08 (FY09 data unavailable)\. Sources: GOR Department of Energy, power sector companies\. Financial Recovery of the Power Sector - Negligiblv Achieved 5\.12 The project objective of financial recovery has not been achieved\. After a period in which it appeared - as reported in the ICR - that financial losses were starting to come down, they exploded once again fiom FY07 onwards to higher levels than ever (Table 5\.6)\. In FY09, the annual deficit of Rs\.45\.8 billion (about US$1 billion) amounted to 2\.5 percent of the State's GDP, while the accumulated loss of Rs\.190\.7 billion (US$4\.2 billion) was equivalent to Rs\.3,376 (US$73) for every Rajasthani, or roughly 10 percent of avera e annual income\. This is the highest deficit ever recorded for the State's power sector\.F8 Table 5\.7: Rajasthan: Financial Losses of the Distribution Companies Since Unbundling (Rs\. millions) Financial As per As per FinRP of As per FinRP of Actual Accumulated year PAD August, 2003 November, 2005 Actual Losses 200 1 12,480 8,200 8,200 8,200 8,200 2002 10,130 12,910 12,190 12,190 20,390 2003 5,730 15,880 15,830 15,830 36,220 2004 1,710 15,170 17,330 17,330 53,550 2005 -230 9,700 23,230 20,140 73,690 2006 -240 8,500 15,300 16,290 89,980 2007 -250 2,390 12,050 17,410 107,390 2008 -270 n\.a\. 7,420 37,510 144,900 2009 -300 n\.a\. 5,570 45,820 190,720 2010 -330 n\.a\. -240 n\.a\. n\.a\. 201 1 n\.a\. n\.a\. -2,310 n\.a\. n\.a\. 2012 n\.a\. n\.a\. -6,820 n\.a\. n\.a\. Notes: I \. FinRP = Financial Restructuring Plan 2\. Negative$gures indicate surplus 3\. Losses are before subsidy 4\. ActualJiguresfor FY08 and FY09 have still to be audited and are, therefore, provisional\. Sources: ICR and distribution companies\. 5\.13 For greater clarity, it is useful to divide discussion of the sector's ongoing financial weakness into two periods - project implementation between 200 1 and 2006, and the period since project closure in mid 2006\. According to the financial restructuring plan (FinRP) contained in the PAD," and described in that document as "conservative," the distribution '*The financial losses are focused on the distribution companies\. The tariffs between the transmission company and the generating sources (whether in or out of State) are regulated in a way which allows both roughly to break even\. Only the distributing companies are not permitted to pass on their higher costs to the consumer\. l9 This was based on a FinRP prepared and approved by the GOR in March, 2000\. The plan provided for a clean-up of RSEB's balance sheet, offset cross debts between the GOR and RSEB, and canceled remaining debts, thereby liberating the five companies created through the unbundling fiom any debt overhang\. companies were to break even in 2004 and be rapidly privatized\. These expectations were predicated on (i) real tariff increases for agricultural consumers of 26 percent per year and for other consumers of 10 percent per year for the period 200 1-2004; (ii) a rapid decline in distribution losses, which were to reach 22 percent by FY07; and (iii) financial support from the GOR in the form of a one-time restructuring grant of Rs\.3 1\.1 billion, plus a further Rs\. 24\.5 billion in ongoing subsidies during the transition period\. 5\.14 In fact, none of these conditions materialized\. There was some improvement in non- agricultural consumer tariffs, which were increased by 13\.6 percent in FY02 and by a further 10 percent in FY05 (Table 5\.7)\. However, this fell far short of what had been expected at appraisal\. Agricultural tariffs, which apply to almost 40 percent of the State's total number of consumers, rose gradually from an average of about Rs\.0\.55 per unit in the late 1980s to about Rs\.0\.95 (roughly two US cents) per unit after a final adjustment in December 2004, since when they have not been increased\. During project implementation, Rajasthan was struck by a series of droughts or poor monsoons\. Together with low ground water, these substantially increased farmers' power needs by requiring both greater pump capacity and more irrigation to save crops\. The GOR reacted to the drought with (i) a rapid, and previously unplanned, expansion in the number of heavily subsidized agricultural connections; (ii) additional hours of below-cost power for all connected rural consumers in order to save crops; and (iii) a directive to the distribution companies after December 2004, to base collections on the previous rather than the revised tariff for a period pending the determination of additional subsidies\. In addition, intensified anti-theft and stronger policing measures, which were meant to accompany the technical improvements to the distribution system, were not applied\. It should, however, be noted that the drought was not the cause of the continued financial difficulties faced by Rajasthan's power sector; rather, it aggravated the consequences of a policy stance favoring heavy subsidies for agricultural consumers that existed, and continues to exist, independently of it\.2oThe political leverage exercised by the farming community in Rajasthan is extremely important, particularly by the richer farmers who use more electricity and who are the principal beneficiaries of State power subsidies\. The political difficulties in adhering to a more rigorous tariff policy were exacerbated by the practice in neighboring States of providing free power to rural consumers\. 20Project Appraisal Document; interviews with Distribution Company and GOR officials The average costs of delivering power to rural consumers was about Rs\.7 per unit in FY09, while the average tariff was about Rs\.0\.95\. The actual subsidy disbursed falls far short of filling this gap (see paragraph 5\.20 below)\. Table 5\.8: Rajasthan: Average Non-Agricultural Consumer Electricity Tariff Adjustments (percent) Financial Foreseen in Foreseen in FinRP, Foressen in FinRP, Actual year PAD August, 2003 November, 2005 2001 10 0 0 0 2002 10 13\.6 13\.6 13\.6 2005 2 12 10\.2 10\.2 2006 2 5 0 0 2007 3 8 0 0 2008 n\.a\. n\.a\. 0 0 2009 n\.a\. n\.a\. 0 0 2010 n\.a\. n\.a\. 8 n\.a\. 201 1 n\.a\. n\.a\. 0 n\.a\. 2012 n\.a n\.a\. 0 n\.a\. Sources: PAD, ICR and distribution companies\. 5\.15 Distribution losses, rather than improving, in fact worsened during the first years of project implementation, and peaked at 42\.6 percent in FY03 (Table 5\.8)\. Moreover, the finances of the distribution companies were adversely affected by the increasing tendency of industrial consumers, whose distribution losses were minimal, to invest in their own captive generation in response to the unreliability and increasing cost of publicly-provided power\. Regarding the financial support from the State, this also failed to materialize to the extent required\. The consequences of Rajasthan's fiscal weakness were, in fact, foreseen in the PAD\. Unlike the Governments of several other reforming States, the GOR did not have the capacity to shoulder the major part of the costs of transition towards creditworthiness, and had little room for rescheduling debt and payables\. Given the gap between the requirements of the sector during the first six years of project implementation, and the financial capacity of the Government, it was clear that "the financial viability of the [FinRP] hinged upon new investments by private shareholders in the distribution business" (PAD, p\. 20)\. Table 5\.9: Rajasthan: Transmission (T) and Distribution (D) Losses (percent) Financial T&D losses as T&D losses as Distribution losses as Actual year foreseen in foreseen in 2003 foreseen in 2005 distribution PAD FinRP FinRP losses 200 1 40\.6 42\.0 n\.a\. 37\.2 2002 38\.2 39\.5 n\.a\. 40\.0 2003 35\.7 40\.9 n\.a\. 42\.6 2010 n\.a\. n\.a\. 23\.9 n\.a\. 201 1 n\.a\. n\.a\. 21\.6 n\.a\. 2012 n\.a\. n\.a\. 20\.0 n\.a\. Note: ActualJigures for FY08 and FY09 are provisional\. Sources: PAD, ICR, transmission and distribution companies 5\.16 It soon became apparent that the FinRP approved at appraisal was unrealistic\. A new plan was approved by the GOR in August, 2003\. It envisaged a break-even point by FY07, and hinged upon (i) a reduction in distribution losses to 28 percent by FY07; (ii) increasing the agricultural tariff to 50 percent of the cost of supply (i\.e\. to roughly Rs\.2\.5 per unit at the time); (iii) non-agricultural tariff increases of 12 percent, 5 percent and 8 percent in FY05, FY06 and FY07 respectively; (iv) annual financial support of Rs\.4 billion fiom the GOR plus allowing the distribution companies to retain the sales tax on electricity through FY 12; and (v) allowing the generation and transmission companies to break even through FY05 and to earn a return thereafter\. 5\.17 The preconditions for the success of this FinRP were not met\. Agricultural tariffs were not increased, while non-agricultural tariffs rose by only 10\.2 percent\. Distribution losses remained stubbornly high at over 40 percent in both FY04 and FY05\. Accordingly, the FinRP was further revised by the GOR in November, 2005\. This time, the emphasis was switched fiom tariff increases (in particular, no augmentation of agricultural tariffs was assumed) to enhanced efficiency and reduction of technical and non-technical losses\. The plan foresaw a sector break-even point in 20 12 with substantial improvement already apparent in FY09\. No further revisions have been made, and this plan remains theoretically under implementation\. Developments since Project Closure 5\.18 The ICR, which was issued in January 2007, states that, while the financial state of the sector is still unhealthy, the 2005 FinRP was being implemented and that the deficit was beginning to fall\. Indeed, the FY05 shortfall was less than that foreseen in the FinRP, and the FY06 loss, which fell by about 20 percent to Rs\. 16\.3 billion, only slightly more\. As noted, however, the respite was short-lived - losses rose again in FY07 before soaring to unprecedented levels in FY08 and FY09\. 5\.19 The major reason why the sector's financial situation has deteriorated so markedly in the three years following project closure is the increased cost of power purchased by the distribution companies which they have been unable to pass on to consumers\. Between FY07 and FY09, the average power purchase cost fiom all sources rose by 3 1 percent from Rs\.3\.53 to Rs\.4\.63 per unit\. According to the companies' management, this alone accounts for nearly three-quarters of the Rs\.83 billion increase in the accumulated deficit during the three years ending in March, 2009\. Much of the rest is the rising commercial debt servicing burden, which almost tripled to Rs\. 16 billion over the same period\. 5\.20 The increased cost of power reflects a combination of factors\. First, due to climatic conditions, Rajasthan has been forced to rely less on its installed hydro capacity and more on relatively expensive thermal and renewable energy source (RES) power\. The shares of each source in 2001 and 2009 are shown in Table 5\.5\. However, the figures in the table show theoretical capacity; because of drought conditions actual take-off from the hydro stations has been considerably less\. Second, the demandlsupply imbalance, especially at the peak, has increased markedly since FY06\. This has forced Rajasthan to purchase power on the Indian wholesale market at prices that have been driven up by the general power shortage in the country\. At times of national peak demand, which coincide roughly with maximum demand periods in the State, the ruling price has been as high as Rs\. 15 per unit, and has averaged Rs\.8 per unit over the past two years\. According to the State's Energy Department, as much as 5 percent of total power consumption has to be acquired in this way\. Third, much of the increased generating capacity within the State that was foreseen in the Tenth National Development Plan (2002-2007) failed to materialize due to perception of high financial and regulatory risks, delays in bidding procedures and obtaining clearances, and slow implementation\. This is important because, while the cost of purchase fi-om in-State generating facilities has also increased, it is, at about Rs\.2\.7 per unit in 2009, only 60 percent of the overall average unit costs incurred by the distribution companies\. 5\.21 Distribution losses, while improving, are still high by international standards and continue to impact negatively on distribution company finances\. This is especially so in rural areas\. In most urban zones, losses are at or below 15 percent, indicating an average loss for rural consumers of between 40 and 45 percent\. Nonetheless, the improvements due to the FRP have benefited the distribution companies substantially - without them, accumulated losses would be at least Rs\.40 billion higher according to company management\. 5\.22 There is a significant fiscal dimension to the power sector's financial crisis\. In each of the FinRPs, the GOR was supposed to grant subsidies to the distribution companies to compensate them for inadequate tariff adjustments and to help them finance the transition to commercial viability\. At first, the support was provided in a timely manner\. However, since the onset of the drought in 2002, the Government proved unable to sustain its payments in full\. From FY02, the accumulated shortfall in subsidy payments rose fiom Rs\.6\.9 billion to Rs\.55\.2 billion in FY06\. According to sector and GOR sources, it had reached about Rs\.80 billion by the end of FY09\. This is entered in the distribution companies' balance sheets as "receivables" and is an asset\. In fact, there is no possibility of the GOR ever being able to pay this debt\. Experience in other States (for example, Gujarat, Haryana, Madhya Pradesh, Uttar Pradesh) suggests that if the debt were to be written off as a one-time loss, this would not adversely affect the utilities' ability to raise commercial funds\. 5\.23 In the short-to-medium term, there would seem to be little realistic perspective of a financial turnaround for the sector, and the objectives of the 2005-2012 FinRP are virtually unattainable\. Given India's growth prospects and electric power requirements, it would seem unlikely that energy costs will fall significantly nationwide\. As for tariffs, the massive subsidization of agriculture electricity consumers is a fundamental national issue which remains to be addressed\. In Rajasthan, it was a major topic of debate in the recent General and State Elections; the newly elected Chief Minister declared in June 2009, that agricultural tariffs would not be raised during his five-year term of office\. Other Project Outcomes 5\.24 The project pursued a number of other objectives, which were to reinforce the two primary ones - strengthening of the regulatory function, further liberalization and commercialization of the power market, improved financial management of the utility companies, and increased private sector participation in distribution\. Outcomes have been mixed\. 5\.25 Regulation\. On the one hand, the RERC, which was established by an Act of the State's Parliament in 1998, has been strengthened\. IEG confirms that it is fully-staffed and functional\. The staff display good technical proficiency and there have been, to date, relatively few losses of key professionals\. The Commission has autonomy of funding and manages its own budget\. Its deliberations are complex and lengthy and involve public hearings\. It has a good website\. In these respects, the TA provided under the project has been fruitful\. On the other hand, the RERC's ability to regulate the sector is in question\. Its credibility has been undermined by four years without any consumer tariff adjustments and of mounting losses by the distribution companies\. Adjustments have not been recommended, or even considered, by the Regulator, because the companies have been instructed by the political authorities not to file tariff increase requests\. A further issue concerns the membership of the Commission\. The 1998 Act establishes three Members - a Chairman, a Technical Member, and a Finance Member\. All three offices have been simultaneously occupied relatively rarely\. For several years consecutively there were two Commissioners at a time, and occasionally only one\. Even when all three are in office, as of June 2009, questions are raised concerning the degree of independence enjoyed by the RERC\. 5\.26 Liberalization of the power market\. In 2005, the RERC issued regulations permitting open access and trading in electricity, making Rajasthan the first State in India to introduce this liberalizing measure\. In 2006, after the Government of India notified a change in tariff policy under the provisions of the 2003 Electricity Act, the RERC specified surcharge and wheeling charges21for open access transactions\. It has also established transmission charges (currently Rs\.0\.26 per kilowatt-hour) to facilitate transactions through the power exchange\. 2'A wheeling charge is an amount charged by one electrical system to transmit the energy of, and for, another system or systems\. The intention is for consumers to benefit by enabling them to buy fiom whomever and wherever they wish\. However, the opportunity has been used mainly by owners of captive generating plants selling surplus power, and few consumers have yet sought to purchase power from outside the grid\. The reasons are the costs and restrictions attached to open access: (i) a surcharge22must be paid on power not purchased fiom a distribution company; (ii) bill paying becomes considerably more complex and difficult to understand\. Instead of the simple, uniform, unit charge from the distribution companies, consumers purchasing power from elsewhere are supplied in blocks of fifteen minutes\. Any consumption over and above what is scheduled would be charged at the marginal price currently ruling in the wholesale market\. Most companies would need to hire specialized staff to manage this complex scheduling and billing process; (iii) all power acquired must be for own use and cannot be resold;23(iv) most consumers in urban areas are satisfied with their current arrangements to purchase from the distributing companies whose service quality has improved in recent years; and (v) even were a customer dissatisfied with such arrangements, shelhe would need to have a fairly large undertaking to support the costs of open access, and would likely prefer in such circumstances to acquire captive plant, any surplus from which could then be sold under the legislation\. The fact that open access legislation has benefited only captive plant owners, all of whom sell to the highest bidder inside or outside the State, has caused some controversy at times of power shortage in Rajasthan\. 5\.27 Financial management of thepower utilities\. Partly thanks to the TA provided under the project and partly to the informal interchange with Bank staff during supervision missions, the transmission and distribution companies have notably improved the quality of their financial management\. Recruitment of qualified professional staff helped the companies to cope with the transition fiom the Electricity Board system to corporate accounting\. Incremental improvements continued throughout project implementation and, as a result, annual financial statements, asset registers, cost records, trust accounts etc\. are produced and audited in a timely fashion\. Real efforts have been made to follow audit recommendations\. While some key financial decisions relating to debt management24remain centralized, most accounting functions have now been decentralized\. Individual companies have autonomy concerning investments, borrowings, and expenditures\. Nevertheless, IEG's assessment indicates further room for improvement\. Public access to audited accounts is de facto limited - the latest set of full accounts available on line is for FY03\. The accuracy of some of the non-financial data published (for example, on the number of villages benefiting from the rural electrification program) is viewed with skepticism by private sector and NGO observers\. As noted in paragraph 3\.17, a study of the social and economic impact of the reform program has not yet been carried out\. Finally, while there has been a great improvement in the collection and use of financial and technical data for M&E purposes, the 22 The surcharge was fixed at Rs\.0\.91 per kilowatt-hour in 2007 but has been reduced by 20 percent each year thereafter to stand at Rs\.0\.36 in FY2010\. Access charges are published on the RERC website\. 23 Purchasers are prohibited fiom constructing any distribution facilities, though they may possess their own dedicated line for receiving the power they have bought\. 24 The debts of the RSEB were very costly to service\. Since unbundling, about Rs\. 76 billion worth have been successfully rescheduled leading to savings of about Rs\.6\.5 billion\. Enterprise Resource Package, which was stated in the ICR to be under preparation, has not yet been completed, still less applied\. 5\.28 An important dimension of the financial management of utilities is the efficiency of bill collection\. Rajasthan has traditionally had a good collections record, especially by Indian standards - the RSEB's average during the three years preceding unbundling was allegedly 95 percent, though distribution company officials question the reliability of these figures\. The collection efficiency of the distribution companies was adversely affected from FY03 through FY06 (Table 5\.9) because (i) the GOR decided in November 2002, in view of the drought, to defer collection of minimum charges from agricultural consumers; (ii) agricultural consumers were billed at the revised tariff (in accordance with the tariff order of December 2004), but collections continued to be based on the previous tariff pending a review of agricultural tariffs and subsidies by a GOR committee; and (iii) non-payment by local and municipal authorities in rural areas\. These issues were resolved from FY07 onwards\. Table 5\.10: Rajasthan: Collection Efficiency of the Distribution Companies Company Average FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY99- FYOl RSEB 95 Ajmer 101\.5 98\.2 96\.5 96\.4 94\.0 100\.0 98\.0 97\.0 Jaipur 99\.5 99\.6 99\.4 98\.6 97\.4 99\.0 99\.0 99\.0 Jodhpur 98\.8 97\.9 96\.3 95\.0 93\.8 100\.0 97\.0 97\.0 All 95 100\.1 98\.6 97\.6 96\.9 95\.3 99\.0 99\.0 98\.0 companies Notes: 1\. Figures for FY09 are provisional Sources: PAD, ICR and distribution companies 5\.29 Private Participation in Distribution\. The suppression of the covenant of a majority stake for strategic investors in the distribution sub-sector by 2002 was partly justified by the fact that progress had been made in introducing private participation in distribution in other ways, notably through the outsourcing of billing and collection, and the introduction of franchising in the rural areas\. Billing has been entirely outsourced as has collection in most urban locations\. This has, indeed, been successful as the degree of collection efficiency indicates\. Any implication that this is largely attributable to the project is, however, erroneous\. Outsourcing in urban areas was already very widespread under the RSEB before project implementation began, as the following quotation from the PAD indicates: "Billing is computerized and carried out by private firms under contract to RSEB\. Collections are also carried out by outside agencies for the majority of urban locations" (page 57)\. 5\.30 There is now a major question mark over the fbture of the policy to encourage franchising in rural areas\. Very little interest has been expressed for a number of reasons: (i) few entities possess, or can afford to acquire, the necessary expertise; (ii) collection of utility bills in rural locations is difficult, time consuming and, at times, physically hazardous; and  25 (iii) franchising terms in Rajasthan are unattractive, especially given the risks involved\. The franchisee is paid a fixed sum for collecting the revenues which accrue to the distribution companies25\.A target loss level is usually built into the contract, with bonuses and penalties attached to lower and higher losses respectively\. There is a risk that the penalty would exceed the fee\. The distribution companies and the GOR are exploring other possibilities, including giving responsibility for billing and collection to village councils\.26 6\. Ratings Relevance of Objectives and Design Objectives 6\.1 The project's development objectives - improved power supply trough removal of critical transmission and distribution bottlenecks; enhanced sector efficiency; and financial recovery - were, and remain, substantially relevant\. They are consistent with the aims of the GOR's Policy Statement of 1999 which laid out the power sector reform program as an essential precondition for the achievement of fiscal sustainability\. They are also'highly relevant to the 1998 CAS goals of reducing infrastructure bottlenecks by promoting power sector reform, involving independent and technically competent regulation, operation of commercially viable utilities in a competitive market, and creation of an enabling environment for private investment in the sector\. These concerns were continued in the 2004 CAS, with others added to which the project is also highly relevant - in particular, reform of power distribution as the first priority for improving the commercial performance and financial viability of the power sector\. The latest CAS - covering the 2009-2012 period - aims to create a well-regulated but competitive enabling environment, enhancing private sector participation in infrastructure development\. However, as noted below, development objectives were too broad and ambitious given the realities of the political background in which the project would be implemented\. Project outcomes were determined by factors over which neither the Bank nor its client exercised any control\. Design 6\.2 Design relevance is rated as modest\. While design was of a good technical standard, and focused on the sector's principal technical, institutional and financial constraints, it was over-optimistic in terms of what could be achieved within the framework, and with the leverage, of a single investment project\. The covenanted objective of offering a majority 25 This is different fiom the fianchising model in operation in other Indian States under which the franchisee takes over the management of distribution assets for a designated time in an earmarked zone under a lease arrangement\. Most zones chosen are those combining high consumption levels with high aggregate technical and commercial losses\. 26Under Indian law, since 2007, fianchising is mandatory for rural electrification schemes under the RGGVY (see Table 5\.4)\. Franchisees could be NGOs, users' associations, cooperatives or individual entrepreneurs\. private sector stake in the distribution companies to private investors by July 2002 was especially unrealistic\. Two key risks -- a severe, prolonged drought and rising power purchase costs -- were not taken into account at all\. Others, such as the strength of resistance to tariff increases, were under-estimated\. Overall relevance of objectives and design is rated as modest since, in IEG's view, the adverse consequences of design shortcomings outweigh the substantial relevance of the project's objectives\. Efficacy 6\.3 Improvements in transmission and distribution have enabled increased power supply at a higher quality to a considerably larger number of customers\. Efficiency improvements, while significant, have been less impressive\. Although distribution losses have been reduced, they remain, at just over 26 percent, high by international standards\. Billing and collection efficiency have been slightly enhanced, but were already at a satisfactory level before the project began\. A serious demandlsupply balance persists, particularly during peak periods\. The regulatory function, while technically satisfactory, is institutionally weak and subject to political interference\. Taken together, the objectives of improving power supply through removal of critical transmission and distribution system and enhancing sector efficiency have been achieved to a substantial extent\. 6\.4 Financial recovery has been negligible, and continued financial weakness threatens to undermine the gains fiom system investments\. With hindsight, it is clear that it should never have been included as a PDO, and there was certainly a strong case for dropping it through a restructuring at the MTR stage, since, by then, the experiences of similar projects in other Indian States were becoming clear\. As an investment operation, with the limited and realistic objective of improving the availability, efficiency and accountability of electricity supply in Rajasthan through strengthening the transmission and distribution systems, the RPSRP would have succeeded since this objective has been substantially achieved\. As it is, the overall efficacy must be rated as modest\. Efficiency 6\.5 The ERR for the investments financed by the project is estimated at closure to be 22 percent (39 percent for the distribution component and 18 percent for the transmission component)\. These rates are somewhat lower than the overall ERR of 35 percent calculated in the PAD, but remain well in excess of the estimated 12% opportunity cost of capital\. The ERR is, moreover, based on a conservative value of Rs\.2\.5 for each unit saved through loss reduction\. However, the ICR and the PAD are not measuring the same things\. The rate of return in the PAD refers to the sector wide reform program and State-wide investments in improved transmission and distribution\. For the ICR, it was felt, justifiably, that a State-wide analysis would have limited comparative meaning since there had been so many changes in the power supply scenario - in particular, many large industrial consumers had moved fiom the grid to captive power while successive droughts caused the utilities to provide more hours of supply to agriculture\. The high level of economic efficiency must be set against the failure to achieve financial equilibrium\. Overall, efficiency is rated as substantial\. Overall Rating 6\.6 With relevance and efficacy rated modest, and efficiency substantial, IEG's overall rating is moderately unsatisfactory\. The sector's financial weakness threatens to undermine \. the project's important technical achievements\. Risks to Development Outcome 6\.7 The main risks to the positive outcomes of the project - enhanced transmission and distribution systems - stem from the financial precariousness of the sector, and in particular of the distribution companies\. On a technical level, the utilities are demonstrating their ability to manage the transmission enhancement and the FRP together with the corresponding assets\. At closure, the transmission and distribution companies provided the Bank with their detailed plans for operation and maintenance of the Bank-funded plant and equipment along with that funded from their own resources\. These plans were judged to be satisfactory\. However, the high financial losses of recent years pose a question mark over the ability to fund adequate maintenance and supplementary investment, even though the losses have not, to date, caused a significant slowdown in FRP implementation\. 6\.8 The key condition for longer-term sustainability is the financial turnaround of the sector\. As noted in paragraph 5\.19 of this report, there is little realistic prospect for this in the short-to-medium term since it depends, inter alia, on reducing power purchase costs through substantial investments in new generation and on a resolution of the agricultural tariff issue\. Prospects are not, however, entirely negative\. In Rajasthan it is unlikely that there will be backtracking on the unbundling and other institutional changes already achieved, or on the determination to complete the FRP successfully\. There is, moreover, an ambitious investment program in new generation facilities within the At a national level, the momentum of power sector reform is being sustained, albeit at a slower pace than originally envisaged, and there are indications that States will be encouraged and assisted in the continuation of their restructuring programs\. Overall, the risks to development outcome are assessed as signwcant\. Bank Performance 6\.9 The project was not reviewed by the World Bank's Quality Assurance Group prior to approval\. The ICR team judged it moderately satisfactory at entry\. In IEG's view, however, Quality-At-Entry is rated as moderately unsatisfactory\. On the one hand, the PAD contained a thorough and useful diagnosis of the technical and institutional issues facing the power 27 For the 11' Five Year Plan Period, ending in 2012, it is anticipated that the net installed generating capacity of the State will increase by 4,260 MW or by 66\.4 percent\. 3,570 MW of this are to be within the State and 690 MW from central allocation\. With the exception of 440 MW of nuclear power, all this will be thermal\. Of the in-State additional capacity, 2,490 MW will be in the public sector and 1,080 MW in the private sector\. Previous experience has shown similar plans to be over-ambitious and subject to considerable delays\. However, all of the total increase in capacity is said to be "under construction\." sector in the wake of unbundling\. The technical solutions it proposed, as reflected in the investment components of the project, were well designed\. Implementation arrangements, though complex, were appropriate\. The PAD acknowledged that sector reform would be a long term process, and envisaged a series of Bank operations to support it, totaling some ~\. US$1 billion, and continuing beyond 2 0 0 6 ~This perception did not, however, impede an over-ambitious design\. Project-financed investments affected directly only about ten percent of the State's distribution and transmission investments during the implementation period\. The project goals of sector-wide loss reductions and a financial turnaround sufficient to attract private investors were thus out of proportion to the leverage offered by the Bank loan\. The goal of offering strategic investors a majority stake in the distribution companies by the end of 2002 was especially unrealistic, and the relevant covenant was dropped during implementation\. The PAD suggests that the reforming zeal in Rajasthan was such that the Bank's relatively small financial leverage would be inconsequential\. Nonetheless, even with unwavering political will, the targets were likely to take very considerably longer to achieve than the time foreseen for the project's implementation\. 6\.10 The political economy of the State of Rajasthan was misread; too much weight was placed upon the ability of sector reformers to achieve what they promised and intended, while too little attention was paid to the immense political power wielded by the State's richer and larger farmers, and to the nationwide adherence to heavily subsidized agriculture\. Insufficient account was taken of national and international trends in the power sector -- by the time the project was prepared, fast-track reform of the power sector in India was already running into serious trouble, and the country had reverted to a more gradual approach\. Monitoring and evaluation design was inadequate even by the standards of the time\. 6\.1 1 The PAD also underestimated, or failed to take into account, significant risks to the project's outcome, which in the event materialized\. One key risk, that of a severe drought, and the reaction of the State Authorities to it, was not addressed at appraisal\. This risk was, nonetheless, highly pertinent\.29Others, such as the strength of resistance to tariff increases and the weakening of the political will to continue with the reforms, were rated as "substantial" while, in retrospect, they were clearly high\. The risk that the regulatory agency would not allow sufficient tariff increases was classified as "moderate;" this overestimated the regulator's de facto independence\. The need for parallel economic reforms, especially with regard to State fiscal policy, and possible Bank support for them, was discussed in the PAD, indeed it was a lesson learned from other projects, but its absence was not a risk that was clearly identified in the risk matrix\. 28 These did not materialize because Rajasthan financed the bulk of transmission and distribution investments fi-om its own resources (including commercial borrowing), while, in generation, the State is relying principally on thermal projects for which it would have been difficult to obtain World Bank financing\. 29 A drought increases demand for groundwater-based irrigation and hence for electricity to power the pumps\. At the same time, water availability for hydro-generationis reduced, so that power production costs rise\. The financial consequences for the power sector were exacerbated still further by the State Government's reaction to the drought, including the decision not to raise rural sector electricity tariffs (see paragraph 5\.13 below of this report)\. Supervision 6\.12 With four utilities as implementing agencies and a very large number of procurements, this was a complex and difficult operation to supervise\. With regard to the technical components, the Bank did a good job of supporting the agencies, and in particular the distribution companies, with implementation\. Although most of the innovations used in the FRP were known to the client, this knowledge was largely theoretical\. Not only were the project-financed pilot feeders and metering a model for the client-executed extension of the program, but the companies informed IEG that the informal advice of Bank staff during supervision missions was extremely useful\. Monitoring of the financial dimensions was less impressive\. While the failure to achieve financial turnaround could not reasonably have been tackled at the level of regular supervision missions, given its complex political economy dimensions, more consistently realistic ratings of development objective (DO) achievements would have been useful\. Of the ten Implementation and Status Results reports (ISRs) through November 2005, eight rate DO progress as Satisfactory\. The two exceptions are in late 2002 and late 2004, when it became evident that financial recovery was not being achieved\. These exceptions were just before the preparation of the two revised FinRPs; after the new plans were put in place, ratings reverted to Satisfactory\. Only in the last two ISRs, of April and June 2006, is DO progress assessed as Moderately Satisfactory, the same rating that was given for outcomes in the ICR\. Finally, as noted in paragraph 5\.29 above, an opportunity for restructuring and simplifLing the project at the MTR was missed\. Supervision is rated as moderately satisfactory and overall Bank performance as moderately unsatisfactory\. Borrower Performance 6\.13 The GOR performed well at the preparation stage, and took bold steps to restructure the State's power sector\. Its later failure to sustain the reform momentum must be seen in the broader political context of India-wide power-supply subsidies to agriculture, the onset of the drought, the strength of the large farmer lobby in Rajasthan, and the policy of neighboring States to supply agriculture with fiee power\. Without addressing national political economy issues, it would have been unrealistic to expect the GOR to have acted differently\. IEG rates government performance as moderately unsatisfactory\. 6\.14 The transmission and distribution companies did a good job, not only in implementing the project-financed investments, but in continuing their enhancement and expansion programs after project closure\. They have also built up significant new capacity in both financial and technical fields including asset management and procurement\. There is still room for improvement, notably in areas like M&E and public disclosure, but management is aware of these shortcomings\. The distribution companies cannot be blamed for failure to file timely requests for tariff adjustments since they were ordered to desist by the political authorities\. Implementing agency performance was satisfactory\. Overall, IEG rates Borrower performance as moderately satisfactory\. 7\. Lessons BOX 1 Selected Lessons from Power Sector Restructuring in Four Indian States Learning the Lessons Subsidized power supply to agriculture is a deeper public policy issue and not a from Similar Projects mere sectoral issue\. The problem of subsidized power supply to agriculture and resistance to metering is embedded in distorted agricultural policies and political economy factors\. Both the Bank and India have to recognize that sustainable 7\.1 The RPSRP was not an improvement in power sector requires addressing this complex economic and political problem stemming from the agriculture sector\. National consensus of the isolated exercise: it was the political parties is necessary for a meaningful solution\. While there is growing latest in a series of five Bank awareness and recognition of this issue, the progress is likely to remain modest in the next few years\. (Andhra Pradesh ICR) projects supporting State level power sector restructuring (see Financial restructuring of the power utilities is akin to a bankruptcy proceeding where burden sharing by various stakeholders is required\. The GOAP provided paragraph 2\.4 above)\. The PAD substantial support for financial restructuring, but the support from financiers and (page 6) states that: "The project suppliers of power (central PSUs) was delayed\. It was only recently in 2003 that the GO1 finalized a securitizationscheme to restructure the overdue liabilities of has been designed drawing from the state power companies to reinforce reforms\. Until the full cost recovery the lessons learnt from through tariffs is achieved by the utilities, timely and full payment of subsidy support by the state government will be important to ensure adequate cash flow implementation of similar for the utilities to enable them to operate and maintain the power system\. (Andhra programs in India (Orissa, Pradesh ICR)\. Haryana, Andhra Pradesh and The financial crisis of the power sector is so deep and the reforms initiated by Uttar Pradesh) and in other Haryana so comprehensive (and disruptive) that it would be difficult (if not impossible) to capture, over the initial two or three years of a reform program, and countries, adapted to local through standard financial covenants (profitability and financial performance of realities\." This statement raises the utilities) any meaningful improvements\. (Haryana ICR) an important issue concerning The scope and nature of reforms pursued under a loan should be consistent with the extent to which, or at least the lending instrument and firmly grounded in a realistic appreciation of the Bank's relative leverage in a given situation\. This operation was an investment the speed with which, the Bank loan in which, by definition, disbursements were determined by contract does in fact learn from negative implementation and as such, ill-suited to serve as drivers of a contentious and challenging reform program\. Reform expectations in this case were unrealistically experiences in other projects\. high given the relatively short period of project implementation and even more so With regard to worldwide relative to the Bank's limited contribution to the utility's overall investment program\. (Uttar Pradesh ICR) trends, a World Bank Board Discussion paper3' notes that: Government should provide financial support for the subsidies made necessary by its policies\. In particular, the subsidies of favored groups of consumers should be "Following the post- 1997 sufficient to avoid creating pressures to increase cross-subsidies from other downturn in private investment, consumers (Box 14: "Lessons from Orissa" from Besant-Jones op\. cit\., page 53)\. reforming countries have experienced particular difficulty in attracting and retaining private investors to their distribution businesses\." Concerning the other four projects in India, the outcomes of three of them were rated as Unsatisfactory by their respective ICRs (table 1\.1 of this report) mainly because of failure to carry out the necessary reforms needed to turn sector finances around and attract and retain private investors\. 7\.2 It could be argued that at the time of project preparation, in 1999 and 2000, the fill extent of the world wide aversion to private investment in power distribution in developing countries was not yet apparent\. Moreover, none of the other four similar State power sector restructuring projects in India had yet closed\. The latest information available to the RPSRP 30 "Reforming Power Markets in Developing Countries: What Have We Learned," by John E\. Besant-Jones, Energy and Mining Sector Board Discussion Paper No\. 19, September, 2006\. The quotation is on page 48\. appraisal team on the status of these projects was in the Supervision Reports which indicated, in all cases, a much more favorable situation than that which was later to prevail at closure31\. 7\.3 The same cannot be said regarding the knowledge available to the RPSRP's supervision team at the time of the MTR held in June, 2004\. By then, international trends were clear, three of the four State restructuring projects had closed, and the other was to close within six months\. Lessons fiom their implementation (Box 1) were available\. From these lessons, and from experience to date with the RSPRP itself, it was clear that achievement of financial recovery was beyond the reach of the project and even highly unlikely to be achieved over a longer time period (say, by 2012)\. Indeed, with hindsight, it should not have been included as a PDO in the first place\. In Rajasthan, as in the other four States, the preconditions were not present\. These include (i) a nationwide resolution of the issue of power subsidies to the agricultural sector; (ii) a willingness by various stakeholders to share the financial burden; (iii) sufficient fiscal strength on the part of the State government to ensure full and timely payment of subsidies; (iv) recognition that financial recovery is a long term process; and (v) consistency between the reform goals and the Bank lending instrument supporting them\. Opportunity could have been taken at the MTR to restructure the project and remove the objective\. It is true that such a restructuring would have required Board approval, and this might have been difficult to obtain based on the experience of this project alone\. Backed, however, with the lessons fiom the other four projects, a much stronger case could have been made\. Lessons from the Design and Implementation of the RPSRP A thorough analysis should be made of the political economy of the reform program to be supported by the project, at both State and national levels\. This should be done not only through extensive consultations at both a local and national level, but also through a realistic appraisal of national policies - such as those determining power subsidies to agriculture - which will impact on project outcomes\. These should be addressed at the level of country policy dialogue\. A careful assessment of international trends in power sector private investment in developing countries should also be part of the exercise\. 31The latest Supervision (SPN) Development Objective ratings available at the time of appraisal of the Rajasthan project and the ICR ratings at closure were as follows: SpN - ICR Orissa PSRP S U Haryana PSRP S U Andhra Pradesh PSRP S S Uttar Pradesh PSRP S U Risks to project outcome should be carefdly analyzed and taken into account\. In particular, attention should be paid to climatic hazards and to subsidy regimes in other States and their likely impact on the political viability of proposed reforms\. Covenanted objectives should reflect a more realistic judgment of the leverage accorded by investment projects on complex policy issues, and of factors outside the control of the project\. In India, the recent appraisal of a new proposed operation in Haryana indicates that this lesson has been learned\. More systematic monitoring of experience in other, similar projects (particularly in the same country) would have helped to avoid the repetition of over-ambitious design apparent in the five State power sector restructuring operations in India\. Even though convincing evidence may not have been fully available at the preparation stage, the opportunity should have been taken during implementation to restructure and simplify the project when justified\. Such monitoring would facilitate a clearer and more objective assessment of Development Objectives during supervision missions\. It is noteworthy that in the case of all five State power sector restructuring projects in India, ISRs continued to rate DO progress as satisfactory when it must already have been obvious that certain objectives were highly unlikely to be attained\. These "satisfactory" assessments were all that was available to the team preparing the Rajasthan project\. Annex A\. Basic Data Sheet Key Project Data (amounts in US$ million) Appraisal Actual or Actual as % of estimate current estimate appraisal estimate Total project costs Loan amount Cofinancing Cancellation Project Dates Original Actual Initiating memorandum 02/26/1997 0212611997 Negotiations 04/05/2000 11/27/2000 Board approval 07/04/2000 01/18/2001 Signing 02/28/2001 Effectiveness 03/12/200 1 03/12/2001 Closing date 06/30/2005 06/30/2006 Staff Inputs (staff weeks) Staff Time and Cost (Bank Budget only) Staff Time and Cost No\. of staff weeks I USD Thousands (including Stage of Project Cycle I travel and consultant costs) Lending FY95 91\.46 FY96 120\.81 FY97 102\.15 FY98 89\.01 FY99 60\.82 FYOO 164\.45 FYOl 111\.04 FY02 0\.00 FY03 0\.00 FY04 0\.00 FY05 0\.00 FY06 0\.00 FY07 0\.00 Total: 739\.74 SupervisionflCR FY95 FY96 FY97 FY98 FY99 FYOO FYOl FY02 FY03 FY04 FY05 FY06 FY07 Total 205 Mission Data Name Title Unit Responsibility/pecial@ Lending Syed I\. Ahmed Lead Counsel LEGMS Sarneer Akbar Sr\. Environmental SASES Spec\. Mohammed Hasan Senior Social SASES - Development Spec Sunil Kumar Khosla Sr\. Energy Spec\. SASEI Magdalena V\. Manzo Sr\. Operations Off\. TFO Lucio Monari Lead Energy LCSEG Economist Kari J\. Nyrnan Lead Specialist ECSSD Judith K\. Plummer Sr\. Financial Analyst SASEI Natarajan Raman Consultant SASEI Supriya Sen Sr\. Financial Analyst SASEI Sameer Shukla Sr\. Energy Spec\. ECSSD Rajesh Sinha Sr\. Financial Analyst SASEI Anthony E\. Sparkes Consultant SASEI SupewisionnCR Sr\. Procurement Spec\. SARPS Sushi1 Kumar Bah Sr\. Financial Manoj Jain Management SARFM Specialist Manvinder Mamak Sr\. Financial SARFM Management Specialist Rohit Mittal Financial Analyst SASE1 Judith K\. Plummer Sr \. Financial Analyst SASE1 Anthony E\. Sparkes Consultant SASE1

REVIEW

P062790

 ICRR 12936 Report Number : ICRR12936 IEG ICR Review Independent Evaluation Group 1\. Project Data: Date Posted : 08/28/2008 PROJ ID : P062790 Appraisal Actual Project Name : Bo Inst Ref (old Civ S) Project Costs (US$M): US$M ): $72 $73 Country : Bolivia Loan/ US$M ): Loan /Credit (US$M): $32 $33 Sector Board : PS Cofinancing (US$M ): US$M): $40 $40 Sector (s): Central government administration (100%) Theme (s): Public expenditure financial management and procurement (29% - P) Administrative and civil service reform (29% - P) Other accountability/anti-corr uption (28% - P) Law reform (14% - S) L/C Number : C3245 Board Approval Date : 06/15/1999 Partners involved : Danida, Netherlands, Closing Date : 06/30/2005 05/30/2007 Japan, SIDA Evaluator : Panel Reviewer : Group Manager : Group : Robert J\. Anderson Jorge Garcia-Garcia James Sackey IEGCR 2\. Project Objectives and Components: a\. Objectives: The IRP was intended (PAD, Section A 2), to create the institutional framework for a modern public sector as well as building several model agencies \. This framework was, in turn, to improve the delivery of public services in terms of effectiveness, efficiency, quality and transparency in rector agencies and pilot agencies (PAD, Annex I, page 22)\. It was the first of a planned series of three APLs, anticipated to be implemented over a ten -year period to strengthen the country's ability to implement its economic and social development programs and thus combat poverty \. Expected outputs of the IRP per se (PAD, Section A 2), were, “at a minimumâ€?: (i) establishment of the legal and institutional foundation for a merit based and de -politicized civil service; (ii) creation of the regulatory and organizational framework for increased integrity within the public sector; and (iii) significant improvement of budgetary and financial management practices within the Ministry of Finance complemented by more transparent and effective tax collection by the Internal Revenue and Customs Services \. The PAD stated that additional outcomes might be achieved: “Within the limits of the Government's budgetary capacity to fund increased civil service pay as well as the advances in project implementation, these reforms would be extended to the other pilot agencies\." : As stated in the PAD (Annex 4), the main benefits/outcomes expected to be derived by the project were : (i) improved public sector efficiency (speed and cost reductions ) and effectiveness (impact) in reformed public agencies; (ii) improved accountability through the development of a management by results systems and culture; (iii) increased transparency in management and visible reduction in corruption; and (iv) increased tax collections through improvements in tax administration\. b\.Were the project objectives/key associated outcome targets revised during implementation? No c\. Components (or Key Conditions in the case of DPLs, as appropriate): The operation, as appraised, included 5 components (PAD, Annex 1, pp\. 24-25 and Annex 2): Performance Evaluation\. This component supported the establishment and launch of a performance -oriented management and evaluation system in the Bolivian government \. Specific activities/outputs envisaged under this component included: (i) design of performance evaluation system (e\.g\., developing evaluation indicators, instruments for monitoring results, as well as the data -processing and follow-up system); (ii) adjusting the regulatory framework (i\.e\., technical assistance services required to adapt the regulatory framework as needed to establish and run the system); (iii) establishing results dissemination system; and (iv) strengthen the Performance Evaluation Unit \. The estimated total cost of this component was US$ 1\.8, of which US$1\.2 million was to be financed by the Bank \. National Integrity/Combating Corruption\. This component supported the development of prevention, education, and enforcement mechanisms with which to combat corrupt practices in public administration, as well as to instill ethical values and a spirit of public service in government employees \. Specific activities included: (i) establishment of the legislative framework for a civil service; (ii) system for income and asset statements; (iii) strengthening the Office of Ombudsperson and Public Ministry; (iv) modernization and simplification of procedures and public registries - cutting red tape; (v) procurement system reform; and (vi) citizen education campaign\. The estimated total cost of this component was US$5\.7 million, of which US$4\.0 million was to be financed by the Bank \. Civil Service\. This component supported (via technical assistance, equipment, and training ) the creation of a merit based and professional civil service for the central government in the following areas : (i) adaptation of the regulatory framework; (ii) establishment of civil service rector institutions; (iii) creation of a human resources registration system; and (iv) reform of training system\. The estimated total cost of this component was US$ 2\.4 million, of which US$1\.7 million was to be financed by the Bank \. Organizational Reform\. This component financed restructuring and capacity building - encompassing technical assistance, training, information technology, and support for salaries in seven pilot agencies - to establish results oriented agencies\. Specific activities envisaged included : (i) setting up change management units; (ii) organizational diagnoses; (iii) implementation of Financial Administration And Control (SAFCO) systems; (iv) implementation of medium term budget framework and budgeting by results; (v) financing of civil service positions; (vi) evaluation of institutional performance; and (vii) within revenue agencies, increased taxpayer assistance, modification of tax code, improved audit and information systems \. The estimated total cost of this component was US$ 59\.3 million, of which US$23\.2 million was to be financed by the Bank \. Reform Management: (i) project coordinating unit; and (ii) evaluation of results\. The estimated total cost of this component was US$2\.9 million, of which US$1\.8 million was to be financed by the Bank \. IRP established seven performance triggers for moving from the first phase (supported by the IRP) to the second phase (to be supported by a second Bank operation ) of the institutional reform program (PAD, Section B 4): (i) full operation in 5 pilot agencies of integrated financial management system, cash management and internal audit procedures, and information system; (ii) use of budgeting by results and medium term budget framework in 5 pilot agencies; (iii) full operation in all pilot agencies of civil service system with at least 60 percent of their professional staff incorporated into the new regime; and the Treasury fully meeting its share of additional salary costs; (iv) National Integrity Plan operating in pilot and regulatory agencies indicated by functioning of Asset and Income Declaration system, forensic audit system functioning in Comptroller General's Office, and three major bureaucratic procedures revised to reduce average service delivery time by 50 percent; (v) performance evaluation system functioning indicated by publication of annual National Evaluation Reports; (vi) results oriented agencies indicated, in at least five agencies, by : restructuring and staff adjustments completed under ARIs (Organizational Reform Agreements); agencies managing the hiring, promotion, pay, and evaluation of their human resources; performance oriented management and evaluation systems operating; and 20 percent improvement in at least three of five critical performance indicators (identified during preparation of ARIs ) measuring service delivery in each agency; and (vii) revenue collection in 2003 from Internal Revenue and Customs at 8\.7 percent and 6\.4 percent of GDP respectively (which targets were subsequently revised downward reflecting revisions of baseline revenue values )\. d\. Comments on Project Cost, Financing, Borrower Contribution, and Dates:  IRP estimated costs (US$72 million) accounted for about 42 percent of overall estimated cost of the planned ten-year, three-phase institutional reform program ($172 million)\. Planned financing for the IRP at appraisal envisaged an IDA contribution of US$ 32 million, a Government contribution of US$21 million, and cofinancing from Japan (PHRD), Denmark, and Germany of US$19 million\. Project expenditures were predominantly local currency, the largest component of which was to cover expenditures for civil service members salaries \. At project closing (May 31, 2007, 23 months later than envisaged at appraisal - see below), total costs were equivalent to about US$73 million, or which Bank financing accounted for about US$ 33 million\. Cofinancing was different than envisaged at appraisal, with Denmark providing about US$ 14 million, Sweden about US$9 million, and the Netherlands about US$18 million\. No data are provided in the ICR concerning the Government's contribution to support of the project\. No final data are presented on project expenditures by component, although data are presented on incremental salary support (approximately US$46 million, of which US$25 million was provided by the Bank) associated with accession of government employees to the civil service system \. Project implementation encountered difficulties from the beginning \. Effectiveness, which was contingent upon enactment of a civil service statute, was delayed by about six months \. Six different presidential administrations served during the time of implementation of the project, with attendant differences in views and approaches to institutional reform, and shakeups in government personnel and organization \. The government office designated to provide high-level management of the project and the organizational location of the project coordinating unit in charge of the day-to-day project management changed several times during the life of the project \. Implementation was overall slow, and "episodic"\. During the course of the project, a number of amendments were made to the DCA to modify the component structure of the project, reallocate funds, modify some procurement provisions, and extend closing dates \. In January 2005, funds were reallocated among components to reduce funding for consultants by SDR 8 million and increase funding for civil service salaries by about SDR 8\.4 million to accelerate the incorporation of government employees into the civil service (ICR, paragraph 24)\. In August 2005, an amendment cancelled the Performance Evaluation and Combating Corruption Components\. The former was cancelled on the grounds that the political turmoil afflicting Bolivia precluded achievement of the objectives envisaged by this component \. The Combating Corruption component was cancelled when other donors undertook to finance this component \. The closing date of the project was extended on two occasions \. In June of 2005, a nine month extension (to March 31, 2006) was granted to permit the then Government to complete a number of activities \. In March of 2006, a thirteen month extension (to May 30, 2007) was granted to permit the then (and current) Government to evaluate the reforms implemented with the project and to define its own institutional reform program \. 3\. Relevance of Objectives & Design: The broad objectives of this operation and the longer term institutional reform program that it initiated were highly relevant within the contexts of Bolivia ’s development program at the time of project appraisal and the Bank ’s analysis of development constraints facing Bolivia, then and now \. These objectives, however, were substantially less relevant - particularly in terms of their realism - in the context of the chronically unstable political and social environment that has long characterized Bolivia, and the acute social and political turmoil that dominated the Bolivian development landscape during much of the implementation of this project \. The strategic design of the operation conformed with the Government's (at appraisal) strategy for public sector reform and was well-linked to project objectives \. That design, however, presupposed substantial progress in improvement of public expenditure management under other projects in implementation - which did not materialize as envisaged\. The use of a programmatic instrument was appropriate in view of the relatively long horizons needed for institutional reform and the inherent risks and uncertainties, although in retrospect significantly less effective in maintaining Government commitment to reform across administrations than was judged by the Bank at appraisal \. Risks were generally well-identified by category at appraisal (the possible failure of complementary initiatives to improve public expenditure management, and possible weak growth were two exceptions ) but grossly underestimated in probability, and not effectively mitigated by the design of the operation \. The Government in power at the time of project closing has adopted a fundamentally different strategy for public sector reform, which rendered the strategy embodied in IRP design substantially less relevant \. 4\. Achievement of Objectives (Efficacy): Overall, the IRP did not achieve its stated development objective of creating the institutional framework for a modern public sector\. While some components of this framework were advanced (e\.g\., the creation of a legal and regulatory framework for a civil service ), less progress was made on others (e\.g\., systems to support results -based public sector management) and the project for the most part did not achieve its expected project outcomes (Section 2a)\. Triggers for completion of the first phase of the institutional reform program (PAD, pp 10-11) were, for the most part, not met\. With regard to the achievement of anticipated project outcomes : (i) Improved public sector efficiency and effectiveness in reformed agencies \. Three pilot agencies under the project receiving intensive support for comprehensive reforms (Internal Revenue, Customs, and Roads ) improved their performance, measured in terms of revenue collections (Internal Revenue and Customs) and road construction and maintenance vis a vis pre -project baseline indicators, with some adjustment (in the case of revenue collections ) for other factors\. There is no evidence of improvement in other pilot agencies receiving support under the project – 18 in all\. Twelve of these supported limited reform activities - primarily the establishment of a civil service \. Progress was made on these agreements although the data presented in the ICR are unclear with respect to the degree of accomplishment\. Three other pilot agencies receiving support for comprehensive reform (Ministry of Education, Ministry of Housing and Basic Services, and Ministry of Agriculture and Rural Development ) dropped out of the program, which the ICR rates as a major shortcoming in this element of the program, although some personnel in these agencies apparently were incorporated into the civil service system \. (ii) Improved accountability through the development of a management –by-results systems and culture \. Although elements of a performance evaluation system were developed, these were not linked with budget management systems – which themselves were inadequately developed to support the IRP \. The main component of the IRP providing support for activities to achieve this outcome was cancelled at the request of the Government due to its inability to commit to undertaking or achieving results -based management in the tumultuous Bolivian environment of the time\. (iii) Increased transparency in management and visible reduction in corruption \. Activities that IRP supported to promote this outcome (e\.g\., institution of a civil service system, institution of income and assets declarations, strengthening of the Office of the Ombudsperson, etc ), achieved little in transforming systems and processes, changing incentives to reduce corruption, or simplify processes and improve service delivery \. Efforts to institutionalize these activities foundered as successive governments adopted different approaches and organizational structures for promoting public sector integrity \. The IRP component most directly linked to this outcome was cancelled at the request of the Government, which decided to pursue these objectives with alternative funding\. (iv) Increased tax collections through improvements in tax administration \. This outcome was achieved and, the ICR argues, is attributable at least in part to IRP project support \. The specifics of the analysis that leads to this conclusion, however, are not entirely clear (see Sections 5 and 15 of this Review)\. Some of the achievements noted above with respect to the specialized agencies and operation of the civil service system had been eroded by the time of preparation of the ICR \. 5\. Efficiency (not applicable to DPLs): The ICR presents an analysis which suggests that, attempting to control for other factors, incremental customs and tax collections over the life of the project attributable at least in part to the project more than offset the costs of the project\. The analysis is not clearly presented however and Figure 9 of the ICR, which presents a graph that purports to show the effect of the reforms on the overall fiscal balance, indicates several years in which without reform balances would have been higher \. No estimate of a fiscal financial rate of return is presented, however \. No analysis is presented of the economic costs of the resources withdrawn from the private sector economy via increased tax collections, or the economic benefits of any incremental public expenditures "caused" by the project\. ERR )/Financial Rate of Return (FRR) a\. If available, enter the Economic Rate of Return (ERR) FRR ) at appraisal and the re- re -estimated value at evaluation : Rate Available? Point Value Coverage/Scope* Appraisal No ICR estimate No * Refers to percent of total project cost for which ERR/FRR was calculated\. 6\. Outcome: While there were clear areas of achievement as noted above, there were major shortcomings with regard to the achievement of three of the four expected outcomes \. The contribution of the project to public sector performance was considerably less than indicated in the PAD – affecting only 3 of 18 pilot agencies, and 3 of 6 receiving comprehensive support\. The Government gave up – wisely and necessarily given the extreme turmoil of the time - on trying to develop management–by-results systems and cultures \. While some systems were initiated which could have increased transparency and reduced corruption, there is no evidence of better outcomes in this area \. Expected revenue increase outcomes were achieved and the support provided by the IRP appears to have contributed to it \. Taken together, while progress was made in some dimensions (e\.g\. civil service, performance of some pilot agencies), many pilot reform agencies failed to show any improvement in performance and Bolivia fell considerably short of creating an institutional framework (including systems to support and a culture of results based management, and transparency) for a modern public sector on which subsequent phases of a program of reform could be built \. The gap between outcomes delivered at project closing and outcomes anticipated at appraisal was primarily due to the excessive optimism embodied in the latter \. a\. Outcome Rating : Unsatisfactory 7\. Rationale for Risk to Development Outcome Rating: Bolivia continues to be susceptible to political and social turmoil, with fundamental issues looming (e\.g\., formulation and adoption of a new constitution ) on which consensus has not been reached and on which consensus may not be possible\. The current Government's approach to institutional reform is fundamentally different from that embodied in the IRP, and thus its commitment to sustaining IRP achievements is tenuous \. Some achievements (e\.g\., the application of transparent selection procedures for selection of key personnel for Internal Revenue, Customs, and Roads), according to the ICR, have been reversed \. a\. Risk to Development Outcome Rating : High 8\. Assessment of Bank Performance: The ICR notes a number of significant shortcomings in Bank performance at various points during the project cycle (e\.g, lack of political economic analysis underpinning project design and appraisal – paragraph 64; lack of marketing to explain/get buy in to project objectives – paragraph 65; dependence of project on other projects without a fall-back – paragraph 67; inadequate design and implementation of project M&E – paragraph 80; failure to modify indicators during project implementation to reflect evolving project architecture )\. Overall, the design of the operation was ambitious - unrealistically so in view of Bolivia's history and political and social milieu at the time of project appraisal\. Supervision was flexible and responsive, although possibly - in hindsight - more generous in its ratings than it might have been at some points (e\.g\., in its ratings of Implementation Progress prior to 2003 and in its ratings of Development Objectives prior to 2003 and during 2005-06, when the ICR notes there were indications that IRP Development Objectives were not Government priorities )\. Supervision improved considerably with the posting of the TM for this project to the Country Office, and is reflected in improved project implementation during 2005-06\. Ultimately, however, there was nothing the Bank could have done during implementation that could have overcome the effects of the tumult afflicting Bolivia during much of the project period\. at-Entry :Unsatisfactory a\. Ensuring Quality -at- b\. Quality of Supervision :Moderately Satisfactory c\. Overall Bank Performance :Moderately Unsatisfactory 9\. Assessment of Borrower Performance: The Government was largely immobilized by social and political conflict during much of the project implementation period and unable to carry through with implementation of a program of public sector institutional reform\. Implementing agencies (the Project Coordinating Unit and pilot agencies undertaking organizational reform) was mixed, with generally satisfactory performance of the Project Coordinating Unit (several disruptive organizational moves notwithstanding ) and customs, tax, and roads pilot agencies, but unsatisfactory performance in most other pilots\. The implementing agency did not/was not able to provide inputs into the ICR \. Overall borrower performance was largely the consequence of the political and social problems facing Bolivia and its successive governments during this period \. a\. Government Performance :Highly Unsatisfactory b\. Implementing Agency Performance :Moderately Satisfactory  c\. Overall Borrower Performance :Unsatisfactory 10\. M&E Design, Implementation, & Utilization: The logical framework M&E indicators design set forth in the PAD reflected degree of attainment of project development objectives, but provided little or no information relevant to strategic management of the project (i\.e\., relevant to identification of the corrective steps necessary ) to achieve targeted outcomes, and did not evolve as the content of the project shifted (ICR, paragraph 36)\. Implementation of M&E was uneven but overall inadequate \. No baselines are available for a number of selected indicators, and where baselines were available, some turned out to require substantial revision (ICR, paragraph 35)\. No provision was made for tracking status of some indicators \. (See also, ICR, paragraph 80)\. a\. M&E Quality Rating : Negligible 11\. Other Issues (Safeguards, Fiduciary, Unintended Positive and Negative Impacts): No fiduciary issues arose during project implementation \. However, the Government did not, as noted in the ICR, meet its obligation under the credit agreement to provide the Bank with a final report \. 12\. Ratings : 12\. ICR IEG Review Reason for Disagreement /Comments Outcome : Moderately Unsatisfactory IEG concurs that IRP provided a Unsatisfactory number of outputs intended to enable broad institutional reform (e\.g\., establishment of a legal and regulatory framework for a professional civil service, processes to promote institutional integrity, etc), and that Bank supported/ contributed to progress in institutional reform in three pilot agencies\. IEG further concurs that these achievements compare favorably with those of institutional reform projects in other countries, and were accomplished in an unusually difficult environment for institutional reform\. However, these achievements also fall significantly short of stated development objectives and targeted outcomes – as is acknowledged by the ICR\. IEG rates achievements and outcomes with regard to stated objectives; other factors such as other countries’ experiences and the environment for project implementation are treated by IEG as explanatory factors and do not directly modulate outcome ratings\. Risk to Development High High Outcome : Bank Performance : Moderately Moderately The ICR notes a number of serious Satisfactory Unsatisfactory shortcomings in Bank performance at design/appraisal and implementation (see Section 8 above) Borrower Performance : Moderately Unsatisfactory While implementing agencies Unsatisfactory performed reasonably well, overall Government performance was  impacted negatively and severely by the extreme political and social turbulence of the period\. Quality of ICR : Satisfactory NOTES: NOTES - When insufficient information is provided by the Bank for IEG to arrive at a clear rating, IEG will downgrade the relevant ratings as warranted beginning July 1, 2006\. - The "Reason for Disagreement/Comments" column could cross-reference other sections of the ICR Review, as appropriate \. 13\. Lessons: The ICR contains an unusually thoughtful, analytical retrospective on implementation of the project and possible implications for future support of institutional reform in Bolivia and elsewhere \. In addition to lessons drawn, the analysis presents both findings of analysis and raises a number of issues for further consideration \. The key lessons for possible Bank support of public sector institutional reform in Bolivia from IEG ’s perspective and with which IEG concurs are stated in the ICR (paragraph 82 d)\. These set forth the following criteria – based on the Bank’s experience under IRP – for future Bank support\. Of these, 5 stand out for their resonance with the lessons of IEG evaluations of instances of effective support in other countries in political or social turmoil : (i) Reforms should be narrowly defined, in order to avoid the dissipation of efforts; (ii) Champions for each area or agency under reforms should be identified and take the leadership of reform; (iii) Selected areas or agencies of reform should provide quick gains, visible results in the short term; (iv) Preferably these gains should be linked to services delivered to the public; (v) Areas or agencies selected for reform should be isolated (e\.g\., by selection of “consensusâ€? targets – although such may be nonexistent if all parties pursue a “gridlockâ€? strategy) so that external political events do not affect their objectives or achievements \. 14\. Assessment Recommended? Yes No 15\. Comments on Quality of ICR: The ICR presents a candid, thoughtful recounting and analysis of the design and implementation of this project \. A notable strength is the effort made to understand why – including the incentives at play - some project outcomes were not satisfactory while some success was achieved with regard to others, and in particular, dimensions in which Bank performance could have been improved (ICR, paragraphs 64 – 81)\. The ICR is exemplary in this respect \. The weakest points are the lack of specific factual data on the project (e\.g\., project cost and financing – ICR, Annex 1), more recent data (i\.e\., post-2004) on project indicators, some lack of clarity in presentation (e\.g\., some lapses in editing, the presentation of the fiscal impact analysis ), and most seriously, the absence of contributions (which were solicited by the Bank but not submitted ) by the Government and by other donor partners (ICR, paragraphs 83-84)\. These inputs could have provided further insights as to the Bank ’s contribution to outcomes in the areas addressed by the project and as to how project design and implementation might have been improved – including more drastic restructuring – to achieve better results in a difficult environment \. Notwithstanding these shortcomings, the ICR is among the best of the satisfactory class in view of its strong critical self -analytical content\. a\.Quality of ICR Rating : Satisfactory

REVIEW